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Commons Chamber

Volume 77: debated on Wednesday 24 April 1985

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House Of Commons

Wednesday 24 April 1985

The House met at half-past Two o'clock

The Clerk at the Table informed the House of the unavoidable absence, through illness, of MR. SPEAKER from this day's sitting.

Whereupon MR. HAROLD WALKER, THE CHAIRMAN OF WAYS AND MEANS, proceeded to the Table and, after Prayers, took the Chair, as DEPUTY SPEAKER, pursuant to the Standing Order.

Private Business

ALEXANDRA PARK AND PALACE BILL Read the Third time, and passed.

GREATER MANCHESTER BILL [Lords] Read a Second time and committed.

Oral Answers To Questions

Foreign And Commonwealth Affairs

South Africa

3.

asked the Secretary of State for Foreign and Commonwealth Affairs what representations he has made to the South African authorities over recent events in that country.

Following the tragic events at Uitenhage on 21 March, I issued a strong condemnation of the shootings. On my instructions, my hon. Friend the Minister of State, the Member for Shoreham (Mr. Luce), summoned the South African ambassador to express our shock and to call for the fullest possible investigation.

Does the Foreign Secretary deplore yesterday's detention of three senior members of the United Democratic Front and the continued harassment of those actively involved in opposing the regime? Does the right hon. and learned Gentleman agree that, despite the somewhat cosmetic changes recently announced by the regime, there has been no fundamental change in South Africa, and that the vast majority of people there are denied basic rights and liberties because of the colour of their skin?

It is too early to comment on the incident reported yesterday, but I confirm that we certainly expressed concern to the South African Government about the original arrest of UDF leaders and joined our partners in the Ten in underlining our concern. Our practice is not to intervene until the legal processes have been exhausted.

It must be acknowledged that certain important changes have been announced this year, starting with President Botha's speech on 25 January and including the suspension of forced removals, the extension of 99-year leasehold rights to blacks in the Cape area, confirmation that the Mixed Marriages and Immorality Acts will be repealed, and so on. None of them go far enough, but they appear to reflect changes in attitude which could be significant, but none of them diminish the strength with which we condemn apartheid as a system, along the lines suggested by the hon. Gentleman.

My right hon. and learned Friend's latter words will be very welcome to many Conservative Members. Does he agree that if the Government gave a little more encouragement and praise for the moves towards reform that are taking place in South Africa, they would be making a constructive contribution and would ease the process of change there?

When presenting their attitude towards events in South Africa, it is necessary for the Government to keep both halves of the subject in mind. It is necessary to condemn, as we do, actions that are plainly unjustified. But, as I have already said, it is also necessary to acknowledge and encourage steps that are being taken in the right direction. The key point is that we should continue to use all our influence and contacts in every way possible to maintain pressure for change of the kind desired in all parts of the House.

Does the Foreign Secretary agree that the South African Government's decision to impose a so-called multi-party Government on Namibia shows that the progress of resolution 435 has come to a halt and that there has been an end to the Crocker initiative? Does it not also throw into great doubt South Africa's acceptance of that resolution? Will he arrange to have this matter raised as soon as possible at the United Nations Security Council?

With other members of the Contact Group, we have already made representations to the South African Government about the steps taken in Namibia and underlined the importance that we attach to the implementation of resolution 435. We shall continue to support the American-led negotiations to achieve that.

We are glad that the Government were represented by our consul in Durban at the opening stages of the treason trial. Will the Foreign Secretary ensure that we continue to monitor that trial when it resumes in mid-May? Will the right hon. and learned Gentleman consider whether we should follow the example of the Irish Government and help to pay the legal costs of those UDF defendants? Will the right hon. and learned Gentleman consider also helping the families who are being crippled financially by this legal repression?

I am afraid that I cannot follow the hon. Gentleman down the road that was opened up by the second half of his question. Many British subjects face trial in different countries in different circumstances, and successive Governments have not found it either possible or proper to pay their legal costs. We could not, therefore, extend our representative generosity along those lines. It is important that we should continue to monitor the trial carefully. We have already made it plain that we shall be sending an observer.

British Citizens (Hostages)

6.

asked the Secretary of State for Foreign and Commonwealth Affairs how many British citizens are currently held hostage by overseas Governments; and where they are held.

The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs
(Mr. Tim Renton)

Although a number of British citizens are detained abroad under conditions with which we are not satisfied, none of these can be formally described as hostages.

We need to clarify the fine dividing line between what is a hostage and what is not. Under what conditions would it become unacceptable for a British citizen to be incarcerated overseas? What action would the Government take in those circumstances?

In general terms, a hostage is one against whom charges have not been laid by the overseas Government. The Government aim to render British citizens full consular assistance if they are detained overseas. That is one of the prime duties of our consular department. We raise complaints with the relevant authorities, including complaints about illegal detention, although we must work within the laws of the country concerned. In exceptional cases, and if it is in the interest of the persons held, we take the matter up at a high level with the appropriate Government.

What about the case of King and Maxwell, the accused Scots held in Libya? Surely they need help badly. Is the hon. Gentleman aware that one way not to help them is to suggest that Libyan property should be seized in this country, particularly in London? That will undermine the efforts of those who are trying to secure the early release of the men.

As I understand it, those two gentlemen have stood trial, been convicted and are serving their sentences. Unfortunately, there are, as of yesterday, 1,070 British subjects abroad who are detained for one reason or another. It is the Government's duty, while respecting the laws of the country concerned, to provide as much consular protection as possible to all those people.

European Community (Dooge Report)

7.

asked the Secretary of State for Foreign and Commonwealth Affairs whether, in the light of the Dooge report, the European Economic Community intends to adopt a common position in international bodies.

The Dooge committee has recommended that the Ten should adopt common positions in the United Nations and other multilateral bodies. This proposal, with the others made by the committee, will be discussed at the Milan European Council in June. We hope that this discussion will lead to decisions which will enable the Ten to act and vote more unitedly in international organisations.

Will the Minister assure the House that the reservations he expressed on matters such as the weakening of the veto, the enlargement of European Assembly powers, and other steps towards political union will be firmly maintained?

I assure the hon. Gentleman that it was precisely for that reason that I entered those reservations in the report, as did representatives of certain other countries.

Is it not thoroughly undesirable that Britain should be left isolated along with a minority of members of the European Community while the majority wish to make progress in this way? If more nationalistic states such as France can go along with these developments, why can they get away with it and we cannot?

The United Kingdom was not isolated in the Dooge committee. The Greek representative entered a total of 15 reservations, the Danish representative entered a total of 10 reservations, Britain and Germany both entered three reservations, and a number of other countries entered one each. On the vast majority of issues, we were able to support either the unanimous or the majority view of the committee.

Why does the Department continue to pay lip-service to the idea of European political union when the Minister and his Department must know that that would be completely unacceptable to the British people?

I am not certain what the hon. Gentleman means by the phrase "European political union". It is not a phrase that has normally been used in the Community. We have said that we are prepared to see greater European unity on a range of issues, but I emphasise that what is sometimes described as the federal concept does not have the support of the vast majority of Community Governments, including the United Kingdom Government.

If the United Kingdom entered so many reservations, will my hon. Friend explain what the Government did support?

If my hon. Friend had been listening to me with his customary attention, he would have heard that I made quite the opposite point. I said that while certain of our colleagues entered 15 and 10 reservations respectively, the United Kingdom and Germany entered only three reservations, in a report which covered a wide range of issues. We were able to support the unanimous or majority views on a range of questions, such as the internal market, political co-operation, security matters, and the need