Sitting of 16 March 2005

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

Schools: Disabled Pupils
Baroness Wilkinsasked Her Majesty's Government:
What views the Department for Education and Skills has expressed on the implementation of the proposed duty on schools to promote equality of opportunity for disabled children.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Lord Filkin): My Lords, I am pleased to confirm that we very much support the proposed general duty to promote equality of opportunity for disabled people and we are keen for schools to play their full part.
Baroness Wilkins: My Lords, is the Minister aware of the acute concern among leading disability organisations that the Government have not included schools in a key part of the specific new public sector duties under the Disability Discrimination Act? Does he not agree that those specific duties, which require key bodies to draw up disability equality schemes and to monitor and report on their progress, would provide an important framework which would greatly help schools to fulfil their statutory responsibilities? For example, there is no requirement to monitor the present accessibility plans. Last year's Ofsted report showed that fewer than half of schools had those plans, which should have been in place two years ago.
What justification can there be for any delay in setting out specific public sector duties when there is clear evidence that the existing policy and legislative framework are ineffective in tackling the profound inequality of disabled children, which leads to a lifetime of social exclusion?
Lord Filkin: My Lords, as my good friend the Chancellor of the Exchequer said recently, we are committed to giving every child the best possible start in life. Those are not mere words. We are thinking carefully about whether it is appropriate at this time to place further specific duties on schools. That decision will be made later because such decisions are reached when regulations are made under the Act rather than now.
In coming to such an assessment, we shall be looking at the legal obligations that are currently on schools and the force of those obligations. We shall consider the accountability and performance of schools and how those are going to be strengthened as we roll out Every Child Matters, joint area reviews and Ofsted improved inspections, and how the Secretary of State has powers
1326
to report on how the whole system is working. The third area we shall consider in making the decision is whether there are other levers to reinforce those changes—for example, through building schools for the future. We are putting massive investment into primary and secondary schools, and we shall make it an obligation on all schools to meet disability standards as part of that massive increase in funding.
Baroness Morris of Bolton: My Lords, during the passage of the Disability Discrimination Bill in this House, the noble Baroness, Lady Hollis, mentioned that the Government were creating a resource hank to help schools to make adjustments to their policies and practice to prevent discrimination against disabled pupils. Can the Minister provide us with an update of how that scheme is progressing and when it is likely to be operational?
Lord Filkin: My Lords, the preparations for it are going well. They are part of a wide range of preparations for supporting what schools do in practice. That touches directly on the question of what schools will find most helpful in accelerating their performance so as to achieve better outcomes for disabled children. By that, I mean: do they simply require the production of another plan or do they need effective actions of the kind mentioned by the noble Baroness, Lady Morris, to show them how to do it in practice and tougher accountability through Ofsted joint area reviews relating to whether they have succeeded or failed?
I am strongly interested in practical action that shows schools how to prevent such discrimination, and tough sanctions if they do not do so. There is a need for that action together with early interventions and early support; we also need to listen to children and their parents on the quality of support that they have in schools, to work with the DRC and children's charities, which I have committed to do this week, and to look at how between us we can push this agenda further and faster.
Lord Addington: My Lords, if there is not a specific duty in this area and we still find that children with disabilities are failing and not achieving their full potential, as they currently do, is the Minister effectively saying that there will be an increasing role for specialist and special schools because educational standards are the priority?
Lord Filkin: My Lords, I think that if the noble Lord unpacks his question, he will find that it is a non sequitur. The degree to which schools meet their existing duties under the Special Educational Needs and Disability Tribunal and their clear and strong duties under Every Child Matters are inspected through joint area reviews. We very much hope and expect that schools will accelerate the rate at which they improve. The question of the form of provision for children with disabilities—whether it should be in mainstream schools or special schools—is a completely separate issue which needs to be addressed

1327
with an open mind and non-doctrinally. There needs to be a radical challenge to both special schools and mainstream schools to improve their performance.
Lord Northbourne: My Lords—
Lord Ashley of Stoke: My Lords—
Noble Lords: Cross Bench!
Lord Northbourne: My Lords, am I right in saying that in many cases, although not so much in relation to physical disability, making provision for disability involves additional staff? Can the Minister give an assurance that extra funding will be available so that existing pupils will not be disadvantaged by funds being switched from them to fulfil these new obligations?
Lord Filkin: Yes, my Lords, that has been part of our policy to date and it will continue to be so. The funding operates at two levels. One concerns the overall increase in funding in the educational system, which is fundamental to raising standards. The second level concerns delegating more of that funding to schools so that they have the ability to shape a pattern of support for children—particularly disabled children. Schools can thus better meet the needs of children without in all cases thinking that they will obtain more provision only by going for a statement, which we know is not how the issue should be addressed. Therefore, it is a question of how that increased funding, the support referred to by the noble Baroness, Lady Morris, and the wider framework of accountability and pressure collectively raise the standards for disabled children—standards which we must achieve.
Lord Ashley of Stoke: My Lords, is my noble friend aware that it is up to him and his department to repair the damage caused by the failure to impose specific duties on schools, as discussed during the passage of the Disability Discrimination Bill, which went through the House of Commons and House of Lords a few weeks ago? That failure has caused the present problem. Some schools are bound to refuse to promote equality for disabled children and the children will suffer unless the policy is reversed, and reversed quickly.
Lord Filkin: My Lords, as always, I defer to the expertise of my noble friend Lord Ashley in this area. However, at the moment we have not made a decision one way or the other on this point. The decision will be made downstream, through regulations. The criteria that we will bear in mind when coming to a decision, and the fundamental test that I and my ministerial colleagues will use will be what will achieve the best outcomes for disabled children. We shall not shrink from that. We shall not shrink from being intellectually tough in doing that or in having the very strong dialogue that I intend to have with the Disability Rights Commission and the four
1328
children's charities to which I offered a strategic delivery partnership when I met them last week to improve outcomes for disabled children.
The Countess of Mar: My Lords, the Minister has spoken about early intervention. What progress is being made with local education authorities and schools concerning children with ME, where the boundary between them being sick and becoming disabled is affected by the way in which schools treat them? If those children are pushed too hard they will become disabled. What is being done about that and about home tuition for such children?
Lord Filkin: My Lords, I can speak generally about our experience on early intervention, but I am not up to date on the specifics concerning children with ME. I am keen to pursue that and I shall write to the noble Baroness on the subject. Our story on early intervention generally—we have now found ways of doing it through the Early Support programme—is that, by intervening early when a problem with a child is identified by the parent, one can make a relationship with the parent and transform the nature of the relationship between the parent and the school or the early-years setting. It is crucial that the input is felt earlier and that the parents feel that the state, at local and national level, is working with them rather than against them. I am sure that that general principle applies to children with ME. I look forward to exploring that with the noble Baroness.

Young Offenders: Accommodation and Support
2.44 p.m.
The Earl of Dundeeasked Her Majesty's Government:
What accommodation and support they provide for young people who, on release from custody, are unable to return to their families.
The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, youth offending teams work directly with housing authorities, social services, housing providers and voluntary groups to provide accommodation support packages. When a young person is unable to return to the family home, or it is not appropriate that he or she should return, there is support in the forms of foster care, supported lodgings, hostel places or foyer schemes which combine accommodation with training and educational opportunities.
The Earl of Dundee: My Lords, I thank the Minister for that reply. Does she accept that far better results will be achieved from the proper planning of support and accommodation at the beginning, rather than at the end, of sentences? Roughly 30 per cent of such planning does not take place until the day after release. Does she agree that current schemes should become

1329
much more sharply focused than they are to assist opportunities for jobs and training of ex-offenders as well as those for their accommodation?
Baroness Scotland of Asthal: My Lords, I do not accept that current planning is as the noble Earl suggests. However, I accept that early planning is certainly a very good thing. It is in line with the way in which the Government hope that these matters will be dealt with: a holistic approach that will, from the very beginning, look at the best way of reducing the level of reoffending by the offender. We certainly hope that that will be delivered through the new arrangements that we have through YOTs—youth offending teams—and the movement in relation to the National Offender Management Service provisions.
Lord Dholakia: My Lords, will the Minister look at the valuable work carried out by organisations such as the National Association for the Care and Resettlement of Offenders? I declare an interest in that I preside over a committee of that organisation. Will she ensure that there is no cut in the grant it receives as the valuable work it does on resettlement actually stops reoffending? I should point out that more than 65 per cent of offenders reoffend within two years of leaving prison.
Baroness Scotland of Asthal: My Lords, I certainly pay tribute to that work. I shall certainly look—indeed, officials have looked—at the care and resettlement of offenders. In answering the Question of the noble Earl, Lord Dundee, I should have made it clear that we also identify employment as an important issue. The noble Lord will know that I can say nothing about funding.
Lord Laming: My Lords, does the Minister agree that it is extraordinary that our society often expects the most in terms of resilience and resourcefulness from the young people who have the least? As many of them have been in local authority care, what steps are being taken to urge local authorities to be good parents to these young people?
Baroness Scotland of Asthal: My Lords, the noble Lord is absolutely right about the work that needs to be done. He will know that the work of the Youth Justice Board and the youth offender teams and the work we are doing with local authorities enable better planning to take place for those young people so that they have the appropriate level of care, attention and input to maximise the opportunities of their not returning to crime.
Lord Glenarthur: My Lords, can the noble Baroness say what proportion of those young offenders referred to in the Question have not taken up the opportunities that she has said are on offer? It would help all noble Lords to know to what extent the options are being taken up.
Baroness Scotland of Asthal: My Lords, if the noble Lord is referring to suitable accommodation, nationally
1330
93.5 per cent of young offenders are in suitable accommodation at the end of their sentence—the figures for April to December 2004 are 52,911 out of 56,614. Whether that is as a result of them not taking it up, I cannot say. I can reassure noble Lords that through the work that is now being undertaken by the Youth Justice Board, together with the youth offending teams, the aim is to ensure that all young offenders are appropriately accommodated in a way that will reduce the likelihood of them returning to criminal activity.
The Earl of Listowel: My Lords, a researcher from a young offender institution in Wales, reporting yesterday at the Howard League for Penal Reform, said that many young men leaving such institutions choose to reject assistance and return to their families. Does the noble Baroness recognise that very often that family support is not there so they will shortly fall out of that "suitable accommodation" as it is recorded? Furthermore, the governors of young offender institutions are not aware when a young person has come through the care system. The same information is not provided as when a child enters the juvenile estate. Will she look into seeing whether that can be remedied?
Baroness Scotland of Asthal: My Lords, I accept what the noble Earl says in relation to the need for care. I do not accept that it does not happen. The noble Earl will know that we have put a lot of effort into the planning for young people to make sure that the support, even when they go home, is appropriate. We very much take on board that the young offender may wish to go home. That will not always be the best place for the person to be, unless there is appropriate support. So there is planning.
I should mention the intensive supervised treatment programme, which enables people once they have been released to receive the appropriate training, support and job opportunities in a way that makes a difference.

Broadcast Media: General Election Coverage
2.51 p.m.
Lord Roberts of Conwyasked Her Majesty's Government:
What steps they are taking to protect the independence and impartiality of the broadcasting media in the run up to a future general election.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, the Government strongly support independence and impartiality in the broadcast media. That is why we carried forward the statutory impartiality obligations into the Communications Act and have similar requirements on the BBC, through its charter and agreement.
Lord Roberts of Conwy: My Lords, are the broadcasting authorities, with their vested interests in

1331
charter and franchise renewal, strong enough on their own to resist the blandishments, pressure and even bullying that they may be subjected to in the course of an election campaign? Is it not time that we considered having an ad hoc independent body to ensure fair play for all political parties?
Lord McIntosh of Haringey: My Lords, I assume that when the noble Lord, Lord Roberts, talks about charter review it means that his supplementary question is about the BBC rather than the commercial broadcasters.
The answer is that the obligation on the governors is very clear. They have to ensure that the home services—that means other than the "World Service"; it does not mean the old "Home Service" that we used to know—
"contain comprehensive, authoritative and impartial coverage of news and current affairs in the United Kingdom and throughout the world to support fair and informed debate at local, regional and national levels".
That applies to election periods as much as to any other time.
Lord Davies of Coity: My Lords, I am aware that the House of Lords Select Committee has, as reported in the Times today, been critical of some media interviewers. To that extent, I understand the issue. Does my noble friend agree that if the Government start to take steps to reinforce and protect independence and impartiality, they could very well be in danger of being perceived as controlling a part of the media in a free society? Secondly, is there a precedent of previous governments getting involved in the way this Question suggests?
Lord McIntosh of Haringey: My Lords, I did not accuse the noble Lord, Lord Roberts, of asking the Government to intervene. I do not think he was. I agree entirely with my noble friend Lord Davies that it would be utterly inappropriate for the Government to intervene. We have the controls in the BBC agreement, which I read out, and there are comparable controls on commercial broadcasters which are the responsibility of Ofcom and are in Sections 319 and 320 of the Communications Act. I think we should leave the matter at that and leave it to Ofcom and the BBC governors to exercise control.
The noble Lord, Lord Roberts, in his supplementary question talked about bullying. Any noble Lord who has been interviewed by Mr Paxman or Mr Humphrys does not quite think that bullying is always on one side.
Lord McNally: My Lords, does the Minister share my disappointment when he switches on a current affairs programme and finds that the issue of the day is being discussed by only a Labour and a Conservative spokesman, particularly when—as so often—the originality and radicalism of the issue has come from the Liberal Democrats? Is it not time that our media stopped playing the politics of Tweedledum and Tweedledee and realised that they are in three-party politics?
Lord McIntosh of Haringey: My Lords, I imagine that there are more than three parties. The supplementary
1332
question of the noble Lord, Lord Roberts, was about an election period. In that election period there is, with universal agreement, a sharing of the airwaves between not just three parties but all parties.
Lord Strathclyde: My Lords, have the Government considered that the best way of ensuring independence and impartiality of the broadcasting media is to send Mr Alastair Campbell on a very long holiday until 6 May?
Lord McIntosh of Haringey: My Lords, I do not try to cap other people's jokes, particularly those of the noble Lord, Lord Strathclyde.

Nottinghamshire Police
2.56 p.m.
Lord Dixon-Smithasked Her Majesty's Government:
Whether they agree with the comments of the Chief Constable of Nottinghamshire that his force's ability to cope with violent crime was hindered by government reforms compelling police officers to undertake clerical tasks instead of front-line duties.
Baroness Scotland of Asthal: I am sorry, my Lords. I was enjoying the noble Lord's joke so much that I did not rise to my feet quickly enough.
There are over 200 more police officers in Nottinghamshire than there were in 1997 and 294 extra police support staff. Bureaucracy has been reduced, with over 7,000 forms abolished. Her Majesty's Inspectorate of Constabulary is to work urgently with Nottinghamshire police to examine the force's capacity and capability in tackling murder and other serious crimes. It will produce a report by Monday 4 April to the Secretary of State to advise whether any immediate action is required prior to that date.
Lord Dixon-Smith: My Lords, I am most grateful to the Minister for her helpful reply. A chief constable who is facing an explosion of crime in a particular part of his area inevitably first concentrates his own resources on that problem. There is a limit to how far he can reduce the policing in the remainder of his force area. The same reasoning applies when he goes to neighbouring forces for assistance, if that becomes necessary. Does the Home Office retain within its budget a reserve that would enable it specifically to offer resource assistance in such a situation as exists now in Nottinghamshire?
Baroness Scotland of Asthal: My Lords, first, the general police grant to Nottinghamshire has risen from £104.7 million to £132.8 million, an increase of over 26 per cent or £28 million in cash terms. In real terms there has been an increase to 4.5 per cent. There is

1333
provision for the Nottinghamshire police to make application to the Home Office for additional funds. That has been done. We shall consider that application.
Lord Taylor of Blackburn: My Lords, does my noble friend agree that this is an indictment against the chief constable himself for his lack of management ability in switching from one area to another?
Baroness Scotland of Asthal: My Lords, it is right to say that Nottinghamshire has been one of the forces which have been challenged. Her Majesty's Inspectorate of Constabulary said, first in 2003, that the performance of the Nottinghamshire police has been poor for a number of years. In its second report it said that,
"in Nottinghamshire in 2002, when a comparison of its performance was made both nationally and against its most similar forces … there were 154 crimes per 1,000 population in Nottinghamshire, 17.6% of which were detected. In comparison, there was an average of 118 crimes per 1,000 population in Nottinghamshire's most similar forces, 23.4% of which were detected. In terms of burglary and vehicle crime, the Force was failing to meet its 5-year national crime reduction targets, indeed in each case the Force was showing an increase against the baseline figure, rather than a reduction. Overall its performance was in the bottom quarter of forces nationally".
Of course, how resources are deployed is a matter for chief constables, but in recent times, as a result of the increase in funding and support, things appear to have improved in Nottinghamshire. The numbers have increased, and the force is better able to meet its targets.
Viscount Bridgeman: My Lords, does the Minister approve of the vociferous criticism of the Chief Constable by Labour members of Nottinghamshire County Council and Nottingham City Council, and particularly Labour Members of Parliament, bearing in mind that most or all of them would have been enthusiastic supporters of the "More cops for Notts" campaign in 2003, which had such massive support across the county?
Baroness Scotland of Asthal: My Lords, as I understand it, the criticism is based on the information that they have about the true picture that pertains in Nottinghamshire. Of course it is a matter for the House, but I should tell noble Lords that the figures that the Nottinghamshire force has produced indicate that all crime is down by 10 per cent, domestic burglary is down by 24 per cent, robbery is down by 28 per cent, vehicle crime is down by 16 per cent and violent crime remains about stable but is slightly below the levels of those forces against which it is compared. Bearing in mind the increase in funding and the improvement in the statistics, I am not surprised that those who come from Nottinghamshire are disappointed by what the Chief Constable has said.
Lord Dholakia: My Lords, the police need to regain the confidence of the public, and that is certainly not helped by unattainable national targets that are set centrally and take little account of local needs, which in this case is reflected in Nottingham. There has been a damning report from the Commission for Racial Equality, and only yesterday Sir Michael Bichard
1334
expressed serious concern that his recommendations on the Soham murders had not been implemented. If the HMIC is to investigate the Nottinghamshire force, will it look at other areas where there are concerns about resources and the implementation of recommendations on serious issues in which the public have lost confidence?
Baroness Scotland of Asthal: My Lords, the standards are not unattainable. I say that because forces up and down the country, with appropriate vigour and application, are obtaining those standards. According to Nottinghamshire's own figures, confidence in it has gone up. Its September 2004 figures demonstrate a confidence figure of 37.9 per cent against a trajectory point of 30.8 per cent for that time. Nottinghamshire's confidence performance is perhaps not as high as that of most other local criminal justice boards but it has made improvements. The HMIC will report to my right honourable friend the Home Secretary on any matter that it thinks is pertinent.
Lord Mackenzie of Framwellgate: My Lords, does my noble friend agree with me that, given that there are 43 constabularies in England and Wales, in general forces are doing extremely well, particularly those such as Northumbria, Durham and Lancashire, which are subject to the same national clerical requirements as apply to Nottinghamshire? In saying that, does she agree with me that the selection of Nottinghamshire smacks of a pre-election ploy by highlighting poor performance that seems locally bound rather than being a national problem?
Baroness Scotland of Asthal: My Lords, I agree with my noble friend that constabularies up and down the country are doing very well. They have put a huge amount of effort into improving the figures, narrowing the justice gap and bringing more offenders to justice. Overall, crime has fallen 30 per cent since 1997 and the chance of being a victim is at its lowest since the British Crime Survey began in 1981. That is as a result of the hard work, dedication and application of our police service, and I celebrate them.
Baroness Sharpies: My Lords, the noble Baroness talks about 294 support staff. What do they all do?
Baroness Scotland of Asthal: My Lords, they are involved in all the administrative and other services to support officers and to ensure that there is proper delivery. Those two services—what the front-line police officers do and what the civilian employees do to support them—are very well integrated and deliver very high quality results in a number of constabularies.
Baroness Harris of Richmond: My Lords, does the Minister not agree that, proportionately, there has been much more gun crime in Nottinghamshire for the chief constable to deal with than there has been, say, in Greater Manchester, and that it therefore needs further money to enable it to address such very serious organised crime?
Baroness Scotland of Asthal: My Lords, I agree with the noble Baroness that gun crime in Nottinghamshire

1335
is a concern, but I cannot agree that it is far worse than anywhere else in the country. I will say that Nottinghamshire has made inroads into the problem. The figures show that it has been able to address the issue with good results.
Murder has been one of the issues very much at the forefront of the Chief Constable's mind in terms of the latest figures from the force's Operation Stealth, targeted at drugs and firearms since August 2002. Gun crime is down from 2003 to 2004 by 28 per cent—that is Notts police's own figure—1,150 people were arrested, 70 per cent with a positive outcome; offenders are now serving a total of 876 years in gaol; 145 firearm offenders have been dealt with; 356 firearms and 6,200 rounds of ammunition have been seized. There have been seizures of £8.5 million worth of class A drugs, £1.2 million-worth of class B drugs and £950,000 of cash and vehicles. That is not failure; it is doing better than before. Is it good enough? No. Should it be better? Absolutely.

Business of the House: Debates this Day
The Lord President of the Council (Baroness Amos): My Lords, I beg to move the Motion standing in my name on the Order Paper.
Moved, That the debate on the Motions in the names of the Baroness Sharp of Guildford and the Lord Garden set down for today shall each be limited to two and a half hours.—(Baroness Amos.)
On Question, Motion agreed to.

Consolidated Fund (Appropriation) Bill
Lord McIntosh of Haringey: My Lords, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read a second time.—(Lord McIntosh of Haringey.)
On Question, Bill read a second time; Committee negatived.
Then, Standing Order 47 having been dispensed with, Bill read a third time, and passed.

Education: Tomlinson Report
3.8 p.m.
Baroness Sharp of Guildfordrose to call attention to the Government's response to the Tomlinson report and to ways in which more 16 to 19 year-olds can be encouraged to participate in education and training; and to move for Papers.
The noble Baroness said: My Lords, the Tomlinson report on education for 14 to 19 year-olds was published in October last year. It proposes fundamental reforms to upper secondary education in this country. Those reforms are far-reaching and of great significance, yet no Statement was made in this House about the Tomlinson report; nor, when in February this year the Government published a White paper replying to that report, did we get a Statement or a chance to debate the issues.
1336
It is for that reason that I have chosen today to offer a debate to the House. It is appropriate that we debate this report of very considerable significance. One of our educational leaders in this country, John Dunford, the general secretary of the Secondary Heads Association, described it as having missed the opportunity of a lifetime.
Why do we need to look at reform of 14-to-19 education? As everyone knows, the Government boast of the increase in the number of young people gaining GCSEs at grades A to C, the equivalent of the old 0-level. Some 53 per cent now get five good A to C GCSEs. In the old days, when 0-level was introduced, it was assumed that it was appropriate only to those in the top 20 per cent of the intelligence quotient. Now, we have 53 per cent gaining that qualification. We must remember that, although 53 per cent gain five good GCSEs at grades A to C, 47 per cent do not. Of that 47 per cent, some gain lesser qualifications at GCSE, and others—a hard core of about 5 per cent of pupils—gain no qualifications at all.
When preparing for the debate, I looked up a volume—some of your Lordships may remember it—that was published just before the Government came to power in 1997. The author was Helena Kennedy, and the book was called Learning Works. It was about the further education sector. In the introduction are some words that we should remember when considering the provision of education for this group of children:
"In a system so caught up with what is measurable, we can forget that learning is also about problem-solving, learning to learn, acquiring the capability for intelligent choice in exercising personal responsibility. It is a weapon against poverty. It is the route to participation and active citizenship".
Although we may be proud of the achievements at GCSE, our participation rates in education and training at age 17 are low by international comparison. With 75 per cent of our 17 year-olds in education or training of some sort, we are 24th out of 28 OECD countries. Why? It is partly because of the poor school experience of some of those children. Many of the 47 per cent who fail to get their five A to Cs are bored by the 14-plus curriculum and demotivated from learning. GCSEs and A-levels were, as I said, geared to the academic curriculum, the top 20 per cent. Although they have been broadened, the academic still dominates. Is that suitable for the whole range of the population?
In the UK, England and Wales have traditionally failed to offer a coherent vocational route. As a consequence, vocational education has remained a second-class option. At a time when only 10 per cent of the age group went on to university—back in the 1960s and 1970s—apprenticeships and HNDs provided an alternative route into management and especially into the engineering and construction industries. However, now that 45 per cent of the age group go on at some point or other into further and higher education, we still lack people who are qualified technically and practically in those skills. There is a fantastic skills shortage in many areas. It is for that reason that we need to provide a coherent framework of education that embraces the vocational and the academic.

1337
In any case, there are many who have been discontented even with what we have. As your Lordships will know, businesses complain about the lack of ability among school leavers to speak or write good English, about failures at spelling and about the lack of ability in basic numeracy. Others, including many universities, see A-levels as offering too narrow a curriculum in sixth forms. We are the only country in the world where 17 and 18 year-olds staying on in education are encouraged to narrow their studies to two or three subjects, a trend that has been exacerbated by the tendency to widen the offering and add subjects such as psychology and international relations that, at one time, were seen as specialised university subjects not suitable for school study. Yet, at the same time, A-levels are not seen to be challenging pupils enough. Twenty-three per cent of those taking A-levels get A grades, making it difficult for the universities to distinguish the really bright from the bright.
Finally, we are an over-examined nation. Young people these days face SATS—externally moderated examinations—at 14, 16, 17 and 18. Is that really necessary? What are the effects on the narrowing of curricula? We have a narrow curriculum and just not enough time for other activities outside it in the community and creative sphere. There is too much teaching to the test. As the National Audit Office reminded us recently, it costs £610 million to administer those examinations.
So the Tomlinson report gave us a broad review. What did it recommend? It was, above all, an attempt to create a unified framework of achievement and qualifications post-14, based on four levels of a diploma or a graduation certificate. Everyone, or nearly everyone, who left school would take with them a diploma recording their achievements while at school, including sport and community service, work experience and skills, as well as academic achievements. The idea was that an advanced, or level 4, diploma, whether achieved by academic or vocational route, would have equal standing and provide the gateway to further, degree-level study.
The diplomas were to incorporate all existing exams, including GCSEs. A-levels, vocational courses and apprenticeships, in a common framework, with specific, age-related exams essentially to be phased out. There was to be a compulsory core of functional literacy, numeracy and ICT; an extended essay or practical project; and optional modules based on GCSE/A-level subject courses or vocational or specialist areas. Successful completion of courses was to be rewarded with credits that could be accumulated and stored and put towards the completion of a particular level of diploma. Pupils were to take courses and exams when they were ready for them, rather than at a set age, and were encouraged to mix and match vocational and academic courses.
None of that was to happen overnight. Proposals for phasing out A-levels and GCSEs ran through to 2014. It was matter of phasing in the new and phasing out the old. All levels of the diploma, except the advanced level, were to be assessed mainly by teachers rather than by exam boards, although a good deal of training for assessors was proposed. Electronic transcripts setting out pupil achievements in all courses and other activities would
1338
also be available for the A-level equivalent exams. An extended essay or research project would be required, and more testing questions also were to be a feature of that level.
The key feature of all the proposals was the unified framework that would provide a coherent career progression. whichever route was chosen. Modular credit accumulation would allow the mixing of different routes and allow those who wished or needed to take longer to achieve a certain level to be able to do so, even to be able to move out of the system for a while and re-enter it, retaining the credits from the courses that they had completed.
So what have the Government proposed? The headlines were grabbed by the fact that the Government decided to retain, rather than to phase out, GCSEs and A-levels. The Tomlinson report had proposed their phasing out by merger with the new diploma framework. The diploma framework is being introduced only for the vocational or work-based learning areas. Following Tomlinson, a number of specialised learning lines, such as health and social care, engineering, construction and the built environment, will be introduced. Initially, eight such learning lines, and eventually 14, will he introduced. The diplomas will have three levels rather than the four proposed by Tomlinson. His entry level, which would have given those with less learning a chance to leave school with some sort of record of what they did, is not to be pursued. The Government are proposing three levels. The foundation level is equivalent to the current NVQ level 1, which is basic introductory knowledge plus functional maths, English and ICT. Level 2 is equivalent to five good GCSEs, GNVQs, Modern Apprenticeship or BTEC at that level, with compulsory functional maths and English, achieving A to C in those subjects. Level 3 is equivalent to the current A-levels, BTEC or advanced Modern Apprenticeships. The specialist lines are aligned to the new sector skills councils, and the industry is to have a large say in training requirements.
Vocational education is to be delivered in schools alongside colleges and private training providers, and schools are to he encouraged to develop centres of vocational excellence. It is envisaged that schools and colleges will co-operate in providing different lines of specialist training, with the initial phase, the "young apprentice", beginning at 14, and allowing for work-based experience also to start at that age.
From her evidence in the Select Committee on 2 March, it is clear that the Secretary of State envisages a situation where different schools, colleges and training providers specialise in offering different diploma subjects along different lines, and that pupils who pursue a mixed curriculum of academic and vocational subjects may well be expected to travel around different campuses.
There will also be a general diploma framework to cover the GCSE route. As originally envisaged, this will acknowledge achievements in sports and community service, as well as academic achievements. Essentially, the Government have designated the diploma as the qualification for vocational training while retaining the GCSE/A-level brand for academic studies. Although, as the White Paper stresses, both will be valid routes into

1339
higher education, and there will be room for flexibility and mixing options from the two routes, and for movement from one route to another, this decision effectively retains, and even reinforces, the divide between the academic and vocational routes. That is why there is a good deal of disappointment. Creating a single qualification framework is seen as bridging that divide and getting away from the two-tier structure.
The Government have provided two ladders, one academic and one vocational. We on these Benches have long argued for a framework that we call the "climbing frame to learning", and moving up and across is an essential part of that. The problem is that, while these two ladders may be wide at the bottom, and even overlap a bit, as you go up them it becomes increasingly difficult to step from one to the other.
We should never underestimate the ability of the English to turn diversity into hierarchy. We have a wide diversity of institutions that serve the 14 to 19 year-old age group, and a wide diversity of students. The crucial factor is to find a way of fitting one into the other.
After much discussion, careful consideration and consultation, Mike Tomlinson put forward proposals that we on these Benches thought were not perfect, but were well worth developing and building on. Above all, we welcome the open framework that mirrored our proposals for this "climbing frame for learning", holding open doors and encouraging the learner always to try to climb a little further up that framework.
We believe that the key to making such a framework work is the adoption of some sort of modular credit-based system, where the student could accumulate, store and reactivate credit. It provides the basic level playing-field on which to build parity, at least in terms of credit units, if not of esteem—although esteem may well follow from that. Most importantly, it provides an incentive for the individual to make the effort to reach a little higher. Credits gained, for example, on a work-based training course, can be topped up by the individual by taking, of his or her own volition, an evening class or an e-learning course. It is worth doing this if there is some tangible qualification at the end.
I do not think the Government's proposals provide a satisfactory framework at present. There is too much in their thinking that seems to me to hark back to the world of the 1950s and 1960s, of a neat division of society between the academic, the technical and the secondary modern—a world in which we all knew, and were expected to know, our allotted places. We are moving on from that world. If we accept the Government's response as the beginnings of a new dialogue, rather than as the end of the affair, perhaps, when we have finished, we can get them facing forwards rather than backwards. I beg to move for Papers.
3.25 p.m.
Lord McKenzie of Luton: My Lords, I start by thanking the noble Baroness, Lady Sharp, for bringing forward this debate on a subject that is of major significance to the future of our country. I particularly congratulate the noble Baroness on her exquisite timing
1340
in having this debate follow today's magnificent Budget announcements, with extra funding for education that impacts directly on the subject matter we are discussing.
The analysis of the Tomlinson report is compelling, and its essence is encapsulated in one of its earlier paragraphs:
"We want to bring back a passion for learning, and enable all learners to achieve as highly as possible and for their achievements to be recognised. We must ensure rigour and that all young people are equipped with the knowledge, skills and attributes needed for HE, employment and adult life".
I place particular emphasis on the word "all", and illustrate with a couple of local experiences why I believe this must be so.
About four years ago, we launched an event in Luton called "Celebrating Education". It was a public recognition across the town for young people who had achieved. Schools had their own awards day, and nominated a particular pupil for the town-wide event. This not only focused on those with the highest academic attainment, but included those, some with special educational needs, who, in their terms, had made real progress. The joy of their having succeeded, and the support and engagement of parents, were of special significance to me. "Celebrating Education" was part of the process of value in education, and I am pleased to say it is now an annual event.
Although at the other end of the spectrum from the 14 to 19 age group, I would also cite an event at a local nursery school where I had the privilege of presenting some certificates. In one case, I am not sure who was most excited and proud, the little girl or her mother. I heard the latter remark that it was the first time anyone in the family had received any award like this. It was as though she considered that it was not supposed to happen to families like theirs. We have to ensure that no individual or family feels excluded from the education system, and that every individual has the opportunity to reach their potential.
We have made huge progress in this country since the imperative of "Education, education, education" was first espoused by the Prime Minister. As acknowledged by the noble Baroness, primary results are at their highest ever level, and compare favourably internationally. Key stage 3, GCSE and A-level results are at their best-ever level. Record levels of investment have flowed into our schools, with more to come for building schools for the future, and yet more following today's announcement in that splendid Budget. Post-16 participation rates have increased, but we know that these do not compare well internationally, and that too many youngsters leave school without a basic grounding in English and maths.
If we changed nothing from the investment and strategies already in place, I have no doubt that most young people in our schools would continue to make further progress. But it is not good enough that only most young people make the best of their education. We want all young people to do so. We know that the current education offer to students means that some are precluded from succeeding, because the type of curriculum that would engage and excite them is absent. Switching off from education not only diminishes the life chances of the individual, but can percolate through the

1341
generations. Too often we see the malignant cycle of disaffection with the curriculum, bad behaviour, low attainment, lack of parental engagement with the school, and a rush from education at the earliest opportunity. We are already having to deal with the consequences of parents whom the system has failed in the past.
The Tomlinson report and the Government's response give us a genuine opportunity to change this. Neither should we accept that there is an inevitability about differential educational outcomes for students from different ethnic backgrounds. The situation we have locally mirrors the national position, with the relative position of some ethnic groups improving through the key stages, while for others it declines. The proposals in the White Paper will help because they focus more on the individual needs of the student and they build in flexibility on the timing of progression.
As the White Paper asserts, tackling these matters is both a moral and an economic issue. It is a moral issue because we have a duty to ensure that every individual is equipped to enjoy a full life, including access to higher education and employment. It is an economic issue because if we are to compete successfully in the global economy, we need to improve skills and to encourage the capacity and enthusiasm to learn throughout life. We should also recognise that we need to seek an enduring consensus on these matters if we are to deliver the change required for our young people. The Government's White Paper recognises that in building on the changes already taking place, it would still be 2015 before all the diplomas became a nationwide entitlement.
It has been said again today that the Government's response to the Tomlinson report was a missed opportunity, but I reject that assertion. Even though they have not adopted all the recommendations made, they have adopted its fundamental analysis of the issues that need to be tackled: getting the basics right, strengthening vocational routes, focusing on the needs of individual pupils, seeking ways to stretch and challenge, engaging employers in the design of diplomas and widening routes to higher education. They have also gone some way to responding to recommendations made about the burden of assessment.
However, there is divergence on the matter of the continuing role of GCSEs and A-levels. Tomlinson envisages these as ceasing to be freestanding qualifications and evolving to become components of the new diplomas. The Government's White Paper puts GCSEs and A-levels at the heart of the 14-to-19 agenda, but with some key changes. I wonder whether in practice and over time the difference in these two approaches is as wide as has been suggested. Tomlinson's diplomas include "open" lines of learning and retained opportunities for a combination of academic subjects similar to existing GCSEs and A-levels. What these are called is less important than ensuring that the programme can meet the needs of the individual student, encouraging progression and facilitating movement across the offering so that young people do not unduly narrow their options.
1342
It is hugely important to ensure that the diplomas enjoy the same value and recognition as GCSEs and A-levels and that they offer the same opportunities to access higher education and employment. There is no inherent reason why they should not do so if the components of the diplomas are of high quality and relevance. In any case, an interesting debate for another day is to ask what in the modern world is vocational and what is academic.
I should like to make two further brief points. I note that the White Paper recognises the need for further work on how best to stretch the most able students. There is a hint that the international baccalaureate might offer one way of doing this. Noble Lords will be aware that the IB aims for breadth, depth and stretch, and there is a particular and welcome emphasis on international awareness, cross-cultural perspectives and caring about the world. I would be interested to learn where this approach sits in the current vision of the 14-to-19 agenda.
Secondly, we know that the prospects presented in the White Paper mean that not all schools and institutions will be able to offer the full entitlement to diplomas, GCSEs and A-levels and that the agenda will require increased co-operation and partnership arrangements between schools, colleges, universities and employers.
But these are genuinely exciting times for education, with a chance to build on the progress made to date and to tackle further the fundamental issues which have daunted us for too long.
3.33 p.m.
Lord Lucas: My Lords, I am delighted that the noble Baroness, Lady Sharp, has given us an opportunity to discuss Tomlinson. The same delight does not seem to have been experienced by the Secretary of State for Education and Skills when she addressed the conference of the Secondary Heads Association recently. The TES noted some extremely pungent comments:
"'It was just awful' … 'I found it patronising' … 'superficial' … I have never felt so disappointed and angry"'.
No need for the barbed wire undergarments that day. Ruth Kelly must have had a hard time. A general reading of the education press suggests that the Secretary of State could do with a few friends when it comes to her proposals, so I offer myself as one.
I share her doubts about the idea of an overarching diploma. In the days of information technology and the ease of dealing with and presenting varied information, I do not think that we should seek to reduce a pupil's educational attainments to a single figure. A diploma made up of so many different elements to reach the same answer will be something that people pay no attention to because they will not know what it means. You have to give those who are expected to place value on these qualifications enough information about what the student has actually done and actually achieved.
The international baccalaureate is a wonderful qualification. It suits a particular kind of person—the kid who has the breadth of intelligence to tackle all

1343
that is required to do well in it. A-levels are wonderful for those who are more specialist. If you are a scientist or your joy lies in languages, or if you are maths blind but a really good historian, A-levels are absolutely for you. I share the wish of the Secretary of State to keep A-levels and, indeed, GCSEs as the foundation of our examination system. In spite of all the criticism, they are quality examinations and we should build on what we already have.
None the less, I am with Tomlinson and the noble Baroness, Lady Sharp, in saying that we really need to move. In taking the 20-year view—this is a long process—we must look ahead to see what can be improved in order to tackle the well known problems of the divide between vocational and academic, over-examination and so forth. Immediate wholesale reform is not required, but we need a programme of reform, one that I hope to see shared as far as possible between the parties. We should give ourselves time to talk about it, certainly in this arena, in a relatively non-partisan way. We will then have a common idea of where we are going, ensuring that every time there is a change of government—may that be soon; apart from the sadness of losing the noble Lord, Lord Filkin, it would be a pleasure from many other points of view—we do not hiccup between one vision for education and another.
Some time ago we adopted the concept of lifelong learning. We have all agreed on its importance, but we have not adapted the examination system to go with it. Exams are too big a step to make lifelong learning easy. I wholly agree with the noble Baroness, Lady Sharp, that one should be able to add to qualifications as you go along. It should not be a two-year stretch to pass an A-level; there ought to be steps that can be taken along the way. Those steps ought to mean something so that, while they would not be the final examination, it should be possible to clock them up over time. One should be able to say, "I am half way to an A-level and I have taken a step to sign myself off. I will now work for a couple of years and come back to the A-level after that". That system would make examinations, if not modular, more like the music examination system. Students can take steps and do not necessarily have to do everything all at once. That would be a mark of progress.
I should like to see GCSEs regarded as a final examination, signalling that it is the last examination you intend to take in a particular subject, although you may go on to do other things. The curriculum is too bound up in the obsession with the academic and thus is overly defined by academics. That makes it pretty useless to anyone not aiming to pursue the curriculum to its higher levels. I have mentioned before that when taking my son through his GCSE maths revision, even though I have spent my life working with figures, I have not used three-quarters of what he had to learn. Yet I have used a whole lot of mathematics out there in the world which are never introduced at the GCSE level, but would be very useful to people.
1344
Making the GCSE a final examination for those who are stopping at that point would give us some constructive changes to the curriculum and would allow those who want to go further to progress straight to AS-level. They would never take a GCSE in their subject, but would carry on studying until they reach the AS stage. Perhaps, as Tomlinson says, people should be able to take these exams when they are ready, whether early or late. People could build up a portfolio of AS-levels from subjects they have chosen to take seriously. That would allow them to be much wider in their choice of GCSEs—to go off and explore a GCSE in car mechanics or construction. or whatever it might be. Rather than being hemmed in, as they are at the moment, by a rigid set of choices, it would allow people to take fewer exams when they are right and ready for them. We can move to that within the existing structure, if that is where we agree it should go.
I am comforted by some of the little changes taking place at the moment, but the key thing we have to get right is university recognition of what we are doing. What killed the concept of AS-levels was that the universities did not pay any attention to them. They just looked at the A-levels; so, kids who had spent a lot of time getting extra AS-levels received no credit for that at all, and that concept is dead. As the TES said on 11 March in its article headed "Blocked routes to higher learning", there is still that problem with universities not recognising qualifications which are out there that we have created. That pattern has continued, all the way down. If we are to move to the broadening of 14 to 19 education, we must ask at least some of the universities to move to something broader too.
I have just published a book on US universities. It is extraordinary how broad their courses are. Almost all of them offer the liberal arts degree, which means that mathematicians will be doing languages and humanities.
Lord Hunt of Chesterton: My Lords, is there not some contradiction in what the noble Lord, Lord Lucas, is saying? Speaking as an academic, if the schools had more people with the IB, the universities would indeed take notice of that recognition and recruit people on a broad basis. Personally, I did a narrow A-level; it would have been a lot better if I had had a broader education. Giving people a broader education, as is done on the Continent, is highly beneficial. The noble Lord seems to have moved away from that tack in his speech.
Lord Lucas: My Lords, I am sorry if I appeared to do that. I think it is highly beneficial, but if we are going to create that in the 14 to 19 group we have to encourage universities to offer courses which keep the breadth. There will always be some who want to do physics—and go on to be nuclear physicists—or whose talents are narrow, but many people should be encouraged to keep the breadth. We need universities to come along with us in doing that. In terms of their product offering, there is at the moment no sign of them doing so. I do not believe we should rush into changes for the 14 to 19 group until we have the universities with us on this.
3.43 p.m.
The Lord Bishop of Portsmouth: My Lords, I congratulate the noble Baroness, Lady Sharp of Guildford, on securing this debate. From these Benches, I can say that we wholeheartedly supported the central aim of Tomlinson—and would have expected the Government to do so far more explicitly. The aim of breaking down the barriers between the academic and the so-called vocational pathways seemed to be at the heart of the government Green Paper which led to the Tomlinson report in the first place. I speak for schools all over the country, such as St Luke's in Portsmouth, which vocational GCSE programmes have helped to turn into the seventh most improved school in the country. That is not just in terms of hard and fast results, but also in atmosphere, ethos and character.
Why is all this so important? There seem to be two purposes of education; on the one hand, human flourishing and the fulfilment of human potential and, on the other hand, social prosperity and economic success. Both are important. Both contribute to a happier, better society. Both would be promoted by ensuring that vocational routes in education become as highly valued as academic routes.
The Government's response in the recent White Paper came as rather a disappointment. The decision to retain GCSEs and A-levels, largely for academic routes, but to introduce new diplomas for vocational routes misses the opportunity to break down the binary line between academic and vocational. I appreciate the particular desire of the noble Lord, Lord McKenzie, to explore that further. However, as a result, vocational courses run the risk of being seen as second class. If that is the result, it is more than a disappointment. It is a missed opportunity to correct one of the persistent ills in British society. It will require of employers and higher education institutions much greater efforts to recognise the quality of the education many young people receive through non-traditional routes.
Then there is the place of religious education. There are aspects of the Tomlinson proposals which caused us some concern—more for what was not said than for what was. We might have expected the government White Paper to make up that gap, but in vain. Last year, Charles Clarke, when he was Secretary of State for Education, launched a new national framework for religious education. The Churches and the other faith communities had impressed him with their ability to work together with the government and RE professionals to agree on such a framework. The Government, in their turn, continued their commitment to religious education. The framework reinstates the requirement that RE is taught to all learners in school between the ages of three and 19—and that looks like being a very broadly based RE. I am not talking of a kind of narrow, conservative, Christian evangelical ghetto, but of something much broader.
We had hoped that Tomlinson, or at least the government White Paper, would have maintained consistency of approach by ensuring the entitlement of
1346
every learner in schools to RE in the crucial years beyond 14 and beyond 16. If they had been really consistent, they would have found a way to ensure that 14 to 19 learners also benefited from continuing religious education in some form or other. Many in further education colleges would welcome such a development, but I am afraid we were disappointed. References to religious education are scarce, and most were concerned with linking it with other curriculum subjects to make more time available for other activities. That is always the story when there is argument for a particular course.
Religious education is, these days, a fundamentally important part of the curriculum—and recognised as such by a dramatic increase in candidates taking examination courses. This, as supported by the statistics, is rather to the embarrassment of the old, tired secularist line. Perhaps I should not need to add that. as now conceived, RE contributes powerfully to the building of a more inclusive and cohesive society. We must act to prevent its disappearance in the new, post-14 environment.
Finally, the Tomlinson report had some interesting but tentative proposals about personal education. As with every self-respecting report, Tomlinson would have introduced another acronym to challenge the budding educationalist, CKSA: common knowledge, skills and attributes. I am afraid that we were able to give these only two cheers. We do get enthusiastic sometimes—two cheers, not one, but not quite three. The proposals, it seems to us, were an uncomfortable mix of functional skills, personal education and routes to becoming a responsible adult playing a role in the community. One tentative suggestion was that every student should have some kind of community engagement, whether helping young children to read or visiting elderly and housebound people in their homes to help with some weekly chores. Many schools and colleges do have very effective community involvement. Such further developments would have been very welcome, even though demanding for schools and colleges to manage.
Rather than inventing the new name of common knowledge, skills and attributes, I would rather have seen this as an important part of spiritual, moral, social and cultural development. That is fundamental to the British education system, and only recently reinforced in your Lordships' House through the passage of the Education Bill. Yet the Tomlinson proposals seem to be tentative and less visible in the White Paper—where personal education is mentioned, but not really highlighted.
Functional literacy, numeracy and "stretch" are of course important, but they emphasise the functional nature of the proposed changes. With the less than adequate treatment of religious education and personal skills in the White Paper response to Tomlinson, it seems that they add up to little more than a utilitarian package. Can we not, together, raise three cheers for human flourishing—and thus avoid the pitfall eloquently described by the noble Baroness, Lady Sharp, as "turning diversity into hierarchy"?
3.50 p.m.
Baroness Warnock: My Lords, like other noble Lords I am very grateful to the noble Baroness, Lady Sharp of Guildford, for giving the House a chance to debate the Tomlinson report and for the things she said. It is a pity that there was not a chance to debate it before but at least we now have the advantage of being able to discuss the Government's response at the same time.
In her foreword to the White Paper, the Secretary of State speaks of breaking down artificial barriers between academic and vocational education. She has correctly identified what needs to be done, and what, indeed, Tomlinson sought to do. But it seems to me that, sadly, her words introduce a rather timid and short-sighted White Paper.
The proposal in the Tomlinson report that would really have broken down the barriers referred to by the Secretary of State was to phase out GCSE and A-level as freestanding examinations and instead embrace a single overarching system of diplomas at four levels, each containing core (compulsory) and main elements to be chosen by students and tested and assessed when they were ready. I cannot agree with the noble Lord, Lord Lucas, that this all-embracing system of diplomas—it is not just one diploma: it is a system of diplomas—would be meaningless. Indeed. I believe that it would be an extremely good and transparent system for seeing what the student has learnt and what he or she can do.
The great advantage of this system is that there would be no more blocks of examinations to be taken at fixed ages—16, 17 and 18. Pupils would accumulate credits for parts of each diploma as they were ready, and at 18 or 19 would have a set of diplomas that reflected what they had learnt along the way.
I must confess that for a very long time I have been an advocate of a system of student assessment by graded tests in both practical and theoretical subjects roughly modelled on—as the noble Lord, Lord Lucas, suggested—the Associated Board music examinations. where practical and theoretical aspects of the subject are tested separately, and where the tests—in this case grades I to VIII—represent approximately a year's work, but where there is no restriction whatever on the age at which they may be taken. They are marked on a scale from nought to 150, and the marks are blocked into fail, pass, merit and distinction. These are intelligible and well respected methods of assessment in that subject. Each graded test—this is an important point—presents the student with a new goal that looks attainable from where she happens to be, and therefore, motivation is sustained throughout.
Tomlinson's proposed system of four graded diplomas: entry, foundation, intermediate and advanced, each divided into separately assessed components, is an elegant and workable extension of the same principle across the whole curriculum, giving the same attainable goals and the same flexibility, to accommodate pupils of different ages, different levels of ability and different spheres of interest.
1348
I must confess to having been optimistic at one stage when I first learnt what Tomlinson's proposals were likely to be. I hoped that at last the division between those who were doomed to fail—which is the majority of students—and the rest was going to be allowed to disappear. Students would now, as I hoped, all be able to have a diploma saying what they had done and could do in the future, and would all be motivated to achieve the best diploma in their chosen subjects, practical or theoretical. They could take pride in their work and their achievements, whatever they were. Sadly, I was too sanguine. What we have in the White Paper is a compromise, a dog's breakfast, with diplomas only loosely attached to the old framework of blocks of examinations at 16 and 18. GCSE will even, we are told, be strengthened—I believe that is the word which is used—and so erect a further fatal barrier to yet more students to alienate and demoralise them.
I well remember years ago when the noble Lord, Lord Baker, was in charge of education telling him about my bright idea for graded tests and the phasing out of GCSE and A-level. He said, "Oh. no, we could not possibly do that. A-level is, after all, the gold standard". The number of times people have said that A-level is the gold standard are uncountable, but it is even less true now than it was in the days when the noble Lord, Lord Baker, used that phrase, perhaps for the first time. The metaphor will not do any longer. A-level is not the gold standard because too many people pass it at too high grades and it has become useless for either of its functions: namely, as a school leaving certificate or as an entry to university.
I fear that the White Paper would, if it were implemented in its present form, change very little. If GCSE and A-level are to remain as freestanding structural parts of education progress up the school. we are stuck with the rigid distinction between the sheep and the goats. Long, long ago, after the Butler Education Act, we used to be told that there should be parity of esteem between secondary modern and grammar schools and between CSE and O-level. But parity of esteem will not come about and cannot be brought into existence just by a ministerial promise that it should be so. We need an education revolution to provide chances for those who are now at the bottom of the scale of esteem and who put themselves lower and lower by their lack of interest, lack of ambition. failure to see where they can go next and what the next immediate education step is for them.
I believe that Tomlinson promised something like parity of esteem, which has apparently been turned down. I hope, however, that we can treat the White Paper as a beginning and not an end. I wish I could agree with the noble Lord, Lord McKenzie of Luton, that there is not really all that much difference between what Tomlinson proposes and what the White Paper proposes. However, I believe that there is a huge difference and that that is a gap which we must fill somehow or other.
3.58 p.m.
Baroness Massey of Darwen: My Lords, I too am grateful to the noble Baroness, Lady Sharp, for bringing

1349
to our attention this very important issue. She again demonstrated in her opening remarks her passionate dedication to education and her wide knowledge. It is, as ever, a privilege to follow the noble Baroness, Lady Warnock.

I want to talk about the importance of through learning—lifelong learning, if you like—from pre-school onwards as influencing access to education for 16 to 19 year-olds. There is much of value in the Tomlinson report. I note the vision to ensure that by 19 all young people should be able,
"to participate fully and effectively in adult life … be active citizens equipped to contribute to the economic, social, political and cultural life of the country as well as developing an understanding of the wider international community".
Yes, of course, but education is not simply about new structures. There is a lot of vision and many exciting initiatives in education, which encourage pupils to continue after 16 and. indeed, for life. I shall give two examples later; my noble friend Lord McKenzie gave others. I have taught children and young people from pre-school through to university and I know that, by and large, it is predictable from an early age which young people will succeed in education and will have the motivation to go on to post-l6 education. That is sad, but true. So how do we change that?
I am reminded of the need to build strong foundations as I experience the restructuring of my house. Unless the foundations are deep enough and the various beams strong enough, not only will vicious cracks appear, but the whole structure may not last long. So it is with children and learning and motivation to learn. Things will only get better if we put in more effort lower down the education system. The Government's five-year strategy for children and learners aims to give every child the best possible start in life. That commitment to children and their education and welfare has permeated much recent thinking, and many noble Lords here today have contributed to that thinking. Sure Start has of course been a flagship programme, and there is good evidence from the Institute of Education that children who experience three years of high-quality early-years education boost their development at the end of key stage 2 by 10 months. Because Sure Start involves parents, it has an impact on their ability to cope with systems, to use systems, and to support their children. Many children need that support to pursue education at all levels.
The policies set out in Every Child Matters and the Children Act 2004 are significant to much that is changing in the area of support for children and families. The commitment to establishing children's trusts, and the requirement for a single children and young people's plan in each local authority, will act as agents for change. Local strategic partnerships of many kinds are being established, including education professionals, which is essential. Some have set up a Parenting Lead, a creative way of looking at parenting in its widest sense, not just in the context of disability or fostering and adoption. Those of us who think that parenting is key to achievement, welfare and happiness, including the pursuit of education, should be encouraged by that. Extended schools can also provide parenting support as
1350
well as involving the community in a school's facilities, including sport. All that should encourage engagement with education in its widest sense.
I do not underestimate the influence of health on achievement. The National Service Framework for Children, Young People and Maternity Services and the public health White Paper provide a focus on health issues. Research shows that pupils at schools who participate in the National Healthy School Standard appear to be performing better academically. Many factors influence the ability and the motivation to pursue education beyond the age of 16. The right reverend Prelate the Bishop of Portsmouth is right; personal skills are important, and young people tell us so.
I also recognise the challenges involved in encouraging some young people to pursue education, and we must not forget those. A recent manifesto from the Children's Society, National Children's Homes, Barnardo's, Save the Children and the NSPCC reminded us that young people in the youth justice system, refugee children, young people in care and other vulnerable groups are just that; vulnerable. Their educational attainment, as well as their physical and emotional welfare, are likely to be suffering and will suffer.
I will focus briefly on two examples of creative work in education. First is the Increased Flexibility Programme, a new initiative instigated by the DfES and managed by the Learning Skills Council. It has been researched by the Trust for the Study of Adolescence, of which I am a trustee. The programme involves day release from school to complete NVQ or vocational GCSEs at college. Some positive outcomes to date, according to participants, include improved confidence, being able to learn in an applied way, autonomy in decision-making and increased intention to participate in post-16 education, which are all excellent results.
Secondly, I want to mention the DfES international strategy for education, skills and children's services. The report Putting the World into World-Class Education is an important document, which is worthy of more attention than we can give it now. Already, schools and colleges are developing initiatives to promote global citizenship, and to help young people to understand social justice, sustainable development, diversity and interdependence. That is one way in which young people can be encouraged to access education in a wide sense. I hope that we will not be limited in our thinking to systems that are relevant simply to the UK. Given encouragement and support, young people could be encouraged to access pre-16 and post-16 international programmes in exciting ways.
In conclusion, does the Minister agree that the future of access to post-16 education lies in the building blocks that we set lower down our system and in initiatives such as those I referred to? Does he recognise that particular challenges exist in vulnerable groups of young people? Does he agree that a global dimension to education might be attractive to young people and important for their development and for our future?
4.6 p.m.
Lord Northbourne: My Lords, I, too, thank the noble Baroness, Lady Sharp, for introducing this important subject for debate. I hope that some of your Lordships might have had the opportunity, as I had, of talking to some of the young people who were lobbying outside the House earlier today for more money for colleges.
I welcome the report in one respect, in so far as it encourages more respect for those whose abilities are not academic. For too long the educational establishment—I say this with great respect—has felt that those members of our community were less than important. Of course, they are very important indeed. I will not try to cover all the ground that other noble Lords have covered today—I am speaking simply on one point. The weakness of the report is that it does not set out effectively how more respect for those who are less able can be achieved.
The idea seems to be that you simply introduce vocational skills and say that they are just as good as other sorts of skills, and that then everyone will want vocational skills. I believe that only a limited number of vocations involve really interesting skills that will make interesting courses. Inevitably, many young people in our society will end up doing rather boring activities which will not make appropriate university vocational courses. I do not understand how the proposal will work, but it seems that you have not only the sheep and the goats but also, if I may say so, the rabbits. I am interested particularly in the people at the bottom of the pile.
I want to take the House back to the Education Reform Act 1988. It had such a brilliant definition of a curriculum, already mentioned by one noble Lord. It states:
"The curriculum for a maintained school satisfies the requirements of this section if it is a balanced and broadly based curriculum which … promotes the spiritual, moral, cultural. mental and physical development of pupils at the school and of society; and … prepares such pupils for the opportunities, responsibilities and experiences of adult life".
The introduction of the Tomlinson report states:
"We must ensure rigour and that all young people are equipped with the knowledge, skills and attributes needed for HE, employment and adult life".
Note the order: HE first, then employment, then the more general subject of adult life. Paragraph 30 contains an important quote:
"They should have the opportunity to develop their individual potential to the full, whether intellectual, creative, practical, or a combination of these".
But there is no mention whatever of social skills or family life. Probably, the role of being a parent and bringing up the next generation is one of the most important things that most young people will do.
What I find missing is a clear vision of how such young people who do not have academic potential are going to achieve parity of esteem. I ask myself what are the skills, knowledge and attributes that are going to make 14 to 19 year-olds more able to cope with the opportunities and challenges of adult life. I want to
1352
refer to just one: the ability to get on with oneself and with other people, which is sometimes nowadays called life skills or interpersonal skills.
In the report, no mention is made of those skills. But many of the problems in our society today derive from the need that each of us has for some measure of self-respect, linked to respect for others: the need to understand that each of us has a unique role to play in this world.
To achieve that, young people need to understand a number of things: the emotions of others and how to be able to control their own emotions; how to communicate, whether it is in a discussion group, a presentation, a major debate or just a smile. They need to know how to work as a team; to sink sometimes their own perceived interest to that of the group; to lead and to follow; to distinguish between good and evil-or good and bad; to assess risk; to solve problems. They need to understand about responsibility and trust and how to make decisions and the importance of positive attitudes to others and, especially, the responsibilities of family life.
I follow the right reverend Prelate—who is not in his place, alas—in drawing attention to the importance of the RE curriculum in that context. I should also like to draw attention to what is now called in some schools the co-curriculum—that is to say, all the things that happen outside the curriculum: music; art; dance; drama; team games, to which I am sure the noble Lord, Lord Pendry, will refer later; competitive sports; outdoor activities and adventure; participating in charitable and community activities and projects; challenges undertaken individually or in small groups, such as the Duke of Edinburgh's Award scheme.
Year after year, those wider but essential forms of education have fallen to the axe of budget cuts; and Tomlinson makes no reference to them—why not? The co-curriculum is not just for fun, although pleasure and, indeed, competition can be important motivations for young people. It is an essential element in the rounded preparation for adult life in the 20th century.
I want to ask the Minister a specific question: what are the Government's plans for reviving the co-curriculum in maintained schools? What are their plans for reviving the youth service and the facilities provided for out-of-school education for 14 to 19 year-olds? Further, what plans do they have to protect those who work in such organisations from false accusations of abuse and litigation, even when there was no negligence, which is at the moment a tremendously strong deterrent to people entering such work or leads them to cease to work in that area?
If the Government do not have a plan today, I ask them to make a commitment to commission a study to see what it would cost to produce a proper co-curriculum either in all schools or in youth services and voluntary organisations running in parallel and working with schools.
4.14 p.m.
Lord Walton of Detchant: My Lords, I too thank the noble Baroness, Lady Sharp, for initiating this

1353
important debate. In 1991 my noble friend Lord Moser—then Sir Claus—in his presidential address to the British Association for the Advancement of Science, castigated what he saw as the major failures of the British education system and called for the establishment of a Royal Commission. That call was echoed a few months later in this House by the noble Lord, Lord Callaghan.
It was rejected by the Major Government at the time, but, happily, Sir Claus Moser—as he then was—was able to persuade his friend Paul Hamlyn, subsequently Lord Hamlyn, to fund from his foundation a national commission on education, in which I was privileged to share. We published our report in 1993–12 years ago. I want to pay tribute to those who assisted in the commission's work; notably my vice-chairman John Raisman, my noble friend Lord Moser, Sir John Cassels, our director, and many other commissioners including the noble Baroness, Lady Kennedy of The Shaws.
We promulgated seven items in our vision—which I commend to your Lordships' House—and seven goals. We strongly recommended that the educational provision in the UK should be co-ordinated and planned as a single whole from age 14 to 18 or 19 and even, at times, beyond. We recommended a new general education diploma leading to an ordinary level qualification at about age 16 and an advanced level qualification at 18 to 19 to replace GSCEs, A-levels, BTEC, GNVQs and so on. All courses were to be provided on a modular basis.
At once your Lordships will ask how that proposal differed from GSCEs and A-levels. We of course recognised that it was important that in the national curriculum there should be five core areas within which there should be a wide choice of specific subjects. Those areas were languages; mathematics; natural science and technology; expressive arts, including physical education; and the humanities, including social science.
As for the requirements for the diploma, we recommended that at ordinary level the student must obtain at least the minimum total number of credit points prescribed, including the minimum number of credit points prescribed in subjects within the compulsory core. For the award of a diploma at advanced level, we recommended that the student must obtain at least the minimum number of credit points prescribed in a nominated major area of study; but in addition, the minimum total number of credit points—as we promoted it—prescribed in subjects from at least three core areas not within the major area of study.
Your Lordships will recognise some resemblance to the International Baccalaureate. I have to say to noble Lords who have mentioned it today that two of my grandchildren, educated at an international school in Switzerland, both passed the International Baccalaureate and had no difficulty in obtaining entrance to Durham University, where each of them achieved good degrees. The fact that they had not taken A-levels was no disadvantage to them.
In passing I would mention that, building on our report and its recommendations, my noble friend Lord Dearing in his subsequent report a few years
1354
later also strongly commended a baccalaureate. He apologises that he cannot contribute to the debate because he is undertaking a task in Berlin on behalf of the Foreign and Commonwealth Office.
One of the principles underlying our proposals was that there should be, as my noble friend Lady Warnock has said, a mechanism whereby there would be parity of esteem between the academic and vocational qualifications. That mechanism must allow a fast-track means for those intending to go up the academic ladder, but at the same time it must include the possibility that youngsters could take a combination of academic and vocational subjects; and the issue of breadth is fundamental.
Among the evidence that we took—Nye obtained 250 written submissions from many organisations, including universities, and took oral evidence at 50 hearings over a 12-month period—there was almost universal acceptance by virtually but not quite all the universities that A-levels had passed their sell-by date. There was a strong recommendation to the effect that they were so narrow that early specialisation was resulting in graduates in the arts who were scientifically illiterate and graduates in science who knew little of the arts and humanities. That was one of the reasons why we felt that breadth should be encouraged.
We did not expect, or intend, that the process of the education diploma should end at the age of 18 or 19. One of our most important recommendations was that those who entered work at 16 plus, and those who continued in work beyond 18 or 19, should have the opportunity of acquiring points towards the diploma through credit accumulation and transfer so that they would achieve additional qualifications of an academic or vocational nature through their occupational life. That is a crucial issue that is not fully covered in the White Paper.
There are many good things in the White Paper. but the attempt to cobble a new educational structure on to the existing framework of GCEs and A-levels is an error. I believe that the Government should think about it again very seriously. It is important to the future of our country. In the National Commission on Education report, one of our visions was that,
"in all countries knowledge and applied intelligence have become central to economic success and personal and social well-being."
I mention to my noble friend Lord Northbourne that he will see a lot about social skills and interpersonal relationships in the National Commission on Education report. We also made clear that in the United Kingdom much higher achievement in education and training is needed to match world standards. I believe that if the Government pursue what is in the White Paper without reconsideration they will have lost a golden opportunity to improve education in the UK.
4.21 p.m.
Lord Griffiths of Burry Port: My Lords. we are deeply in debt to the noble Baroness, Lady Sharp of Guildford, for keeping these important matters before us and for giving us this opportunity to discuss in such a free way the proposals of the Tomlinson report and the White Paper that responds to it.

1355
I live in the London Borough of Islington. I do not confess that in too many places as I might get a groan in response, but this is a safe place from that point of view. I am a governor and trustee of the Central Foundation School for Boys and the Central Foundation School for Girls. In the few years that I have been associated with those beleaguered schools in a very difficult social setting at the southern end of the borough of Islington there has been an improvement in morale, the investment of funds and examination results. I want to put that on the record and I would be delighted to respond on it. Financial support has been increased and the schools have become special schools: the boys' school specialises in business and enterprise and the girls' school specialises in the performing arts. We have been able to bring professional people from the City of London in to act as mentors and to enter into relationships with some of our young people. Local offices have also been involved in a healthy to-ing and fro-ing.
I welcome the fact that pupils aged 16 and above are given financial inducements to continue their education. It seems to me that that is a very important consideration. When I go into the schools, I rejoice at the way in which provision is made for the teaching, in the classroom or outside it, of children with special educational needs, as well as the teaching of the normal core curriculum subjects. There has been a terrific sea change and I record it with great pleasure. So I give credit where credit is due. All that has been happening while Tomlinson and his colleagues were deliberating and while those who responded in the White Paper were thinking.
I picked out in the report the notion of a unified framework within which the proposals being put forward could happen. I regret that it has not figured more in the debate. I thought it was an ingenious idea that showed great imagination. It also showed realism because a proper time was envisaged for transitional arrangements to take us to full implementation. I liked the way that there was so much crossover and flexibility at the different levels so that a pupil could buy in and out of different strata and put together something coherent that worked around him. I liked the realistic way that it related the world of learning to the world of work. The only thing missing was an adequate definition of "education". The words of the right reverend Prelate the Bishop of Portsmouth—"human flourishing"—seem as good a definition as any to me, as do "spiritual, moral, social and cultural development". I distrust acronyms that have a "k" in them.
I do not want to rake over old ground and ideological battles long won, but I am encouraged to do so by the noble Baroness, Lady Sharp. In the 1950s and 1960s, we lived in a world that told us where we belonged. I passed the 11-plus examination but my brother, my only sibling, who was a year younger than me, did not. He went to the secondary modern school and he knew his place all right. Although it was a good secondary modern school and he was a very good student, every pupil in the school knew that he was
1356
only there because he had failed an exam. My brother could sniff out from a mile away patronising proposals to marginalise pupils who do not perform well in our educational system. I wish he were alive now to help me apply his nose to the proposals in Tomlinson and the White Paper.
We must separate less able pupils from those with vocational orientations because they are not the same and we have less able pupils. The unified framework offers honest ways that, if we worked at it, could give everybody a sense of achieving what they were capable of and could equip them for the world of work. I share the view of the noble Baroness, Lady Sharp, and fear that the separation of GCSEs and A-levels from other possibilities will diminish them and I would like some reassurance from the Minister on that when he sums up the debate.
I rejoice at what Tomlinson has put before us. There is much that is good in the White Paper but there is a conceptual flaw at its heart. I would love to think that we could go on working on that to see if we can bring forward something better at the end of the day.
4.27 p.m.
Lord Moser: My Lords, I also thank the noble Baroness, Lady Sharp, for initiating this important debate. The Tomlinson report makes one of the biggest contributions to our thinking on education for many decades by focusing on the crucial years of 14 to 19 and problems such as early leaving. The noble Baroness, Lady Sharp, reminded us that far too many children leave at 16. We are now near the bottom of the OECD league table in that respect.
The working group consulted very widely and its report is one of the best of recent decades. Obviously, there are some things missing from it, but that is inevitable. Like most noble Lords, I shall focus on the issue of the divide between vocational and academic education. In doing that, it is important to recall that the Tomlinson report was basically about underachievers, early leavers, getting the basics right, improving vocational routes, stretching the best for the best and increasing challenges. It was also about reducing the burdens of assessment and qualifications, which are burdens for teachers as well as pupils. To achieve that, the working group tackled every aspect of educational curricula and qualifications. I like the way the report combines vision with practical detail, which is not a common feature of such reports.
At the centre of the report is a unified system with vocational and academic routes. Tomlinson specifically warned against a piecemeal approach to the problem. He saw clearly that there was a central issue, which was the missing framework. What the White Paper does—and I see a lot that is very attractive in it—is to accept a good many of the pieces, indeed to build on them, but not to accept the basic structure—the integrated framework. That is why there is so much disappointment, which I share.
But let us remember the key points in which the White Paper makes considerable progress. I pick out the obvious ones—language and mathematics teaching,

1357
which are very important to improve. Tomlinson could have been stronger, as the Royal Society pointed out in its published comments, on the importance of science for the future. I applaud the emphasis on English and on literacy and numeracy. Literacy—a subject in which I have been working for many years—remains a very major and rather shocking problem in spite of some progress. So in these particulars Tomlinson has left his mark.
The White Paper has many of the basic building blocks in place, including a major simplification of qualifications in the vocational area—from some 3,000 qualifications at present to a mere 14 that are key for our economy. Given all these important parts of the White Paper, why is there such widespread disappointment? Why is there a feeling, which I share, that the Government have missed, or may miss—because I see hopes for the future—a vital opportunity?
That takes me back—alongside some of my colleagues and previous speakers—to this historic divide in our educational system between the academic and the vocational route. Those abbreviations are not totally satisfactory. This divide has always been with us, with obvious social class undertones and with what the Secretary of State herself has referred to as the problem of intellectual snobbery—so, clearly, the Secretary of State does not need persuasion that there is a social, deep-seated problem here. This divide is at the root of the great underachievement for so many of our children—literally thousands of them leaving school at 16 and not continuing to any kind of education, full-time or part-time. That was the key problem mentioned by the National Commission on Education, to which the noble Lord, Lord Walton of Detchant, referred.
What the noble Lord did not say was that it took some persuasion on my part to persuade him to chair that commission. In all my activities in the educational world, that was the toughest task I have ever had to perform, but also the one with the finest outcome. The noble Lord, Lord Walton of Detchant. was an amazing chairman and it is a very good report. It was published 14 years ago, with some volumes appearing after that date. It is a remarkable effort and we owe a great deal to the noble Lord.
As the noble Lord reminded us, that report took very much the same route as the Tomlinson report. Many people, including most of those whom Tomlinson consulted, took the same view. We must remember that Tomlinson brought to this task, personally, the greatest experience probably of anyone in the educational world—25 years as inspector, and much else. He grasped this central issue of the divide squarely and courageously, and produced the system of diplomas. But he did not account for one brick wall—on publication day the Prime Minister stated, in addressing the CBI, that the aim would be,
"to improve … not to replace",
the present structure. Next day, Mr Miliband said that the essence in this situation is to make a distinction between an overriding uniform framework and all the bits within it and that they were both equally important.
1358
I end simply by stating as clearly as I can that what is much more important in this situation is to have the structure in place within which all the bits and pieces—the qualifications and the curricula—can be developed. To develop them in a piecemeal way is once again to shrink away from this historic opportunity of at last getting the structure right in which vocational and academic routes would be regarded as of equal status—not the same outcome for everybody, but of equal status, as other people have said.
I also see no particular reason for retaining the A-level as our gold standard. It is no better as an exam than the gold standard was as an economic reform. I do not know why we keep on wanting to refer to the gold standard. My hope still is that, with so much right in the White Paper, we are on a possible route towards the baccalaureate as the ultimate system. As my noble friend Lady Warnock said, I hope therefore—and I hope the Minister may refer to this—that this stage is just one of the staging posts in a long process in which Tomlinson and the White Paper can be put together in various discussions, not least in this House.
4.36 p.m.
Lord Pendry: My Lords, I join all those who have congratulated the noble Baroness, Lady Sharp, on initiating this very important debate.
It is true that many people were disappointed that the Government's recent 14 to 19 White Paper did not go further down the line of Tomlinson and introduce an overarching diploma for the 14 to 19 stage of education, combining vocational and academic learning. I believe that that argument has its merits but I also believe that the GCSE and A-level system also has its merits. The challenge now is to ensure that the vocational diploma being introduced is not seen as a second-class route or a route for less able young people.
But we do not need to be pessimistic. There is a growing momentum, a shift in values, which is detectable in the media, in the classrooms and in the boardrooms of employers across the country. This movement is beginning to look upon vocational learning as an esteemed and valid option. I believe that we are seeing the beginning of the end of the academic snobbery of which this country has in the past fallen foul.
To achieve this, however, we need to move away altogether from the distinction between vocational and academic learning. A degree in law is a vocational qualification, as is an NVQ in customer service, a technical certificate in football coaching and a medicine degree.
The truth is that the skills gap faced by the UK, in comparison to our European counterparts, and the implications that this has for the productivity of the UK economy, have brought home to us the value of vocational learning. We have realised that we must embrace all types of learning, vocational and academic, in order to progress as individuals and as a society.
The employer-led sector skills councils are already playing a major part in this process and I should like to say a few words about SkillsActive and the sector skills

1359
council for the active leisure and learning sector, a sector which, as many noble Lords may know, is one of the areas of interest to me. I am only too aware of the need for skilled professionals to work at all levels throughout the sport and leisure industry. We need football coaches, lifeguards, skilled fitness instructors, playworkers, outdoor adventure leaders, and more. SkillsActive tells me that employers are calling for the people coming into the sector to have better team-working skills, improved communication skills, better technical and practical skills and improved customer-handling skills.
SkillsActive is working hard to develop pathways for entry to the workforce. The developments focus on foundation degrees in higher education, young apprenticeships for the 14 to 16 age group, progression routes for non-traditional learners and, potentially, adult apprenticeships for the over-25s. I welcome the Budget announcement made by my right honourable friend the Chancellor today that the Government will make available universal education and training to all those under the age of 18, with the aim of 300,000 being in apprenticeships by 2008.
A good example of young people being encouraged to remain in training is the apprenticeship programme being embraced by employers in the fitness sector. Fitness First, LivingWell and DC Leisure Management, to name but a few, are embracing the blend of vocational learning and quality work experience offered by apprenticeships for their staff. I am sure that we have all seen the television adverts and billboards for apprenticeships, and I would be interested to learn whether the take-up has increased across all sectors following that campaign.
Professionalisation of the fitness industry through the Register of Exercise Professionals, a SkillsActive company, means that young people are informed about what qualifications are valued, where they can get them and what qualities employers are looking for. That is exactly the kind of employer-led direction that many young people who may be considering leaving full-time education and training need. SkillsActive, as with the other sector skills councils in each sector of the economy, is developing a sector skills agreement between employers, government and funding partners, which will define and shape the work force for the next 10 years. That will mean that, for the first time, vocational education and training will be demand-led, and that each student can look forward to better opportunities for employment and have better incentives to participate in education and training.
The sport and leisure sector has the power to engage with young people at the 16 to 19 stage, more so than any other sector of which I know. A great example of the power of sport to inspire disengaged young people is the DfES scheme "Playing for Success", where the medium of football, rugby and other sports is used as a motivational tool to help to raise literacy, numeracy and ICT standards among key stage 2 and 3 pupils who are demotivated and struggling with study.
1360
The Child Benefit Bill, which is due to come into Committee in this House, will create a financial incentive for eligible young people to continue in full-time unwaged education and training. However, we must recognise that, for many young people, financial reward is not necessarily the big incentive. Lessons must be learnt from projects such as "Playing for Success" and, where applicable, applied to the 16 to 19 stage so that we can truly release the potential of our young people, as Tomlinson set out to do.
4.43 p.m.
The Earl of Listowel: My Lords, I too warmly thank the noble Baroness, Lady Sharp of Guildford, for this opportunity to think how we can be less wasteful of the full potential of our 14 to 19 year-olds. I also record my appreciation and thanks for the news in the Budget that there will be further consistent investment, particularly in teachers. Various speakers have mentioned the distinction between GCSEs, GCEs and vocational qualifications. Yesterday, I was reminded of the work of Shaftesbury Homes and Arethusa, which does an outstanding job in ensuring that children in residential care do far better than many of their peers in education. Its education officer insists that her children get GCSEs because they see it as the gold standard. There is a danger that if the dichotomy continues, such thinking will continue, but I recognise that the problem is difficult to address.
I would like to pursue two themes. The first is the importance of concentrating on the potential of the children and allowing them to fulfil their capacity, and the danger of unintentionally slipping towards an emphasis on what employers need. It is welcome that employers are so involved, but we should not think too narrowly about simply skilling up a child to do a particular job. I do not see that in the papers that have been produced so far, but there might be that danger.
The second theme that I wish to pursue is that of engagement. Many of your Lordships have addressed that already. I think particularly of children in local authority care. I was looking at a website for the Department of Health about Quality Protects. It must have been two or three years old, but it said that 75 per cent of children aged more than 14 in care were not in education. I find that incredible, but the Minister has recognised in the past that our education system has badly let down those children. That has been exacerbated by the lack of investment historically in care, foster care and residential child care.
I welcome the thrust of both the reports in terms of really concentrating on engaging young people. Tomlinson says in his report, with regard to the principle that he adopts:
"What is apparent to us, particularly by looking at successful 14–19 systems abroad, is that vocational learning is not just a matter of contributing skills to the economy, nor of providing opportunities to young people who find difficulty with academic subjects—though it can do both of these things. Soundly-based vocational education is an absolutely key feature in the education project itself as it is capable of attracting large numbers of young people to participate in, and attain at, advanced level study".

1361
It is very important that we want to retain the young people in education for longer periods, with a broader education than we currently allow them so that they can fulfil their potential and realise their full capacities.
The other point to which I would like to refer in Tomlinson's report is on the quality of teaching. It states:
"The quality of learning depends heavily on the quality of teaching. Time would enable teachers, lecturers and trainers to do more of what they do best—that is to inspire learners by delivering a varied, relevant and interesting curriculum in ways that motivate them".
Tomlinson is referring to his paring down of the assessments referred to by other noble Lords. I recognise that the Government still intend to move somewhat in that direction, but not nearly so far as he intended. I would welcome hearing from the Minister whether he will give careful thought to whether there is no further that he can go in reducing the level of assessment of pupils from 14 to 19. As has been said, we may have the most tested pupils in Europe at least. Perhaps more should be done in that direction. However, I welcome the investment that the Government are making in teachers and supporting teachers better, so that they can work more effectively in the front line. The recent education Act frees teachers from some of the burden of bureaucracy that has prevented them being creative in engaging with young people.
I shall refer briefly to the Government's report. Under the heading:
"A new means of re-engaging the disaffected",
it states:
"We need a strong work-focused route designed specifically to motivate those 14–16 year-old young people who are at the most risk and who we know would be motivated by a different learning environment … We will therefore develop and pilot a strongly work-focused programme aimed at those with serious barriers to re-engagement".
I bear in mind what my noble friend Lord Northbourne said on that but, on the face of it, I warmly welcome it, so long as it is of good quality. I note what the Social Exclusion Unit's recent report, Transitions, states about socially excluded young people—that those in the poorest areas tend to have a short-term view of life. I very well see that a young person in school might not see the point of it. To have one day a week in a workplace can really motivate them to continue in their studies and develop basic skills at least before they leave. We have far too many people who are functionally illiterate, so I welcome the Government's response.
I would make one further point. The Social Exclusion Unit's report into teenage pregnancies had a very important, one might say principal, finding: girls choosing to have children in their teens had extremely low aspirations. They saw no prospects in their life for any future apart from maternity. I am confident that if we could engage more girls in education, by finding them interesting, engaging courses, then we would have a lower teenage pregnancy rate. It is far too high as it currently stands.
To conclude, I was dismayed, working on the recent Criminal Justice Bill, as we further discussed the antisocial behaviour orders, that we were making it easier for
1362
these to be used on children as young as 10. We were making it easier for them to be photographed, named and their addresses given in the local newspaper. One would also see the tabloids and national press picking these photographs up and publishing them on occasion. In my view, we have been far too quick to punish in the past, and we have been far too slow in supporting families and children. I welcome what the Government are doing, but if one considers that we have the highest number of children in custody of any of our neighbours in Europe, if we think of the numbers of women in custody—which have rocketed in recent years—we need to be more pro-active in engaging young people.
I also hope that the forthcoming youth Green Paper will say how we will invest further in youth services. We do not have a statutory youth service in our country. It has long been neglected. I look forward to the Minister's response.
4.51 p.m.
Baroness Maddock: My Lords, with the leave of the House, I rise to speak in the gap. 1 am afraid that, due to an administrative error, my name was left off the speaking list. I therefore have to be very brief.
I am a governor at Brockenhurst College, an FE college in Hampshire. The Government White Paper on the reform of 16 to 19 year-old education and the forthcoming Foster review are of great significance to my fellow governors and our principal, Mike Snell.
The college has been through many transformations. In the 1950s and 1960s it was a grammar school, and I was educated there. It then became a sixth-form college under Hampshire County Council, and subsequently a further education college. Since that time, it has had two different masters when it comes to funding.
Despite these changes. the governors and staff have always striven for excellence. Last year, our inspection rated us excellent—indeed, in the top 10 in the country. We have since received beacon status. That is the background with which approach this debate.
As others have said, for those of us involved in education, the Government's decision not to implement the Tomlinson review more fully is very disappointing. It is unlikely, however, that they will now change their mind. We need to ensure, therefore, that there really is a step change. I have a few brief questions for the Minister.
It seems to me that across the board—and I am sure this is true for all of us—we welcome the commitment by the Government to the concept of vocational learning. However, we need two things. We need to ensure a better understanding of what vocational education is. We need some robust research in this, and we need to involve those in higher education. We need to strengthen the vocational system beyond the traditional lines of closer involvement with employers, specialist schools and others in the system.
This is a real opportunity to build on what we have, to raise the status of vocational and skills-based learning. Many people have referred to that today. We need to stop thinking of academic education as being

1363
better than vocational—that is what we have been trying to get away from in education for as long as I can remember.
If we are to achieve this, we need to ensure a broad education for as long as possible. I hope that the Minister can comment and expand on this, because it has been one of the themes of the debate today. Can the Minister indicate whether resources will be made available to provide facilities for the improvements that we all want to see in vocational education?
At Brockenhurst, through careful management, we have set up a restaurant on site. It is open to the public, and students are trained in catering and hospitality. We have expanded IT provision across the board; we have drama and media studies; we have off-site adult education; a nursery; workshops where we offer plumbing and building skills; and much more. But it has been a constant struggle to set up and fund such facilities when funding requirements and government priorities are always changing. We need a period of funding stability and predictability if we are to succeed.
I am told that I have to sit down when the Clock shows five minutes to the hour. We are all disappointed. Governments say that they are going to be radical, but only time will tell. Today, however, we are looking to the Minister to demonstrate that the future really will be different, and that schools and colleges will get the facilities they need to go forward in the way that many of us have expressed today.
4.55 p.m.
Baroness Walmsley: My Lords, I also thank my noble friend Lady Sharp for giving us the opportunity to discuss this very important matter today. There have been so many excellent and impassioned speeches in this debate that it is a great challenge for those of us winding to do it justice. I shall do my best.
My noble friend Lady Sharp referred to the Tomlinson report as the opportunity of a lifetime. It is therefore rather sad that so many concerns have been expressed very legitimately around the House today.
The world is becoming a much more competitive place for us. During the Industrial Revolution, the UK led the world in many respects. Nowadays we do not. The UK workplace is also becoming more competitive, even though we have a very high level of employment. That is why this subject is so vitally important to our future.
We face many problems, which the Tomlinson report sought to address. The noble Earl, Lord Listowel, reminded us of the lack of engagement of so many young people in their education. The further education sector often needs to correct the failings of the school system in later life—that is, if the person concerned has enough energy and motivation to undertake it.
The noble Lord, Lord Pendry, reminded us of our skills shortage. We must remember that those who train for practical skills also need good English and maths abilities, in order to run a successful business. Any of your Lordships who have ever received an almost unintelligible estimate from a plumber or builder will realise that that is the case.
1364
We have also been reminded that we have 20 per cent functional illiteracy in this country; 47 per cent of our children leave school without the target five A to C GCSEs. We do not really know how many leave without maths and English. Of course, 5 per cent leave without any qualifications at all.
We have been reminded about the lack of participation in post-16 education. Two noble Lords mentioned that we are in fact 24th out of 28 OECD countries for participation at sixth-form level in our schools. Perhaps today's Budget announcement will help to encourage more young people to stay on. I really hope so.
I was most interested in the description by the noble Baroness, Lady Massey of Darwen, of the increased flexibility programme, and the global citizenship initiative. These strike me as the sort of things that will give young people the sort of interest that might encourage them to stay on.
One of our problems is that our exam system is geared more to select for university than to prepare young people for the world of work. Businesses are constantly complaining about the shortcomings of the current system. We also, as my noble friend Lady Sharp mentioned, have a rather narrow sixth-form curriculum—one of the narrowest in the world. Some noble Lords have emphasised the benefits of the international baccalaureate, including the noble Lord, Lord Walton of Detchant, who, with the noble Lord, Lord Moser, in his commission of 1993, has clearly been extremely visionary. It shows us, perhaps, that some of the things that Mike Tomlinson is proposing are not the result of new needs. Twelve years ago, that commission was talking about the need for breadth, saying that it is quite fundamental.
A-levels are not suitable for many young people. Even when they are, they do not sufficiently challenge many of those who take them. The response to this seems only to be the giving of a project, or an essay that enables the best students to show their ability. As we were reminded by the noble Lord, Lord Griffiths of Burry Port, most able students also include many young people who have a vocational bent. We need in our society clever electricians, plumbers and builders and other people of that nature.
We were reminded by my noble friend Lady Sharp of the cost of external assessment, which is £610 million. But I suggest that the cost is also in the loss of creativity and innovation, when we find teachers teaching to the test.
Despite all those problems, many schools do absolutely excellent work. I enjoyed the account from the noble Lord, Lord Griffiths of Burry Port, of the single-sex schools in Islington, but I wonder what happens to girls who want to go into business and boys who want to go on the stage.
I believe that the Government have missed opportunities in responding to the Tomlinson report. After 25 years' experience—some of it, I understand, under the guidance of the noble Lord, Lord Sutherland—Mike Tomlinson has offered a sensible and appropriate

1365
set of proposals to address the problems that we face over a sensible timescale. The noble Lord, Lord Moser, commented that the report,
"combines vision with practical detail",
and warns against a piecemeal approach. The noble Lord, Lord Moser, agreed with Tomlinson in that, as do I.
First, I welcome the fact that the Government have now said that the five A to C grade targets will in future have to include English and maths. I welcome the fact that the general GCSE diploma will include those subjects and that the GCSE achievement and attainment tables will also include them. I mention the comments in today's media from Ivan Lewis MP, who talked about the need to "raise the bar" and the fact that the Government are being quite courageous in saying that they will do that because initially it might seem that the achievement levels are going down a little. Well, it just shows that there was very much a need to do that.
I also welcome the fact that in future pupils will be able to take exams when they are ready. Of course, a credit system would work very much better if children were allowed to do that. The noble Baroness, Lady Warnock, was very enthusiastic about that aspect of the report. I also welcome the simplification of vocational qualifications.
But the proposed unified framework of achievement has been dismissed. According to the Government, the diploma framework will be retained only for vocational and work-based areas, and GCSEs have only been tinkered with. The noble Lord, Lord Lucas, wants to keep the brand of GCSEs and A-levels. I think that, so long as we keep the content, there is no reason why we should not have the broader vision.
Tomlinson tried to address a fundamental cultural attitude towards vocational training and skills. The right reverend Prelate the Bishop of Portsmouth talked about vocational training being seen as second class. He also talked about the need for continuation of religious education. I have to admit to having some sympathy with the right reverend Prelate. In our multicultural and multi-religious society, religious fundamentalism and the misunderstanding by advocates of one religion of the tenets of another religion cause us enormous problems.
I also welcome the fact that young people will be able to include community involvement in their achievement record in future. I remember how much I learnt from the community involvement that I had when I was in the sixth-form at school. I went to work for a lady who was bedridden with arthritis and who lived in a very deprived community. Apart from learning how to put a bet on at Aintree, which I certainly had not known how to do previously, I learnt a great deal about a society of which I knew absolutely nothing before.
But the problem is that the Government's response does nothing to bridge the divide between vocational and academic training and nor does it allow the kind of flexibility that we need. The noble Baroness, Lady Massey, talked about the need for firm
1366
foundations—I absolutely agree with her about early years education—but she suggested that it needs a certain solution. Perhaps another solution is flexibility. Wooden houses bend and give a little and they do not crack, and the same is true of trees. They bend with the wind rather than break. As a botanist, I am always quoting these analogies, but I think that that is what we need. We need flexibility. Tomlinson offered us that, and it is a pity that the Government have dismissed some of his major recommendations.
5.5 p.m.
Baroness Morris of Bolton: My Lords, I welcome this opportunity to speak from these Benches in this important and significant debate. I thank the noble Baroness, Lady Sharp of Guildford, for initiating it and I greatly enjoyed the contributions of all noble Lords. Like the noble Baroness, Lady Walmsley, I found them imaginative and thought-provoking.
As many noble Lords have mentioned, encouraging greater participation and involvement in education is a challenge that none of us can ignore. We owe it to society and to our young people to do all that we can to address the very real problems that are acting as constraints in the present system.
To that end, the Tomlinson report is an important marker, and we must thank Sir Mike Tomlinson and his team for their enthusiasm and tenacity in drawing together an imaginative and creative report in a genuine and honest attempt to address the more entrenched weaknesses in the existing structure.
One of the more remarkable aspects of the report was the broad consensus that it achieved. All of us, it seemed, were in agreement that raising core literacy, numeracy and computer skills was vital, along with the need to encourage greater participation beyond the age of 16. We, for our part, stated clearly and unequivocally—this has been reinforced today by my noble friend Lord Lucas—that, while the Tomlinson report provided many invaluable suggestions for reforming 14 to 19 education, we did not agree with the proposal to abolish GCSEs and A-levels.
The Secretary of State, in her White Paper response to the Tomlinson report, now seems to agree with us, but she failed to offer any proposals for making A-levels more rigorous. In fact, she indicated that no changes would be made to the content of the exam at all. The White Paper stated the Government's plans to work with employers and universities to identify what, if anything, would add value to existing courses. But the Secretary of State does not plan even to consider making reforms until 2008. Our children deserve a quality education and should not have to wait until 2008 to get one.
We would also allow schools to offer other robust curricula, such as 0-levels and the International Baccalaureate, as well as vocational qualifications. As my honourable friend Tim Collins said:
"Only by giving head teachers and their professional colleagues the freedom to set their own academic agendas in line with their admissions policies will classrooms once more become the orderly and happy places in which children can learn and excel".

1367
It is disappointing that, after eight years and four Secretaries of State, Labour has just woken up to the crisis of confidence in our examination system. Far from the transparency that the noble Baroness, Lady Warnock, spoke of, it has created an opaque and devalued system that few would now seek to copy. I think that the noble Baroness called it a "dog's breakfast".
We share the concern of the noble Lord, Lord Moser, with regard to numeracy and literacy. So, in addition to our proposal to improve A-levels and GCSEs, we think that it is of crucial importance that receipt of a diploma will depend on passing externally examined literacy and numeracy tests. This measure will ensure that those who leave school possess the basic reading and maths skills that they will need to function in the wider world.
The CBI has stated that employers wish to see the standards of functional literacy and numeracy among school leavers raised—a point mentioned by the noble Baroness, Lady Sharp—because they have been unacceptably poor under successive governments. It also reported that one in three companies has to provide remedial training for those who leave school without having mastered reading, writing and arithmetic. Its 2004 survey of 500 companies showed that 37 per cent were not satisfied with the numeracy and literacy standards of 16 year-olds, and a survey of vice-chancellors showed that 48 per cent have been forced to provide special lessons in literacy and numeracy for first-year students. Two-thirds stated that extra numeracy classes were now the norm. These facts and figures paint an unacceptable picture of the current education system and highlight the need for immediate reform.
In Ruth Kelly's White Paper she proposes to restructure English and maths GCSEs to ensure that it is impossible to get a grade C or above without the ability to use functional English and maths. The fact that there is even a question of whether those who achieve a C at GCSE have those basic skills is appalling.
Along with the reform of the current exam system, we believe that the gap between pupils who concentrate on academic subjects and pupils who focus on vocational subjects should be breached. As my noble friend Lord Lucas said, too often we seem to be concerned only with academic studies.
Every child needs the encouragement and incentive to do well in both areas. A premium must be placed on educating all students, not only those with an interest in pure academia. We should value youngsters with technical or practical qualifications just as much as students with a degree and not regard them, as the right reverend Prelate the Bishop of Portsmouth said, as second class. Indeed, sometimes I think that this country is obsessed with which university you went to. Pupils who choose not to continue on to university need skills to secure jobs in today's world. We must provide our children with the skills and the knowledge they need to be successful and productive members of society.
1368
Despite the Government's emphasis on raising the status of vocational skills training, the White Paper published by the Government fails to offer an effective solution. The Secretary of State on the day of publication of the White Paper stated:
"We must also transform vocational opportunities".—[Official Report, Commons, 23/2/05: col. 312.]
However, her proposals as they are outlined in the White Paper merely offer a pilot programme for 14 to 16 year-olds, which it is expected will be available for up to 10,000 young people from 2007–08.
This contrasts with our plan for immediate vocational grants to allow 300,000 young people from age 14 to take vocational courses in local further education colleges. We would provide £1,000 per year to pupils aged between 14 and 16 so they can receive vocational training. Those grants would allow 20 per cent of the age group to learn a trade. Currently, 22 per cent of British employers suffer from a skills gap. It is estimated that one-fifth of vacancies, approximately 135,000 jobs, remain unfilled because of a shortage of people with the right skills.
Today a million young people are not in school, do not have jobs, and are not enrolled in training courses. We plan to establish a network of skills super colleges, provided by extra funding from the abolition of the learning and skills councils. We are seeking to enable 14 and 15 year-olds to start on a vocational path from school, while allowing further education colleges to provide specialist courses for them.
To build esteem for trade professions, the quality of the vocational education system must be improved. As a result, a young person who chooses a vocational route, and successfully completes that route, will not be viewed as someone who opted for a standard class education; instead, he or she will be seen as an individual with first-class skills. As our hard-working and dedicated teachers know, education is about developing each child or young person to his or her full potential; it is about fostering self belief and unlocking the curiosity inherent in all of us and developing that passion of which the noble Lord, Lord McKenzie of Luton, spoke. All of us are good at something and the best education finds that something and builds on it.
After eight years, two manifestos, five Green Papers, three White Papers, eight Acts of Parliament, two strategy documents and four Education Secretaries, the Government claim to have the answers to the crisis in education. But I am afraid it is all talk. There are no effective measures to raise standards and the Government have missed a golden opportunity to reform the life chances of a generation of pupils.
5.14 p.m.
Lord Filkin: My Lords, by happenstance, it is Budget day which, in many ways, is quite fitting. The Chancellor said in his speech that because education is the 21st-century road to prosperity, Britain must become the best educated, the best trained and the best skilled country in the world. The noble Lord, Lord Walton, said something very similar in his interesting and important speech.
unni
1369
The Chancellor also drew attention to the fact that we are moving rapidly from a world in which compulsory education was for everyone from five to 16 to one in which universal education and training will be available to everyone from the age of three to 18. I preface my response with those remarks because they set the wider context for our important discussion about education and training for 14 to 19 year-olds.
I do not need to spend time on why we need reform, as the noble Baroness, Lady Sharp, spoke well on that and most Members have read both the Tomlinson report and the White Paper. The noble Lord, Lord Lucas, said something that the noble Lord, Lord Dearing, said, when we debated the Dearing report: if we can achieve a consensus on these issues, it is desirable to do so for many good reasons. I am not sure that we have a perfect consensus. My measure of the views across the House is that the consensus varies between a half and seven-eighths. I will not put marks, at this point, on who is where. At least there is a consensus on some of the elements.
Essentially, the difference is that we have not done everything that the excellent Tomlinson report recommended. Show me a government who ever did so behave. Advisory groups give advice and governments make decisions, as they should.
The key decision that we have made is that it is possible to tackle the key problems that Mike Tomlinson and his working group identified, quite correctly, while also retaining the clarity, stability and quality of the best parts of our system. In other words, one does not need to throw everything up in the air all at once to focus on what most needs to be changed and there is a benefit in having some stability in a system that is undergoing rapid change.
Does that mean that we are addressing these problems in a piecemeal fashion, as the noble Lord, Lord Moser, asked? I do not believe so. We have focused on the specific measures needed to produce a coherent structure for 14 to 19 year-olds. Above all, we have secured the basics, we have better vocational opportunities, we have more stretch for all pupils and we are re-engaging disengaged learners. Those are the four key elements—if we pressed Mike Tomlinson I am sure he would agree that those are the fundamentals—and we are focusing on how to deliver them. Employers and many parents also tell us that those are the fundamentals. Many in the world out there want change most focused on those matters.
The first element of the debate was about getting the basics right. That was perhaps, surprisingly, one of the less richly developed areas of our discussion. The noble Baronesses, Lady Massey, Lady Walmsley and Lady Morris, all referred to it. There has been strong pressure and support from the CBI for what we have proposed in this area. In the debate, no one recognised that in the White Paper we have gone substantially further than the Tomlinson report on how we address getting the basics right. No one mentioned the fundamental importance of the changes that we are making to key stage 3 and to trying to achieve the correct remediation if children arrive from primary schools—we
1370
hope they will not—without the basics. If that is not done, the rest of the educational offer, as we know, is completely wasted for obvious reasons.
We are getting the basics right in other ways. I shall not go into detail. Clearly, the focus on functionality is very important. There is something wrong if people can do differential equations, but cannot add up their change in the pub. Without being trivial, part of our reforms address that.
I turn to the central theme of improving vocational education and vocational qualifications and, through that, securing more engagement. The noble Lord, Lord McKenzie, put his finger on the point. It does not matter what it is called, but what one can deliver. We are putting forward strong reforms to strengthen vocational education. Such education will have a diploma status. The diploma will not only be in vocational training, there will also be an academic element to it.
The fact that we have not taken every bit of what Mike Tomlinson said into the overarching, almost classical, structure of a uniformed diploma has caused unhappiness. That has been echoed in our debate today. Part of that unhappiness is the belief by many that if everything does not have the label of diploma, in some way people will feel that having a vocational diploma is not to be valued. It would be wonderful if, by simply giving everything the same label, we could shift some of the prejudice against vocational training education. But we do not believe that to be the case. Therefore, we have not been persuaded that it now is a priority for change.
That repositions the question of how we make vocational training and a diploma which are rich in vocational content, valued, recognised and have status. That was one of the central themes in our discussion today. A large part of the answer was touched on by my noble friend Lord Pendry when he signalled that some of this must be demand-led. You have to listen to those in higher education institutions and in the world of work on what they think should be the content of vocational training and vocational diplomas. If you get that right, you make an acceptance that this has value and status very likely.
My first meeting of the morning was with Sir Digby Jones. We were discussing a joint passion for sorting out offender education and getting more people into jobs. He was articulating—and I strongly agreed with him—that you had to start with what employers wanted and valued and build on that. It is exactly the same on this agenda. Fundamental to that question is how employers from sector skills councils and HE institutions work with the QCA to design the content to give these diplomas real credibility.
In other words, if young people know that getting a diploma with a high vocational content will virtually guarantee them recognition and status in the world of work, there will be a rush to get them and perhaps less of a rush to gain qualifications which give very unclear paths into the world of work and employment. There will be more to it than that.

1371
I agree with my noble friend Lord Griffiths that the provision also partly rebuts the argument—the secondary modern legacy which has infected this debate—that vocational means less able. That legacy infects part of British society.
I welcome the applause of the noble Lord, Lord Moser, for the simplification from 3,500 qualifications to 14 diplomas. I agree also with the noble Baroness, Lady Maddock—and I shall return to the issue later—about resources.
In response to the point made by the noble Baroness, Lady Sharp, you cannot simply legislate to give vocational qualifications parity of esteem. You cannot achieve that by giving every higher educational 14 to 19 qualification the same label.
I also mark that the diplomas are not only vocational. "Specialise" is not the same as "vocational". The lines of learning can and will include GCSEs and A-levels within vocational courses. In other words, a diploma which is essentially vocational will have a mix of academic and vocational elements to it. That is important.
The noble Lord, Lord Lucas, asked how the White Paper will contribute to life-long learning. The answer is that it will do so directly through three areas—providing access to higher education; forming the foundation on which individuals can build; and employment in later life. The courses which make up specialised diplomas will often be exactly the same as those available to adults through the Framework for Achievement.
The noble Lord, Lord Northbourne, also raised the issue of high status and whether it will be achieved. I touched on that with the involvement of employers and universities in designing the courses—in other words, ensuring that you are listening to those for whom they are meant.
We touched a little, but not massively, on stretch and challenge. That is the third key element in the Government's White Paper proposals. Part of that is about the retention of A-levels and GCSEs. It is not true, as I think the noble Baroness, Lady Morris, alleged, that there is no change and that we are carrying on with exactly the same system. We will be piloting the introduction of optional harder questions into A-levels to make them more rigorous and stretching. As the noble Baroness will recollect, because she was there at the time, in the Education Bill we are putting in the option of starting HE courses in schools. So there is a richer higher-stretch option. There is much more to the matter than that, but I do not have time to deal with it now.
My noble friend Lord McKenzie asked on stretch and challenge whether the International Baccalaureate was an option. The short answer is that it suits some—it is a well established qualification—but it is not the answer for all. Therefore, we are not going to roll that in as a universal offer.
There was some debate—and my noble friend Lord McKenzie touched on it—about the difference between what Mike Tomlinson recommended and
1372
what the Government White Paper says about A-levels. It does not seem to some to be the biggest issue. Essentially, Tomlinson said that we should retain what A-levels and GCSE were but get rid of the label. We are retaining the label as well as the contents. If that is the only issue that divides us, I do not think we should faint about it.
A further question was about whether the A-level offer is too narrow. The Curriculum 2000 reforms, which are still being implemented and bedded-in, have broadened substantially the offer that many young people undertake. Many now take four AS subjects—and all the better for it.
The noble Lord, Lord Lucas, asked whether we need stepping stones on the way to whole qualifications. A-levels and, increasingly, GCSEs are modular. An AS equals the first half, as the noble Lord knows, of a whole A-level. We agree that students should be able to move to AS level without doing a GCSE first if they are able to do so. So you can go faster if it suits you.
The critical issue which both Tomlinson and the White Paper address is on raising participation and achievement. In crude numbers we must aim for 70 per cent now and 90 per cent at least in 10 years' time. The Budget had a specific offer on that. It signalled that we will now offer those in full-time education or unwaged training up to £75 per week in education maintenance allowance and children's benefits; and for teenagers who are both out of work and out of education, we will pilot special transitional help if they agree to return to training.
Also in the Budget there is the strengthened offer for apprentices and college-based training and the offer to increase funding into FE colleges. As the House knows, we have already raised the number of apprentices to more than a quarter of a million.
A lot more needs to be done on raising participation and achievement. The noble Earl, Lord Listowel, my noble friend Lady Massey, and the noble Lord, Lord Northbourne, were right—to get participation at the higher level right, you have to get engagement and learning going well in the early years. I refer to pre-school, addressing the contribution that parents do or do not make and getting the foundations right. If you do not have full participation of children in primary school—in other words if 10 per cent are disaffected—you can guarantee that they will be opting out at the age of 16 and onwards.
So, if you are trying to ensure that you are raising participation, you must have a total system perspective. You cannot achieve it merely from the ages of 14 and 15. I repeat that our proposals on strengthening the attention in key stage 3 as a crucial part of this agenda are directly relevant to raising participation later on. In other words, if a child of 12 or 13 is not able to participate because he or she does not have a good foundation for key stage 3, you must put more effort into that. We are directly focused on that.

1373
Part of raising vocational attainment is avoiding the feeling that some young people currently have that they are locked in school, sitting learning things for which they cannot see a direct relevance, with a syllabus that feels as though it is still essentially geared towards getting A-levels and going into academic higher education; and that the offer does not seem to address the needs of those who may be perfectly bright but who are much more interested in going down a practical and work-based route.
Baroness Sharp of Guildford: My Lords—
Lord Filkin: My Lords, I have very limited time, so I hope that the noble Baroness will interrupt me shortly.
Baroness Sharp of Guildford: My Lords, does the Minister agree that it is also very important that pupils have good guidance so that students know what offers are available to them?
Lord Filkin: My Lords, the noble Baroness is absolutely right. I thank her for interrupting me. In fact part of the proposal is to ensure that there is good guidance. That is crucial in trying to raise participation at that point.
Part of the discussion on participation was about motivation. It is not simply about the educational offer made but about how you motivate those on the other side of the table to feel that it is worthwhile. That takes us back to our discussions in earlier debates about what does or does not turn off some young people from engaging in education.
The noble Baroness, Lady Massey, talked about the importance of early years, wider social factors and support services. The noble Earl, Lord Listowel, talked about looked-after children and some of the disadvantages that they have faced before being looked after. Clearly, the international dimension is valuable.
There is not as much time as I would like to respond to all those points but I take the point made by the noble Earl, Lord Listowel, that 9 per cent of young people are not in employment, education or training at all. That is one of the hardest targets to crack. Our proposals for a new programme for 14 to 16 year-olds, to which the noble Earl, Lord Listowel, referred, based on entry to employment, will include high levels of advice, guidance and support to tackle non-educational problems, including teenage pregnancy. I am grateful to the noble Baroness, Lady Sharp, for reminding me of that point.
I have just a few minutes to touch briefly on other important issues raised. The right reverend Prelate the Bishop of Portsmouth, a redoubtable contributor to our education and training debates, raised an eyebrow at the fact that religious education was hardly mentioned. The White Paper has not changed the position on religious education: it remains a statutory requirement up to age 16. The proposals recognise its importance in personal development, and the RE framework introduced by Charles Clarke, to which the right reverend Prelate referred, provides a sound basis for strengthening RE in
1374
schools. All that is there, believed in and a crucial part of the agenda. I assure the right reverend Prelate that it is not going away. Sometimes part of the challenge is not to write everything into White Papers because they would become almost unreadable. I know that he understands that.
I was also challenged by the noble Lord, Lord Northbourne, who said that the White Paper did not set out a clear vision of the knowledge, skills and attributes that young people need. I do not believe that that is so. It provides a firm grounding in the basics— English, maths and ICT—a framework of thinking and learning skills, including inquiry and creative thinking. and a body of knowledge and understanding about self, society and the place in the world, through the statutory national curriculum. A wide pedagogic view must be taken rather than a narrow one.
I have already touched on the point raised by the noble Lord, Lord Pendry, about the aim of creating a quarter of a million or so apprenticeships. I could say much more if there was more time. I shall write to him if he wishes.
The noble Lord, Lord Northbourne, asked about reviving the co-curriculum. I can confirm that shortly we will set out our proposals to recognise and embed the value of wider educational and social activities in supporting learning. That could well be in the youth Green Paper, so I ask noble Lords to wait in patience.
The noble Baroness, Lady Maddock, asked whether resources would be made available to raise the quality of vocational education. I can assure her that resources will be made available; for example, new capital funding for FE announced in today's Budget will improve facilities for vocational education. We are working with employers to set up new sector-based skills academies as national centres of excellence in vocational learning.
The noble Lord, Lord Moser, asked whether this was just one stage in a longer process that would bring together Tomlinson and the White Paper proposals. In essence, he was asking whether, if there was some divergence now, it would come back together later. The White Paper proposals clearly build on Tomlinson's proposals but go further in some respects. They have set the direction and will now enter a crucial phase of implementation. It will allow time for development, careful piloting and review to make sure that we get right the fundamental reforms of which I have spoken.
The White Paper also commits us to carry out a review in 2008 to establish whether anything further is needed to increase the breadth at advanced level. No doubt, that will give us opportunities to reflect on the issues and to see both how the reform programme that we have so far is going and whether it says we need to go further, faster or even wider.
The Government's focus will now be on making it happen. We have been through the process of testing, debating and consulting; it is now about action planning to deliver it. We are developing a clear, robust implementation plan. An extended range of GCSEs in

1375
vocational subjects will be available later this year, as will pilots of the upgraded maths and English GCSEs. The first four specialised diplomas will be introduced in 2008, and schools, colleges and training providers in each area will collaborate to deliver the full range of 14 to 19 options. We believe that those reforms will deliver the diverse routes needed to increase participation and provide the skills that our young people and employers need to take society forward. I assure the noble Baroness, Lady Maddock, that that will be substantially different as a result of the changes.
I thank the House and the noble Baroness, Lady Sharp, for a stimulating debate.
5.35 p.m.
Baroness Sharp of Guildford: My Lords, I thank the Minister for his thoughtful response, and all noble Lords for their participation in the debate. I hope that the Minister will bring this very good debate to the Secretary of State's attention because it has been useful.
In general, quite a number of noble Lords lamented the Government's failure to rise to the challenge of creating an integrated framework. Nevertheless, as other noble Lords pointed out, many good things are happening. The noble Baroness, Lady Massey, mentioned the increased flexibility programme, and the noble Lord, Lord Pendry, talked about the integration of the sector skills councils with developing the agendas in vocational areas. Those of us who feel that the whole is not quite the same as the sum of the parts need to take the good things that are happening but to go on pressing the Government to embed them into a more integrated framework. I beg leave to withdraw the Motion.
Motion for Papers, by leave, withdrawn.

Iraq
5.36 p.m.
Lord Gardenrose to call attention to the economic, political and security developments in Iraq since the intervention in 2003 by United Kingdom Armed Forces; and to move for Papers.
The noble Lord said: My Lords, this weekend it will be two years since the United Kingdom joined the United States. Australia and Poland in a large-scale military intervention in Iraq. Ignoring the question of the legality or legitimacy, the coalition powers, after the short war, were in an extraordinarily strong position to help build a new democratic, economically viable and stable Iraq. Unfortunately, the speed and efficiency of the combat phase of the operation has not been replicated over the past two years in the reconstruction phase.
I have not called for this debate to repeat the concerns that many of us have over the process by which we went to war in Iraq. Nor do I want to spend time attributing blame for mistakes made in the planning, or the lack of it, for the aftermath. Rather I
1376
hope that we can review progress in the economic, political and security aspects with a view to tackling the many serious challenges ahead.
One of the difficulties that those of us who study these matters have is the lack of usable objective data. It is particularly difficult to plot trends in the economy, quality of life or physical security when different baselines and indicators are continually used. The assessment that I will make will be no more than a distillation of many sources. I shall be interested to see how far it accords with the British Government's assessments. The debate is about three interrelated aspects: economic development is urgently needed but it requires better security and a stable prospect for governance.
On the economy, lack of progress in infrastructure projects can contribute to lawlessness and insurgency. We are now two years on from the intervention, yet it appears that electricity in some urban areas remains as unreliable now as it was then. The measures of progress, whether in improving fresh water supplies, sanitation, transport, functioning health and education facilities, still remain unclear. Of the population of 26 million in Iraq, around 8 million ought to be in employment, but we now know that unemployment is running somewhere between 30 and 40 per cent.
We still have an aid programme based largely on American decisions. That, in turn, means that foreign contractors are doing the rebuilding, and therefore much of the money is going to non-Iraqis. Maladministration, not to say corruption, is a further worry, with the Special Inspector General for Iraq Reconstruction reporting at the end of January that $8·8 billion of Iraqi funds handed out by American administrators to Iraq ministries was "unaccounted for".
On top of that, the security situation is diverting too much of the effort away from infrastructure rebuilding work. Only $2·5 billion out of the $18·4 billion that the Americans allocated for 2004 was actually spent on rebuilding. Recent reports suggest, rather worryingly, that the number of Iraqis who are employed on the rebuilding projects is falling rather than rising.
I will be interested to learn what the Minister believes the British Government can do to get Iraqis more involved in rebuilding their country, both to ensure that individual Iraqi citizens can see that things are getting better month by month and to ensure that unemployed young men do not turn to crime and terrorism in even greater numbers. Perhaps the Minister will tell us a little more about the conference that was discussed earlier this week that will look at this matter later this year.
I turn to political developments. We all welcome the extraordinarily impressive turnout for the elections in January. Many brave Iraqis ignored threats in order to cast their vote. However, the euphoria over that excellent exercise in democracy should not obscure the real political challenges that still lie ahead. The 275-Member National Assembly is charged with drafting the country's new constitution as well as with choosing a president and two deputies from among its

1377
Members. Those three leaders will in turn nominate a Prime Minister who will go before the Assembly for approval.
We meet on the very day that the Assembly has gathered in Baghdad for the first time, but it was a gathering just for ceremonial purposes, as agreement between the main groupings, the United Iraqi Alliance, the Kurdish Alliance and the Iraqi List, has still not been reached. We keep on being told that they are close to agreement, although I hear from Baghdad today that they are asking for probably another couple of weeks. An agreement on those Cabinet posts must be reached before the new government can be named. It has already taken more than six weeks from that 30 January election to make even that much progress.
Another clock is running in the political process. The new constitution needs to be agreed by 15 August to make the plebiscite deadline of 15 October, although it is allowed one—only one—delay of up to six months. That is an extraordinarily challenging timetable, particularly given the real differences of view between the groups. Keeping the Kurds aboard during this process may be difficult. It is not going to be easy to agree what status should be accorded to Islam in the constitution. There will be difficulties over the Kurds' desire to include Kirkuk, with its oil, in their controlled area, as well as over demands that the region's autonomous status should be laid down in the constitution.
If running the country and formulating a consensus on the constitution were not enough, the full democratic elections under the new constitution are due by the end of the year. These are all positive, welcome moves, but they carry with them turbulent times, as Ministers change with each change of government. When predicting the future governance is so difficult, for those inside the country and those outside, we need to invest in Iraq.
While the process may need more time than is allowed in this tight schedule, keeping the momentum going is important, particularly to reduce the dangers of turbulence in the transitional period. 1 will be interested to hear whether the British Government feel that the timetable is achievable. What could we do to help achieve it?
The security situation is the most difficult of all on which to make objective assessments. I was struck by the difficulty when I received a phone call from an American journalist in Baghdad two weeks ago. She asked what my assessment was of the security situation in Iraq. I thought that she might have been better placed to do it, but she explained that she was unable to leave her hotel and that when she did, when fully covered, she could not speak because an American accent made her a target. I thought that she might have known from all of that what the security situation was.
Another journalist who is a regular in Iraq told me last week that he found the most reliable source for information to be Iraqi lorry drivers, who have to negotiate their way through insurgents, bandits and criminals. He was absolutely dismissive of the intelligence of the multinational force, "bunkered in the
1378
Green Zone", as he said. As he pointed out, it is not able even to secure the road from the international airport to the town.
My sources are journalists, academics who interview Iraqis, the Pentagon, which is so much freer with its information than our own Ministry of Defence, and the various hearings that take place in the United States. The picture that is painted is not entirely encouraging, despite reassurances by Mr Hoon during defence Questions in the other place on Monday.
I start with the threat assessment. For this, I draw heavily on the work of Professor Anthony Cordesman of the Center for Strategic and International Studies in Washington. His interviews with Iraqi intelligence officers and senior officials and data from the Pentagon and the multinational force's headquarters, identify four main threat sources. The first is al-Zarqawi and other outside Islamist extremist organisation fighters. They are mostly foreign Arabs, but their numbers are quite small and are assessed as being well under 1,000. But, as we know, when they attack, they have enormous impact.
The second threat source is the former regime elements—a mix of supporters of the Ba'ath Party, alienated Sunnis, paid volunteers, temporary recruits and other disenchanted Iraqis. An estimate of their numbers is even more difficult to make, but the median figure is somewhere between 15,000 and 30,000 fighters.
Thirdly, we are seeing a new phenomenon of homegrown Iraqi Islamist extremists. They are very few, but their numbers seem to be growing and they can have a similar impact with their suicide attacks. The fourth, and biggest, threat is organised crime. It is the major source of violence and insecurity in at least 12 of the 18 governorates. The criminals, who are out to make money more than anything else, seem to co-operate with terrorists and insurgents. Numbers are very high, and the effect on the overall feeling of insecurity also is very high.
We must ask whether our current approach is dealing with, and reducing, the threats, or whether some of them are still increasing. Following the daily fluctuations through media reports is particularly difficult, with the threshold for reporting steadily rising. These days, a bomb outrage with more than 100 dead will make the front page, probably; and explosions where 25 are killed make the inside pages. The many individual deaths, serious injuries, hostage-taking, armed crimes and extortion just do not get in the news, unless our citizens are involved.
The Pentagon e-mails me every day, as it can anyone who asks, with reports of deaths of US servicemen. That gives you some sense of the high level of violence across their area of responsibility. Sadly, such reports continue to arrive in my inbox virtually every day. As we know, the total of American service people killed passed the 1,500 milestone recently.
Through Questions in your Lordships' House, I have tried to discover a consistent measure For Iraqi casualties over time. We need to know how many Iraqis are being killed and injured, as far as we can;

1379
where it happens; and who is likely to be responsible. How can we judge our strategy without the collation of this sort of data? The editorial in last week's British Medical Journal stated:
"Counting casualties accurately can help to save lives both currently and in the future".
I urge the Government to look again at what is a counterproductive policy of not collecting and collating such data. It will not be precise or absolutely accurate, but we have got to do the best we can, and we can do an awful lot better than is being done.
Our Armed Forces and those of our allies serving in Iraq have a difficult and challenging problem. There is widespread agreement that the only way forward is to provide the training and equipment necessary for Iraqi security forces progressively to take over the responsibility for national security. How do we keep that process on track while the trainees have become ever more targeted? Iraqi officials and officers readily acknowledge that Iraqi forces have a long way to go and still lack proper training and equipment. They acknowledge too that the transition to two new Iraqi governments, the current Government and the government that we hope will be elected at the end of the year, will create turbulence in the best of circumstances. They make it clear that they cannot predict how the new government will behave or how the constitutional process and efforts at inclusion will change Iraqi security policy. They acknowledge the limits to their ability to plan and manage Iraq's force development in any orderly way. Even if the course of the insurgency were predictable, Iraqi military and security developments are very much a matter of improvisation and uncertainty. Iraqi officials and officers also have no clear budget or force planning, and no way to predict the level of American and other multinational aid.
Some of the Iraqi officials interviewed by Cordesman are reported as saying they see the need for three changes. The first is the need to develop and implement plans to create Iraqi forces more quickly, which are equipped and deployed to stand on their own. The second is the need to develop common plans with the United States and the multinational forces to phase down the role of these coalition forces according to common criteria and in ways where both sides have the same expectations, allowing Iraqis to predict the future level of the coalition aid, and thus determine their own needs in terms of capability. The third need is to develop mid-term plans to create Iraqi forces with enough support and heavy land and air weapons eventually to replace all of the coalition forces.
Do the British Government recognise this as a possible way forward? If so, are there discussions between the coalition members aimed at co-ordinating this approach? Does the Minister agree that more specific timetabling of targets and milestones, and a build-up of trained Iraqi forces with parallel reductions in the coalition forces, would generate a more focused strategy? If she does not, what is the strategy? This approach is even more urgent now that Italy has announced it has decided to start a phased withdrawal.
1380
There are many challenges, and I have attempted to outline some of them. Some are beyond the UK's ability to influence or affect. We will need to work with other alliance contributors, particularly the United States, and, increasingly, in a supportive role to the emerging Iraqi government. However, we do have some levers, which we must use carefully, and we must do so with allies. If we fail to turn Iraq into a proper, viable state, it will be much more costly in the long term. I beg to move for Papers.
5.51 p.m.
Lord Giddens: My Lords, I thank the noble Lord, Lord Garden, for initiating this debate. I shall talk about the future of democracy in Iraq.
No one could fail to be moved, indeed inspired, by the sight of over 8 million people turning out to vote in adverse, and often dangerous, conditions. The Iraqi people have plainly given a mandate for the expansion of democracy in their country. Those of us sitting here should be humbled by the experience, living in a country where some of our citizens seem indifferent to their own democratic rights, and sometimes even openly cynical about them.
At first blush, the problems of establishing democracy in Iraq seem almost insuperable. The noble Lord, Lord Garden, alluded to some of the problems. There are the massive security difficulties, and the possible segmentation of the country. Well over 40 per cent of Iraq's labour force is unemployed, and its median age is 19 years. A lot of young people with no jobs is not exactly a recipe for social stability, as ordinarily understood.
In addition, I should mention the deteriorating position of women in Iraq. Over the past decade or so of Saddam's rule, the position of women deteriorated significantly. Some people have estimated that female literacy in Iraq fell by 50 per cent over that period. I want to suggest, however, that there is more cause for optimism than one might imagine.
We cannot understand the prospects for democracy in Iraq without also looking at the massive expansion of democracy and democratic states across the world. If we look back at the past 30 or so years, there are three times as many democratic states in the world now as there were 30 years ago, even using a narrow and demanding definition of democracy. The so-called "third wave" of democratisation—not "Third Way"—began in April 1974 with the overthrowing in a military coup of the dictatorial government in Portugal.
Portugal had never been a democracy. It had had several decades of quasi-fascist rule. Believe it or not, I was working as a social scientist in those days. Many political scientists believed that Portugal's kind of Mediterranean Catholic culture was not propitious ground either for economic development or democracy. After the coup there were several counter-coups, and a period of unstable provisional government. Yet Portugal is now a stable democratic country, as are Spain and Greece.
We can see in recent studies of the expansion of democracy that there is something new in the world. It was often thought that democracy was a rather

1381
unstable set of institutions, and that there could easily be a reversal when a democratic system was set in operation, such as in Latin America, with its history of constant movement from periods of democracy hack to autocracy and populist rule. However, this is no longer the case. Something has shifted in the structural conditions of world society that makes democracy a much more feasible enterprise for all countries than it ever was before.
Professor Larry Diamond, professor of political science at Stanford University in California, has done an interesting study on the 125 countries that have experienced democracy over the past 30 years. Of those countries, only 14 have experienced a relapse—that is, a reversal of democracy—over that period. Of those 14, nine have subsequently experienced a rereversal back into democracy. So of the 125 countries, only five—including, in Professor Diamond's list, Russia—have not returned to democratic rule. That suggests a massive transformation in the purchase of democracy on the contemporary world.
It used to be thought that democracy and economic development went hand in hand. That was the thesis of the celebrated political scientist, Seymour Martin Lipset. A certain level of economic development had to be reached before democracy was possible. This is no longer true. Some 20 per cent of the poorest countries in the world are now democracies and 25 per cent of non-Arab Muslim countries are democracies. There is no region in the world, save one, where at least one-third of states are not democracies. Where is that region? It is, of course, the Middle East.
In surveys of attitudes towards democracy, there is no sign of Huntington's famous "clash of civilisations". The Afrobarometer survey carried out in sub-Saharan African countries in 2002 showed interesting results: 69 per cent of Africans believe that democracy is always preferable to any kind of authoritarian system. The proportion of Muslim Africans believing this is almost the same as the proportion of non-Muslim Africans. We do not know, because we do not have effective surveys, what the situation is in middle-eastern countries, but there is no reason to doubt that people in those countries want democracy, individual freedom, equal rights and democratic liberties. It is patronising to think anything else.
If one asks why democracy has spread across the world in such a way, I would simply draw a symbol to explain why. It would look like this—not a male fertility symbol, but a satellite dish. We live in a global information society. Fewer and fewer people are outside that society, and increasingly the middle-eastern countries, like other states in the world, will not be outside it either. A global information society is one where people become much more active and informed citizens than they ever were before, no matter how poor or rich they may be, and I see it as an irresistible force.
Professor Diamond, whom I quoted earlier, has some intriguing things to say about this, which I agree with. He says we could be entering the era of universal democracy: that democracy as a form of legitimacy could become as universal across the world as the
1382
nation state form has become over the past several decades. I believe this to he an assessment of fact, and also a statement of purpose that we should embrace.
What are the implications of this for democracy in Iraq? I want to make several points. First, democracy in Iraq is possible. While I do not want to demean it in any way, if democracy in the sense of regular, fair and free elections held over a 10-year period can grow in a country such as Mali, where half of the population is illiterate, which suffers from high levels of primary poverty and which has a history of conflict, then we can certainly have democracy in Iraq.
We all know that Iraq is poised on a knife-edge, but it should be recognised that democracy in Iraq will be made by the Iraqis. By and large, I feel that the British media have not recognised the massive contribution already made by the Iraqi people themselves to the evolution of democracy in their country. By that I do not mean just the introduction of the vote, but the actions and the influence, for example, of the Grand Ayatollah Ali al-Sistani. He insisted that early elections should be held when it looked as though the Americans were about to put them off and he has rebutted Shia extremism. Iraqis will create democracy in their country.
Secondly, the lessons of democratisation across the world teach us that democracy does not flourish in only one country, just as economic development does not take place in one country. The development of democracy is regional. In Europe, Portugal was followed by Spain and Greece. The success of democracy in Iraq is therefore bound to be affected by how far the flowering of democracy in other Arab and middle eastern countries can take hold. We should be encouraging democratic movements in those countries. Indeed, a dialogue between Iraq and emergent democracies in other middle eastern countries is key to the success of the process of democratisation in Iraq.
Thirdly, people tend to ask whether democracy can flourish at the point of a gun. As the writer Michael lgnatieff has pointed out, we should now be asking whether democracy can be stopped at the point of a gun. The international community should respond by saying no, it will not allow the mandate of the Iraqi people to be stopped at the point of a gun. No matter how difficult the security situation, we must insist that this is an indigenous democratic process which the international community—no matter what its views on the war—should now get behind and support.
Fourthly, we must support the role of women. Women are everywhere crucial to the democratic process. It was heartening to see so many women candidates standing for the assembly in Iraq. There is a flowering of women's groups in civil society, as there is a flowering of civil society generally in Iraq despite the horribly oppressive circumstances of the security situation. We should support these trends.
Baroness Crawley: My Lords, I hesitate to interrupt my noble friend's fascinating contribution, but this is a timed debate.
Lord Giddens: My Lords, I am just about to finish.

1383
In conclusion, we on the progressive Left should support the policy of universal democracy. We should not leave it to the political Right; it should be a fundamental part of our own political project. I apologise to my Front Bench for having spoken for slightly too long.
6.3 p.m.
The Lord Bishop of Chelmsford: My Lords, I am grateful to the noble Lord, Lord Garden, for introducing this debate. In a different way I want to pick up on some of the issues just raised by the noble Lord, Lord Giddens.
It is well known that I was opposed to the war and I have not changed my mind on those issues, but I am very conscious that, two years on, we have to think ahead to the future. I want to talk about some principles in all this, two of them in particular. There has been a muddle around these issues which needs to be sorted out. We can do that by getting the language right in terms of how to handle them.
The first concerns military action. It is time, in our post-Cold War world, to reassert the principle that military action is an absolute last resort and that war, at best, is an unnecessary evil. After the Cold War, there has been a tendency for us to use military action rather quickly in a number of circumstances, and I am not sure that that has always been helpful. In the world we are living in, we need a new language that puts a boundary around the role and activity of the military side of our political processes.
Secondly, we have to recover some sense of corporate moral and ethical responsibility in the international field and in our political processes, something that we in the Christian Churches have not been very good at of late.
The leads me to the basic point I want to make, one which I think is still not entirely clear in everyone's mind. It is this: there are no military solutions in Iraq, there are only political ones. That picks up in a different way the point made by the noble Lord, Lord Giddens. I believe that it has been true throughout these events. So talk on the lines of, "If only we had sent 200,000 Americans troops, we would have been able to pacify the country", is not true because pacification requires the consent of the people to what is going on. What is more serious in terms of the history is that the dismantling of the structures of Iraqi society, government and defence at the time of the military action has had a disastrous effect on our capacity to rebuild its political life. In other words, we need a clear political vision and judgment if we are to move the situation forward. We have to see the presence of our troops and those of the coalition as servants of the people of Iraq, including those who find their presence a corruption of their country's values and a humiliation of what the history of Iraq is about.
The confusion at the heart of this matter lies in how we overcome disorder. That confusion started with the aims: were they regime change or enforcing international United Nations resolutions? That went right to the heart
1384
of the American Government, who are very much the key to all this; namely, who is running the show? Is it the Pentagon or the State Department? When that is rolled on to our own political processes, we must ask: what is the muddle in government between the Prime Minister's Office, the Ministry of Defence and the Foreign Office in terms of how we respond to these issues? The confusion in government both in Washington and, I suspect, to a certain degree over here, has been a consequence of the muddle over the principle of what we are doing militarily and politically in Iraq.
In such a confusion, what happens on the ground? Perhaps I may remind noble Lords of what happened in Fallujah. Do we not know of that from the border areas of Northern Ireland and parts of Belfast which have their own systems of law and order that are not acceptable to the people? The large number of insurgents in Fallujah existed outside the structures of law and order. What did we do? Troops went in in vast numbers with an aim to ending the insurgency. Significant sections of the town were trashed in the process. The insurgents went elsewhere, the disorder continues and we have a trashed town in the middle of the Sunni triangle. We have to stop behaving in that way if we are to move on the situation in Iraq.
I suspect that noble Lords will be surprised at what I say next. Something has happened which is a sign of real encouragement: the arrival of the new Secretary of State in the United States of America. It is not that I think we are all going to agree with the policies about to be pursued, but the new Secretary of State has set out an absolutely key principle. She has nailed her colours to the mast of the diplomatic task and she has indicated that she has no intention of having the tanks of other departments in the American government system on her lawn. There is a shift taking place from the Pentagon to the State Department in the driving motor of policy in Washington, and we ought to welcome that unreservedly. We must take heed of the messages that are now coming out. One hears rumours that, with American support, conversations are being opened up with the Sunni leadership in the Sunni triangle, even with some of those connected with the insurgency. The game has moved into the diplomatic and the political field, and it is essential that it goes on doing so if there is to be reconstruction.
Do we not know, from our own history in regard to the difficulties in recent years in Ireland, that when insurgents and military forces engage in action in civil communities, that there are in reality no winners? The IRA could not win and neither could the British forces. Every so often, we were tempted to think that if we put a hit more in, we could win. The outcome of such a battle is that the country itself, and its people, lose—because there is no possibility of political resolution. That is why the diplomatic task is so essential to the peace of Iraq.
To add to the remarks of the noble Lord, Lord Giddens, diplomacy is not a process of us imposing on people a western version of democracy. What it is about is rebuilding the processes and orders of government in Iraq which win the consent of its people. We know that there are all sorts of fault lines running

1385
though the country: Sunni/Shia/Kurd; secular/religious; Christian/Muslim; marsh Arabs/others. That is a delicate history which we are dealing with politically, so the politics must come to terms with the potential fault lines. It seems to me that there will be no progress until we recognise that Baghdad, and the Sunni triangle at the heart of Iraq, are absolutely key to ending this disorder.
It is the capacity to draw these communities progressively into the political debate and structure that holds hope for the future. Yes, Saddam has gone. We all rejoice that a terrible tyranny is over. Yet huge damage has been done, not only to the physical infrastructure—as has been pointed out—but also to the political infrastructure of that country. We must now build on the initiatives that we have, from Washington and elsewhere, which underpin the political task. We must re-establish a language, and a moral conversation, to make that a primary task in the political endeavour of rebuilding this country in the future.
6.13 p.m.
Baroness Turner of Camden: My Lords, I am grateful to the noble Lord, Lord Garden, for introducing this important debate, and for the measured way in which he did so. As I have said before in this House, I opposed the war in Iraq. It was based on a false premise; there were no weapons of mass destruction. Many of us doubted that there were any at the outset. Nor does what has happened since the invasion, including the election held recently, in any way justify what I believe to have been an unprovoked attack on a weak and relatively defenceless country. What has happened since has certainly not improved life for a large proportion of Iraqis.
According to recent reports, daily life for most Iraqis is still a struggle for survival. Simply venturing into the streets brings the possibility of attack; there are violent attacks, kidnappings and killings. Much of this is unreported, unless one of the victims happens to be a foreign reporter or aid worker. This is largely due to the continuing insurgency, but Iraqis with no insurgency links are killed or injured by soldiers in the mistaken belief that they are trying to attack US forces. Any deaths are classed as deaths in combat—and the victims receive no compensation.
The appalling attack on Fallujah—which US forces appear to have largely destroyed—does not seem to have lessened the insurgency. What has happened to the thousands of people who, in the course of the attack on this city, have lost homes and, probably, jobs? The US command says that there were 600 civilians killed. That is probably an underestimate, given the scale of the destruction. How many were injured? What has happened to the people driven out of their homes? Are they simply refugees in their own country? Does no one care what happens to the civilians caught up and damaged in this conflict? There are, apparently, no reliable statistics of Iraqis killed or injured as a result of the invasion by coalition troops. The noble Lord, Lord Garden, was right to say that it is necessary for us to know what the statistics are in that connection.
1386
We are, of course, told that although there were no WMD, the war was justified because Saddam Hussein was so awful—and because it has brought democracy and freedom to Iraq. President Bush has been claiming that the war in Iraq was justified because it was already bringing democracy to the Middle East. He told President Assad of Syria that freedom and democracy could not be brought to a country by occupying it with foreign troops. As a very apposite cartoon in one newspaper indicated, he should know. The elections in Iraq—which, anywhere else, would have been regarded as deeply flawed—have been represented as a triumph for democracy, and a vindication of the decision to go to war. Yet enormous problems remain, particularly in the field of human rights.
Most newspapers reported enthusiastically that there had been a huge turnout, which was true—in some areas. In the south, there were two long separate queues to vote: one for men, the other for women. The women all wore the jilbab, covering each of them in black from head to foot, and many were completely veiled. That does not augur well for women's rights. It is always possible to find token women to say that it is what they have always wanted. Two elderly women appeared on television saying that they wanted a return to Sharia law. Another much younger woman, said to represent a large group of women, was interviewed—also clad head to foot in black. The interviewer asked whether she agreed that husbands should not beat their wives. She agreed, then said "But we teach women to be nice to their husbands; then their husbands will not have reason to beat them". So is this women's lib, Iraqi style? There have, however, been interviews with women who do not accept this repressive lifestyle; many of them are very concerned. There have been acts of violence against women who will not submit to this repression; they are frightened. Yet there is an organisation of "women for freedom" in Iraq. They do not intend to be pushed into an acceptance of Sharia law, with all that means for women's rights and the actual condoning of violence against women.
Saddam Hussein was certainly a tyrant. However, unlike most Arab rulers, he did not apply Sharia law and his regime was relatively secular. As a result, many Iraqi women had access to education, healthcare and jobs—and could play a part in public life. Indeed, it was acknowledged that they were among the most educated of Arab women. Incidentally, two women—both scientists—who played a part in the former regime are still in American custody. Do we know why this is? They cannot have been involved in the production of WMD, since there were not any. Have they been charged? What are they supposed to have done? Moreover, apart from people actively involved with the previous regime, the US seems to have thousands of civilians in custody. The abuse of prisoners at Abu Ghraib shocked the world yet—according to some reports—it was not just down to a few rotten apples. There was a culture of cruelty. Do we know how many civilians have been detained, and what is to be done with them?
On the issue of women, I need hardly remind the Minister that women's rights are human rights. Everything possible must be done to assist the women

1387
who are fighting for them—in very difficult conditions. There are, of course, other groups in Iraq who lived unharmed under the previous regime yet now face violence and intimidation. These include the Christian community, many of whom have been forced to flee the country because of violence and attempted repression from newly emboldened fundamentalists. There are also Assyrians who face intimidation and violence from some Kurds—and the sizeable Sunni population is still obviously alienated. It is a little early to talk boldly about having brought democracy to Iraq, let alone the whole Middle East.
In any case, what does President Bush mean by democracy? It means the opportunity to vote, as long as the result produces a US-friendly administration. It also involves the imposition of the free market, with privatisation of state assets which can then be acquired by foreign investors—mostly US corporate investors, of course—at knockdown prices. Perhaps there would be less insurgency if there was more investment in people. There is very high unemployment among young men—as was referred to by the noble Lord, Lord Garden—but we hear little about job creation schemes, except for the development of a police force. What about plans for the oil industry? The Prime Minister once said that it would be held in trust for the Iraqi people. Many people—particularly in the Middle East, believe that the oil industry and its control constituted the main reason for the war.
Most of us, including those who opposed the war, want the insurgency to end. We want our troops back home, but we know that while the insurgency continues, the Government will not bring them back. But there is a problem. If the insurgency is mainly nationalistic in character, and for that reason has support among sections of the people, it will continue until the coalition troops leave. In other words, the presence of the coalition forces is the cause rather than the solution to the situation.
It therefore seems very necessary to develop an exit strategy perhaps with the assistance of the UN. Italy and Bulgaria have already announced the withdrawal of troops. Troops have also been withdrawn by Spain, Poland and Ukraine.
We have brought nothing but further suffering to the Iraqi people. The whole venture in my view was an enormous and brutal mistake which we must try to rectify as soon as possible. We should avoid becoming involved in further military interventions at the behest of President Bush and in defiance of the UN and of much international opinion.
6.20 p.m.
Lord Redesdale: My Lords, the noble Baroness, Lady Symons, will be glad to hear that I shall not raise the issue of weapons trailers this evening. I would rather deal with the social and economic consequences referred to in the title of this debate.
The success of the occupation is linked to the welfare of the people of Iraq. That will be the yardstick against which history will judge us. It would be wrong not to
1388
start by praising the professionalism of our troops operating in the south and their achievements in establishing a generally high degree of peace and normality there. The problems in the north and the increasing brutality suffered by the Iraqi security forces and civilians as a result of the insurgency will cause deep scars in Iraqi society. That, combined with the fact that there is no accurate overview of the total civilian death toll—a point raised by the noble Baroness, Lady Turner—will ultimately threaten the stability and probably viability of any future Iraqi sovereign state.
However, it would be wrong to concentrate entirely on the negative without recognising the achievements of the elections held on 30 January. I wish to join other noble Lords in wishing every success to the new Iraqi Government in their task of rebuilding their nation, starting with their being sworn into their new parliament today.
The noble Baroness, Lady Symons, assured us in April last year, in response to the Question of my noble friend Lord Wallace, that while executing our duties as occupying powers our relationship with the United States had,
"functioned well at a variety of levels".
Moreover, in the same speech the noble Baroness highlighted the success that British companies had experienced in becoming involved in,
"contract awards worth more than 1.65 billion US dollars".—[Official Report, 20/4/04; col. 155.]
The noble Baroness's comments support the Government's claim that we were deeply involved in the functioning of the CPA and were not dominated by the United States Administration. Therefore, as well as taking a share of the praise for what has gone on in Iraq, our decision makers must also shoulder some of any blame that arises.
The administration of post-war Iraq was carried out by the Coalition Provisional Authority. Reviews of its financial dealings have not been encouraging. The International Advisory and Monitoring Board was set up to oversee and audit the Development Fund for Iraq established by United Nations Security Council Resolution 1483. After it came into existence it had four major concerns that the CPA failed to address up to the handover to the interim government at the end of June 2004. These were the absence of oil metering; the use of barter transactions for certain oil sales; the failure of the CPA to give the International Advisory and Monitoring Board access to its review of the controls in place on the State Oil Marketing Organisation and the use of non-competitive bidding measures for some contracts paid for through the Development Fund for Iraq.
The absence of oil metering is contrary to normal practice for an oil exporting nation. Put simply, it makes it impossible to find out definitively how much oil is being extracted and to say where that oil goes. This is an especially serious problem in an unstable, post-conflict Iraq where there was evidence of significant quantities of

1389
oil and petro-chemical products being smuggled out of the country. The IAMB noted in a press release in July of last year that,
"contrary to earlier representations by the CPA, the award of metering contracts has been delayed and it is therefore impossible to ascertain that all oil extraction is properly accounted for".
The CPA had failed to tackle even this fundamental problem during its life span.
The DFI is a cash fund. In bartering oil, by definition cash is not received in return. Thus a contribution to the DFI was not made as required by United Nations Security Council Resolution 1483. Moreover, the barter system made it difficult for the IAMB to establish whether the Iraqi people were getting good value from the trade. As early as February 2004 the CPA commissioned a review of controls in the State Oil Marketing Organisation in Iraq to assess what was happening in the oil industry. Despite the review being largely complete by May of that year, as late as July the IAMB had,
"neither been briefed nor received the draft report, despite requests to the CPA".
Thus it was necessary for it to focus its own audits on this area due to an apparent lack of co-operation from our coalition.
The fourth concern is at least as serious as the others and sadly a matter in which the CPA had a degree of choice. The sole source system ensured that there was no competitive bidding process for the majority of contracts handed out in the immediate aftermath of the war. This problem was compounded by the fact that many of the subsequent agreements were drawn up as cost-plus contracts. These involve companies being reimbursed whatever they spend plus a percentage guaranteed profit. This situation is far from ideal from a point of view of securing value for money for the Iraqi people. The IAMB was concerned about this state of affairs along with a number of NGOs.
Halliburton is one of the companies discharging some of these contracts. Its record of delivering value for money has been criticised in a number of areas a number of times. As recently as Monday, a leaked copy of a Defence Contract Audit Agency's report has once again criticised Halliburton. The report contains a number of queries among them a bill of $27·5 million for transporting $82,000 worth of propane.
Corruption from all sides has been a serious problem in Iraq. The International Crisis Group report notes that the problem is apparently so bad that,
"large contractors such as Bechtel have introduced business ethics courses".
Dr Reinoud Leenders, the author of the report, in an interview with the BBC's "File on 4" expressed fears that due to the way in which the difficult circumstances in Iraq were being handled,
"corruption will be huge and Iraq reconstruction will turn into one of the biggest corruption scandals in history".
1390
This is a sentiment echoed by Transparency International in its annual report which has called for urgent action.
There is also in evidence "a lax attitude" (as described by Dr Leenders) to the financial wealth and property of the Iraqi people. There is anecdotal evidence of money in the early stages of the war being captured and then handed out to US commanders without it being counted or even logged in any way. The Ba'athist regime members' ill gotten private wealth is still in large part unaccounted for. The thriving trade in stolen medicines and medical equipment at the central Ghazil market in Baghdad is further testament to failings in the procurement and rationing systems put in place after the war.
The figures appearing in our media suggest that around 40 per cent of the total moneys of the Development Fund for Iraq have gone missing—a figure equal to about $8·8 billion. This is money that belongs to the Iraqi people and was supposed to be used for their benefit. One could suggest that the quality of the CPA's economic stewardship of the Iraqi people's wealth is at least partially to blame for this loss.
As I said before, we have received reassurances from the Minister that British decision makers were listened to and contributed to the running of the CPA. Therefore, those decision makers, we must now conclude, should share some of the responsibility for the apparent mismanagement which has cost the Iraqi people a significant portion of their wealth during the period when we took over the running of their country. In this respect it could be argued that we have in part failed in our duty of care which we implicitly took on when making a "moral case" for the war in Iraq.
Topically, this week the Commission for Africa's report—I know that many noble Lords have read that report which comprises only a small document—highlighted the need for corruption and poor governance to be addressed. These are intertwined issues on which the developed world is often only too happy to lecture the developing world. While accepting the need for changes to tackle this problem in Africa, what has occurred in post-conflict Iraq would suggest that perhaps we in the developed world do not have our own house entirely in order in this respect.
6.30 p.m.
The Earl of Sandwich: My Lords, we must all be grateful to the noble Lord, Lord Garden, for gibing us this timely opportunity on the very day that the new Iraqi Assembly meets.
I begin by paying tribute to the late Margaret Hassan of Care International. She personified the common humanity of all who have been caught up in this conflict. Her commitment and gentle advocacy over many years enriched the lives of Iraqis and enlarged our understanding of their problems. Margaret may have been an innocent victim of terrorism but Care International was, until last year's tragedy, a key player in Iraq's reconstruction. It

1391
occupied that dangerous no-man's land between humanitarian and military terrain. Many NGOs and church organisations have to live and work in that space every day in countries such as Iraq, Israel, Palestine and Afghanistan. The question is not only whether our Government, where it has jurisdiction or influence, is doing enough to protect aid workers, but also whether it will respect their independence during the period of reconstruction.
My knowledge of NGOs in Iraq is chiefly through my work with Care International, Save the Children and Christian Aid, all of which have suffered losses or setbacks in Iraq and Afghanistan during past year alone. I hear a very muted story from them of limited post-conflict achievements as the country stumbles to its feet. As others have said, information is very hard to come by.
But as the Iraqis seek a more stable government and breathe life into their previous institutions, the confusion between humanitarian and military objectives appears as strong as ever. From time to time, the US military has invited NGOs to a series of workshops in Amman, in line with their commitment to rebuild civil society in Iraq. However, it is not clear whether the US has understood the position of NGOs. It is also questionable whether the military are qualified to run such workshops at all. Is the US still attempting to assume an international role in the absence of a United Nations team in Iraq? If so, it will be widely misunderstood. However, we must recognise that with more than 1,500 causalities, the US army is not yet in peacetime mode.
Some UK-based aid agencies feel very strongly that NGOs have to work independently alongside local communities, often through community-based organisations and in co-operation with government. They should not in any circumstances be identified with official bodies, secular or military. All this is set out in UN guidelines under General Assembly resolution 46/182:
"Humanitarian assistance must be provided in accordance with the principles of humanity, neutrality and impartiality",
and led to the creation of the Department of Humanitarian Affairs, now called OCHA.
NGOs need protection in an emergency, but they seek military support only as a last resort and when there is no civilian alternative, for example, for aid convoys. These firm principles are upheld by leading bodies such as the UN Inter-Agency Standing Committee, the ICRC and the NGOs' own Steering Committee for Humanitarian Response.
What is the UK doing to implement these principles? There are some parallels with Afghanistan, where there are also blurred lines in the shape of the provincial reconstruction teams. The only answer that I have had from the Government is the reassurance that, whatever the US is doing, the UK-led teams are working well. That is not good enough. We are in a coalition. If the PRT in Mazar, for example, is regarded as a successful model, how has it influenced the US, German and other PRTs now within the NATO family? We are not told.
1392
CIMIC is the US programme dealing with civil-military co-operation in Iraq. I ask the Minister whether the Government would consider it appropriate for the British Army to be running civil society capacity-building workshops as the US military is doing through the Iraqi assistance centres? How will the FCO and DfID—perhaps through the new post-conflict reconstruction unit—be able to make a clear distinction between the work of the Army and the nongovernmental organisations?
NGOs are a very broad church. This is where it would be interesting to debate further with the noble Lord, Lord Giddens, about what democracy means. Some NGOs are in the forefront of Iraq's reconstruction. They are actually small businesses, subcontracted to larger aid bodies such as USAID and DfID. Millions of pounds are being channelled through NGOs by DfID alone. The noble Baroness would call them "privatised". The recent reconstruction conference in Tikrit was facilitated by the US army and was partly designed to help smaller Iraqi organisations gain information and advice in order to develop their own economic strategies.
In the provision of essential services, NGOs are too often required to do the work of government in order to get things done. Again, there are parallels in Afghanistan. Iraq may be a post-conflict country, but it is certainly not a developing country. It has a tradition of strong central services0. Through a Christian Aid partner, I heard last week of a case in the south, which I am sure is quite typical, where the local water directorate is unable to reconnect village water supplies because there are no instructions from Baghdad. So the NGO has had to do it. I therefore applaud the objective, in DfID's February update, of encouraging NGOs to lobby to make local government responsive to people's needs, but that is much easier said than done.
While politicians jockey for position today, there is tension between the new ministries, which are anxious to regain patronage and authority, and the old local ethnic and regional elites, which we know are there and have been there all the time, but which were stifled by Saddam Hussein's central control.
Meanwhile, other non-governmental organisations are active in fields closer to politics—sometimes with UK support—in civic education and in asserting civil and human rights in Iraq. The rights of women is one example. NGOs were very closely involved in the recent elections, often at considerable risk. Some are monitoring the conditions of detainees, as was mentioned by the noble Baroness, Lady Turner, and the policies of the occupying powers, including, as the noble Lord, Lord Redesdale, mentioned, accounting for the missing billions of reconstruction funds.
We all agree in general with the noble Lord, Lord Giddens, that some form of democracy is alive and well in Iraq, despite all the obstacles, but what is democracy? Iraqi NGOs being involved in writing the new constitution was a genuine step forward that was welcomed by many Iraqi democrats as a contrast to the bludgeoning of Kurdish, Shia and Sunni leaders that still threatens national unity. The Assembly meeting

1393
today could easily become the talking shop of the powerful tomorrow. It is important that the smaller organisations, NGOs and others, like the political minorities within the triumvirate, are involved in the rebuilding of Iraq from the very beginning.
Equally, in the pressure to spend reconstruction funds and to achieve early results, these organisations must not be forced by the occupying powers to become a substitute for government. The reconstruction of roads and services is one thing but, after the suffering of the past, the rebuilding of civil society organisations and their accountability will be a slow process that should not be accelerated by the natural desire of the occupying coalition forces to complete their task and go home.
In closing, I hope that the Minister will deny reports that she may be leaving her present responsibilities. If she did make that decision, this debate would not be the same.
6.40 p.m.
Lord Rea: My Lords, I am grateful to the noble Lord, Lord Garden, for initiating the debate and opening it with such a well-informed speech. I shall concentrate on the health of the Iraqi people, but if there is time, I shall also touch on the situation of the Assyrians in Iraq.
To assess the health of a nation, statistics on births, deaths and the nature of morbidity need to be collected systematically. Until at least the mid-1980s Iraq was developing a reasonably accurate and complete system of collecting and analysing such data. Since the war there have been huge problems in collecting and processing those statistics, not least because of the looting and partial destruction of the Ministry of Health that was permitted and even encouraged in the early stages of the occupation. Now there is the continuing insecurity.
Nevertheless, I would like to ask my noble friend what information she has on the basic state of health of the Iraqi people: for example, the infant mortality rate, the nutritional state of children and the numbers of health personnel and available hospital beds; and on progress in restoring the system of public health data collection, which is very important.
One extremely important public health statistic that has already been mentioned by the noble Lord, Lord Garden, and others, and which remains uncertain, is the number of Iraqi civilians and military who have been killed or wounded as a result of the war and the continuing violence, with incidents resulting in death and mutilation occurring daily. These go largely unreported apart from major episodes.
In February, for example, the month after the election, the organisation Iraq Body Count lists 35 episodes resulting in 96 deaths apart from the major episode in Hilla on 28 February in which 135 people were killed. In March the carnage is continuing: 16 deaths in 13 incidents up to 15 March. There are probably more that Iraq Body Count has not heard of.
1394
The coalition has been remarkably coy about the numbers of Iraqi dead during and just after the war, typified by the now-famous remark by General Tommy Franks:
"We don't do body counts".
Official figures that are given are based on hospital statistics, a method which any epidemiologist would dismiss as unrepresentative and inaccurate. Iraq Body Count's estimated total of between 16,000 and 18,000 includes only the documented deaths of civilians and is probably an underestimate.
The 100,000 deaths estimated by the survey published in the Lancet last autumn refers to total excess deaths, both military and civilian, during the war and afterwards. The method used, of interviewing a true random sample of the population and extrapolating from that, is a well-known method when national statistics are not available. MORI and YouGov, for instance, use similar techniques in opinion polls.
This type of survey does not claim total accuracy, but the margin of error is known. Findings from population surveys are important and frequently-used guides to policy, as all politicians know, as Professor McPherson pointed out in the BMJ last week. The MORI polls are seldom out by more than a few percentage points. Political opinions are fickle and behaviour at the polling booth may not be the same as the reply to the interviewer, but information give to an interviewer about the deaths of relatives is unlikely to vary. If they wish to refute the Lancet's estimate the Government should commission another study with a bigger sample population.
In fact, 100,000 deaths among a population of 26 million is not excessively high compared to casualties in other conflicts of similar intensity. The difficulty for the Government comes because of the claim before the war that no effort would be spared to minimise civilian casualties; that this would be a "clean" war in some way, using smart bombs. That of course is an absurdity considering the overwhelming firepower used, including weapons such as cluster bombs and shells tipped with depleted uranium.
The security situation in Basra, while better than that of Baghdad, is however very far from perfect. In preparing for this debate I asked for an on-the-spot report from an Iraqi friend, a senior surgeon at the Basra teaching hospital. I received this e-mail reply from him this morning, using the Global Network cited by my noble friend Lord Giddens:
"Basra is relatively safer than other cities but still security is the main problem. Kidnapping is still there besides killing for no reason. Just yesterday they kidnapped 2 daughters of a doctor in the medical college from their school. You can say there is no government, our problem now is that the people don't respect any orders as if living in a jungle. Besides the City is filled with foreigners mainly from Iran.
Lack of services is the other problem, electricity in the best conditions is no more than 9hrs every day. Water supply: if you are lucky you can get it at night time. The other main services I can say are forgotten.
Regarding medical care you won't believe me if I tell you we have lost the rules and systems in the hospitals and other medical care, like a ship in the sea without a captain. There has been

1395
improvement in the supply for the last three months but the problem is that they steal the drugs from the patients and the main medical stores to sell them in the streets for the people and take the bulk to Iran. In addition there is no training program as there used to be, no control, and the most important thing is the loss of medical ethics. No single new instrument has been received for the past 2 years; we are working with what was left. I can say that medical care was for sure much better before the war and that is what people feel here.
I don't know what to say or describe; it is something expected (as the outcome of) war but (it is still) unbelievable".
That is what happens when a brutal but effective centrally-controlled state dictatorship is overthrown by force with virtually no informed planning of how it is to be replaced: in particular, as the right reverend Prelate pointed out, the mistake of dismissing the whole police force because it was led by Ba'athist members. It is now going to be immensely more difficult for a new Iraqi Government to restore the country to its former prosperity. We can and should assist them in that task but I am wondering whether the continued presence of the international forces is now relevant; it may, as my noble friend Lady Turner suggested, be counterproductive. As she says, we should be working towards a plan for their withdrawal.
I will turn now to the Assyrians—my noble friend knows the problem. They are an ancient civilization with a history even older than Sumeria and Mesopotamia and were one of the first nations to convert to Christianity. During the period of British rule they were helpful to us and even assisted in our military operations against so-called "rebellious" Kurds. Under Saddam they were tolerated as a religious group, though many left Iraq because of his generally oppressive rule.
Those that remain are now subject to harassment and low level ethnic cleansing, mainly by the Kurds. An article in the Guardian, "No votes in Nineveh" on 23 February, describes how between 200,000 and 400,000 people in six mainly Assyrian towns were prevented from voting by Kurdish militia and as a result have no political representation in the central or regional assembly. The Assyrians in Iraq and their extensive diaspora are pleading for support from the United Kingdom and the United States for fair elections and a form of safe haven in the area where they are most numerous in northern Iraq.
In view of our past close association with the Assyrians this would seem a very justifiable request. Can my noble friend give them any indication that this request is being received sympathetically by the Government and that the UK will use its influence to ensure that the Assyrians can continue to live in peace in the new Iraq?
6.49 p.m.
Lord Dykes: My Lords, I too thank the noble Lord, Lord Garden, for his initiative in giving us such a meticulous and detailed analysis of the situation. I wish we could all be optimistic, but the tone struck by the noble Baroness, Lady Turner of Camden, alas may fit the bill. It is sad to say that the situation looks very ominous indeed.
1396
I remember vividly as an MP, many years ago in 1972 and 1973, going to Vietnam twice, and being entertained on the second occasion by the US commander-in-chief. After clouds of cigar smoke, and a long lunch at the mission in Saigon, we were taken out to see "H and I", which means harassment and interdiction. That was 25 Howitzers lined up on the edge of a jungle firing into the jungle for two hours in the afternoon, although presumably there were no Vietcong, and certainly no North Vietnamese, in that jungle.
You do not have to be a military expert to feel that the blundering around by the Americans then was the hallmark of their activity. After the Vietnam tragedy, America calmed down about such foreign military adventures, although there were a number of subsequent examples—I do not have time to go into them. I hope very much that Iraq will not be like that. There are many differences, and I think that the Americans must have learnt lessons with the passage of time.
The signs are really disturbing, except that, as the noble Lord, Lord Garden, and others said, we do not know much about what is happening in Iraq. We get lots of comment back from journalists. I pay tribute, for example, to some of the independent-minded reporting in the newspaper of the same name by Robert Fisk and others, who stick their necks out more and, like a number of other brave journalists, go beyond the green zone. A number of others do not, and the pooling system limits the amount of information given. I would not suggest that it is always a deliberate cover-up by the US and other members of the coalition forces, but there must be some element of that to put an unusually optimistic gloss on the whole matter.
I am worried about the corruption that is developing into a huge level of activity, according to the people who, for example, come back here or to the United States, who have been working with NGOs, working with the Haliburton-isation of the Iraqi economy. All the lurid stories that come out of their accounts presumably cannot be made up. The spivs that there are in that activity; millions of dollars are wasted, and still we know nothing about it. Alas, in comparison with Afghanistan we know even less, but our focus in this debate is Iraq. The absence of information properly given by both the military and governmental US authorities and the Iraqi Interim Government is really nothing short of a disgrace.
The second disgrace, and in this I echo the thoughts of some previous speakers, is the absence of civilian casualty figures. That is absolutely horrible, and it should not happen in the so-called civilised world. I hope that the Government will liaise with the Red Crescent to insist that proper figures are produced somehow, despite the enormous operational difficulties of conducting surveys in a country of that size with a population of that size. The International Red Cross and the Red Crescent can surely get together with the various governments in the coalition and the Iraqi interim government to deal with this problem. It may be, ominously, that they do not want to because the figures are larger than have been suggested. Personally, I am disappointed that the noble Baroness was not able to return to that theme last

1397
October and November of getting some good figures produced and giving us a further report. There may be special reasons for that, but it would be nice to hear some more convincing arguments.
It seems to me that the word "sham" would not be too strong a word for the Iraqi Parliament opening today, and I take no pleasure in saying that. It may be a sham so far because it was only a ceremonial opening. The interim Prime Minister Mr Allawi said that the impasse in the negotiations was paralysing life in the country. He said:
"The country cannot remain as it is now. There are things that need to be done and a decision needs to be arrived at".
Some of the Kurdish officials actually said that negotiations had hit a total dead end, so again we need far more information on that.
I have not been to Baghdad since 1988, when the city was full of British and American officials and businessmen saying that the Saddam regime was a wonderful government, much better than anything else, and that the real villain was Iran, and we should support Saddam as we had done by giving so much equipment, military equipment, arms and weapons. We are still living in the aftermath of the massive mistakes made by Paul Bremer, who was a personal disaster. The coalition provisional authority was a truly ghastly organisation in the way in which it operated, as a sort of neo-post-imperialistic implantation in a highly sophisticated and sensitive country. The Republicans really are lucky to control both Houses on Capitol Hill, otherwise there would be more inquiries into those things—although there have been some so far, and one pays tribute to those American politicians who are insisting on getting the facts even if it is very difficult.
Italy has now announced its withdrawal, as one of many, and if the UN mandate is renewed at the end of this year who will he left? US casualties will soon be approaching 2,000 dead and 20,000 wounded, but again it is difficult to get exact figures. Incidentally, will the Government give us an interim report on what will happen to Saddam Hussein, who is imprisoned and facing trial, once the governmental and judicial processes allow that trial to start? Already it has been some time since we heard any recent information on that.
I say with no pleasure that this remains intrinsically an "illegal" invasion and an "illegal" occupation, despite the forced ex-post UN certification, over which Kofi Annan had literally no choice. Never again must the United Kingdom supinely follow American mistakes of this kind. The American, European and British relationship should be one of full equality. Incidentally, I tabled a Question for Written Answer from the noble Baroness from the Foreign Office, when President Bush visited the European Union institutions and heads of government in Brussels, whether the geo-strategic relationship between the EU and the US would now be on the basis of full equality. In her Written Answer, the noble Baroness, Lady Crawley, said:
"The visit of President Bush to Europe, so early in his second term, confirmed the importance he attaches to the transatlantic alliance. All leaders agreed on the need for the EU and US to
1398
continue to work in partnership on the challenges that face us in the twenty first century. As President Bush himself said in his speech in Brussels on 21 February, our strong friendship is essential to peace and prosperity across the globe".—[Official Report, 7/3/05; col. WS 72.]
That did not actually confirm that the relationship would now be on the basis of true equality; but that is essential because otherwise the situation will gradually get worse, despite the beginnings of democracy being implanted there, with some encouragement in the election turn-out in some areas.
I would like to put it higher than that. It is easy to assume that it will all be plain sailing from now on, but it depends very much on the nature of the government that will emerge in time and the plebiscite that is due to be held. I hope that the Americans have learnt some lessons from this; I hope that if they can they will put in order some of the corruption that is occurring. The American withdrawal must be done as soon as possible, as soon as may be—whenever that formula of words will allow for. So many of the other coalition forces will have gone by then that presumably it will only be the United States and Britain left, with possibly a part of the Polish contingent, but that might have gone completely as well by the end of this year or beyond.
Finally, I quote from John Gray, of the LSE, who said:
"American withdrawal will be represented as a reward far a job well done. The rest of the world will recognise it as a humiliating defeat, and it is here that the analogy of Vietnam is inadequate. The Iraq war has been lost far more quickly than that in Southeast Asia, and the impact on the world is potentially much greater … The full implications of such a blow to American power cannot be foreseen. One consequence is clear enough, however. The world has seen the last of liberal imperialism. It died on the killing fields of Iraq".
It is a great loss to the Iraqi people. One hopes that their future will be brighter, but it will need the true multilateral United Nations in the future, husbanding and supervising this process, to make sure that it is properly done, not the way that it has been done so far.
6.58 p.m.
The Lord Bishop of Oxford: My Lords, I am grateful to the noble Lord, Lord Garden, for this debate on such an important subject. Clearly, getting the economic, political and security aspects right over the next months is absolutely crucial. People need to move about safely, they need political stability, and the economy needs to develop.
I suggest that in addition to those essentials there is something more. There are some deep-seated historical antagonisms in Iraq, which are partly ethnic and tribal. Kurds and Marsh Arabs, for example, are the most obvious ones. There are long-standing religious differences, as we are all well aware, with the Shia and the Sunni and the small Christian communities. It was good to hear mention of the Assyrian Christians—the residue, as it were, of what was once the heartlands of the great Byzantine civilisation.
We all know that religion is now a major player on the public stage of the world in a way that was scarcely conceivable 20 or 30 years ago for a variety of reasons.

1399
Religion is sometimes accused of being the cause of conflict, but in fact it is probably truer in the modern world to say that religion is a marker of identity in a conflict which has usually been brought about for other reasons. But, for whatever range of reasons, and whatever responsibility religious leaders might or might not have, it is quite clear that it is very important to take the religious dimension fully into account because it can work for ill and it can work for good.
It is good, therefore, to know that there is within Iraq an institute such as the Iraqi Institute of Peace, associated particularly with Canon Andrew White, which is working to bring together religious leaders to ensure that the religious contribution to the future of Iraq is positive and not negative. It is also encouraging to know that Her Majesty's Government are fully supportive of this and I very much hope that they will continue to be so.
In addition to these historical antagonisms within Iraq there is also a no-less-serious antagonism between many people in Iraq and the United States and her allies. It is true and not surprising that the advent of democracy has been warmly welcomed by so many in Iraq. But there remain many who are deeply hostile to the United States and her allies and they think that this is just one more expression of American imperialism.
What can we do to address these two different kinds of antagonism? I am thinking particularly of the second antagonism. One of the most creative initiatives in the past couple of years was the establishment after the ending of apartheid in South Africa of the Truth and Reconciliation Commission. Some very painful truths had to be faced; this was no easy option. But I think all dispassionate observers would say that it played an absolutely key role in healing some of the historic antagonism and bitterness in that country.
I wonder whether it might be possible to have something equivalent to a Truth and Reconciliation Commission in Iraq, because in addition to the crucially important political, economic and security aspects, there is this something more if we are going to achieve genuine reconciliation and a flourishing in Iraq that is not just an Uneasy holding of the status quo which might erupt at any moment into further conflict.
If we had something like that, painful truths would indeed need to be faced on both sides. There is the fact that this country, along with the United States, supported Saddam Hussein for so many years. We turned a blind eye to his atrocities not only against his own people with ordinary weapons but to his use of chemical weapons in the terrible war with Iran and against the Kurds. We sold him weapons and indeed I believe that the 1994 Riegle report to the United States Senate is correct in identifying the fact that components for weapons of mass destruction were sold to Saddam Hussein.
In addition, there are the civilian casualties, which a number of noble Lords have already mentioned. We have to face the fact that if there is a war there will be casualties and it is no good avoiding that very unpalatable fact. But, as we know, health experts from
1400
around the world have recently called for this monitoring on humanitarian grounds. The recent article in the Lancet said that counting the dead is intrinsic to civilised society. But in addition to those two reasons, I suggest that there is another reason, because part of the moral calculus of going to war involves assessing what the cost would be—the cost not just to one's own side but to the other side as well.
If a US or British soldier is killed or wounded we feel that immediately and deeply—that is only natural. But we need to remind ourselves that every death, whether it is an Iraqi or anybody else in that country, is also the death of a human being. In the moral calculus these deaths also need to be taken into account for the sake of truth as well as humanity.
The very great Spanish theologian and jurist in the 16th century, Fransisco de Vitoria, who was such a powerful influence in trying to engage the Spanish people in the moral abhorrence of what was happening in the Indies, and who is one of the great definers of a moral approach to warfare, wrote:
"Since one nation is part of a whole world, and since the Christian province is a part of the whole Christian state, if any war should be advantageous to one province or nation but injurious to the world or to Christendom, it is my belief, that, for this very reason, that war is unjust".
What he is suggesting is that you have to take into account not just the good of your own nation or your own side, but the good of that much wider whole. That would mean taking into account the number of civilian deaths and wounded on the Iraqi side as well as on our own.
Of course there are many unpalatable truths to be faced on the other side as well. I certainly do not want to fall into the trap of what the noble Lord, Lord Gilbert, once suggested I might be falling into, of making a moral equivalence between democracy and its alternatives. I entirely share the view of the noble Lord, Lord Giddens, in his most interesting and powerful speech about the importance of democracy. Democracy is better than other systems in the world. One can say that quite unequivocally. Or if one wants to say it rather more theologically and pessimistically, it is the worst possible system in all the world, except for all the others.
Democracy is better, but nevertheless some people have approached democracy as I think Woodrow Wilson approached democracy in relation to the First World War—that this is a war to end all wars and make the world safe for democracy. One of the features of the "just war" tradition, as opposed to the Crusade tradition, is that you have a sense of the tragedy of war and of wars as a sad last necessity, which was the Duke of Wellington's attitude to war. A Crusade mentality means that you think you have right on your side against the enemies of right. The "just war" tradition has a much more nuanced view than that and is able at one and the same time to say yes—some things are better than others, nevertheless we are all flawed and there are unpalatable truths to be faced on our side as well as on the other.

1401
For me, that attitude is most wonderfully crystallised in the words and prayers of the great American thinker Reinhold Niebuhr. One of his prayers from World War Two goes:
"We pray for the victims of tyranny, that they may resist oppression with courage. We pray for wicked and cruel men, whose arrogance reveals to us what the sin of our own hearts is like when it is conceived and brought forth its final fruit".
So I suggest that in addition to the economic, political and security aspects, there is something more. We have to work for long-term reconciliation. Although I hope that the religious leaders will be able to play an important part in initiatives in this field, I also hope that the Government will be able to support whatever initiatives might be taken.
7.9 p.m.
Lord Young of Norwood Green: My Lords, I, too, thank the noble Lord, Lord Garden, for initiating the debate and congratulate him on the measured way in which he introduced it.
We have to remind ourselves that only two years ago Iraq suffered under Saddam's ruthless dictatorship. Elections took place with a 95 per cent, even 100 per cent, turnout. There was a slight snag—there was only one candidate. Dissent led to torture if you were lucky, and death as the final outcome. An estimated 300,000 bodies are in mass graves, a figure that has not been disputed. There was the genocidal draining of the marshes to eliminate the Marsh Arabs. Perhaps beyond anyone else, the Kurdish population knows why Saddam could not be removed without assistance. Now the Shia population is free to worship, something that under Saddam was repressed.
I share the approach of the noble Lord, Lord Giddens. To put it slightly differently, the glass might not be half-full, but I certainly would not like to view it as half-empty. The right reverend Prelate the Bishop of Chelmsford is absolutely right that war is the last resort; it should be. I like to think that it was, after 12 years of Saddam's repression and defiance of UN resolutions, although I accept that that is debatable.
I am less inclined to take the right reverend Prelate's view that the forces could simply ignore what was happening in places such as Fallujah and allow insurgents to take over swathes of the country. That was a very difficult decision, and it no doubt led to some damage. However, I was puzzled when he talked about the damage to the political infrastructure. Surely that was Saddam's role. There really was no political infrastructure during his reign of terror, certainly not as we would know it.
I was perhaps even more puzzled by the noble Baroness, Lady Turner, saying that people were talking about a triumph for democracy. I would not want to be triumphalist about the elections, but you would be hard put not to have been moved by the pictures of people queuing to vote—in a situation in which not only had they been threatened with suicide bombings, but those bombings had actually taken place on the day. It is even more unfortunate that we caricature some of the women who participated.
1402
Anyone who voted in those circumstances was exceedingly brave, and we should not in any way demean the process.
Some 8.45 million people voted in the 30 January elections, which is 58 per cent of the electorate. We will consider ourselves lucky in any forthcoming election if we can get that ourselves. Eight thousand candidates stood for the National Assembly, and 11,000 for regional and Kurdish elections. A third of the candidates in those elections were women. Figures from the independent electoral commission indicate that at least 86 women were elected to the transitional National Assembly, which is 31 per cent of the total seats. That is grounds for optimism.
The UK Government pledged a total of £544 million for reconstruction, which is good and necessary. More than 220,000 Iraqi security personnel are on the streets, which is amazing given the intimidation and killings that have taken place. Two hundred and forty hospitals and 1,200 primary health centres are functioning, perhaps not perfectly; I am sure that some of the concerns that the noble Lord, Lord Rea, expressed are right. Some 2,500 schools have been rehabilitated, with 20 new schools constructed arid 355 under construction, in very difficult circumstances. Seventy million new text books have been distributed, which is not unimportant given the history that used to he perpetrated under Saddam's reign.
No one would underestimate the enormous problems faced in Iraq. I share some of the misgivings of the noble Lord, Lord Redesdale, in his analysis of what happened to some of the reconstruction programmes. I do not know how you get a perfect situation in a country that is war-torn, but things could have been better.
I am not sure what the figures are for the civilian population deaths; there is certainly a lot of dispute about the Lancet figures, as there is dispute about any others. It will probably be difficult to obtain really accurate figures, but I support the view that we should try. Although there are clearly difficulties in medical facilities—they were amplified by the noble Lord, Lord Rea—we must not forget that under Saddam there was the same kind of terrible deprivation, even though it was centrally controlled.
It is unfortunate that the noble Lord, Lord Dykes, is not in the Chamber. I certainly would not want to put an optimistic gloss on what is happening, but we need a reasonable assessment rather than simply dwelling on what could be construed as the negatives. It is wrong to characterise those elections as a sham, as he did. Most objective people recognise that, in the circumstances, they were a great achievement.
I would like to think that the right reverend Prelate the Bishop of Oxford is right about the possibility of a truth and reconciliation commission—that it need not apply uniquely to South Africa. Something along those lines would be worth trying. I was certainly interested in his phrase, "the moral calculus". It is difficult in the circumstances to say whether we were absolutely right, but the world is a better place with the removal of Saddam Hussein.

1403
Can we extrapolate and say that the changes in the Middle East have resulted from Iraq? No, we cannot directly do so, but it is interesting to note that there have been fundamental changes. When you look at what has happened in Libya and Israel/Palestine and the amazing situation in Lebanon, the wind of change seems to be blowing. It will be fitful and inconsistent, and we need to do everything that we can to encourage that process of democracy. It is, as it has already been characterised, the least worst option.
7.17 p.m.
Lord Wallace of Saltaire: My Lords, it has been a useful debate. I thank the Minister for being here after getting off a plane at whatever time this morning she got off it. We appreciate that Ministers in the Foreign Office work extremely hard. One of the arguments for having Ministers from the Foreign Office in the Lords is that it cuts down on the amount of constituency business, but it encourages Foreign Secretaries to make Ministers travel even more than would otherwise be the case. We appreciate the Minister's commitment to the Lords, and have very much appreciated the number of useful Foreign Office ministerial and official briefings that we have had; I note that we will have another next week.
I have to comment on the absence of Conservatives in the debate. I have often thought that Conservative attitudes to foreign policy were primarily concerned with Gibraltar and Zimbabwe, but I had not realised that the level of importance that they give to Iraq is so limited. We on these Benches give the Conservatives notice that, after the election, we will ask for a greater share of the resources provided for the Opposition in this House—one that is rather more proportionate to the contribution that the different opposition parties make to business in this House than to the historic position of the Conservatives, given that too many Conservatives from this House appear to be elsewhere.
The Minister of State, Foreign and Commonwealth Office (Baroness Symons of Vernham Dean): My Lords, I am terribly sorry to interrupt the noble Lord, but does that mean that he acknowledges that the Labour Party will win the election? What he says seems to imply that. I am delighted in his comments.
Lord Wallace of Saltaire: My Lords, I certainly intended to imply that I did not expect the Conservatives to win the election.
We are not focusing on the run-up to the war, or its justification or legality; that has been discussed a great deal and will no doubt be discussed again. Our concern here is with the processes of rebuilding and of the return of control from foreign occupation to Iraqi sovereignty. As several noble Lords said, our biggest difficulty is in gaining effective information from the outside. We look forward very much to the Minister's speech, hoping that she will be able to answer a number of our questions.
1404
The elections were a major step forward, but the delay in forming a government is extremely worrying. I say to the noble Lord, Lord Young of Norwood Green, that my noble friend Lord Dykes did not say that the elections were a sham. However, he said that the parliament so far had not been able to conduct any substantive business. We welcome the Minister's assessment of how far we have got.
We are also conscious that the period immediately after the invasion saw a number of crucial and dreadful mistakes. We have Larry Diamond to thank for telling us, in detail, in his Foreign Affairs article and others, just how awful those mistakes were. As the noble Lord, Lord Giddens, knows well, Larry Diamond was seconded to the Coalition Provisional Authority as a senior advisor, and became very rapidly disillusioned with the chaos and confusion within the CPA. I remind the Minister that he wrote that it had a policy of "freezing out the Brits".
The destruction of the Iraqi middle class in the chaos of the election, the difficulties of rebuilding a solid middle class when insurgents target all those who shoulder responsibility and criminals target all those with money—which means most of those with enterprise—are part of the difficulties we now face. We long to hear more about what the Minister thinks is happening with economic reconstruction. My noble friends have talked about the problems of the dominance of external contractors. Domestic recovery is needed, which will bring domestic employment.
Most of all, of course, we are concerned about the current and future role, and the continuing responsibilities, of foreign forces in Iraq. What is now the relationship between foreign forces and the emerging Iraqi government? Who is now in charge of prisons and prisoners? Under whose rules? What is the British Government's assessment of the capacities of Iraqi forces? Do we have a timetable for withdrawal yet, as others dribble away, disillusioned with American rules of engagement? The noble Baroness, Lady Turner of Camden, is quite right to argue that we have to avoid foreign forces becoming the focus for resistance and disorder, rather than part of the solution in rebuilding order, at all costs.
Many of us continue to have great doubt about the consistency and coherence of American policy, as we listen to and read about the noisy clamour in Washington of competing ideological factions. I agree with the right reverend prelate the Bishop of Portsmouth that we may be happy that Condoleezza Rice is now the Secretary of State. We may be extremely unhappy that John Bolton is now the US ambassador to the United Nations. We are, after all, concerned about the re-establishment of an international order within the context of international law—not something which John Bolton has ever been able to bring himself to express admiration for.
We are also concerned that disorder in the Middle East should be contained rather than spread. The Trotskyite origins of neo-conservatism are evident in the attractions of permanent revolution, which one

1405
reads in some of their writings, through overthrowing as many regimes as possible in as many states as possible.
Many of us would love to see a return to democracy in Lebanon and evolution towards a more open society in Syria, and a reduction in the power and influence of the ayatollahs in Iran. We fear, however, the consequences of throwing everything up in the air without concern for what follows. We need the co-operation of neighbouring states in rebuilding a stable and prosperous Iraq, not their hostility.
We are conscious that the costs of Iraq are not only financial and reputational, but also include the distraction of the United States, Britain and our other allies from other international crises: the long and slow process of reconstruction in Afghanistan; the current crisis and potential genocide in Darfur; and the continuing crisis in central Africa, about which our Prime Minister spoke so vigorously in Chicago in 1999. promising that Britain would not again neglect disorder of this sort in central Africa.
I was struck by speech of the noble Lord, Lord Giddens, about democracy. I note that he speaks of the progressive left with approval, even though last week he spoke of the liberal left with disapproval. I assume that the progressive left is not liberal, but perhaps we can discuss that more informally.
The commitment to democracy and nation building which we all share is not just a matter of regime change—something the best academic literature is quite clear about. It is a long transition, which involves political, institutional, legal, administrative and economic transformation. Social conditions and structures matter. The evidence from Russia and Georgia—a country that I know moderately well—shows that simplistic advice, as the Russians had in 1990 from American social scientists about "just letting it all rip", does not provide the answer and leads to many mistakes. The slow approach which the European Union adopted, with conditionality and targets, looking at the gradual transformation of social and political institutions in Iberia and central and eastern Europe, was a necessary alternative.
I think that those who have written about social structure and structuration would agree that cultural change is part of what one has to go through. I mistrust the dominant current in American social science, which believes that we can impose one size on all. I deeply mistrust the way in which American policy makers have rubbished those who understand the social and tribal structures of the Middle East. Local conditions are extremely important. We have discovered in southeastern Europe that democratic transition—in Serbia, Kosovo, Bosnia and Macedonia—is a long and painful process. We may well be discovering the same in Iraq.
The bishops who have contributed have talked about the wider moral debate—not just about limits on force, but also about obligations to intervene and the responsibility to protect: the sort of questions which the UN high level report has addressed. These
1406
issues are very sharply in my mind as I struggle to complete my paper for the Archbishop's Council conference in May on just war. They are all questions to which we need to return.
I remind the bishops that part of what we have to argue about is the obligation to use force under some circumstances and the necessity of intervening, rather than limitations on the use of force. I wish Iraq were as simple as Portugal. I fear it may be as complex as Kosovo, but with 12 times the population. I recognise Britain's political and moral responsibility. I suspect that that moral responsibility should now be exercised by moving to withdraw militarily, but to remain engaged in terms of political and educational assistance, and economic and social development.
7.27 p.m.
Lord Howell of Guildford: My Lords, my thanks to the noble Lord, Lord Garden. I have listened to nearly all the speeches with great pleasure. I must say that the suggestion that the new parliament in Iraq was a sham was pretty awful. For the rest, I think there have been very valuable points indeed.
I take the optimistic view. We have seen a turning of the corner in Iraq. The coincidence of this debate with the first meeting of the new Baghdad parliament is very timely. Obviously, they have got some very hard pounding. The Kurds are going to push their luck as long as a two-thirds majority is needed to get the presidency council in place. They will push for greater control over the oil fields of Kirkuk, which is very difficult, and will raise all sorts of tensions there. There is the question of getting the Sunnis properly involved at every level in a most effective way. That is going to be difficult.
The presidency council has got to be put in place. I gather that the suggestion is Jalal Talbani for the president, and then two vice-presidents—maybe one a very senior Sunni, and perhaps the other Mr Ayad Allawi, who has done a very good job. Then, of course, in two weeks' time they have got to choose a Prime Minister and, in turn, a cabinet. It is all going to be very tough and crucial, and I do not think we should deride it in any way. We should give it our blessing, support and encouragement.
As for the optimistic side, I was going to read out the list of "bottle half full" achievements in Iraq.
Lord Dykes: My Lords, I intervene because the noble Lord, Lord Howell of Guildford, referred to my words "a sham". I did not mean the parliament itself was a sham. I was referring to the interim Prime Minister's own words, saying that they should by now be forming a government. He was very depressed that they were not.
Lord Howell of Guildford: My Lords, I am glad that the noble Lord has chosen to make that clear because it did not come over very well.
I was going to mention the long list of achievements but the noble Lord, Lord Young of Norwood Green, made an excellent speech, setting out the positive side

1407
of what has been achieved. I shall just add to his list the fact that power supplies are now, I am advised, well above the pre-conflict level, 4 million children have been vaccinated, and child mortality is down. We heard from the noble Lord, Lord Rea, that there are difficulties in relation to the water supply, but that has improved. Canals, roads and ports have been opened and the marshlands have been restored, and so on. It is amazing what has been done, and one should not be too pessimistic about it.
As to whether the overall situation has improved, as the noble Lord, Lord Garden, said, information is difficult to gather. So perhaps we need the happiness indicator of the noble Lord, Lord Layard, in trying to measure whether or not things have improved in Iraq-it is very difficult to tell. As for the oil scene, I know that oil pipelines are still being blown up, but the system is gradually getting back to where it was before and, indeed, is moving upwards with current production at 2.4 million barrels a day.
So the picture is not all bad, and that raises the question of the debate. Does it mean, as some people have suggested, that democracy has arrived and is blooming not only in Iraq but in Egypt, Lebanon and even Saudi Arabia? The noble Lord, Lord Giddens, spoke very eloquently about the prospects of democracy spreading its wings and so on.
I think we must be very careful in throwing about the word "democracy". There is all the difference in the world between democracy and constitutional democracy. Democracy in its simple form of ballot boxes and elections can lead to stability but it can also lead to the most unstable and dangerous one-party rule and tyranny and all the paraphernalia of authoritarianism.
The constitution is the anchor that makes democracy work, and a constitutional structure means embracing all centres of power in society—the judiciary, the press, corporates, private enterprise and all the social and professional classes. It means bringing to all of them a sense of necessary restraint without which democracy is just a word in the wind and with which it is possible to operate a restrained society where minorities are respected and violence is not resorted to. When I hear our American friends in particular, and some academics, make speeches about democracy, I often have to ask whether it has perhaps slipped their minds that "democracy" is a very broad concept indeed and that it must be constitutionally based.
I also want to ask what influence we—the friends of America; I count myself as one—have succeeded in having on our American allies so far, and are having now, in the evolution of the situation in Iraq. We all admit that the Americans have made a number of mistakes, including some disastrous ones—particularly, as was pointed out, the disbanding of the Iraqi military.
What point have we reached now? As has been remarked, the Italians appear to be pulling out—at least, they will do so in the autumn—the French were never in; the Germans fought an entire election opposing the whole idea; and a number of other countries are pulling out. If we want to find influence
1408
and leverage on our American friends—it is right that we should, even though I broadly support their strategy—then, frankly, it is not much use looking to our European partners or to a common foreign and security policy to influence Washington. In fact, on the contrary, the general presumption in Washington seems to be that the EU structure is basically anti-American and therefore America will not listen very closely to the EU.
If we want to have good leverage on our friends, we have to look around to see who America's best friends are and work with them. America's best friends are: this country, under its present Prime Minister certainly; Japan, which is strongly supportive; Australia; New Zealand; and one or two others.
So my conclusion is that, if we want to be effective in our foreign policy as a country and effective in having an influence on the Americans as their friends and not as their enemies, we should work very closely with those countries and not rely on common foreign policy and other devices or leave poor Mr Solana to produce a view, which he can never co-ordinate because all the Europeans disagree. I hope that if there is to be an Iraqi conference, as I read in the papers, either here in London or in some other European capital, we shall include those countries—America's best friends, as it were—in the conference in discussing how to carry matters forward in Iraq.
My third question drops backwards slightly but I think that it is worth asking. Has this whole invasion business and the overthrowing of Saddam helped or hindered the war on terrorism? We have heard some very strong speeches either way on that matter and a great deal of ink has been spent analysing the whole question. The Butler report showed that the weapons of mass destruction story was quite seriously exaggerated by the politicians. Even the intelligence people had doubts, but somehow those vanished when the issue was presented to the two Houses of Parliament.
But, interestingly, the Butler report rather dismissed the other terrorist links of Saddam, and I think that that was based on a misunderstanding. Although there was little direct formal linkage between Al'Qaeda and Baghdad before the invasion, the truth is that Al'Qaeda is not a formal organisation. It is a copycat inspiration, and everyone who knows the Middle East—many in this House do—realises that before 2001 or 2002 Baghdad always was a friendly home for terrorism. It was a general encouragement centre for terrorist networks and, of course, was deeply involved in the 1993 World Trade Centre bomb.
So I think that one has to recognise, as the noble Lord, Lord Young of Norwood Green, rightly said, that the removal of Saddam must have been a positive in the war on terrorism. Today, Hamas says that it will fight the elections in Palestine instead of killing everyone in sight. Even Hezbollah may help an independent Lebanon instead of trying to turn it into another civil war and bringing back the Syrians, which would be a terrible tragedy.

1409
I think it is also true that in the cafes and souks, in the editorials that one reads and in what is said by the Arab-language TV pundits, everywhere from Casablanca at one end to Kuwait City at the other, the tone has changed. The tone on constitutional reform, on women's rights and on the need for the rule of law has changed. It may not have changed to the point of saying that the Americans were right—that is going too far—but there has been, as one noble Lord rightly said, a wind of change. I believe that that could bring about more wisdom and understanding not just in relation to what has gone wrong in the past but also in relation to the very subtle nature of constitutional democracy and the dangers of simplifying it as a formula that can simply be taken off the shelf and imposed. It cannot.
None of that would have happened if Saddam had still been in power. Therefore, I have to side with those who believe that, despite the wrong presentation and misleading arguments, we are on the road to a better world, the Middle East is on the road to a better region and we are into a safer world now that Saddam has been removed and Iraq is struggling back to a better democratic future. There is a long way to go, but we are. if I may quote a phrase, "forward not backward" in Middle Eastern reform and, frankly, it is a long time since anyone could stand at any Dispatch Box and say that.
7.38 p.m.
Baroness Symons of Vernham Dean: My Lords, I, too, thank the noble Lord, Lord Garden, for moving this debate this evening and I thank him for the way in which he approached it. He did so in a constructive manner and your Lordships have approached and participated in our discussions in a most constructive way—especially, if I may say so, the noble Lord, Lord Howell of Guildford, even if he has been a little lonely on his Benches in so doing.
Iraq is not an easy subject on which to have an objective discussion. Since the military action of 2003, it has aroused some of the most fiercely argued and passionately debated views in modern political life—nowhere more so than in your Lordships' House. But this debate has asked us to concentrate our discussion on the economic, political and security developments since the military intervention of 2003, and that is what I shall endeavour to do, huge though the sweep of subjects has been. I shall try to write to noble Lords where I am not able to answer some of the detailed points.
In concentrating on those points, I agree very strongly with the right reverend Prelate the Bishop of Oxford that the issues are bigger, wider and more profound. The issues that underlie the debate are those of the moral responsibility to which the noble Lord, Lord Wallace of Saltaire, referred. In a wider sense, we owe ourselves that debate at some stage as well.
The security of any country lies at the heart of its capability to advance its political and economic life. That point was made very clear by the noble Lord, Lord Garden. It is clear that the security situation in
1410
Iraq is hugely challenging. The insurgent groups are disparate in nature and range from Ba'athist to religious extremists. However, despite what some might say, evidence does not suggest a popular insurgency rampant throughout the whole country. Indeed, most of the attacks have focused on just four of Iraq's 18 provinces; 83 per cent of attacks have occurred in Salah ad-Din, Anbar, Ninawa and Baghdad. By contrast, 10 provinces, mostly in the centre, south and north, have suffered only 1.2 per cent of the attacks.
As demonstrated by the car bomb outside a medical testing centre in Hillah on 28 February which killed over 115 people, the insurgents and terrorists continue to show their disregard for human life and their disregard for the wishes of the Iraqi people. They may continue their attempts to create an insecure environment to spread fear and intimidation and to prevent the development of the Iraqi security forces, and they may seek opportunities to create ethnic and religious friction, but—this is the crux of the argument—they fail to offer the Iraqi people an alternative to violence and destruction. The elections on 30 January showed how the Iraqi people have stood up and expressed their wish for a future of democracy and development, free from suppression.
The right reverend Prelate the Bishop of Chelmsford was very critical of the action taken in Fallujah, action which I remind him was instigated by the Iraqi Government under the then Prime Minister, Prime Minister Allawi. Denying the insurgents the use of towns and cities as safe havens for launching attacks elsewhere in Iraq has been, and remains, a key objective. Operations in Fallujah were called for by the Prime Minister for that very reason. Over 500 weapons caches containing ammunitions, small arms, rockets and mortars as well as some 600 improvised explosives were discovered. Buildings containing the insurgents' repugnant instruments of torture were also found.
The action in Fallujah denied the insurgents important parts of their capability to carry out even more terrorist acts. Importantly, Iraqi security forces have been involved in intensified operations to restore areas under the control of militants and terrorists to the authority of the Iraqi Interim Government. The operations, not only in Fallujah, but also in Najaf, Samarra, North Babil and Sadr City in Baghdad were all part of this effort. The aim is to raise the standard of the ISF to such a point that it can take the lead on countering the insurgency, thereby allowing the multinational forces to step back.
The insurgents have recognised the success of the development of the ISF and have tried to prevent it. That is why we have seen a fall in attacks on the MNF and a rise in those against the ISF and on civilians. That has been at the heart of their strategy. Attacks against infrastructure and kidnappings continue, but are much less frequent than the peak that both reached near the end of last year.
As the noble Lord, Lord Garden, said, the elections on 30 January were a historic moment for Iraq and the Iraqi people. The Iraqis' commitment to risking their lives to cast their vote, and to have a say in the future

1411
of their country, was humbling, as my noble friend Lord Giddens said. On election day itself, there were 285 insurgent attacks. There was a total of 44 fatalities. But although there were attempted attacks on some polling stations the security plan for the elections was a success, with suicide bombers intercepted by Iraqi police at the perimeters around the polling stations.
It is widely perceived that the Iraqi police did a good job in preventing further bloodshed promised by insurgents, and this, in its turn, has boosted their self-confidence on security. Indeed, police remained at their posts during and immediately after the election, and there were many individual acts of bravery by Iraqi Security Forces (ISF) personnel on the day. The terrorists said, "You vote, you die", but people voted. Many of us may ask ourselves whether we would have had such courage and conviction. As my noble friend Lord Giddens said, democracy cannot be stopped at the point of a gun.
That leads me to the points on the political developments. In what was a remarkable speech in its depth of analysis, my noble friend Lord Giddens said that the elections left many of us comparing our turnout at elections in a secure and free country with the election turnout in Iraq.
Of course, the elections were not perfect, but just over 8.5 million people participated. There were 8,000 candidates for the Transitional National Assembly (TNA), 11,000 for the regional and Kurdish elections, and a third of those candidates were women. We all know the outcome: some 140 seats to the United Iraqi Coalition; 75 to the Kurdistan Alliance and 40 seats to the Iraqi list. Eighty-six per cent of women were elected to 31 per cent of the TNA's seats. I remind my noble friend Lady Turner that that is a remarkable achievement in terms of women's development in Iraq.
Of course, there have been complaints, as my noble friend Lord Rea suggested. He noted the Assyrian committees. Those are being investigated by the IECI, which will publish a report and write to the complainants with its findings.
Turnout in some parts of the country, particularly in the Sunni provinces, was low but, taken all together, Sunni Kurds, Sunni Arabs and Turkomans account for 94 seats in the TNA. It is important to recognise that the principal reason for a low Sunni turnout was the insurgent intimidation of voters. Where violence was lower, for example, in the south, Sunnis participated. The challenge now is to ensure an inclusive constitutional process.
I strongly agree with what the noble Lord, Lord Howell of Guildford, said. Sometimes it is remarkable how much he and I tend to agree on some of these subjects. But since the elections there has been progress and there are grounds for optimism. Iraqi political and religious leaders have said that they want the Sunnis in government and as part of the constitutional process. The United Iraqi Coalition, the leading Shia list, has established a committee to take forward discussions with the Sunni groups, like the Iraqi Islamic Party, the Muslim Ulema Council and
1412
Sunni Waqf. I noted remarks of observers on the ground who believe that many of those who did not take part in the elections are now responding positively to an invitation to join in the debate on the coalition.
This morning Boris Johnson, self-avowed opponent of the war, indeed one of those who wishes to impeach the Prime Minister—I do not know whether that means that he is one of the independent observers mentioned by the noble Lord, Lord Dykes; these days he seems to be pretty independent of his own party—when asked whether he had concluded that, despite the problems with intelligence and the lack of WMD, the war was right, he said: "Yes, I do". He went on to say: "The security situation here is not by any means perfect, but once the Iraqis get hold of it, once you know Iraqi security forces are running the show, I have every confidence that it will abate. It is quite inspiring, you know". There were many quotes from people in Iraq who had been telephoned to ask for comments, but I thought that that was a very telling remark indeed from Boris Johnson.
Now that the Transitional National Assembly is formed, it is tasked with drafting the permanent constitution. Key issues will be the role of religion in public life, the relationship between Baghdad and the regions, including the division of resources under a federal arrangement, and ensuring that the structure of government and the electoral system of Iraq will follow, ensuring that basic human rights of all Iraqis are met.
The transitional administrative law requires the TNA to consult widely, as it is doing and UN resolution 1546 allocates the UN a lead role in supporting the political and constitutional process. That is an important point. It was not focused on in the debate this evening, but let us not forget that the UN still has that role on the ground in Iraq.
Of course, the timetable is ambitious, but it is an achievable timetable. The TNA has until 15 August to produce a first draft on the constitution. That will be put out for public consultation and review, and if agreed, the constitution will be put to a referendum by 15 October. If adopted, it will be followed by full national elections in December 2005, at which point the transitional administrative law will expire and the transitional government will dissolve. The provision for the six-month extension was also mentioned in our discussion.
Political developments include developments with the international community. We were very pleased to see the way in which not only the international community as a whole, but also Iraq's neighbours in the region—and I have visited many of them; I think I have visited some 10 or 11 countries in the past five or six weeks—have rallied round in support of the Iraqis. We look forward to them doing so again at the forthcoming Arab League meeting.
I turn to the economic questions. This is the third part of the debate. I have dealt with security and the political process. The noble Lords, Lord Garden and Lord Redesdale, and my noble friend Lord Rea concentrated on this issue. Many of the conditions

1413
necessary for long-term economic prosperity in Iraq have been met. The generous debt settlement agreed by the Paris Club to write off 80 per cent of Iraq's debt—that amounts to some $31 billion—and the IMF assistance programme agreed in September will help put Iraq's economy on a sound footing.
Iraq also continues to benefit from high oil prices. The Iraqi exchequer received over $17 billion in 2004 which was used to finance reconstruction and spending by Iraqi ministries. The IMF estimates that the Iraqi economy will grow by nearly 17 per cent in 2005, on top of predicted growth of over 50 per cent in 2004. The WTO has also agreed to open membership talks with Iraq shortly.
The noble Lord, Lord Garden, raised points about electricity and facilities. I thank the noble Lord, Lord Howell of Guildford, for acknowledging the improvements that have undoubtedly taken place in much of the infrastructure. Baghdad has received around eight to 11 hours of power each day since the elections, which is a marked improvement on the December and January figures. The picture nationally is similar, although some southern governorates receive only five to eight hours of electricity. February's generation peak was 9 per cent higher than it was at the same period last year.
Water supplies are now better than before the conflict, especially in the south of the country, which was the part that suffered most under Saddam Hussein's regime.
My noble friend Lady Turner and the noble Lord, Lord Garden, also raised questions about unemployment. That is still high, but it is improving due to a stronger economy and growing agriculture and trade sectors. The United States, the United Nations and the UK reconstruction programmes have also had an impact. The US reports that on average 130,000 Iraqis are employed each week in US-funded projects. DfID programmes are significantly improving job opportunities in the south.
My noble friend Lord Young described what is happening in the 240 hospitals—1,200 primary healthcare centres are open and functioning. My noble friend Lord Rea asked about statistics on mortality. For children under five the mortality rate in 1999 was 131 per thousand and the regional average is currently 54 per thousand. Those figures are from UNICEF. The number of undernourished children in 2000 was 17.7 per cent. It is now down to 11.7 per cent. I could give many more statistics, but I hope that that will at least reassure my noble friend Lord Rea on some of those points.
Like the noble Earl, Lord Sandwich, I applaud the extraordinary work, often under very dangerous and difficult conditions, of the NGOs working in Iraq. He raised the question of the CIMIC courses—the civilian, military co-operation seminars run by the United States on questions of civil society.
Our construction arrangements are similar but not identical to those of the United States. One difference is that the US has civilian affairs battalions, which we do not. The UK military have been involved in reconstruction, but development of civil society and
1414
governance is a DfID lead and an FCO lead in this country, not an MoD lead. I hope that gives him some of the answers to that point.
DfID is funding a great number of projects in Iraq: the BBC World Service Trust to strengthen independent broadcasting in southern Iraq—that should please the noble Lord, Lord Dykes; funding for a Christian Aid partnership with a Kurdish NGO to strengthen civil society groups in northern Iraq; funding for UNISON to train a new generation of Iraqi trade union leaders—I am sure my noble friend Lord Young will be pleased to hear that; and funding for the Women's National Commission to train Iraqi women leaders on how to engage with the national policy-making process on gender-related issues. I hope that my noble friend Lady Turner is at least pleased to hear that.
DfID has also funded the Marsh Arabs. Here I should like to acknowledge the truly outstanding, courageous and wonderful work undertaken by the noble Baroness, Lady Nicholson, in respect of the Marsh Arabs. We all offer her great support in that.
The noble Lords, Lord Redesdale and Lord Dykes, asked about the coalition's difficulties in keeping track of $9 billion of Iraqi funds. We have to acknowledge that there are difficult operating conditions in Iraq and decisions have had to be taken quickly to get ministries up and running and reconstruction projects off the ground. There is an alternative. That would have been to institute a system that delayed expenditure for months. Progress made by the CPA in improving financial management was undertaken, introducing a transparent framework for management of the national budget and taking measures to improve reporting and record keeping. In addition, the IAMB concluded that all known oil proceeds have been properly and transparently accounted for in the DFI.
There is much more to say on that and I should be very happy to go into it further, but I fear that going into detail at the moment may not be possible, given that I still have other points to answer.
The noble Lord, Lord Garden, was concerned about the time it is taking to appoint a government. That does take time. Such timescales are not unusual in many countries. The quick turnaround that we have at a time of a general election is extraordinary. My experience in the Middle East is that many governments take time to go through the process. They take time for the sort of consultation which is crucial to the kinds of societies in which they operate, particularly when there is the question of trying to form alliances across different parties.
Perhaps I may again tackle the point raised by my noble friend Lady Turner about women. Throughout the Middle East women play a part in society in a huge variety of ways. Currently, a great deal is going on in Iraq in respect of women. More than 1,000 women have already received training in financial, fiscal, utilities and regulatory systems. Future programmes will include training and employment services for 1.5 million Iraqi women at 17 vocational technical and training centres. I

1415
do not think that by any standards that can be argued as going backwards for women; it is clearly moving forwards.
I thank the right reverend Prelate the Bishop of Oxford for his remarks on the religious dimension and the work of the religious communities. He knows how much I have supported the efforts of Canon Andrew White and how much I admire the canon's courage and application. The point about the Truth and Reconciliation Commission commends itself and I hope that this year it can be discussed.
We have dealt at great length on the question of casualties. A report has been put forward by my right honourable friend the Foreign Secretary. We have said that we believe it is important to look at the available figures from the Iraqi sources. That is not to brush that aside. We have, however, gone into this issue in great detail in the past. I will be able to give any more detailed briefing for all parties of both Houses at 6 p.m. next Wednesday, 23 March. I hope that the rest of the questions can be dealt with then.
Today, we mourn what happened 17 years ago in Halabja. How remarkable that 17 years later the TNA has met. Perhaps the TNA did not appoint a government and perhaps it did not take any historic decisions, but it met today as the elected voice of the Iraqi people. That is what we should be looking forward to.
The noble Lord, Lord Howell of Guildford, said that this is a wind of change. It is more than that; it is the real future that we are looking forward to now. I sense that, although there are many misgivings and many concerns, noble Lords wish the Iraqi people well and that we will all be working very hard for a future that is worthy of them.
8 p.m.
Lord Garden: My Lords, I will not detain the House for long. I thank everybody who spoke with such depth of knowledge and having done so much research into their areas; it brought a great deal to our short debate. It was important that we looked at where we are going now rather than forever arguing about the past. I am delighted that we had such a valuable debate. We had a degree of consensus from the different perspectives: I saw it as being that noble Lords are all concerned about the future of the Iraqi people, and that that is what we must consider. I was delighted to hear the different views.
There seem to be optimists who read all the good statistics and others who talk to people who are having a pretty hard time out there. My own view is that we must take a realistic approach, because just being optimistic may not make it work, and it must work in the long term. I thank all noble Lords for their contributions.
A couple of speakers alluded to the possibility that we might not see the Minister responding in her wonderful, passionate way to all these subjects in the future. Should there be an election, and should she not be there, we would all be saddened, because she brings
1416
something, but we would look forward to hearing her real views from the Back Benches. In the mean time, I beg leave to withdraw my Motion.
Motion for Papers, by leave, withdrawn.

Regulatory Reform (Trading Stamps) Order 2005
8.2 p.m.
Lord Triesmanrose to move, That the draft order laid before the House on 17 January be approved [8th Report from the Regulatory Reform Committee].
The noble Lord said: My Lords, this regulatory reform order is brought forward under the Regulatory Reform Act 2001. Subject to approval by Parliament, it will lift regulatory burdens from the retail sector while protecting consumers from possible detriment.
The Trading Stamps Act 1964, which I shall refer to as the 1964 Act, was designed to regulate what was, in those days, a flourishing market for incentive schemes that encouraged consumers to collect trading stamps and exchange them for goods. I shall briefly summarise the main requirements of the 1964 Act for businesses engaged in trading stamp schemes. They are: to restrict who may promote trading stamps; to display certain information, including the value of trading stamps when they are redeemed for cash; to establish a mechanism for customers to redeem trading stamps for cash, subject to a minimum value of 25p; to ensure that any goods provided to consumers on redemption of trading stamps are of satisfactory quality and that consumers have a clear title to them; and to observe sundry other obligations.
Over the past 40 years, however, there has come into being a comprehensive range of more general consumer legislation, some of which overlaps with, or replicates, provisions of the 1964 Act. In particular, the Sale of Goods Act 1979 and the Supply of Goods and Services Act 1982 now apply generally to most sales or supplies of goods. Those Acts provide consumers with almost identical rights to those that the 1964 Act implies on the redemption of trading stamps. Yet it is the 1964 Act, and not the subsequent Acts, that applies to goods transferred in exchange for trading stamps.
The once-popular schemes—although in the distant past, I remember them rather well—such as the Green Shield Stamps system, have largely been supplanted by state-of-the-art promotions using cards that register electronic points. Those schemes are far more cost-effective than their paper-based forerunners and can be used to provide valuable insight into the buying habits of consumers. Not surprisingly, they have been adopted by numerous supermarket chains, garages and other retailers. Consumers have joined those modern schemes in droves, although it must be said that many of us now walk around with wallets that strain to accommodate the cards that we have been given.

1417
So what are the burdens on business that the order is intended to reduce? In the retail sector there is now limited use of trading stamps as a promotional device, but businesses nevertheless need to consider whether promotions that offer discount vouchers might fall within the scope of the 1964 Act and would have to comply with its specific requirements. That process is expensive in terms of both legal advice and the measures that must be taken in the light of that advice. Those costs, which are directly related to the 1964 Act, are not reflected in meaningful benefits for consumers, since the main body of consumer legislation can provide sufficient protection in any case.
By repealing the 1964 Act this proposed order will remove a number of disproportionate burdens from the retail sector. For example, the provisions concerning cash redemption are unworkable in practice because trading stamps are commonly attributed a value of one-thousandth of a penny, but at the moment that does not relieve businesses of the obligation to display the relevant information. The order will, however, maintain important consumer protections relating to the quality and safety of goods exchanged for trading stamps by ensuring that the terms of the subsequent Acts will apply on the redemption of trading stamps. Those Acts are familiar to businesses as well as to consumer bodies that are confident of their ability to pursue any complaints that may arise.
Some provisions in the 1964 Act—for instance, those concerning misleading advertising—are not being taken forward specifically because alternative measures now exist in consumer legislation. I know that retailers and their agents will welcome the harmonised legal regime that will result from this reform, as will consumer advisory services.
The order applies to England, Wales and Scotland. Northern Ireland has parallel legislation, and steps are being taken by the authorities there to make changes on similar lines, subject to parliamentary approval.
In conclusion, there has been extensive public consultation on this proposal, and it has received widespread support from business and consumer interests. The respective parliamentary scrutiny committees have examined the proposal, and their responses have been noted. The House of Lords Select Committee on Delegated Powers and Regulatory Reform has unanimously approved the order, and I thank its members for their work. The committee in the other place initially recommended an amendment to the draft order, but the department has conducted a further consultation of business and consumer stakeholders. As a result, that committee was also satisfied that the proposal should proceed. I beg to move.
Moved, That the draft order laid before the House on 17 January be approved [8th Report from the Regulatory Reform Committee].—(Lord Triesman.)
Lord Newby: My Lords, I am extremely grateful to the Minister for introducing the order so clearly. As I look around the far-from-crowded Chamber, I think that that makes the argument for taking such debates
1418
at a more sensible time of day in the Moses Room ever stronger. I hope that that will increasingly become the practice of the House.
The order is one of those happy things—a repeal of redundant legislation. The problem that we often face is that the statute book is far too heavy with redundant legislation. While we all have great enthusiasm for adding to it, we have far less enthusiasm for deleting things from it. Therefore, the order is much to be welcomed from that point of view if from no other.
The only question that was raised in the committees was whether repealing the Act would lead to a loss of consumer protection in any significant—or indeed any—way. The Government have explained fully why they believe that not to be the case, and we are satisfied with their explanation. Therefore, we are happy to support the order.
Baroness Miller of Hendon: My Lords, I, too, thank the Minister for his explanation of the order and his short history of how it came about. It is, except in one respect, non-controversial, and I certainly have not received any objections to it.
The one area of controversy seems to be a difference of opinion between the DTI and the Regulatory Reform Select Committee of the other place about the liability for any defective goods supplied on the redemption of trading stamps. As far as I can discern from a second-hand account of the exchanges between the Commons Select Committee and the DTI, in the end, they simply agreed to differ. But when the Commons Select Committee withdrew its objections, it issued a mild reprimand to the department in its report. It stated:
"It appears to us that the fact that it was not until the latter stage of the RRO process that the Department has sought adequately to address this issue—
that is, the liability for defective goods—
"confirms that the Department has not hitherto approached this reform with due regard for the position of the consumers".
In the end, not only did the Commons Select Committee withdraw its objections, but the order was approved in the other place without debate on 22 February. Your Lordships' Delegated Powers and Regulatory Reform Select Committee agreed with the DTI's interpretation that only the supplier of the goods is and should be liable.
I simply have three observations about the background to the order—not, I hasten to add, to question its purpose. I am interested just in what the Minister might think. First, what evidence is there of any widespread complaint about the quality of goods that are supplied on the redemption of trading stamps? Is there any evidence of a greater number of such complaints than of complaints about goods supplied in the ordinary way by retailers? If not, what need is there for additional redress against the promoter, as distinct from the supplier, in cases where they are not one and the same?
My second observation is entirely philosophical. The continuing use of trading stamps as a means of sales promotion seems, as the Minister said, practically

1419
obsolete. These days, there is a proliferation of so-called loyalty cards issued by the supermarket chains, high street retailers and individual department stores. They generally provide for discounts against future purchases from the same retailer, often in the form of coupons issued periodically, which may or may not technically or legally be trading stamps—Boots the Chemist suggests that they are. The discount may be cash credits against future purchases. In some cases, those credits are transferable into air miles, which would be yet another trading stamp scheme were it not for the fact that no paper stamps are issued, rather just an entry on someone's computer.
I believe that the consensus, shared by the DTI, is that those loyalty schemes are not caught by the Trading Stamps Act, although I am open to correction by the lawyers if I have made a mistake on that point. So the days of retrieving those little pieces of paper from the bottom of one's handbag or wallet and sticking them on a card may be numbered in the light of technical innovations. The trading stamp promoters will not go out of business in consequence. I am sure that they, too, will move with the times.
My final point is that the Government first proposed to repeal the Trading Stamps Act in their consumer White Paper of July 1999. That is four and a half years ago. The Government state that the scheme will save between £250,000 and £750,000, concentrated among a few major firms. I am not sure whether that means in total, for ever, or whether that sum is per annum.
However, the delay in removing what is now accepted to be completely unnecessary red tape has undoubtedly cost a great deal of avoidable expense. Obviously, the order is necessary now. Some updating of a law that first came into force 41 years ago, when trading stamps were a novelty, is urgently needed. Like the noble Lord, Lord Newby, we certainly do not oppose the order. We are happy that it has come to be.
Lord Triesman: My Lords, I thank the noble Lord, Lord Newby, and the noble Baroness, Lady Miller, for their helpful comments. I think I can answer the questions pretty quickly.
I am not aware of any evidence that redemption has been more of a problem for consumers than any other problems they might experience. Plainly, however, whatever scheme is in place, people need to have confidence in it. On occasions in the past, people have felt that some of the goods they got on redemption turned out to be rather shoddy, because they were related to such small sums of money. That is probably the anxiety we are seeking to address.
I wholly take the point raised by the noble Baroness, Lady Miller, about the various bits of paper that may or may not fall under this. I was asking questions about it myself. Even the little cards we get in coffee shops, which they stamp, and then, once we have drunk 10 gallons of coffee, we get a free latte, are trading stamps, I think. There are probably a number
1420
of others that still are on pieces of paper, but it is quite right to say, as the noble Baroness does, that loyalty schemes are sweeping all of those things away.
The final point is about the sums of money involved. My understanding is that the savings for business will be in the region of £1 million per year. That is the most reliable figure I have heard. It is true that the repeal of the 1964 Act was proposed in the consumer White Paper in 1999, but work on other measures, including primary legislation, has prevented the proposal from moving forward as quickly as it might otherwise have done. In part, that is because a full public consultation has taken place, and the proposal was first laid for first scrutiny in April 2004, and final scrutiny was in January 2005, to ensure that the process was thorough. Still, I can see the argument that it might have happened a little faster.
Again, I express my gratitude for the contributions to this short debate. I commend the order to the House.
On Question, Motion agreed to.

Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005
8.16 p.m.
Lord Triesmanrose to move, That the draft regulations laid before the House on 12 January be approved [5th Report from the Joint Committee].
The noble Lord said: My Lords, I probably ought to preface my comments by saying that we had a good go at debating this Motion in the Moses Room, but unfortunately we were unable to do so. I shall detain noble Lords for as short a time as I can.
This statutory instrument amends the Companies Act 1985 in four main ways. First, it introduces a requirement for quoted companies to prepare an operating and financial review, or OFR. Secondly, it extends the "fair review" of companies' business in directors' reports, as required by Directive 2003/51/EC of the European Parliament and of the Council of 18 June 2003, generally referred to as the "modernisation directive".
Thirdly, it provides for a review of the OFR by the companies' auditors and amends the existing requirement for auditors' review of directors' reports. Fourthly, it establishes a parallel criminal and administrative enforcement regime for the OFR and directors' reports.
The regulations require the directors of a quoted company to prepare an OFR for each financial year. An OFR is a balanced and comprehensive analysis of the development and performance of a company's business, including the main trends and factors underlying its performance and financial position during the year, together with those trends and factors likely to affect its performance in future years. Its aim is to focus on more qualitative and forward-looking information than was traditionally included in annual reports in the past.

1421
In order for an OFR to comply with the regulations, it may be necessary for it to include information on a range of factors relevant to understanding the business—for example, information about environmental matters, about the company's employees and about social and community issues. However, if the nature of the company's business means that it is not necessary to disclose information about one or more of these issues in the OFR, directors must make a statement to this effect in the OFR. Shareholders will therefore know that the directors have considered the matter.
The regulations also implement the parts of the accounts modernisation directive that extend the current requirement for the director's report to contain a "fair review" of the business. In future, the director's report will have to contain a "balanced and comprehensive analysis" of the business's performance and development during the year and the position of the company at the end of the year. The objective is similar to that of the OFR: greater transparency and precision of company reporting on performance on financial and non-financial matters.
All quoted companies, regardless of size, will have to prepare an OFR. However, information already contained in the OFR does not have to be duplicated in the directors' report. While all companies will have to prepare a directors' report, small companies will not have to prepare the extended fair review; and we have taken advantage of the exemptions in the directive to exempt medium-sized companies from the requirement to include certain non-financial information.
We have also provided safeguards to ensure that information provided by the OFR and directors' report is meaningful and relevant. The legislative requirements for the OFR will be supported by an OFR standard prepared by the Accounting Standards Board. The ASB is currently consulting on a draft standard.
The regulations also provide for a review of the OFR and directors' report by the company's auditors, and for a parallel criminal and administrative enforcement regime for the OFR and directors' report. The Financial Reporting Review Panel will review the OFR in relation to possible omissions and mis-statements. The panel's administrative enforcement role will begin one year after the regulations come into effect, applying to OFRs for financial years beginning on or after 1 April 2006. This will give all parties the opportunity to become familiar with new requirements and relevant standards, and to share good practice.
The purpose of the OFR is explicitly to assist shareholders assess the company's strategies and the potential for them to succeed. It is a real step change in the way directors report to their shareholders on the performance and prospects of the business. The information that will be disclosed in the OFR is the type of information not often well captured in traditional financial statements. For example, information about the company's strategy, prospects, opportunities and risks; intangible and so-called "soft" assets; and key stakeholder relationships. That is very much the sort of information which I can say from experience merchant
1422
and company bankers need to know when they make assessments about investment prospects. But this is now to be extended to shareholders more generally.
More individuals and families own shares than ever before, either directly or indirectly, for example through holdings in pension funds, and employees often receive share options. It is increasingly important that shareholders should be able to understand how well the business they own is prepared for the future. The OFR will improve the quality, usefulness and relevance of information, which will help enable shareholders to achieve a better understanding of the company's business and future prospects. It will also encourage an open dialogue between shareholders and business to stimulate long-term wealth creation.
In developing the regulations, we have been guided by several principles: that we should not impose unnecessary burdens on business; that we should promote relevant and open reporting, where companies have the confidence to produce high-quality information rather than boilerplate reporting; and that we should listen to what stakeholders say and, where necessary, make changes.
In response to issues raised by respondents to the consultation we carried out last year, we have simplified the audit requirements, addressed duplication of reporting requirements, avoided unnecessary publishing costs and given companies more time to manage the transition we are asking them to make. We believe that these changes have strengthened the proposals and will enhance the usefulness of the OFR for both shareholders and other stakeholders. Indeed, we are grateful to all those who took part in the consultation for guiding us in that direction.
We are not alone in taking that view. As the CBI said following the Government's response to the consultation:
"The changes enable firms to explain activities to stakeholders in plain language without checking every comma for exposure to legal challenge. There is now a real possibility that the OFR will improve dialogue between companies and constituencies, something we all want".
These regulations build on the existing company law reporting framework by requiring companies to report on their main qualitative factors. They will help shareholders exercise responsible control, improve the quality of investment decisions and, ultimately, the working of capital markets. I beg to move.
Moved, That the draft regulations laid before the House on 12 January be approved [5th Report from he Joint Committee].—(Lord Triesman.)
Lord Freeman: My Lords, perhaps I may reassure the Minister that I support the regulations. The only interest I declare is one I share with the noble Lord, Lord Gordon, in that I belong to the most excellent initiative of some Members of your Lordships' House in the formation of the All-Party Parliamentary Corporate Governance Group. It held an excellent meeting this morning.
I welcome the regulations, which have come as a result of almost five years of hard work and a lot of consultation, born originally out of the Company Law

1423
Review. I pay particular tribute to a former colleague of mine, Rosemary Radcliffe, who chaired the working group on guidance for company directors in preparing the OFRs. My contribution this evening will be brief; I just want to sound three cautionary notes.
If applied sensibly, the transparency of information about the risks inherent in running a particular business will especially benefit listed companies, which will be subject to the full responsibility of these regulations. However, it is right to limit the full impact of the OFR to listed companies at this stage, and not extend that to all companies. That may arise in future, but it is the right decision to limit it at present. I am pleased that we are not following the American example of prescriptive regulations—for example, their Sarbanes-Oxley Act—about what should go in an annual report. The regulations before your Lordships tonight strike the right balance in setting out principles. The guidance coming from the Accounting Standards Board, and indeed from the department, will encourage companies to do what is in their interests—and not to react to a perceived burden being placed on them by government.
My three cautionary comments are born of experience; like the noble Lord, Lord Gordon, I would be subject to these regulations as a director of a number of companies. My first is that annual reports are becoming like telephone directories. Each year they seem to be longer and longer. It is important that the Financial Reporting Review Panel encourages companies to be crisp, clear, transparent, fair and balanced in their reports. As Alastair Ross Goobey said to the all-party group this morning, we do not need lots of woolly phrases such as: "your company is well positioned to benefit from an upturn in the economy". What we want is a frank report of what is said around the directors' table about the risks facing the companies. The FRRP has a real responsibility to encourage best practice. The Minister referred to stakeholders other than shareholders; employees, customers and, indeed, regulators. People will read annual reports if they are short, sharp and crisp.
Secondly, I think that the Better Regulation Task Force under David Arculus reported today. I have not seen the report, but in the newspapers there was some indication that one of the key messages his committee was delivering is: "one new regulation in, one old regulation out". Perhaps I am addressing the department through the Minister here, but I hope that at some stage we should consider whether we need an OFR, a directors' report, and—who knows what legislation will bring in the future?—a corporate social responsibility report. That really would be very controversial. If we can simplify the reporting requirements upon companies—perhaps, ideally, in having only one report encompassing some of the statutory information which directors have to disclose in the directors' report—so much the better.
Finally, the Minister referred to the category of smaller, unlisted companies. They will need the most help. It is not likely to be appropriate or effective to rely on Companies House to read—and, if you like, police—what these companies put in their directors' report.
1424
However, they must now expand the directors' report to include some of the points that the OFR requires of listed companies. That is just unrealistic. We must look to the accounting and legal professions—and indeed, to financial journalists—to provide some guidance on best practice. So, I welcome these regulations. All of us would wish companies to follow good practice, and not regard these regulations as a statutory burden.
8.30 p.m.
Lord Gordon of Strathblane: My Lords, I shall be extremely brief but it is appropriate to congratulate the Government on having listened to the concerns of the business community and, more importantly, on having heeded them.
It is fair to say that when the DTI published the draft regulations on 5 April last year, they were met with a considerable degree of apprehension not only by people in business but also by the auditing community. Auditors, after all, have honed to perfection their skills in ensuring that a company's statement of its financial performance over a year is entirely accurate. However, it is a wholly different task to ask them to apply the same degree of precision to a piece of crystal ball gazing, which is what the operating and financial review will be in part. As someone said at a talk I attended on this subject, it is rather like asking a marine cartographer to produce a Turner seascape—the skills are just not there. That is why everyone was concerned about the draft regulations. The Government have now changed them. I share the general welcome of the noble Lord, Lord Freeman, for the regulations that have now been produced. They are a step change for the business community and will involve much work, but if the measure is dealt with sensibly it can be useful to the company as well as to shareholders.
Directors will be required to show only the degree of care they would be required to show under common law—so there is no extra burden there—and auditors are required to ensure that there is nothing inconsistent with the company's accounts as they have seen them. That makes a lot of sense. Let us hope that the Accountancy Standards Board in drawing up the framework and the guidance does not end up being over-prescriptive, thus undoing the Government's good work so far. However, for the moment, I congratulate the Government.
Lord Newby: My Lords, we on the Liberal Democrat Benches welcome the introduction of the OFR. In doing so I ought to declare an interest as a chairman of a company that advises others on corporate social responsibility.
Unlike the order on trading stamps, which we have just discussed, these regulations really are of fundamental significance both for the future of accounting and, I hope, for standards of business behaviour across the board. As the noble Lord, Lord Gordon, said, the regulations have been the subject of very intensive consultation. I, too, congratulate the Department of Trade and Industry on taking account of many of the different objections that were made on various sides and on producing something

1425
which strikes a balance between placing additional requirements on companies but not doing it in a way that overburdens them.
As noble Lords will know, there remain a number of questions and concerns about the regulations, which I suspect will be dealt with over time in various ways. First, they relate just to quoted companies and not to private companies or to companies that are owned outside the UK and quoted elsewhere. I suspect, however, that as the practice of producing OFRs develops, and particularly as companies move towards what the noble Lord, Lord Freeman, mentioned—namely, a single report that encompasses the existing report and the OFR—a large number of companies that are not formally required to produce an OFR will find it in their interests to do so as investors will compare them with other companies in their sector. If they do not produce OFRs on the same basis as their competitors, they may feel that they are at a competitive disadvantage.
Another objection that has been raised from the NGO side is that the OFR is directed exclusively at shareholders rather than other stakeholders. There was much argument about whether it should be directed equally at all stakeholders. My view on that is rather like that of the Bank of England in having one primary aim in setting interest rates; namely, that if you have one target, it is a lot easier to hit it.
I also think that, although the OFR is directed primarily at shareholders, other stakeholders will be able use it. I am sure that NGOs that have environmental, social or supply chain concerns will use them. The fact that, not technically, OFRs are not addressed to NGOs will not constrain the information that is included in them or the ability of NGOs to scrutinise them.
There is still a lot of scepticism and doubt in the business community about whether the OFR will make the kind of change that those of us who support them wish. I attended a lunch in your Lordships' House earlier this week that was organised by the Good Corporation, which is at the forefront of promoting best practice. A number of representatives of companies with good track records on corporate and CSR policy questioned whether the OFR would effect the change in behaviour that we want.
There is still a lot of cynicism, not in the CBI or the representative bodies, but in individual businesses that, in some cases, will have to start doing things that they have never done before, such as setting KPIs on non-financial issues. We shall see whether they do something that will affect their behaviour, or simply the minimum necessary to get over the regulatory hurdle. I hope that in the months ahead the Government will be more proactive than they have been recently in making the business case for embracing the OFR and for the policies that companies need to adopt in order to satisfy its requirements.
Looking at two or three areas that the OFR will cover for the first time, if businesses adopt best practice it will drive up their performance. Let us take employee policy. If businesses improve training and
1426
consultation and apply equal opportunities policies more rigorously, the likelihood is that they will have a more motivated staff with higher morale and lower turnover. They will therefore have higher productivity. Doing those things is not a burden; it is a potential business benefit. Equally, treating suppliers and customers well must be in a company's best interest. If we look at the proposals made a while ago by Barclays to close branches and introduce ATM charges, not adopting customer-sensitive policies did real damage to its brand. Finally in this category, adopting good practice on environmental standards has broad public policy benefit, but it can also save costs for the company concerned.
It is interesting that a recent report by the Economist Intelligence Unit on senior executives worldwide found that four out of five of them thought that good corporate governance would enhance their company's brand value. Doing things well should not be seen as a burden; it should be seen as what all good companies do. Therefore, in the short term companies that adopt the good practice that the OFR promotes will gain business advantage. In the medium term, I hope that OFRs will drive up standards and produce greater transparency and accountability across the business world as a whole.
Baroness Miller of Hendon: My Lords, I am grateful to the Minister for his explanation of this rather complex set of regulations. They are complex because of their length. Although the regulations are only 14 pages long, they need 48 pages of explanatory notes from the DTI. However, the Minister explained the regulations so well that I did not need to read the notes.
In essence, these regulations introduce a requirement for quoted companies to prepare an operating and financial review in addition to their annual accounts and directors' reports. They extend the obligation to provide a fair review of the company's business in the directors' report that is required by a recent EC directive.
Although—as the noble Lord, Lord Gordon of Strathblane, and my noble friend Lord Freeman commented—the Government have on this occasion listened to business and taken on board some of the comments; and they have certainly resisted the temptation to go over the top and gold plate the directive—which is often the case—the regulations go further than the directive requires, as my honourable friend pointed out in the other place.
In such cases a recognition of the unique status and reputation of the City in the financial world is always required: a status that results in enormous economic benefits to the United Kingdom plc, which we should not allow to be eroded by overregulation or to be hampered by unnecessary red tape.
I need not take up much of your Lordships' time in discussing the regulations because they received detailed comment before the Second Standing Committee on Delegated Legislation in the other place. However, I would like to make one or two

1427
comments. First and foremost, I note that these regulations apply only to quoted companies. Of course they do not apply to private companies which, quite rightly, have a very relaxed reporting regime.
However, neither do they apply to the markets that operate as an alternative to what I may call the regular stock exchanges. I refer to AIM and OFEX. Although these two markets are designed to enable a more lightly regulated regime, and hence to provide easier access to capital investment, it should be noted that investors will be less well informed than those who buy shares on the ordinary stock exchanges.
If I may digress for a moment, I am sorry if, in referring to the "ordinary" or "regular" stock exchanges, it sounds as though I am in any way suggesting that AIM or OFEX are in any way less than regular or somehow inferior. A hunt through my thesaurus failed to produce a better adjective, so I left it as it was.
Of course I am happy to acknowledge, before I hear from their respective PR departments, that they both serve an important part in providing capital to the market, especially to new enterprises, and it is true that some do eventually become quoted on the stock exchanges, and it is probably true that they all aspire to do so.
Let me also hasten to add that I am not complaining that companies quoted on AIM and OFEX are excluded from the new regulations. I am certainly not suggesting that they should be included. I am merely pointing out the discrepancy, in the commendable interest of a light regulatory hand, between investors in one type of public company and another.
As your Lordships know, my party is in favour of minimal regulatory burden. It has been suggested that the new OFRs will variously blind investors with science, or alternatively will not be read by the majority of them in any case. My noble friend Lord Freeman made the point that they should be short and simple. It is probably true that many individual investors—as distinct from institutional investors—do not read the material they receive from their plcs until something goes wrong; and then they read everything.
The directors can do no more than provide the information to the shareholders, whether they read it or not. I would however like to hope—forlornly, I fear—that all companies, but particularly property companies, will use the new regime to cease the practice of constantly revaluing their freehold and leasehold properties to create paper profits, on which corporation tax is levied, with which to dress up their balance sheets and profit and loss accounts.
The trouble is that if property values fall for some reason, the artificial profit turns into an artificial loss. In my personal view a profit or loss occurs only when an asset is sold. Of course shareholders and potential shareholders must be told the current market value of the company's assets, and perhaps the new OFRs will be a good place to provide this information, and at the
1428
same time avoid the situation whereby the company has to pay real money to the Treasury as tax on theoretical paper profits.
The second point arising from these new regulations is the cost of implementing them. The Minister for Industry and the Regions admitted to the Scrutiny Committee of the other place that the total cost shown in the regulatory impact assessment is £137.2 million. She dismissed that figure by breaking it down to £31,500 per company for OFR compliance and £2,700 for enhanced directors' reports.
8.45 p.m.
However, I do not think that that is just a one-off cost. It applies each and every year, and with the passage of time it will undoubtedly increase. Whichever way you look at it, almost £137.25 million of extra annual expense, piled on top of all of the additional regulatory burden endured by industrial and commercial companies, could by no means be described as "peanuts". Some £30,000-odd per company, when compared with the amount spent by Whitehall on paperclips, may be considered completely trivial. However it makes a difference to individual shareholders and to the pension plans in which they have invested.
It is undoubtedly the case, as my honourable friend the Member for North-West Norfolk pointed out to the committee, that a whole new industry will be created consisting of consultants and advisers to assist in the preparation of the operating of financial reviews. My noble friend Lord Freeman said that it would be necessary to have people who could do those things, otherwise they would not understand it all. There is still a gap in the information regime that the Government may need to examine, if not redress. I refer to the information provided, or rather not provided, to investors in ISAs, pension plans, investment trusts and similar saving instruments. They still do not get the financial data that investment managers do, and perhaps they should.
Other speakers this evening have welcomed what the Government have done. I certainly welcomed the part where they listened and took note of some of the problems that people had. As noble Lords will know, and as I stated earlier, we like a light regulatory hand. Nevertheless, we do not oppose the making of this order.
Lord Triesman: My Lords, I am again grateful to all four noble Lords who have contributed to the debate. I must declare my hand from the outset; I am temperamentally a deregulator as well, so I wholly share the view that we badly need a regulatory light touch.
I will briefly dwell on a few of the points that have been made. The noble Lord, Lord Freeman, made three important points, and I will comment on each of them. I wholly agree that annual reports are getting very long; and they are getting harder to follow not just because of their length but because of their intricacy.

1429
It is important that they become clearer and more transparent and that they are written in plain English. We should all share that objective, as I certainly do.
Secondly, he mentioned the BETTA regulation task force. I declare a past interest as having been a member of the BETTA regulation task force. It was always an objective that where regulations came in some other regulations of a matching number, or preferably even more in number, should go out. That understanding is beginning to take hold. I welcome the fact that it has been said again this evening and that we have been reminded of it.
I want to say a few things about the smaller, unlisted companies, and companies in AIM and OFEX as well, which the noble Baroness, Lady Miller, mentioned. Those have also come up in the comments made by my noble friend Lord Gordon of Strathblane and the noble Lord, Lord Newby. It is of fundamental importance that the companies that make those reports should start off in clear and approachable language. It is absolutely true that we have used our get-out not to insist on the same requirements of other companies.
I share the view that has been expressed by all noble Lords in this debate that it is likely that the requirements on listed companies will spill over in terms of the encouragement that is provided to other companies. It may well be that some of them will then feel that they must hire more consultants than they had originally planned to. As the noble Lord, Lord Newby, said, it is fundamentally important that the encouragement overcomes the anxieties, and the Government should be proactive in that. It is important that companies of all sizes think about what they have to say about environmental standards, employee standards and so on. I hope that encouragement from the quoted stock
1430
market companies is transferred. My reason is straightforward. Even if it costs just under £140 million a year, if we are to have knowledgeable markets—markets in which investors and stakeholders, including employees, have a really good grasp and therefore operate with the greatest possible precision in the way they make their investments and judge the value of those investments and make their assessments of future prospects for their investments—it must be right to go in this direction.
We do not want a casino in the markets, we want knowledgeable investment. That is what companies have said in response to the consultation, as has been said here this evening. I will not labour the point, but it was a point very well made by noble Lords with which I certainly agree.
I make the point to the noble Baroness, Lady Miller, that it seems very likely that those investing in saving instruments of one kind or another will, quite rightly, in due course, want to know more, and along the same lines. That itself will help. There is no compulsion in that area, but it must help that people know what they are investing in, where those investments are likely to go, and whether competing investments may be better and serve their interest to a greater extent. All of those make for a knowledgeable investment world, and we have to operate in the future in a knowledgeable investment world.
I hope that noble Lords do not mind that I have already replied to that point; it is the style and standards that we are trying to set alongside this regulatory change.
On Question, Motion agreed to.
House adjourned at eight minutes before nine o'clock.

Official Report of the Grand Committee on the Charities Bill [H.L.]
(Seventh Day)
Wednesday, 16 March 2005.
The Committee met at half past three of the clock.
[The Deputy Chairman of Committees (Baroness Gould of Potternewton) in the Chair.]
Schedule 6 [Charitable incorporated organisations]:
Lord Hodgson of Astley Abbottsmoved Amendment No. 149:
Page 88, line 20, at end insert—
"( ) A CIO will not he subject to provisions of company law."
The noble Lord said: The amendment seeks to add a new subsection (7) to new Clause 69A in Schedule 6. I shall be brief, as this amendment was tabled before the draft charitable incorporated organisation regulations were issued by the Home Office. These draft regulations make it clear that provisions of company law will apply to CIOs, which is exactly the opposite of what we propose in the amendment. It is interesting to note that in the interpretation section of the draft SI there are references to only three Acts—the Companies Acts 1985 and 1993 and the Insolvency Act 1986. There is a view in the charitable sector that the opportunity for a really innovative approach has been missed. Indeed. some of the amendments that have been tabled by the noble Lord, Lord Phillips of Sudbury, followed this line.
The concept of a CIO gave us an opportunity to think de novo about how best to structure it for its specific charitable purpose. If one accepts that view, then falling back on a company law framework represents an opportunity missed. Our amendment was tabled to try to encourage the Government to think more creatively about the structuring of CIOs. I fear that our encouragement will not be enough, but perhaps the Minister will surprise me. I beg to move.
Lord Bassam of Brighton: The noble Lord, Lord Hodgson of Astley Abbotts, has correctly spotted that there is no language that gives effect to the fact that CIOs should not be subject to the provisions of company law. That is because under Section 718 of the Companies Act 1985, the provisions of that Act do not apply to,
"any body not formed for the purpose of carrying on a business which has for its object the acquisition of gain by the body or its individual members".
The CIO is an example of such a body. so the provisions of the Companies Act do not apply to it. Having heard what the noble Lord said, I am not sure
GC 508
how helpful he will feel this is, but we cannot do much more than we have done and I hope that the noble Lord understands that.
Lord Hodgson of Astley Abbotts: It is rather as I anticipated, particularly given the way in which the SI is drafted. We are disappointed that we have not thought round this in the way in which I think the CICs were slightly more creatively constructed. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbottsmoved Amendment No. 150:
Page 88, line 20, at end insert—
"( ) The liability of directors and members of a CI0 to any third party shall be limited to the assets of that CIO."
The noble Lord said: Amendment No. 150 is in the same part of Schedule 6. It adds another provision to proposed new Section 69A, which concerns the nature and constitution of charitable incorporated organisations. The amendment inserts a new subsection (8) to new Section 69A.
As the Bill is currently drafted, it is not clear whether the CIO is to be a limited liability vehicle. If it is riot, then the directors—the charity trustees—will he personally liable for their CIO's debts. In circumstances where the value of the CIO's debts is greater than the value of its assets, this could result in the directors meeting the shortfall out of their own pockets. This is the position currently facing trustees of charitable trusts and is undoubtedly the main reason why the charitable trust is unpopular with charities whose activities involve exposure to liability. Such charities are invariably established as companies limited by guarantee, a format that benefits from limited liability.
If the directors arid members of CIOs will not benefit from limited liability, the new CIO format is likely to be unpopular. For this reason, it is important for the Bill to make it clear that the liability of CIO directors and members is limited. This is what the amendment seeks to achieve. I beg to move.
Lord Bassam of Brighton: As the noble Lord explained, the purpose of the amendment is to limit the liability of the directors and members of a CIO to any third party to the assets of the CIO. The presupposition behind that is that the charity trustees and members of the CIO are personally liable for its debts.
That would be the position of charity trustees in the case of unincorporated charities. However, a CIO is incorporated and its members will not be personally liable for its debts except to the extent, if at all, that they have undertaken a guarantee.
The charity trustees will enter into engagements on behalf of the CIO as its agents and will be protected from personal liability through the ordinary processes of the law of agency, subject to any statutory modification. Notwithstanding the protection conferred by the law of agency, where the charity trustees are personally liable—

GC 509
for example, where they have been guilty of wrongful trading—a limitation of their liability in the terms proposed would, in the Government's view, be quite inappropriate.
I hope the noble Lord is reassured by those words. They are certainly intended to reassure him.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. As I understand what he said, we have here a situation where they would have limited liability so long as they were not trading while insolvent and incurring debts which could not fall due. I see the Minister nodding when I say that and I am grateful for that reassurance. It meets the point made in the amendment and I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 150A:
Page 89, line 33, leave out from beginning to ", with" in line 34 and insert—
"(a) "sefydliad elusennol corfforedig", or
(b) "SEC""
The noble Lord said: This is probably one of the most difficult amendments I have ever had to move. I shall try, but do not laugh. My background note states:
"The correct pronunciation of the Welsh phrases in the speaking note is as follows:
"sev-ud-lee-ad corf-or-ed-ig el-us-sen-ol".
We have discovered that there is a problem with the Bill's Welsh translation of "charitable incorporated organisation"—or, more precisely, with its abbreviation—and we have had to reorder the abbreviation. This is basically the reason for the amendment.
There is confusion because the abbreviation "SEC" is already in use for the European Co-operative Society in EC Regulation 1435/2003. We have discussed the matter with the Welsh Assembly and I now have to move this tricky amendment. All the amendment seeks to do is to re-arrange the word order of the Welsh equivalent of "charitable incorporated organisation" to read, as I have put it, "sefydliad elusennol corfforedig"—I think that is it. This gives the abbreviation "SEC" instead of "SCE" and thus gets round the problem. I beg to move.
Lord Phillips of Sudbury: I think the least the Minister can do is to offer a formal apology to the Welsh nation.
This is a serious question: am I right in thinking that a CIO registered in Wales but doing most of its business in England can get away with one of these alternatives on its notepaper? If it can, it will make no sense to anybody this side of the border, and the whole point of this is public protection.
Lord Shutt of Greetland: While the noble Lord is gathering himself to answer, I have a further point about these initials. We are used to charities becoming limited companies and then getting an exemption so
GC 510
that "Ltd" is not put after their name. Under the Bill, can these magic letters CIO or SEC be deleted? Some well known names which cannot put "Ltd" after their name may think that it is worthwhile converting to this new form, and will not be particularly keen on putting these initials after their name. Perhaps that point should be covered while we are talking about initials.
Lord Bassam of Brighton: I do not know the answer to the latter question: I will find out and communicate with Members of the Committee. The answer to the question of the noble Lord, Lord Phillips, is that this abbreviation can be used in this way only in Welsh language documentation.
Lord Phillips of Sudbury: I should like to be perfectly clear about that. Is the noble Lord saying that if one of these CIOs, registered in Cardiff but operating principally in England, sends out letters, it will not be able to carry one of these two alternatives in so far as the letter is in English? That appears to be what he said.
Lord Bassam of Brighton: It would be describing itself as a CIO.
Lord Phillips of Sudbury: With respect, that is my question. It would be describing itself as an SEC.
Lord Bassam of Brighton: If it was conducting the correspondence in Welsh, in a Welsh language document, it would use the form proposed in the amendment. If it were doing it in English, I understand that it would use the English formulation.
Lord Phillips of Sudbury: I think we might have uncovered an inadvertent glitch, because I do not think it will be practical for a Welsh SEC that has business over the border—and many of them will—to have two sets of notepaper.
Lord Bassam of Brighton: If it is conducting business in English, it will write it in the English formulation. My guess is that it will probably have a dual-language letterhead which makes it clear that there is a difference. I think that the noble Lord is seeing a difficulty that is not there.
Lord Phillips of Sudbury: With respect, it may sound pettifogging but these are important issues of public understanding. I perfectly understand if the letterhead is in both Welsh and English—then we can all be satisfied. But it is helpful to clarify, for practical purposes, whether a Welsh SEC/CIO operating in England, has to have both sets of initials on its notepaper unless it is confined to Wales. From what the noble Lord has said—and he may want to write to me about it—it seems that if the organisation corresponds, in English, with England or Scotland, it has to use the non-Welsh abbreviation or full name or have both on its notepaper. These small matters are of great practical importance and we need to sort them out.
3.45 p.m.
Lord Bassam of Brighton: I believe that we are clear about how it will work, but we shall have another conversation with the Welsh Assembly and ensure that we have not unintentionally created a difficulty. The noble Lord knows that most documents originating from Welsh organisations in any event have a dual-language letterhead. Sometimes I have received letters in both languages; I do not know why, but 1 have. People are very sensible and practical about the way in which they deal with that.
Lord Hodgson of Astley Abbotts: As someone who spends quite a lot of his time in the border counties, I can say that all our documents for things that operate on a trans-border basis come in dual format, including bus and train timetables. The headings of companies have the Welsh formulation alongside the English one, and you pick the Welsh or the English depending on whether you happen to be Welsh or English speaking.
Lord Phillips of Sudbury: I am most grateful for the assistance of the noble Lord, Lord Hodgson, but he is not quite with me on this. I am not talking about border counties where some people speak Welsh and some English and as a matter of practicality both are used. I am talking about when a Welsh-registered CIO might have an office in Birmingham, for example, and have no need for Welsh. Is that office in Birmingham going to be able to rely on the get-much-worse entity, SEC? I hope not, because that will not mean a thing to the average Brummie.
Lord Brooke of Sutton Mandeville: There are many Phillipses in Wales, and I cannot tell whether the noble Lord, Lord Phillips, is part Welsh or not. However, there was a famous inquest after an accident in a public swimming pool in Wales, when the attendant was asked by the Coroner why he had made no attempt to save the dying man. The attendant said, "I can't swim", and the Coroner said, "I can't believe it. Weren't you asked about that when you were interviewed for the job?" "No," the man said, "the only question I was asked was whether I was bilingual".
The Minister has to be right. On the basis of my experience, I can say that the documents that reach us from Wales are almost invariably in both languages.
On Question, amendment agreed to.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 151:
Page 91, line 25, at end insert—
"(c) a Charitable Unincorporated Association,
(d) a charitable trust."
The noble Lord said: This amendment is designed to allow any charitable unincorporated association and charitable trust to have the right of conversion into a CIO, in the same way as a company limited by guarantee and an industrial and provident society. I ask the indulgence of the Committee, but capital
GC 512
letters should not be used in relation to a charitable unincorporated association, as they are in the text of the amendment. I beg to move.
Lord Bassam of Brighton: The property of charitable unincorporated associations and trusts is held on a trust, and their liabilities are legally those of the trustees, since a charitable unincorporated association or trust has no legal personality. Normally the charity trustees of such a charity are entitled to indemnify themselves out of the property of the charity, in relation to the liabilities which they have incurred on its behalf.
The property of a statutory charitable corporation, which will include a CIO, is not held on a trust. The property is owned beneficially by the corporation, but its capacity to deal with that property is regulated by the charity's constitution, and by the legal framework which applies to corporations constituted in that way. Any liabilities are directly those of the corporation. The charity trustees are the corporation's agents, and their relationship with it, and with the people with whom the corporation deals, is governed by the law of agency. The charity trustees will not normally be responsible for the corporation's liabilities.
The main purpose of the CIO provisions in the Bill is to enable one or more persons to form a new type of corporate charity. The benefits of using an incorporation regime which is specifically designed for charities have been extensively rehearsed in preparing for this. The proposed regime can readily accommodate the conversion of charities which are currently set up as companies or industrial and provident societies. That is because these bodies are, as CIOs will be, formed as statutory corporations. They hold their assets and are subject to liabilities, in the same way as a CIO will do or be. Conversion will not interrupt the body's legal personality; it will simply become registered under a different statutory regime.
The assets of the body will continue to be held on the same basis, and its liabilities will continue to be enforceable in the same way as was the case before conversion. The position of those dealing with the body will not be affected by its conversion to a CIO. But this would not be the case on the conversion of a charitable unincorporated association or trust into a CIO. The effect of conversion would be to alter the basis on which the property of such a charity was held and to alter the basis on which its liabilities were enforceable. That could adversely affect the position of those already dealing with a charity and could undermine confidence among its supporters. If charitable trusts and unincorporated associations wish to reconstitute as CIOs, it is appropriate that they should first terminate their present existence and transfer their undertakings to a newly formed CIO.
The proposed new Section 69M of the Charities Act 1993 is designed to facilitate that process. I hope that the noble Lord is enlightened by that explanation and feels able to withdraw his amendment.
Lord Phillips of Sudbury: I am grateful to the noble Lord for his academically impeccable answer, but it did

GC 513
not quite go to the point of my amendment. At the end of his response, he was right to say that an unincorporated association, which is a charity or a charitable trust, can any day of the week set up a charitable company—for example, a CIO—and convert into it. The point was that, if it is a membership organisation, members might not be in favour of that. That is why in Amendment No. 152, which is in this group, I have provided that there could not be a resolution to convert into a CIO unless it was passed by three-quarters of the members of the association who were present and voting at a meeting.
I put down this amendment because the Government want to make as much of the CIO as possible and want this to be a vibrant format for charities in the future. On listening to the Minister's reply, I do not think that I detected any significant policy reason for why an unincorporated association or a charitable trust should not have the power to convert straight into a CIO without the business of winding up and transferring of assets.
I do not want to labour that point now. I would be grateful if the Minister would consider the matter further. If I am right and there is no good policy reason, why not facilitate conversion of the charitable trust, for example, in the way that the other two types of charity are facilitated by this clause for the benefit of all concerned? I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 152 and 153 not moved.]
[Amendment No. 154 had been withdrawn from the Marshalled List.]
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 154A:
Page 97, line 25, after first "CIOs," insert "the conversion of charitable companies and registered societies into CIOs, the amalgamation of CIOs,"
The noble Lord said: Amendment No. 154A stands in the name of my noble friend Lady Scotland of Asthal. New Section 690 gives my right honourable friend the Secretary of State power to make further provision for CIOs by regulation. The regulation-making power, as drafted, does not expressly cover the making of regulations on the conversion or amalgamation of CIOs.
We think that it is likely that we will need to deal in regulations with the more detailed provisions concerning conversions or amalgamations. For example, we may want to provide in regulations for the Charity Commission to consult the registrar of companies or the Financial Services Authority prior to deciding an application for conversion. We certainly do not want to get into the position, once the CIO provisions are in force, where a particular conversion or amalgamation throws up some practical difficulty or issue that we had not thought about before and that the legislation fails to address or cannot resolve.
Some Members of the Committee might point out correctly that the regulation-making power in new Section 690(1) allows my right honourable friend to make provision "in relation to CIOs generally". That wording is probably wide enough to cover issues
GC 514
relating to conversions and amalgamations. However, since we anticipate a need for regulations to deal with those topics, we think that it is preferable, in the interests of clarity and transparency, to have an express provision. In fact, that might help to deal with some of the issues which in particular the noble Lord, Lord Phillips, raised or was looking towards in his previous amendment. I beg to move.
On Question, amendment agreed to.
Schedule 6, as amended, agreed to.
Clause 34 [Remuneration of trustees etc. providing services to charity]:
Lord Phillips of Sudburymoved Amendment No. 155:
Page 31, line 12, at end insert ", taking into consideration the other terms of the relevant contract"
The noble Lord said: Clause 34 deals with remuneration of trustees providing services to charity. The scheme there is that the trustee, or someone connected with the trustee, may be able to provide services to the charity and to be remunerated, provided that conditions A to D, set out in the clause, are satisfied. My amendment would amend condition B, which states:
"before entering into that agreement, the charity trustees decided that they were satisfied that it would be in the best interests of the charity for the services to be provided by the relevant person … for the amount or maximum amount of remuneration set out in the agreement".
I want to be certain that condition B will not be construed in a way that prevents the charity trustees taking into account not just the amount of remuneration in the agreement concerned for the services to be rendered but, as I put it in the amendment,
"other terms of the relevant contract".
For example, a charity may need something to be done extremely quickly—let us say some painting. One of the trustees happened to be a painter, the charity did a quick search of what was available in the locality and, as often happens, tradesmen were tied up in work and the charity could not get anyone to do it; but the trustee said, "I do not mind. I will fit this in and do it by the necessary time". If the trustees had to construe condition B as preventing them from giving that factor due consideration, because it might mean that it was going to be a bit more expensive than someone who could do it three months later, condition B needs amending along the lines of my amendment. I commend it to the Committee and I beg to move.
Lord Best: We were all clear in the Joint Committee that remuneration of trustees was a delicate matter on which we did not want any fundamental change to the current position, which makes it pretty difficult, because it requires the Charity Commission's consent before trustees are remunerated. We commissioned a piece of research considering the position in America, where trustees receive payment for their services as trustees. The conclusion that I drew was that it would be extremely unwise to import the American opportunities for payment to trustees here.

GC 515
My hesitation about the amendment proposed by the noble Lord, Lord Phillips, is that making it relatively easy for remuneration for services rendered to trustees can come quite close to remunerating those trustees themselves. Although I entirely sympathise with the problem of finding a painter or decorator at short notice, rather more troublesome would be, at short notice, commissioning one of your colleagues for a few thousand pounds to undertake a consultancy considering X or Y on behalf of the other trustees. I want to be certain that we avoid the slippery slope to it being a rather profitable exercise to be a trustee.
Lord Phillips of Sudbury: I would entirely agree with the noble Lord, Lord Best, if I thought that that was what my amendment was opening things up to. But in the circumstance he mentions, it would not allow the trustee to do it unless there was a genuine and bona fide urgency about it. I think it would require bad faith for anyone to use the allowance for which I am asking in that way.
4 p.m.
Lord Bassam of Brighton: I come to this from a starting point similar to that of the noble Lord, Lord Best; that is, that we need to tread carefully and that this is a sensitive issue. On the other hand, we take the view that the clause provides a useful power for trustees to be paid for particular services provided to the charity, subject to the conditions designed to ensure that it is proportionate, protects against conflicts of interest and is in the best interests of the charity.
We are trying to preserve the essence of the voluntary principle of trusteeship, so the Bill will not allow payment for carrying out the duties of trusteeship, nor will it allow a charity's paid employees to be trustees at the same time. I think that that is a very sensible provision.
It may often be the case that a trustee can provide a service which is outside the duties of trusteeship on much more favourable terms than the charity could obtain elsewhere. The noble Lord, Lord Best, used the example of a painter. It could be a painter, decorator or roofer—but someone providing a basic, practical, no-nonsense service—who may be able to provide a repair or make a minor improvement perhaps at a less than market rate. In that situation, the trustees would have to manage the inherent conflict of interest properly and the transaction would have to be conducted openly and reported as required.
A set of four conditions must be met to enable remuneration of a trustee or person connected to a trustee. One of the conditions required for remuneration of a trustee to be allowed under this provision is that charity trustees are satisfied that it would be in the best interests of the charity for the services to be provided by the relevant person for the amount set out in the agreement. In reaching their decision, the trustees would have to consider the details of the agreement, including any other relevant contract terms. If there were other contract terms that were relevant to the decision but which the charity trustees ignored, how could they be
GC 516
said to have satisfied themselves that it would be in the best interests of the charity to proceed? That is the key question.
I agree with the intention behind the amendment of the noble Lord, Lord Phillips, but ultimately I would argue that consideration of other relevant factors is already implicit in the condition as drafted. The charity trustees must satisfy themselves that it is in the best interests of the charity to remunerate the relevant person as set out in the agreement. I think that there is sufficient flexibility and sufficient protection.
We are dealing with a very practical situation. I do not think that we are trying to undermine the principles of the legislation as it has operated to date. However, we are mindful of going too far in rewarding those who are trustees and able to provide a service.
Lord Phillips of Sudbury: I am grateful to the Minister. I should like to be certain that I understand his reply. Was he saying.—I think he was—that my amendment is unnecessary in the circumstances I have described?
Lord Bassam of Brighton: Yes, I am saying exactly that.
Lord Phillips of Sudbury: Then I am happy and grateful. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 156:
Page 32, line 2, after "trustee" insert ", whether or not the charity is incorporated,"
The noble Lord said: This amendment, like the previous one, is concerned with Clause 34, which is about the remuneration of trustees. At the top of page 32 the Bill mentions the Trustee Act 2000, obliging charity trustees to adhere to the duty of care set out in that Act when making a decision on whether it will be in the best interests of the charity to remunerate a trustee.
The Trustee Act 2000 applies to all trusts in England and Wales, including charitable trusts and their trustees. It does not, however, apply to companies and their directors and so does not apply to trustees of incorporated charities. The duty of care in Section 1(1) of the Trustee Act 2000 obliges trustees to,
"exercise such care and skill as is reasonable in the circumstances, having regard in particular:
a) to any special knowledge or experience that he has or holds himself out as having, and
b) if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person".
There can be little doubt that the draftsman of proposed new section 73B(3) intended that duty of care to apply to all charity trustees regardless of how the charity involved is constituted, and not just to the

GC 517
trustees of incorporated charities. Adding the words suggested by this amendment will remove any uncertainty on that point. I beg to move.
Lord Bassam of Brighton: Subsections (2) and (3) of new section 73B, inserted into the 1993 Act by Clause 34, provides safeguards to prevent the misuse of the power to remunerate trustees for the provision of services to a charity contained in new section 73A. They are that the charity trustees must meet, first, the duty to have regard to Charity Commission guidance; and, secondly, the requirement to act in accordance with the duty of care in Section 1(1) of the Trustee Act 2000.
In the Bill as drafted, the requirement to act in accordance with the duty of care in the Trustee Act 2000 would apply to all charity trustees, whether or not the charity was incorporated. The proposed amendment would not alter the effect of the clause. I accept that the Trustee Act 2000 does not normally apply to charitable companies except when they are themselves trustees. However, I cannot see anything in the provision as drafted to suggest that it should not apply to trustees of charities of a particular legal form. Therefore, I do not intend to accept the amendment.
The Government have agreed to produce a plain English guide to the legislation once enacted, which will be directed at charities rather than at their professional advisers. I am happy to give an undertaking that in explaining this provision we will clarify that the requirement to act in accordance with the duty of care applies to incorporated as well as unincorporated charities.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that. I take it from his response that he believes, rather as in the case of the previous amendment proposed by the noble Lord, Lord Phillips, that this is superfluous and that the case is already covered completely.
Lord Bassam of Brighton: Yes.
Lord Hodgson of Astley Abbotts: I am grateful to him for that reassurance. We look forward to the plain English guide, which will be even more valuable. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 157:
Page 32, line 22, at end insert—
"( ) any business partner:"
The noble Lord said: The plain English guide has come too late for our labours.
The amendment makes clear my strong prejudice, shared by the noble Lord, Lord Best, vis-à-vis the remuneration provisions. It is a probing amendment. As far as I can see a connected person as defined in Clause 34(6) would not include a business partner. I believe that it should. It might include a business partner if the trustee involved and the business partner
GC 518
who was to be remunerated controlled a firm, but I cannot even see that. Certainly one should not allow a person connected as closely, commercially and financially, as someone who is a partner. I use the word in its technical sense, meaning a partner under the partnership Act, and in its broader sense. Such a person should surely be brought within the control circle of the allowance vis-à-vis remuneration. On that basis, I beg to move.
Lord Bassam of Brighton: The noble Lord has made a useful point. We understand that there are some helpful precedents in other legislation. Apparently, the company law definition of a person who is connected with a director includes a business partner. The reference for that is Section 346(2)(d) of the Companies Act 1985. A similar connection can be found also in Section 839 of the Income and Corporation Taxes Act 1988.
I do not want to go overboard in committing to considering an amendment on this issue but, if the noble Lord will allow us to take the matter away, we will give it further thought and may well come back with an amendment to meet the point.
In considering this issue, we have discovered another potential gap in the provision defining a connected person for the purposes of remuneration of trustees for providing services. The definition is contained in subsection (6) of proposed new Section 73B. As drafted, it does not appear to cover a corporate body in which the trustee has a substantial interest, while it would cover a corporate body in which a connected person had a substantial interest. We intend to bring forward an amendment at Report stage to correct that anomaly.
The noble Lord may well have moved a modest probing amendment but he has been extremely helpful. We are grateful to him.
Lord Phillips of Sudbury: I am grateful to the Minister, as long as he promises to go overboard. If he does not, I will. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 34 agreed to.
Clause 35 [Disqualification of trustee receiving remuneration by virtue of section 34]:
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 158:
Page 33, line 18, at end insert—
"( ) In requiring reimbursement under this subsection, the Commission may take account of change in monetary values over the period or periods concerned."
The noble Lord said: I hope that this is a self-explanatory amendment. It seeks to amend Clause 35, which deals with the disqualification of trustees receiving remuneration. I am of the view that where the commission makes an order, in effect, requiring a disqualified trustee to compensate, it should be allowed to take account of change in monetary values over the period or periods concerned.
Again, this is me being school-marmish. It strikes me that it would not be a satisfactory arrangement if the most that the commission can require is the

GC 519
disqualified trustee to reimburse the nominal cash amount that he or she should not have had. If inflation is running at the kind of rates we have seen in our lifetimes, that amount could be very little in the way of putting things right.
Again, this is a probing amendment designed to tease out whether or not this could be accommodated. I appreciate that the precise manner of accomplishing my purpose may not be as simple as the way I have adopted, but I hope that if the Government are not satisfied with this amendment they will produce something on the same lines. I beg to move.
Lord Hodgson of Astley Abbotts: This seems to be a sensible idea even if it may be crawling across the frontiers of human knowledge with a hand lens.
One of the issues, of course, concerns not only the change in monetary values but also the interest on the sum that has been used in the intervening period. If a substantial sum has been wrongly acquired by a trustee and he has had the use of it, an interest rate accrues to that. In many commercial transactions, if someone is found to have misbehaved you would be able to claim not only the value of the money—adjusted in the way suggested by the noble Lord, Lord Phillips—but also the interest on the sum that accrued to the person who wrongly achieved it. The Minister might helpfully address that issue also when he comes to reply.
Lord Bassam of Brighton: I am grateful to both noble Lords for their comments and for the clarity of the explanation of the noble Lord, Lord Phillips.
I certainly understand the point behind the amendment. However, it would not be particularly sensible to complicate the provisions by adding wording which would be relevant, I think the noble Lord will accept, in only a fairly small number of cases. In any event, I expect that the commission will normally be in a position to intervene at a relatively early stage. Indeed, in some cases, it will be able to make an order to prevent a trustee receiving remuneration, as provided in proposed new Section 73C(6), rather than requiring him or her to repay the charity. It is difficult to envisage circumstances in which the commission would intervene after a period of several years, where the changes in the monetary value would obviously have greater significance.
The existing provisions build on that in Section 73(4) of the Charities Act 1993 which similarly requires repayment of remuneration expenses or any other benefit where a trustee has acted while being disqualified. That provision has been in place for some time and has not given rise, so far as we and the commission are aware, of changes in monetary value over time.
The present wording also allows the commission considerable flexibility in determining the monetary value in the case of a benefit in kind. So there is some flexibility there; certainly the commission believes that it has it. I do not think that we need to put anything in the Bill. If we were to do so, we would need quite a complex formulation to achieve what the noble Lord is suggesting. However, he has come up with a proposal that he believes is fit for the purpose, and nice and neat in its simplicity. We would also have to
GC 520
consider whether, in the interests of consistency, similar wording might need to be added elsewhere in the legislation, particularly in Section 73(4) of the 1993 Act.
So I understand the point and have some sympathy with it. But having thought about it, checked and consulted, the commission takes the view that it has enough flexibility to deal with the issue in the small number of cases where there might be a problem. So far as the commission is aware, there have not been any problems with that in the past; it has not caused much grief, or any grief at all.
4.15 p.m.
Lord Phillips of Sudbury: That was a highly pragmatic reply, and I understand the reasons for the noble Lord's pragmatism. However, I cannot sign up to the notion that in charity, one should deal with these matters on a lesser and lower basis than in civil law. It is quite clear in general law, if you were seeking compensation in relation to people receiving property improperly, for example, you would be dealing not in monetary values but real values. I am grateful to the noble Lord, Lord Hodgson, for making his point.
I think that I am right in saying that under the Trustee Act 1925 and trustee legislation since then, the power of the courts to award compensation to charities is in real terms, not in monetary terms. I take it that the Minister has been accurately briefed, so I accept that few cases have come up under this provision. I also accept that of course the Charity Commission would act promptly and that it usually does. However, it sticks in my gullet that if a particularly deceitful set of trustees—it might be a small number operating quite a large fund; I can think of three such examples—draws a grotesque amount of remuneration—in the case I am thinking of the excuse was that as it was one of the trustees who put all the money into the fund in the first place, it was really his, sort of—you are left with peanuts if it comes to light five, seven or 10 years later. That is quite unacceptable. And that is quite apart from what the noble Lord, Lord Hodgson, said. I think that that is wrong in principle, and we should not allow things that are wrong in principle to run once we have recognised that that is the case.
I should be grateful if the noble Lord would think again about this. I appreciate that the draftsmen are under some pressure to get things sorted out in the hope that we will push this through before the election is called. However, it need not be a complicated amendment; it could call on normal common law principles of compensation in a better way than I have done in Amendment No. 158. I also see no reason why we should not in the process at least amend Section 73 of the 1993 Act.
I ask the noble Lord to take note of my comments and to have a go at doing something further.
Lord Bassam of Brighton: I certainly hear what the noble Lord says in regard to civil compensation and so on. As I said, I took the point. It is a question of whether it is an issue, a major issue or an issue at all. I will ask

GC 521
again, but I will not give a commitment that we will bring forward an amendment. But I will recheck the issue, which I do not see as a major concern.
In any event, I am sure that the Charity Commission would want to adopt a good and sensible practice and would probably want to act in a parallel way with the understanding that the noble Lord gave on civil compensation matters.
Lord Phillips of Sudbury: I am grateful. I do not want to labour this point, but I should like Members of the Committee to consider the fact that this part of the Bill opens up to remuneration a very big swathe of territory that, hitherto, has not been available in terms of paid remuneration. It extends the present provision.
The object of the clause is to open up trustee bodies to the prospect of remuneration under controlled terms. My guess is—it seems common sense and certitude—that there will be more of those cases in the future, unfortunately, than there have been in the past. But I shall leave it at that and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 159 not moved.]
Clause 35 agreed to.
Clause 36 agreed to.
Clause 37 [Power to transfer all property]:
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 160:
Page 34, line 26, leave out "£10,000" and insert "£25,000"
The noble Lord said: In speaking to Amendment No. 160, I shall speak also to Amendment No. 164. These two amendments concern Clause 37, which relates to the power to transfer property of an unincorporated charity, and Clause 38, which relates to the power of an unincorporated charity to replace purposes.
In one sense, this parallels our earlier discussions about minimising the number of thresholds with which trustees have to familiarise themselves. As Members of the Committee will recall, we have argued at earlier meetings of the Committee that a lower limit of £25,000 annual income is the level which strikes the right balance between risk and regulation in respect of registrations. So these comments apply similarly to the levels below which the particular provisions of Clauses 37 and 38 take effect.
But, additionally, that change will, if the Government are prepared to accept it, facilitate mergers among smaller charities, a development that I think most people would consider desirable. It will do that without a huge increase of workload for the Charity Commission having to supervise in detail mergers between what could be tiny charities. As I have said before, a £10,000 annual income would, with present interest rates, be earned on a capital sum of a little more than £250,000.
Perhaps I could give a real-life example in support of those arguments, which has been sent to me by a solicitor, who writes:
"I am writing to you on behalf of a charitable trust for which I act to express my support for the principle of increasing the gross income threshold and to suggest that it should be increased to an even higher level to enable more small charities to take advantage of the broader powers contained in the proposed new sections 74 and 74B.
In this connection, I would particularly like to emphasise the fact that, for the purposes of the 1993 Act, the expression 'gross income' does not mean gross income in the normal sense. Rather. it is treated as including all manner of donations. grants. gifts and legacies as well as the gross receipts from all fundraising activities. This is confirmed at page 3 of the Charity Commission booklet CC64 entitled 'Receipts and Payments Accounts Pack: Explanatory Notes …
My client charity was founded more than 20 years ago for specified charitable purposes concerned with music. The trustees (who include the founder) would now like to broaden its purpose is to include certain wider charitable purposes. Alternatively, they would consider establishing a new charitable trust with wider charitable purposes and transferring the assets of the existing charity across to the new charity. Unfortunately, they are not able to take either of these steps under the terms of the present trust deed or the present section 74 of the 1993 Act. They would however be able to do so under the proposed new sections 74 and 74B, but only if the applicable gross income threshold were to be increased or if 'gross income' meant gross income in the normal sense and did not include all manner of donations and legacies.
In order to address this issue and to ensure that the proposed new section 74B is of benefit to a wider number of charities and not simply to a very small number of very small charities, I would suggest that the gross income threshold in the section should be considerably higher. I would respectfully suggest that a figure of £100,000 would be much more appropriate. I assume that this approach would be much more practical than trying to change the definition of 'gross income', as that term is used in many different sections of the 1993 Act.
I think that such a change would be very much in keeping with the spirit of the Bill which I understand is intended to modernise our rather outdated charities law and generally to help rejuvenate the charities sector by laying down a broader range of charitable purposes and introducing more flexible powers and more effective procedures. I suspect there are many small charities like my client charity which are locked into the straight jacket of an outdated trust deed and would greatly benefit from the opportunity of being able to broaden their charitable purposes or of being able to transfer their assets to a new charity which has suitably broad charitable purposes. In each case, this would enable the assets of the charity to be applied more effectively so as to bring benefits to a wider range of people".
To summarise, the amendment is intended, first, to reduce the number of thresholds and, secondly, to try to ensure that greater use is made of the freedoms proposed under Clauses 37 and 38. Without those changes, we fear that the purpose of those clauses may be stillborn. I beg to move.
Lord Bassam of Brighton: The noble Lord. Lord Hodgson of Astley Abbotts, has given a clear explanation of his amendment. We have already had quite a bit of a debate on the thresholds. As the noble Lord knows, I am certainly sympathetic to the overall objective of simplifying them, although we must be realistic about how they work.
Clause 37 substitutes a new Section 74 in the Charities Act 1993. Currently, Section 74 gives the charity trustees

GC 523
of certain unincorporated charities with an annual income of £5,000 or less the power to transfer all the property of the charity to one or more of its other charities. This new section updates that power by extending the annual income level to £10,000, as recommended by the Strategy Unit.
Clause 38 inserts a new Section 74B into the Charities Act 1993 that extends and updates the existing power in Section 94 of that Act. The existing power enables an unincorporated charity that does not hold designated land and has an income of up to £5,000 to modify its own trust by replacing its charitable purposes with other charitable purposes without seeking the permission of the Charity Commission. The clause extends that power by increasing the income limit to £10,000—again, in line with the Strategy Unit recommendation.
The latest figures from the commission show that there are almost 100,000 registered charities with an income of up to £10,000. Those that are unincorporated and do not hold designated land could benefit from that deregulatory measure. So I do not agree with the noble Lord. Lord Hodgson, that that is a stillborn proposition. There will clearly be a large number of potential beneficiary charities. An annual income threshold of £10,000 is also the same as the Charity Commission's monitoring threshold. Charities with either income or expenditure of more than £10,000 must send in their annual accounts and trustees' annual report to the commission with the annual return and trustee update form.
The Government believe that that level of income strikes the appropriate balance between accountability and reducing the regulatory burden on smaller charities. It is the level recommended by the Strategy Unit for those provisions. I can also advise the noble Lord that the impact of these provisions will be assessed as part of the wider assessment of the Bill's impact within five years of it receiving Royal Assent.
This will include consideration of whether it would he appropriate to increase income thresholds in these provisions. Subsection (13) of new Section 74 and subsection (12) of new Section 74B enable the Secretary of State to amend by order the gross income level specified in the provisions. We feel that that provides a sufficient level of flexibility and enables future increases in the income threshold, should it be deemed appropriate. I think that that would enable the type of variation that the noble Lord seeks. It might also enable us, as we have discussed outside the Committee. to re-rationalise the thresholds that operate throughout the legislation—so there is a broader benefit in terms of the review.
4.30 p.m.
Lord Brooke of Sutton Mandeville: Perhaps I may ask the Minister a question which, again, is borne out of ignorance. If you were consolidating two charities in the way that has been described and one of the charities had income from activities, from services, which placed it
GC 524
above the 25 per cent limit set by the Revenue and those services would be liable to taxation, would that be a proper purpose for carrying out such a merger?
Lord Bassam of Brighton: The noble Lord said that he was speaking from ignorance. I do not think that he was. His question has perplexed me and has perplexed my advising officials, so we shall have to read his words carefully and try to think of an answer that satisfies him.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for expressing sympathy with reducing the number of thresholds, but, as the old country saying goes, "fine words butter no parsnips", so we await developments on that front with interest.
Lord Phillips of Sudbury: Can the noble Lord, Lord Hodgson, say that in Welsh?
Lord Bassam of Brighton: You would have to say it the other way round.
Lord Hodgson of Astley Abbotts: The question was raised whether we had set this too low, to allow more charities to take advantage of this simple procedure. I was a little disappointed that the Minister did not address the question of the definition of "gross income", because that, again for simplicity, clarity and comprehensibility for trustees, seems to be different from that which you would normally expect in the non-charitable world outside. That is a pity and that point was made by our correspondent. Can the Minister say anything about the definition of "gross income"?
Lord Bassam of Brighton: That is an issue which I did not cover. Perhaps I shall drop the noble Lord a note.
Lord Hodgson of Astley Abbotts: I thank the Minister for that and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 161:
Page 35, line 5, leave out "charity" and insert "charities"
The noble Lord said: In moving the amendment I shall also speak to Amendment No. 163. Both concern Clause 37 and the power to transfer property. The amendment provides a provision to amend an oversight in the drafting of the Bill, which the Charity Law Association has brought to our attention.
It relates to a situation where a small charity may seek to wind itself up by transferring its capital to another charity. As currently drafted, the clause would preclude a situation where a charity which has two distinct objects, which are to divide its assets and transfer them to two charities, each of which has objects encompassing one of the transferor charity's

GC 525
objects, but neither has one that covers both. The amendments intend to permit such dual transfers. I beg to move.
Lord Phillips of Sudbury: I rise to speak to Amendment No. 162 in the same group, which makes the same point in a different way.
Lord Bassam of Brighton: Clause 37 modifies and extends the existing provision in Section 74 of the Charities Act 1993. These existing powers currently give small unincorporated charities—those with an income under £5,000 per year and without holding designated land—the power to transfer all their assets to another charity or charities where the purposes are compatible, and subject to certain safeguards. This clause updates that power by extending the annual income level to £10,000, again on the basis of a consensual recommendation from the Strategy Unit.
A transfer must be in the interests of furthering the purposes of the charity transferring the assets, and the purposes of the charity or charities to which the assets are to be transferred must be wide enough to encompass the purposes of the transferor charity. The amendments would extend the scope of this clause so that it would be necessary only for the trustees of the transferor charity to be satisfied that the combined purposes of the transferee charities encompassed the purposes of the transferor charity.
The amendments could lead to a charity's assets being transferred unequally in a way that would not accurately reflect its original purposes. Take the example of a charity whose purposes were the relief of poverty for the people of a particular area. Under the clause as drafted, the trustees of the transferor charity would have to ensure that each charity to which they intended transferring the charity's assets had purposes wide enough to encompass their own charity's purposes. That seems very sensible. If the trustees had to have regard only to the combined purposes of the charities to which the transferor charity intended transferring its assets, they could transfer the majority of its assets to charities which were involved in the relief of poverty but which did not operate in that area, and a minority of its assets to a charity whose purposes matched its own and was actively involved in the relief of poverty in that area. Clearly that would not be an accurate reflection of the transferor charity's purposes.
The aim of the clause as drafted is to ensure, so far as is possible, that the assets that are transferred are used for the purposes for which they were originally intended. Although the amendments are clearly motivated by the intention that a transfer should be in line with the original purposes of a charity, they could inadvertently lead to a situation in which that was not the case, which would be self-defeating. In those circumstances, I am sure that neither the noble Lord, Lord Phillips, nor the noble Lord, Lord Hodgson, would want to press his amendment.
Lord Hodgson of Astley Abbotts: I lasted with the Minister until about two-thirds of the way through his
GC 526
remarks, when I thought that he left reality behind—if I may be so rude and impertinent. We are making the assumption that to have a single transfer as envisaged by paragraph (b), we are going to find another charity to which we are transferring our assets that precisely matches what we are doing, as the transferor charity, or we cannot wind it up. It seems just as unlikely that we shall be able to do that as it is that we shall find the problems to which the Minister referred—namely. that there will be shenanigans to find a way in which to push the business of the charity in one direction as opposed to another.
I should have thought that under charity law, the trustees of the winding-up charity would have to have regard to the objects of the charity which they were winding up in disposing of the assets and disposing of them to a new charity. It is unnecessarily restrictive to say that when you wind up you must send all those assets to a charity, as opposed to charities, as that might much more easily reflect the original objectives of the charity, rather than requiring a single transferee on all occasions.
I am disappointed that the Minister has not been able to see the force of that argument. I shall read what he said, but we may want to come back and deal with the matter again.
Lord Phillips of Sudbury: Is the Minister saying point blank that there should be no possibility of the trustees sending their net assets to more than one charity?
Lord Bassam of Brighton: I do not believe that I ruled that out in my remarks; I am sure that I did not, in fact. What we are keen to avoid here is creating a situation in which rogue trustees find a way round by transferring from a charity that they want to close down and putting assets into a number of charities, so that one of those charities gets the majority of the benefit but does not conform with the spirit of the original charity. Inadvertently, in drafting the amendments as the noble Lords have, they have created that possibility. That was what I was trying to describe.
I suggest that noble Lords follow carefully what I have said in Hansard. I believe that their intent is self-defeating in the way that they have framed their amendments.
Lord Phillips of Sudbury: I shall accept that invitation, but on current reckoning I do not see how the Minister gets to that point. However, let us leave the matter and consider it afresh.
Lord Hodgson of Astley Abbotts: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 162 and 163 not moved.]
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 163A:
Page 36, line 39, leave out from beginning to end of line 8 on page 37 and insert—

GC 527
"(3) If under section 74(7) above the Commission directs the charity trustees to give public notice of a resolution, the running of the 60-day period is suspended by virtue of this subsection—

(a) as from the date on which the direction is given to the charity trustees, and

(b) until the end of the period of 42 days beginning with the date on which public notice of the resolution is given by the charity trustees.

(4) If under section 74(8) above the Commission directs the charity trustees to provide any information or explanations, the running of the 60-day period is suspended by virtue of this subsection—

(a) as from the date on which the direction is given to the charity trustees, and

(b) until the date on which the information or explanations is or are provided to the Commission."

The noble Lord said: The amendment was suggested by parliamentary counsel to correct a mistake in the drafting of the Bill. I shall give an explanation, because otherwise the Committee might be puzzled.
The amendment corrects a slip, by replacing existing subsections (3) and (4) with new ones. Noble Lords reading the amendment will be forgiven for not immediately spotting what effect it has, so I shall explain, while apologising in advance for the length of the explanation.
Section 74 of the 1993 Act, as inserted by Clause 37 of the Bill, allows the trustees of some small, unincorporated charities to pass a resolution to transfer all their charity's property to another charity. Before doing that, the trustees must send a copy of their resolution to the Charity Commission. After that, if the commission does nothing within 60 days, the resolution takes effect, and the trustees can then arrange to transfer their property in accordance with their proposals.
If the commission objects to the resolution within 60 days—which it may do either on the grounds that the procedure has not been properly followed or on the merits of what the trustees are proposing—the resolution is effectively cancelled. The trustees may not transfer their property. If the commission believes that the trustees' proposals should be aired in public to give people a chance to comment, it can within 60 days direct the trustees to give public notice of their proposals. If the commission needs more information to make up its mind about the proposals, it can within 60 days require that information from the trustees.
If the commission does either of the last two things, the 60-day clock stops running when the commission directs public notice or when it requires the further information. But, to take an example of the commission deciding to direct public notice and a week later deciding to require further information, the clock has stopped running when the commission directs public notice, and will not start again, under subsection (3) at the bottom of page 36, until 42 days later. So by the time the commission requires further information, in this example the clock has already stopped.
That is where there is a problem with the Bill as drafted, as subsection (4), at the top of page 37, says that the clock "stops running" at the point at which it requires further information. In other words, subsection (4) does
GC 528
not allow for the fact that the clock might already have stopped. The same drafting problem arises the other way round, when the commission first requires more information, then directs public notice before the information is received. In a nutshell, the amendment caters for the case in which the commission decides both to direct public notice and to require further information, in either order, and by the time it takes the second action the clock is already stopped as a result of its having taken the first action.
I am sure that that is clear to the Committee. I shall go over it carefully again, if Members of the Committee want me to. It is a technical tidying-up measure that should mean that the scheme operates properly. I beg to move.
On Question, amendment agreed to.
4.45 p.m.
[Amendment No. 164 not moved.]
Clause 37, as amended, agreed to.
Clause 38 agreed to.
Clause 39 [Power to modify powers or procedures]:
Lord Shutt of Greetland Lord Shutt of Greetland moved Amendment No. 165:
Page 38, line 41. at end insert", save that, in the case of a trustee body that traditionally makes its decisions by consensus and without formal voting, a minute of a properly constituted meeting signed by the appropriate person be accepted"
The noble Lord said: First, I again declare my interest as a member of the Society of Friends, popularly known as the Quakers.
This amendment arises because of the concern of the Society of Friends about decision making. There is a suggestion in the clause that a resolution must be passed,
"by a majority of not less than two-thirds of the members entitled to attend and vote … who vote on the resolution".
The concern of the Society of Friends—it may apply to other clauses; I have, I think, spotted one other—which last year celebrated 350 years of existence, is that it has never voted, and does not vote. The society has myriad trusts and various charities both within it and associated with it. The normal practice of the Society of Friends is to arrive at a consensus. I was thinking that we may indeed be operating on Quaker rules in this Committee. We have not voted so far—who knows, we may not vote.
As I said, the society's decision-making is by consensus. If there is disagreement, the meeting is laid aside, there is further prayer and thought, and the friends meet again. Eventually a decision is made. The amendment is about making,
"decisions by consensus without formal voting",
and that,
"a minute of a properly constituted meeting signed by the appropriate person",
should be accepted.
I am not in the habit of making porridge for one: other organisations may well have a similar decision-making system. Provided that these things are done

GC 529
properly, as these organisations are accustomed to doing, and as long as the process clearly represents the feeling of the meeting, this amendment should cover the point. I beg to move.
Lord Bassam of Brighton: I should say that I have been a member of one or two Labour Party organisations where I had rather hoped we could reach a consensus without a vote. I rather admire the Quakers in the way in which they work.
I appreciate the noble Lord's point. We think that there is a good argument there. I would like to take it away and give it further consideration. It may well be that we can be helpful on this, and we would quite like to be. Perhaps we should all listen more carefully to how the Quakers conduct themselves. It is a rather excellent organisation.
Lord Shutt of Greetland: I thank the Minister for his welcome comments. Let us hope we can get consensus on the appropriate clause. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 166:
Page 38, line 41, at end insert—
"( ) Where the constitution of the charity concerned allows members to vote by proxy, the requirement in subsection (4) for attendance at the meeting concerned shall be amended accordingly."
The noble Lord said: This amendment relates to Clause 39 and the,
"Power to modify powers or procedures"
of unincorporated charities.
My amendment simply takes into account the fact that some of those bodies—not many, but some—allow voting by proxy. The provision for voting here extends only to members entitled to attend and vote at the meeting who vote on the resolution. So it applies only to unincorporated charities whose constitutions provide only for voting by attendance at the meeting concerned. I think it would be perverse for those charities that have a proxy arrangement not to allow them to exercise it. On that basis, I beg to move.
Lord Bassam of Brighton: I am grateful to the noble Lord for his explanation. The amendment provides for voting by proxy in a membership charity where the charity's constitution provides for proxy voting and a further resolution of the voting members is required in order to modify the powers or procedures of the charity.
We take the view that the amendment is not necessary as it expressly provides for what would already be implied in the provision. As the provision is currently drafted, if the charity's constitution permits attendance and voting by proxy, the requirement of new Section 74C(4) for a further resolution would be
GC 530
satisfied by attendance and voting in that way. With that reassurance, I hope that the noble Lord can withdraw his amendment.
Lord Phillips of Sudbury: I must confess that that is not as I read subsection (4). Rather than bore the Committee, I might take this matter up with the Minister or his officials later. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 167:
Page 39, line 5, at end insert "following the resolution"
The noble Lord said: Amendment No. 167 concerns Clause 39, entitled,
"Power to modify powers or procedures".
The amendment inserts a requirement that trusts are taken to have been modified from such date "following the resolution". Those last three words that we seek to add ensure that the power to modify the powers of an unincorporated charity cannot be exercised with retrospective effect. It would surely be undesirable for charity trustees to be able to act ultra vires and then to put matters right retrospectively. That would not provide the required level of certainty for those dealing with the charity. It is therefore a small, technical, but nevertheless important, amendment, which I hope that the Minister will be able to accept. I beg to move.
Lord Phillips of Sudbury: I am sure that a shrewd point has been taken there, albeit one of trustlessness, but trust is sometimes of that order.
Lord Bassam of Brighton: The noble Lord. Lord Hodgson, has made a very sensible proposition. We have given it some thought. It is unlikely that the situation that the noble Lord imagines would happen, but we admit that it could. For that reason, we will take this away and table an amendment that would prevent the circumstances arising that the noble Lord described. I hope, in that situation, that the noble Lord is happy and will withdraw his amendment.
Lord Hodgson of Astley Abbotts: I am more than happy: I am delighted. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 39 agreed to.
Clause 40 [Power to spend capital]:
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 168:
Page 39, line 21, after "that" insert "at least three-quarters of"
The noble Lord said: Endowed property is going out of fashion and has been for many years. None the less, there are quite a few older charities that have endowed property, which, of course, means that the capital of it cannot be spent. There are occasions—I have come across them in practice—where a would-be donor wishes to prevent the capital being utilised in order to ensure the longevity of his or her generosity.
Clause 40 will insert a new Section 75 into the Charities Act 1993. It will allow charity trustees, none the less, in the circumstances prescribed by the clause, to expend capital. My amendment is designed to provide a little more protection than is provided by the charity trustees reaching such a decision by an ordinary majority—the same sort of majority as would be reached on any decision affecting the life of the charity, however insignificant.
By prescribing that at least three-quarters of the charity trustees must be satisfied that the purposes of their trusts can be more effectively carried out if the capital of the fund can be expended, I intend to ensure not only that full deliberation is given but that a special majority of those trustees is behind the proposals. That is akin to the provision under company law where one requires a special resolution to carry out especially important things in the life of a charity. That would not destroy the practicality of the provision, but it would ensure that special consideration was given to it.
Lastly, I would not want to deter those who want to prevent the expenditure of the capital of their fund and those who are contemplating making a substantial gift. Unless you are making a substantial gift, to make a gift in the form of endowed property is wholly counter-productive. I would not want in any way to deter those contemplating making such gifts by the fact that their wish and will can be overridden by the trustees by a simple majority. I beg to move.
Lord Hodgson of Astley Abbotts: I support the amendments. The spending of capital is a serious issue. I understand. in modern financial parlance, that with modern financial instruments the differentiation between capital and income has been blurred. I therefore appreciate that we need some provisions to permit capital to be spent.
But that is not a decision or action to be taken lightly; it is close to selling the family silver. Therefore, introducing a higher requirement, a higher bar that must be cleared, seems sensible. The emergency general meeting level of 75 per cent in the Companies Act seems extremely good. If 25 per cent or more of the trustees oppose such action, there is not the consensus within the charity to permit such a fundamental and irrevocable step to be taken. I very much support the thoughts behind the amendment.
Lord Bassam of Brighton: As we have heard, the amendment would tighten the procedure for trustees to spend capital. The Bill requires a resolution to be passed by the trustees before they can spend any capital and, for most charities, a resolution can be passed by a simple majority. As both noble Lords have made plain, the amendment makes it harder for a resolution to be passed by requiring a three-quarters majority decision rather than a simple majority. In the case of the power of trustees of unincorporated charities to spend small amounts of capital under Clause 40—new Section 75 of the 1993 Act—that is an even harder test or threshold than provided for under the 1993 Act. That Act required only a two-thirds majority before capital could be spent.
GC 532
For completeness, perhaps I should add that new sections 75 and 75B contain new powers, so there are no equivalent provisions in the 1993 Act. The purpose of the new provisions in the Bill is to make it easier for trustees to spend capital, not harder, and I shall briefly explain to the Committee some of the background and reasons behind the current policy.
The Strategy Unit found, and we agree, that for some charities permanent endowment is a burden as retention of funds as capital is no longer in the interests of the charity. There are various legal obstacles around which trustees must manoeuvre before they can spend any capital. For example, the charity must have an income of £1,000 or less a year; the trustees must advertise the conversion from permanent to expendable funds; and the Charity Commission must concur with the trustees' resolution to spend the capital. Currently, large charities with small, non-expendable endowment funds are unable to change the endowment into expendable capital in any circumstances.
To give an example, let us suppose that a fictitious large charity for the benefit of the parishes in the City of York has for centuries received various gifts from parishioners in their wills for the upkeep and maintenance of local churches. A small gift given as a permanent endowment in 1800 has been faithfully maintained by the trustees as a permanent endowment ever since. The endowment generates only £50 income. It costs more than £50 to administer the endowment. Under the Bill, if the trustees judged that the capital would be much better used by purchasing a new pew for the local church, then they would be much freer to use the capital in that way.
5 p.m.
There is the safeguard of the need for the commission to concur to trustees' resolutions to spend capital in certain circumstances. These are the circumstances set out in new section 75A(1) and (2) and new section 75B(4). In all cases where these circumstances do not apply, trustees may spend capital without the commission's concurrence.
Trustees are under a duty of care when taking decisions in any circumstances and we believe that it is right to allow them here the discretion to convert permanent endowment into expendable capital. We believe that the provisions in the Bill give sufficient safeguards against the irresponsible expenditure of capital, while allowing trustees the proper room and flexibility to make their own decisions in the interests of the charity. For example, trustees may spend capital without the concurrence of the commission or giving public notice only where the charity's income is £1,000 or less or the market value of the endowment fund is £10,000 or less.
If the amendment were accepted, we would metaphorically be taking two steps forward in enabling trustees to make better use of the charity's funds, and one step backwards in making it harder for them to take this decision. So the amendment is unnecessarily restrictive and would encourage the continuance of self-defeating funds, which would do little to benefit

GC 533
those that the charity originally sought to benefit. In some instances, certainly with the example I have given, it could end up costing as much to administer as it provides in benefit.
Lord Phillips of Sudbury: I regret to say that I did not find any of that response persuasive. I am grateful for the agreement of the noble Lord, Lord Hodgson, with the amendments.
Clause 40, which replaces Section 75 of the Charities Act 1993, limits the power to spend capital under the 1993 Act to charities which have a gross income of under £1,000. That will allow the expenditure of unlimited amounts of capital—it could be tens of millions of pounds. To do that on the basis of a bare majority of trustees seems to be wholly unwarranted. The Government have not even replicated the requirement for the agreement of two-thirds of the trustees under existing legislation, which, I emphasise, is for charities with an income of not more than £1,000.
The Minister took no account of my point about the importance to would-be donors of having some security against the quick spending-up of the funds that they want to be there forever. If donors want the capital to be preserved, that is up to them. We must not construct a system that prevents someone who wants to create a large endowment from doing so.
I urge the Minister to read the debate on the amendment. The current proposal does not serve anyone's purpose and we shall certainly return to this matter. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 169:
Page 40, line 5, after "given" insert "more than 100 years ago"
The noble Lord said: If the Minister did not like the fact that the noble Lord, Lord Phillips, was tightening things up, I am about to do a little more thumb-screwing. This group of amendments also relates to Clause 40 and the power to spend capital—and, in particular, to new section 75A on page 40.
The purpose of the amendment is to ensure that where a single donor establishes a charitable trust with a view to expending only its income on its charitable purposes while retaining the capital to produce income for future beneficiaries, it will not be possible for the charity trustees immediately to reverse that decision for the reasons mentioned by the noble Lord, Lord Phillips. The noble Lord quoted from the current legislation, the 1993 Act, and I accept that the provision as currently drawn is so wide that it captures situations that it should not capture.
For example, many independent schools were established as a result of a bequest of one wealthy patron many hundreds of years ago. Where the land and buildings given to establish the school are held as a permanent endowment, the sale proceeds from surplus land cannot be applied in the building of new premises on the charity's existing land. There are many similar instances.
It must be right, therefore, that for very ancient gifts the trustees should have the flexibility to release some of the capital from permanent endowment status so that it can be used to maintain and develop the charity's property. This follows on from the debate that we had a minute ago.
But clearly a balance has to be struck between the wishes of the original donor and the realities of changed circumstances, particularly economic ones. It seems inappropriate for there to be an option for the endowment fund to be freed from the donor's restrictions with respect to expenditure of capital because the charity trustees think it fitting. As I have said today and at previous meetings of the Committee, flexibility and the need to adjust to the effluxion of time is, of course, essential in charity law.
However, that needs to be balanced with the wishes of the donor, without whom no charities would exist. We have chosen 100 years as the point before which trustees should not have this flexibility. This would mean that the original donor, and probably his immediate children, would no longer be alive—so his wishes would not be immediately flouted—and external circumstances will almost certainly have altered dramatically over the period of a century. We accept that it is an artificial date but we argue that it will be an incentive to philanthropy and to the establishment of foundations if the donor knows that there is, at least in the first period, a lock on his assets.
Amendments Nos. 170 and 174 relate to that point. They seek to ensure that where two or more donors give a property, the time from which the 100 years' timeframe is measured is from when the donors contemporaneously give the property. otherwise the 100 years' clock could constantly be restarted as new gifts are given.
This group of amendments seeks to achieve an important balance between protecting the wishes of the donor and maintaining a necessary flexibility to reflect changing times. I beg to move.
Lord Phillips of Sudbury: I am sympathetic to these amendments.
Lord Bassam of Brighton: I have explained the Government's policy in regard to the new powers in the Bill for trustees to expend permanent endowments in certain circumstances. The amendment seeks to preserve the permanency of any endowment which was given less than 100 years ago.
This issue was raised by the Charity Law Association in its evidence to the Joint Committee. It said that the clause as drafted may discourage gifts of capital as there is no prescribed time lapse between the date of the foundation of the charity and the trustees' decision to render capital expendable. The Charity Law Association envisaged a situation where trustees could decide to spend capital the day a charity was founded, which would clearly be undesirable.
However, there are a number of safeguards in the Bill to prevent this situation occurring. Under proposed new Section 75A, the trustees must send a copy of any resolution to spend capital to the Charity Commission

GC 535
and may not implement the resolution without the concurrence of the commission. The commission then has a statutory duty, set out in the Bill, to take into account any evidence available to it as to the wishes of the donor or donors. That would guard against the situation the Charity Law Association envisages. The commission must also take into account any changes in the circumstances relating to the charity since the making of the gift or gifts.
If the principle behind the amendment were accepted it would make the new power to spend capital less flexible, not more, which was not the intent behind the provisions. For example, even where a donor of permanent capital agreed with the trustees that the most effective use of the gift a few years after the donation would be for the capital to be spent, under this amendment it would be impossible for that money to be spent and used in the most effective way.
I understand the principle behind the amendment is to stop trustees being able to spend capital gifts which had been given less than 100 years previously, but its actual effect would be to make it easier for trustees to spend capital given less than 100 years ago. That is because Amendments Nos. 169 and 173, which we are now considering, seek to adds gifts given,
"more than 100 years ago"
to the sections which set out the circumstances where the commission's concurrence applies.
It follows that if a gift was given less than 100 years ago it would not fall within the section describing when the commission's concurrence is necessary. Therefore the commission's concurrence would not be necessary and the trustees could spend the gift without the need for concurrence, whether it was more or less than £10,000.
I do not believe that is what the noble Lord is seeking and, for the reasons I have set out, we do not think that the actual or desired effect of the amendment is in the spirit of these new enabling provisions. We believe that the Bill, as drafted, gives the maximum possible flexibility without deterring potential donors to charities. On that basis, I invite the noble Lord to withdraw the amendment.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. I am partially reassured by the position of the Charity Commission and the fact that its permission has to be sought. It will take into account the donor's wishes and, obviously, the change in the position of the individual charity and I am reassured by that.
I believe that I may have been holed below the waterline by the "less than 100 years" weakness. Clearly that was not the objective. The idea was not that it should remove the Charity Commission from the procedure. The noble Lord, Lord Phillips, and I are both wondering whether this section is drawn too loosely and we are therefore looking at ways of making it slightly tighter.
If I have taken a torpedo below the waterline in that regard, I should like to read what the Minister has said, reflect on it and perhaps come back to the issue. I beg leave to withdraw the amendment.
GC 536
[Amendment, by leave, withdrawn.
[Amendments Nos. 170 and 171 not moved.]
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 171A:
Page 40, line 29, leave out "without the concurrence of the Commission" and insert "except in accordance with the following provisions of this section"
The noble Lord said: In moving Amendment No. 171A, I shall speak also to Amendments Nos. 171B and 174A, which are grouped with it.
The amendments are designed to fill a gap identified at Second Reading by the noble Baroness, Lady Byford. We are very grateful to the noble Baroness because she has drawn our attention to a very helpful point.
The proposed new Section 75A gives the trustees of larger incorporated charities which own unexpendable endowment capital worth more than £10,000 to pass a resolution, on certain conditions, to spend that capital. One of the conditions is that the Charity Commission must concur with the trustees' resolution. The Bill gives the commission three months in which to tell the trustees either that it concurs or that it does not concur with the resolution. The three month period starts either at the point at which the commission directs the trustees to give public notice of their proposals or, if the commission does not exercise its power to direct public notice, at the point at which the commission received a copy of the trustees' resolution.
But, as the noble Baroness, Lady Byford, pointed out, the Bill does not say what happens if the commission fails within the three-month deadline to say whether or not it concurs. In short, the Bill leaves things in limbo because the trustees need the commission's concurrence to proceed with their proposal and yet they do not know whether or not the commission concurs, and there is nothing currently to force the commission to make and communicate its decision.
We do not think that the solution is to provide a sanction on the commission if it fails to meet the deadline. That would penalise the commission but not necessarily help the charity. Instead, we believe that the answer is to allow the charity to go ahead with its spending proposal by default if the commission fails to answer within the three-month deadline. These amendments will achieve that. They will also make identical provision in relation to a resolution made by trustees of a special trust which owns an unexpendable endowment worth more than £10,000. I beg to move.
Lord Phillips of Sudbury: There have been a number of provisions today which depend on notices of various lengths. Here we have got a three-month notice. I wonder whether there is a clause within the Bill dealing with notices. I do not think there is, in which case I presume that one is falling back on the general law relating to notices. If I am right in that supposition, and I think I am, given that the Bill will be relevant to a huge voluntary sector, the vast bulk of which, fortunately, is not made up of lawyers, accountants or other professionals, would it not be helpful to put in a clause making it quite clear just how

GC 537
these notices are given and received? It is a real headache understanding quite how notices work in the law. The amendment gives me the opportunity to raise that point with the Minister.
5.15 p.m.
Lord Bassam of Brighton: That is very helpful. Rather than putting such a provision in the Bill—I think that the noble Lord is right and there is a general catch-all—perhaps we should deal with it in guidance. We would like to think about that, and thank the noble Lord very much for raising it.
Lord Phillips of Sudbury: If it is to go in guidance, is there any reason why it should not be in the Bill? Draftsmen may say that if you put it in this Bill you put it in every Bill, but that argument is not relevant to this very particular Bill. However, I do not want to press the point. Guidance is different, and people will not always be able to compare. I can even think of lawyers who, not being familiar with the Bill, would be helped enormously, saving their client a lot in costs, by not having to hunt around in the statutes.
Lord Bassam of Brighton: It may not be a case of either/or; it may be both. Let us park that today and come back to it. I certainly think it should be in guidance.
On Question, amendment agreed to.
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 171 B:
Page 41, leave out lines 28 to 31 and insert—
"(12) Where—

(a) the charity trustees are notified by the Commission that it concurs with the resolution, or

(b) the period of three months mentioned in subsection (10) above has elapsed without the Commission notifying them that it does not concur with the resolution,"

On Question, amendment agreed to.
[Amendment No. 172 not moved.]
[Amendments Nos. 173 and 174 not moved.]
Lord Bassam of Brighton Lord Bassam of Brighton moved Amendment No. 174A:
Page 42, leave out lines 27 to 31 and insert—
"(5) Where—

(a) the charity trustees have passed a resolution under subsection (2) above, and

(b) (in a case where section 75A(5) to (11) above apply in accordance with subsection (4) above) either—

(i) the charity trustees are notified by the Commission that it concurs with the resolution, or

(ii) the period of three months mentioned in section 75A(10) has elapsed without the Commission notifying them that it does not concur with the resolution,"

On Question, amendment agreed to.
Clause 40, as amended, agreed to.
Clause 41 [Merger of charities]:
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 175:
Page 43, line 16, leave out from "others," to end of line 17.
The noble Lord said: In moving Amendment No. 175, I shall speak to Amendment No. 176 as well. This brings us to Clause 41, which deals with mergers. New subsection (4) of new Section 75C on page 43 defines "relevant charity merger" as meaning,
"a merger of two or more charities whereby one of the them ("the transferee") has transferred to it all the property of the other or others, each of which ("a transferor") ceases to exist on or after the transfer of its property to the transferee".
Our amendment seeks to remove the last few lines which require that one or more of the transferors must cease to exist as a result of a charity merger. Amendment No. 175 would remove this necessity in new subsection (4)(a) and Amendment No. 176 would have an identical effect on new subsection (4)(b).
The thinking behind these amendments is that a charity merger does not necessarily result in one or more of the transferors ceasing to exist and this should not, therefore, be a necessary part of the definition of a charity merger. There are many instances where one or more transferors might need to have a residual existence.
Let me give three common examples. The merger could involve the transfer of a separable part of a transferor's operations; secondly, the intention may be for a transferor's legal entity to continue to serve a function in association with the legal entity containing the merged operations; and, thirdly, a transferor sometimes needs to be kept technically in being to ensure that legacies benefiting it do not fail following a merger. Considering these points, we believe that the amendment would be valuable to the new merger regime. I beg to move.
Lord Phillips of Sudbury: With deference to the argument put forward by the noble Lord, Lord Hodgson, it seems to me that to have a "separable" merger—that is, a part-merger—might give rise to considerable confusion. The Government having thought this through, I shall be interested to hear their response—as I have not.
Lord Brooke of Sutton Mandeville: I rise to ask another of my ignorant questions. I recollect that in church porches up and down the land, you periodically see a notice indicating that a consolidation of small charities, which have been in existence for centuries, is being carried out—frequently, as I understand it, at the behest of the Charity Commission. Do rearrangements of that sort, which have obviously the admirable consequence that the number of small charities is reduced, fall under this clause as well?
Lord Bassam of Brighton: I will take advice on that. I think that they probably would, but I take the point. The purpose of the clauses relating to charity mergers is to make things easier for those charities which choose to merge. A major problem which charities

GC 539
have encountered in the past is that, after a merger, both charities needed to remain on the Register of Charities in order for them to pick up any future gifts made to them. It has also been time-consuming and difficult to sort out the vesting arrangements. New Sections 75D and 75E streamline the merging process and specifically address those two problems. The amendments tabled on the charity merger provisions touch on some complex legal issues and I hope that Members of the Committee will bear with me while I explain the position of the Government.
The clauses which make the vesting arrangements easier and help future gifts to the old charity go to the new charity—that is, new Sections 75D and 75E—are open for use only in circumstances which are defined as a "relevant charity merger". In order to qualify as a relevant charity merger, the merger must have two characteristics: first, the transferring charity or charities must pass all of their property to another charity and, secondly, the transferring charities must then cease to exist.
As the noble Lord, Lord Hodgson, has explained, these amendments seek to ensure that after a merger the transferor charity or charities may, if it is desirable, continue to exist. The Charity Law Association in its evidence to the Joint Committee suggested that usually after a merger the transferor charity or charities would wind up. However, the CLA stated that occasionally it would be desirable for the transferor to be retained and the two examples it gave were, first, if the transferor is the tenant of property and the lease contains an absolute covenant against assignment; and, secondly, where the transferor charity owns permanent endowment and the transferee is required to hold that property on trust for the transferor.
The Bill as drafted does not stop charities from continuing to exist after a merger. However, it excludes them from the definition of a "relevant charity merger" and therefore from using a new vesting and future gift provision. In general, in the past transferor charities have needed to remain on the register only to collect up future gifts. The Bill addresses that problem in new Section 75E.
If the amendment were to be accepted, the vesting and future gifts provisions would be open to those types of mergers where the transferor charity continued to exist, rather than applying only where the transferor charity ceased to exist. That would mean that a gift left to the transferor charity would automatically pass to the transferee charity. That cannot be right because it would mean that we would be interfering with the rights of the transferor charity—which in this scenario has not ceased to exist—because the gifts given to it by the transferor charity would be automatically passed on to the transferee charity.
I turn now to the first example given by the Charity Law Association in support of these amendments—the example of a non—assignable lease. As presently drafted Section 75D probably would allow the transfer of the legal and beneficial estate in such a lease to be transferred by means of a vesting declaration.
GC 540
However, we are considering tabling an amendment later to ensure that covenants cannot be overridden in this way by declaration. This would therefore be an example of a case where the "relevant merger" provisions would not apply. The charities could still merge using the existing general law. For example, the transferor charity could use existing provisions in its governing document relating to the transfer of assets, or use the existing power in Section 74, as amended by the Bill, or apply for an order of the Charity Commission or court.
The Charity Law Association also raises the example of a case where the transferor charity owns a permanent endowment. In its evidence to the Joint Committee, it suggested that this would be another reason for the transferor charity to continue to exist post-merger. I think that that point is misconceived, because if permanent endowment was involved, the transferee would simply become the trustee of the permanent endowment trust, and the transferor could be removed from the register. So it could wind up and would count as a "relevant charity merger", and, as I said, it could then use the vesting and future gifts provisions. This would be the case whether the transferee was a corporate body or not.
I apologise to the Committee for the length of the explanation. No doubt it will wish to consider it at greater leisure, perhaps from Hansard. We are happy to help outside Committee and discuss the matter further if it helps the Committee to understand what we are trying to achieve. However, I suspect that we are heading in the same direction in trying to make the arrangements for transference of charitable benefits as easy and simple as we possibly can.
Lord Hodgson of Astley Abbotts: I think that I will take advantage of the Minister's invitation to read his remarks. It is quite a technical matter. His explanation was very thorough, for which I am extremely grateful, but it contained quite a lot of dense legal verbiage. I am sure that the noble Lord, Lord Phillips, picks it up in an instant, but lesser mortals have to struggle to keep up with the Minister in flow. I shall carefully read the Minister's comments and take advice from people outside who are concerned about this.
Would the answer to my noble friend Lord Brooke on Church charities be that they are currently excepted charities under the Bill and that they are all right for the time being? If so, as excepted charities are to be brought to an end, they will have to register with the Charity Commission in future. That is the issue we debated earlier.
Lord Brooke of Sutton Mandeville: Perhaps my noble friend will allow me. My recollection of such notices as I saw, which were presumably under a scheme of administration or arrangement, were that they might involve small charities within the parish but not necessarily under the purview of the Church.
Lord Hodgson of Astley Abbotts: We have been trying to persuade the Government that we should be trying to find a simpler and easier way to regulate groups of charities, particularly relating to parish churches and

GC 541
parishes, than those that the Government currently propose. However, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 176 not moved.]
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 177:
Page 43, line 26, at end insert—
"and shall be accompanied by brief details of arrangements for the discharge of any outstanding liabilities of the charities merging after such transfers"
The noble Lord said: In response to what the Minister was saying on these charity mergers, I should like to thank all those who laboured to produce the new mechanism. It is hugely difficult. I think that, by and large, it has come up with some very useful arrangements that should be very helpful to the sector.
This amendment is probing. My anxiety is that with the current provisions, where two charities will disappear—and I take the Minister's point about the charities ceasing to exist; that is very much at the heart of the mechanism—and with the vesting declaration provisions, which are alarmingly decisive and helpful, I want to be sure that creditors of any of the charities concerned are not left in the lurch or, at least, left not having any idea of where they stand.
My suggestion, which might as well have appeared in subsection (6), or possibly both, is that if charities are taking advantage, as they will, of this new regime, when they give notice, as they must under subsection (3) of new Section 75C, they should also give,
"brief details of arrangements for the discharge of any outstanding liabilities of the charities merging after such transfers".
I beg to move.
5.30 p.m.
Lord Bassam of Brighton: As the noble Lord, Lord Phillips, said, there are some concerns relating to the position of liabilities. The Charity Law Association was concerned that the merger mechanism in the draft Bill explicitly transferred only the assets of the transferor into the transferee and recommended that the Bill should be amended to make it clear that assets and undertakings, subject to liabilities would be vested.
It also envisaged problems with the requirement for the transferor charity to execute the vesting in the new or transferee charity. It suggested that under the Bill, a rogue charity with damaging liabilities could declare that all its assets vest in another charity in order to rid itself of any liability.
The amendment is intended to ensure that the requirement to notify the commission of the arrangements which have been made regarding liabilities will provide some incentive for trustees to take care to make proper arrangements. We do not think that the inclusion of the amendment would be helpful. There are existing legal rules relating to liabilities which will continue to apply. For example, where a merging charity is unincorporated, the charity
GC 542
trustees who incurred any liability on behalf of the charity remain liable, until the liability is either discharged or transferred with the consent of the person to whom the liability is owed.
Of course, it would therefore be sensible for trustees to ensure that liabilities are settled or transferred before they part with the charity's property. Where the merging charity is incorporated, according to the law of insolvency, the liability must be settled or transferred before the charity's assets are transferred. We cannot see that it is necessary for the Charity Commission to know all of these details.
For those reasons, we cannot support these amendments.
Lord Phillips of Sudbury: I am very unhappy with that reply. It was impractical and bureaucratic and did not have much relevance to the real world. To say that the insolvency laws provide protection is nigh on useless. They are extremely difficult protections to put into operation, anyway—for example, trading while insolvent, and so on. It would be wholly impractical, particularly in the charity world. The object of my amendment was severely practical, so that creditors would not be left in a limbo land, long before they began to consider what rights they had against an incorporated charity's directors if their various accounts and entitlements had not been properly met or provided for.
My amendment states, "brief details", and therefore does not require lengthy details, but it does require the merging charities to say briefly what arrangements they have made for the discharge of outstanding liabilities. It would be perfectly practical for the Charity Commission to put that in the register—it could be part of the register—and I do not see any reason why, as is provided for in subsection (6)(b), it should not be part of what the commission could require.
I hope that the Minister will think again about this. We are trying to fashion a Bill that is workable, practical, not lawyer-ridden and lawyer-driven. I urge him and his officials to think about this, because, for no other reason than inadvertence, I fear that some charities, in making use of this, will, without malicious intent, cause distress and a waste of time and money for innocent creditors, which could easily be resolved by a mechanism along the lines that I am suggesting.
On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 178:
Page 44. line 7, after "property" insert "and its undertaking. subject to its liabilities,"
The noble Lord said: In moving Amendment No. 178 I shall speak also to Amendment No. 179. They concern pre-merger vesting declarations under proposed new Section 75D, in Clause 41.
As drafted, the merger provisions in Part 2, Chapter 11 of the Bill will transfer only the property of a pre-merger charity. In our view, that is insufficient. In a merger, the post-merger charity will take over the activities of the pre-merger charity and so take on its liabilities as well as its property. If the statutory merger process is to work, it must take these matters into account as well. These amendments would ensure that all factors are taken into account under the merger process.
In part, this is another example of the wrong use of terms which we saw—and as the noble Lord, Lord Phillips, mentioned—in our debate on Amendment No. 142, looking at gross, not net figures. However, since tabling this amendment, it has been pointed out to us that we have not gone quite far enough. Charities will also have "rights"—for example, rights to personal data—which, being an asset of the charity, will form part of the merger process. Accordingly, if the Government were minded to accept this amendment, we would suggest that the phrase should be, "property, rights and undertaking subject to its liabilities". I beg to move.
Lord Bassam of Brighton: We had a little of this discussion when we debated Amendment No. 177. Amendments Nos. 178 and 179 seek to ensure that any vesting declaration made before a merger clearly transfers liabilities as well as assets. The effects of the amendments would be to extend the effect of the new vesting declaration provisions to the liabilities of the transferor charities. However, the provision has been intentionally drafted to help the transfer of the legal title to property only. Except in the case of CIO reconstructions, which come later in the Bill, the Bill contains no provisions overriding the usual legal principle that liabilities can be transferred only with the agreement of the person or people to whom the liabilities are owed. We do not think that the Bill should override the normal legal requirement which ensures that the transfer of liabilities would happen in these sorts of cases.
So we cannot accept the noble Lord's amendment. I hope that that explanation assists the noble Lord and that he will withdraw the amendment.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister. Of course I accept that this is a partial rerun of the discussion on the previous group. May I take it, therefore, that we will have a two-stage merger/premerger vesting declaration equivalent to exchange and completion—that is, there will be a declaration of what we have, all the bits and pieces, the good, the bad and the ugly—and that we are going to net all this out and then bring it all together at the end in a completion phase, and that that is why the word "property" is sufficient? Do I have the concept right?
Lord Bassam of Brighton: After conferring, we have come to the conclusion that the noble Lord's description is apposite. It was nicely put.
Lord Hodgson of Astley Abbotts: It was the brilliance of the Minister's explanation that led me to it.
GC 544
If that is the case and we are reducing it all down to a single net figure, having taken into account all the assets and liabilities, I can quite understand it. If that is the legal force of it, then I am content with the Minister's explanation and happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 179 not moved.]
Lord Hodgson of Astley Abbotts Lord Hodgson of Astley Abbotts moved Amendment No. 180:
Page 44, line 19, at end insert—
"( ) any land held on leasehold or similar terms which is subject to a restraint on transfer, of the interest held by the transferor charity without the consent of a third party, unless such consent has been obtained before the date on which the transfer would take place; or
( ) any contractual or other obligation undertaken by the transferring charity, or owed to it, which is subject to a guarantee of its performance by a third party unless such consent has been obtained before the date on which the transfer would take place"
The noble Lord said: We are still concerned with Clause 41, but have turned to page 44. New Section 75D contains provisions in subsection (2) for the automatic transfer of property in certain circumstances, but excludes two classes of property from such transfers. We are concerned that it does not include two further categories of property where automatic transfer, which would otherwise apply, could result in damage to the charity.
As the amendment states, those categories are, first, leasehold property that is held by the charity where the lease contains a provision preventing the transfer of the leasehold interest without the consent of a third party—for example, the landlord or a superior landlord—and, secondly, any contractual arrangement, the performance of which is guaranteed by a third party, whether or not the benefit or the burden of the arrangement is owned by the charity.
Our reasoning is as follows. With regard to the first category, we have no doubt that the present position would be effective as a matter of law to transfer the property. However, the effect would be to put the trustees of the transferor charity in breach of their covenants not to assign and to render the lease liable to forfeiture.
In the majority of cases, that would be damaging to the receiving charity, because, at the very least, it would be exposed to uncertainty about possible court proceedings for breach and to doubts about whether it had the benefit of the lease. There could well be unnecessary expense incurred in trying to settle that position.
In the second case, transfer of the obligation to a third party without the consent of the guarantor to the change would render the guarantee void and useless. That could have ramifications in that it could render the contract void if the contract also required there to be a guarantor.

GC 545
If the guarantee was of a lease, for instance, it could have the effects described above. There are also arguments about whether, in circumstances where the obligation guarantee is owed by the charity to a third party, that such a provision could be said to deprive the third party of property rights in the form of the guarantee. It would thus offend the ECHR. We therefore propose in these amendments that there should be two further categories added to the kinds of property excluded from the automatic transfer of property.
We are concerned that the Bill, as drafted, impliedly overrides the interests of third parties—for example, in a case where a leasehold interest is to be transferred from one charity to another. Where a lease includes that consent to an assignment of that lease must be obtained before the transfer is effected, the provisions of the Bill should not override the interest of the third party from whom consent is to be sought.
We accept that many leases contain provisions stating that consent to an assignment is not to be withheld unreasonably and that where such a term is present, the assignment of the lease between the charities should proceed if consent is unreasonably withheld. However, where a lease contains an absolute prohibition on assignment or where agreement can be given or withheld without the test of reasonableness, the Bill should not seek to put charities in a different position to any other party seeking to transfer leasehold property. Therefore, we believe that the proposed amendment is appropriate because it addresses the question of consent. I beg to move>
Lord Phillips of Sudbury: My name is attached to Amendment No. 180, and I concur entirely with what the noble Lord, Lord Hodgson, said in moving it. As I have said before, this is a remarkably powerful piece of machinery to enable transfers of properties without limit as to value to take effect on a declaration entered into by the transferring charity. It is therefore the more incumbent on us as legislators to ensure that in giving that mechanism to charities, one does not infringe on third-party rights. These seem to be two categories of such rights which ought to be specifically protected.
5.45 p.m.
Lord Bassam of Brighton: There is no doubt that this is a complex subject. I congratulate the noble Lord, Lord Hodgson, on the clarity of his explanation; he has undoubtedly raised some very interesting points. Rather than give a lengthy response, we would like to see whether there is any scope for a government amendment which tackles these issues. I am not in a position to say how we will proceed. I thank the noble Lord, Lord Hodgson, for moving the amendment, and the noble Lord, Lord Phillips. We would like to give further consideration to these issues. During that process we can no doubt consult outside the Committee to see what we can do to answer these points.
Lord Hodgson of Astley Abbotts: That is a handsome offer from the Minister, for which I am grateful. This is a highly technical matter. There are concerns about
GC 546
this, and I am grateful that the Minister said he would look at it. We await his further advice. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 181:
Page 44, line 34, after "gift" insert "(whether legally effective or not)"
The noble Lord said: This is a probing amendment to try to ensure that the provision will apply to gifts whether legally effective or not. Gifts come in both guises. I need say no more than that, and I beg to move.
Lord Bassam of Brighton: I have to read this brief out by way of response because it contains an example I rather like.
We are trying to make things easier for charities which wish to merge. In the past, trustees have had a problem with gifts left to a charity which has merged. For example, a person may make their will in 1990 and leave a gift in it to a particular charity for cats. Let us imagine a fictitious charity called the Brighton Cats Home, which merges with the Brighton Cats Sanctuary, a similar charity doing similar work—and of a similarly fictitious nature—by transferring all its property to the sanctuary. The donor does not update her will and dies the next year.
Currently, it would be likely that the Brighton Cats Home would have to stay on the register of charities and not wind up in order to collect any future gifts such as the one I have described. Clearly. that would be far from satisfactory because it is, in effect, a partial merger and because there still will be administration costs relating to the Brighton Cats Home, even though its only purpose in existing is to receive future gifts and transfer them on to the Brighton Cats Sanctuary.
The new provisions in the Bill prevent this problem. New Section 75E provides that gifts to the Brighton Cats Home would automatically take effect as gifts to the Brighton Cats Sanctuary if the Brighton Cats Home had wound up as a charity. That is to prevent the very problems I have identified, where gifts are left to charities which no longer exist because they have merged.
I have responded to this amendment on the basis that it is probing, but it is worth mentioning that if we were to accept it, all sorts of legally ineffective gifts made to a charity which had merged would take effect. That would be undesirable. For example, I can envisage all sorts of legal difficulties if a gift of a property which the donor did not own was by this clause apparently made legally effective. It cannot be right that the Bill makes all legally ineffective gifts effective. We only want gifts to charities which have merged to be made legally effective by this provision.
I hope that that explanation provides the assurance that the noble Lord is seeking. I invite him to withdraw his amendment on that basis.
Lord Phillips of Sudbury: The noble Lord could have answered by just saying no. I have had my clarification; indeed, I have had it in abundance with knobs on. All that I will add is that this provision is

GC 547
hugely important to practitioners, because it covers such a common occurrence. So I am happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 182:
Page 44, line 42, at end insert—
"75F CHARITY MERGER ENTITLEMENT
(1) Notwithstanding anything, or want of anything, in the constitution of a charity, the trustees of the same have power to merge the charity with another charity or charities having similar objects.
(2) The process granted by subsection (1) shall be subject—

(a) to the provisions of section 75D; and

(b) to any constitutional prohibition of such merger imposed less than 25 years prior to the date of the same."

The noble Lord said: The amendment would insert a new clause following that concerning the effect of registering a charity merger, entitled "Charity merger entitlement". It is designed to help in that common situation where the constitution of the charity allows a merger but where it is not provided for in the Bill. In those circumstances, 1 want the prospect of a charity merger to take advantage of the provisions in new Clauses 75C and 75D—in effect, extending their scope in the manner set out in the amendment.
Lord Bassam of Brighton: The amendment is intended to clarify that existing charities may merge with each other by providing a statutory power to merge, unless the charity's governing documents contain an express prohibition on mergers inserted less than 25 years ago. In practice, this is a power for one or more charities to transfer their property to another charity, because that is how charities merge.
In the Charities Act 1993, there is already a general statutory power for charities to transfer property in some circumstances. That power is in Section 74 of the 1993 Act, which will be updated by Clause 37. The main criteria in the Bill for a charity to use that power is that it must have an income of £10,000 or less and that it is in the interests of furthering the purposes of the charity for the transfer to happen. As I have described, the Charity Commission must then concur to the charity's resolution to transfer the small charity's property to a similar charity or charities.
The amendment would extend the existing power to all charities, no matter what their income. It would do away with the need for commission concurrence and the need for a transfer to take place only where the existing purposes have stopped allowing the charity's assets to be used in the most effective way. That seems too wide. It does not strike the right balance, which we have been seeking to achieve in the Bill, between the efficient and effective use of charitable resources, on the one hand, and protecting the proper interests of donors, on the other.
The Bill's provisions for mergers will already be very helpful to charities wanting to merge, in overcoming current obstacles and in making mergers easier. However, we do not want to swing too far the other
GC 548
way and encourage charities to merge when no good case exists for doing so. We think that general law should continue to apply to mergers. I mentioned in speaking to Amendments Nos. 175 and 176 some of the ways in which charities can merge. I mentioned that the transferor charity could use existing provisions in its governing document relating to the transfer of assets; or the existing part in Section 74, as amended by the Bill; or apply for an order of the Charity Commission or court.
I hope that the noble Lord accepts the basic premise that the Bill will make it easier for charities to merge and invite him to consider whether his amendment does not go a step too far. I know that he is keen to ensure that regulations are proportionate to what they are aimed to deal with, and legislation works in the same way. The amendment goes too far and too wide.
Lord Phillips of Sudbury: I am grateful to the Minister and I shall read carefully what he said. I thought that my amendment had struck a balance by stating that, where there was a constitutional prohibition on merger, that should prevail, unless it was more than 25 years old, because old constitutions often contain provisions that are unsuitable to modern circumstances. However. as I said, I shall read what the Minister said and, if necessary, come back. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 183:
Page 44, line 42, at end insert—
"75G PERMANENT ENDOWMENT
Notwithstanding any rule to the contrary, any charitable company or other body corporate shall hold permanent endowments in its own name absolutely and not as a trustee."
The noble Lord said: This is a technical amendment. It states:
"Notwithstanding any rule to the contrary, any charitable company or other body corporate shall hold permanent endowments in its own name absolutely and not as a trustee".
This represents a change in the law. I believe that it will be practical and helpful. It is urged upon the Committee by others beyond this place and I hope that the Government will not find any objection to it. I beg to move.
Lord Bassam of Brighton: As I understand it, the submissions to the Joint Committee of Bates, Wells and Braithwaite—a firm of solicitors not unknown to the noble Lord, Lord Phillips—covered this point. It stated that the current position whereby charitable companies hold permanent endowment as trustee rather than as part of their corporate property creates unnecessary complications. It proposed that the Bill should clarify this complication by making it clear that a charitable company can hold permanent endowment as part of its corporate property rather than as trustee.
However, there is good reason why a charitable company must hold permanent endowment as trustee. A charitable company, like an individual, can hold

GC 549
property either beneficially or on trust, and I shall explain for the benefit of the Committee what that means in practice.
Property which is held beneficially by a charitable company is freely available for use or application in furtherance of the objects of the company as set out in its constitution. Under company law, a company can have only one set of objects, and these objects have to be set out in the constitution. Therefore any property of a company which it cannot freely use or apply in furtherance of its objects must be held on a trust which describes the restrictions which apply to the use or application of such property.
Permanent endowment is an example of this; it is property which is subject to direction saying that it has to be invested or actually used for the purposes of the company. Trustees cannot freely apply permanent endowment in furtherance of the objects of the company. It therefore cannot be held beneficially and must be held on a trust.
I am advised that there is another problem with the amendment. It is intended to apply to any corporate body, not only charitable companies. Some corporate charities, such as those incorporated by Royal Charter, hold all their property on a trust. The effect of the amendment would be to remove that property from being held on trust, but it is not clear what obligations would then apply.
The Companies Act 1985 has provisions to make sure that company property is applied properly, even though it is not held on trust. But it is not clear what would be the position in the case of other corporate bodies, such as the charities I have mentioned which are governed by Royal Charter, where the holding of corporate property on trust is the norm, but where the effect of the amendment would mean that the property was not held on trust but was instead held by the company beneficially. The amendment does not deal with these important consequential issues.
I know that that is a very technical response but I am sure that, with his knowledge, the noble Lord will accept that it is a technical issue. I hope that noble Lords—and, indeed, Bates, Wells and Braithwaite—are entirely happy with the explanation. If they are, I am sure the noble Lord, Lord Phillips, will feel able to withdraw the amendment.
Lord Phillips of Sudbury: I thank the Minister for his explanation. I shall study it and, if necessary, I shall return to the issue. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 41 agreed to.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 183ZA:
After Clause 41, insert the following new clause—
"FURTHER AMENDMENTS OF THE 1993 ACT
(1) After section 96(5) of the 1993 Act (construction of references) there is inserted—
GC 550
"(6) Any direction of the Commissioners under subsection (5) above shall not operate to constitute a subsidiary undertaking for the purposes of section 42(1)(A) above."
(2) In section 97(1) of the 1993 Act (general interpretation) at the end of the definition of "special trust" insert "and no special trust shall constitute a subsidiary undertaking for the purposes of section 42(1)(A) above"."
The noble Lord said: In the absence of the noble Lord, Lord Dubs, I am prepared on his behalf to formally move Amendment No. 183ZA. I look forward to the Government's response. I beg to move.
6 p.m.
Lord Bassam of Brighton: I am very grateful to the noble Lord, Lord Phillips, for moving the amendment in the thorough, persuasive, articulate and well-argued way in which he has, as is common with his practice in Committee. The amendment is itself thorough, well argued, thoughtful and all the rest, and we are keen to give some fair consideration to it and not to argue against it. I simply give an undertaking that we shall give it fair thought, and I am sure that the noble Lord. Lord Phillips, will happily withdraw the amendment.
Lord Phillips of Sudbury: I have listened very carefully to the long and careful exposition from the Minister in response to the proposed clause. I am sure that the noble Lord, Lord Dubs, will be happy to know that the Government are considering this matter seriously. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Phillips of Sudbury Lord Phillips of Sudbury moved Amendment No. 183A:
Before Clause 42, insert the following new clause—
"TRUSTEES' INDEMNITY INSURANCE
(1) In this section "trustees' indemnity insurance" means a policy of insurance designed to indemnify the trustees cola charity against personal liability of whatever nature incurred by them by virtue of any breach of duty, breach of trust or wrongful trading provided that such insurance shall not extend to the trustees' personal liability for—

(a) fines:

(b) the cost of unsuccessfully defending criminal prosecutions for offences arising out of the fraud or dishonesty or wilful or reckless misconduct of a trustee; or

(c) liabilities to the charity which result from conduct which the trustee knew, or must be assumed to have known. was not in the interests of the charity or which the trustee did not care whether it was in the best interests of the charity or not.

(2) Subject to subsection (3), a charity may use its resources to purchase trustees' indemnity insurance unless there is an express prohibition in the charity's constitution on the charity affecting such insurance.
(3) The powers in this section shall only be exercisable if, having given the Commission 28 clear days' notice of the proposal so as to exercise them, the Commission does not object in writing."
The noble Lord said: I have endeavoured so far this afternoon to be as brief as possible in an attempt to see this Bill into port, but I must say a few words on this amendment, which stands also in the names of my noble friend Lord Dholakia and the noble Lord, Lord Hodgson of Astley Abbotts.
This is an important proposed new clause. Many constitutions of many charities do not contain an express power enabling the trustees to take out indemnity insurance. In those circumstances, given that insurance of that nature bestows a personal benefit on the trustees involved, they have no power to do so. It is possible to seek the consent of the Charity Commission—and indeed many charities follow that course—so that despite the absence of a power to take out that type of insurance, they can in the circumstances do so. On the whole, and generally speaking, the Charity Commission deals with those requests practically, sensibly and in reasonable time. But that is not always the case.
In practice, as I have observed, there is a variability of response at the commission. If lawyers are used to undertake the course of action, as is often the case, expense is often involved. The amendment would cut out the need to do that, on various bases. First, in modern times, unfortunately, trustees are extremely anxious about their own potential personal liability, in a way that they simply were not when I started practising charity law. It is one of the most distressing aspects of the modern charity world that there is what I would consider an exaggerated sense of vulnerability to liability on the part of trustees.
I always take pleasure in asking groups at a lecture or meeting how many of them have ever had to pay a penny out of their own pockets, and I have never seen a hand put up out of thousands and thousands whom I have asked. None the less, the fear is there. In theory, the trustee today is subject to a great many legal and other requirements and, in theory, he can be personally liable if things go badly wrong. One has to face the fact that whereas trustees' indemnity insurance was probably not even thought of 30 years ago, it is now a lively topic. More and more, groups of trustees seek reassurance that insurance is in place.
The amendment has a sensible structure. First, it says that it will not come to the aid of trustees when there is an express prohibition in the charity's constitution against effecting such insurance. Members of the Committee may say that that is obvious, but at least it is there. Secondly, it says that the power is exercisable only after having given the Charity Commission 28 days' notice of the proposal, which would give the commission the opportunity to object, if that is desired. The commission therefore has the opportunity to review the whole position, as it currently does.
The proposed new clause would provide for the limitations on insurance which the commission invariably requires in any event, in cases that are brought to it, and which are in law necessary. Therefore, for example, we exclude from the coverage of such indemnity insurance fines against trustees and,
"the cost of unsuccessfully defending criminal prosecutions".
Most importantly, it would exclude from insurance coverage liabilities in respect of conduct which the trustee,
"knew, or must be assumed to have known, was not in the interests of the charity or which the trustee did not care whether it was in the best interests of the charity or not".
GC 552
We believe that those words cut out all those classes of conduct on the part of trustees which frankly do not warrant or deserve insurance coverage.
On that basis, the amendment has been drawn up and proposed. Unlike many amendments that have been moved, it would have a very wide, practical and positive effect. I beg to move.
Lord Hodgson of Astley Abbotts: My name is down in support of the amendment. The noble Lord, Lord Phillips, has made an admirable case for the proposed new clause. I add only a couple of brief points.
It is a truism that we live in a litigious age. People reach for their lawyers frequently, to the great benefit of the legal profession. If we want quality people to serve as trustees, they are entitled to some protection, so long as they behave themselves. That protection needs to be provided as easily as possible, so the proposal being made here is very sensible.
I part from the noble Lord, Lord Phillips, when he says that people have an exaggerated sense of the risks that they run. All risks are exaggerated until something happens to you, at which point it is a very serious matter involving not only considerable sums of money but very long periods of time during which you are held in a state of suspended animation while the case is heard, comes to court and so on. It is very important to have such protection, although whether it can be found at a reasonable cost is another matter.
Cases such as the ones that we are discussing bring into play one other difficulty, which is that when they come into being they are really a fight between insurance companies. They are very prolonged—they can run for years and years—which will have an impact on the sector, if there is a widespread number of cases and insurance companies get involved. The process is partly a way of tiring out the opposition, so there is no urgency on either side to settle, and things can become very exaggerated indeed. During that time, the poor luckless trustee is left hanging there in the wind, not quite knowing what is going to come out and what the outcome will be. The protection in the amendment is necessary to minimise the mental anguish that these people will suffer in these sorts of cases. I strongly support the proposal of the noble Lord, Lord Phillips.
Baroness McIntosh of Hudnall: I support not necessarily the amendment as drafted, but the spirit in which it was moved. On behalf of those of us who are trustees—which is probalbly everyone in this room, or at least a fair proportion—I should like to say that the issue of the perception of risk is real. There are circumstances, which are probably more frequent now than they used to be, in which the perception is more powerful—for instance, when a relatively small charity undertakes a large capital project. That is the kind of situation with which I am familiar.
For example, when a building has to be extensively rebuilt or refurbished and the charity suddenly has huge liabilities for capital sums, they may come in and out quite quickly, but while they are in play the

GC 553
trustees' vulnerability is very considerable. The issue of indemnity and protection from personal liability becomes a matter of extremely sharp focus for trustees in that sort of situation.
I do not presume to know whether this amendment does the job—and I would anticipate that my noble friend the Minister will tell us it does not.
Noble Lords: Oh!
Baroness McIntosh of Hudnall: I simply observe that that occasionally happens. But even if this amendment is not the right answer, an answer to the problem might be a useful thing to have in the Bill.
Lord Brooke of Sutton Mandeville: It might be helpful if I speak for a moment or two while confabulation takes place on the other side of the room. This very morning, a meeting downstairs in one of the dining rooms was addressed by Mr Alastair Ross Goobey, on the subject of corporate governance, at which my noble friends Lord Hodgson and Lady Wilcox were also present. Although he did not specifically use charities as an example, he said something in response to questions which was relevant to an experience through which I have lived.
He said that people are not necessarily put off—and noble Lords will see why I am not alluding to charities—by the fact that the rewards are not significant in helping bodies, but frequently are by the potential danger to your reputation if something happens within the body with which you are in some way professionally involved. I was invited to become the chairman of a charity in the field of architectural conservation after I ceased to have the relevant ministerial responsibilities. because a particularly able person in that field was not prepared to accept the chairmanship due to the general risks associated with becoming a trustee.
I am delighted to say that in due course we persuaded him to become deputy chairman, so, in the end, we solved the problem; but I see how in this area people can be put off from becoming trustees when they would be exceptionally valuable to the institutions concerned. Insurance is one of ways in which they can be persuaded.
Lord Bassam of Brighton: I am grateful to all four contributors to the debate on the amendment. It is couched in highly technical terms. I am not sure, as the noble Baroness, Lady McIntosh of Hudnall, suggested, that it works to its intended purpose, but, nevertheless, I understand what is behind it and I have great sympathy for the objective.
All contributors have put their fingers on the issue—that there is a fear, which is in most instances greater than the actuality, that trustees will end up being personally liable in some way. There is no doubt that that fear has been increasing in recent years.
I heard and take note of what the noble Lord, Lord Hodgson, said, that it is rare indeed for personal liability to be enforced against a charity trustee. I am told that there is no central record of the numbers of
GC 554
cases and no requirement, in any event, for every case to be reported to the Charity Commission. The Charity Commission has not been aware of any cases at all within the past year and we should bear in mind that there are some three-quarters of a million people who act as charity trustees, so it must be a low risk. But, as the noble Lord, Lord Hodgson, said, if that happens, it is very painful for those involved.
The law already protects diligent trustees from personal liability and the Bill makes it easier for trustees to take advantage of that protection. Clause 36 gives the Charity Commission a power that the court has at the moment to excuse trustees from personal liability where they have acted honestly and reasonably. Trustees in those circumstances would be able to go to the commission, explain their predicament and the decisions and actions that they took that led to that, and receive—
Lord Phillips of Sudbury: I am sorry to interrupt the noble Lord. I have not done that today or for several days, but I must stop him in his tracks. It is of no use or consolation to the type of trustees that we are talking about to say that there is power on the part of the High Court or the Charity Commission to relieve you from liability. It would then be a laborious process to put together your case to take to the commission, who may then ask you a series of questions. It can go on for months, the costs can be prohibitive and outcome uncertain. So, I want to save the Minister's breath and say that his explanation does not really tackle the root issue.
6.15 p.m.
Lord Bassam of Brighton: There is a silver lining to what I am about to say. The noble Lord, Lord Phillips, is diligent to the end, and I congratulate him on that.
The commission will take very careful account of the process. in the circumstances that I have described. The amendment recognises in paragraphs (a) to (c) of subsection (1) that there are some categories of reliability for which it would be inappropriate for trustees to use charity money to insure themselves. Additionally, that is not something that all trustees understand. Trustee indemnity insurance does not cover trustees' personal liability for their charities' debts. If the trustees of a charitable trust or association enter into a contract and the charity turns out not to have enough resources to meet its obligations. perhaps as my noble friend Lady McIntosh described, the trustees can be personally liable and indemnity insurance will not necessarily help them. Despite all that, many trustees continue to believe that indemnity insurance is desirable or essential for them. I am advised that last year the Charity Commission dealt with more than 1,000 applications from charities for authority to purchase trustee indemnity insurance.
We have sympathy with this matter, not because we believe that insurance has a great intrinsic value in providing the ultimate in insulation against personal financial loss but because of the "peace of mind" factor. People who regard the risk of personal liability as significant could be put off becoming trustees in the first place. In the example given by the noble Lord,

GC 555
Lord Brooke, in the end that was not the case, but persuasion and arm-twisting had to take place first. I am personally familiar with that scenario and could draw on several experiences that could give testament to it.
We do not want excessive caution and defensiveness to get in the way and believe that it is essential that people who do have something to contribute can do so freely and are enabled to do so without fear of retribution and without there being a deterrent. So I am very receptive to the spirit of the amendment, and if the noble Lord. Lord Phillips, would allow me, we shall take it away for further consideration, with a view to coming back with something probably not too far removed from what he has drafted himself, with all his expertise. I am grateful to him for pursuing this, as it is an important issue. We want to ensure that comfort at least is given to those who have what is perhaps an excessive dread of becoming involved and subsequently racking up an indemnity.
Lord Phillips of Sudbury: I am most grateful to the noble Lord and appreciate his last remarks, as that will give people more solace than many of us realise. I look forward to seeing the amendment when it is tabled. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Bassam of Brighton: Because we have all been very good and very well behaved, this may be a
GC 556
convenient moment for us to conclude our considerations for today. We have made very good progress, and I am grateful to everybody who has been involved in that.
Lord Brooke of Sutton Mandeville: I have been watching the Order Paper in the past couple of days, and it is noticeable that the earlier amendments in the Government's name have a "g" attached to them on the sheet in the conventional way and that the later ones do not. What one has been seeking to test is whether the Government have become so fatigued that they did not feel that it was necessary to put down "g's" for the later amendments. Alternatively, perhaps that gives a pretty good index of the point that they were hoping to reach today. I notice that the next government amendment that we are to debate does not have a "g" attached to it on the Order Paper, or rather in the document in the Printed Paper Office. Therefore, it seems to me that my theory is probably right.
Lord Bassam of Brighton: I spotted an amendment earlier that did not have a "g", and had to concentrate to pick it up. If it is convenient to Members of the Committee, I propose that we adjourn until Monday next at 3.30 p.m.
The Deputy Chairman of Committees (Lord Ampthill): The Committee stands adjourned until Monday next at 3.30 p.m.
The Committee adjourned at twenty minutes past six o'clock.

  Northern Ireland: North/South Implementation Bodies
  Northern Ireland: North/South Implementation Bodies
  Northern Ireland: Northern Bank Robbery
  Northern Ireland: Northern Bank Robbery
  Police Service of Northern Ireland: Childcare Facilities
  Police Service of Northern Ireland: Childcare Facilities
  Northern Ireland: Prison Early Release Scheme
  Northern Ireland: Prison Early Release Scheme
  Northern Ireland: St Louis Order Property
  Northern Ireland: St Louis Order Property
  Lord Birt
  Lord Birt
  McKinsey and Co.
  McKinsey and Co.
  Consumer Credit (Miscellaneous Amendments) Regulations
  Consumer Credit (Miscellaneous Amendments) Regulations
  Oil Market: China
  Oil Market: China
  Solent European Marine Site
  Solent European Marine Site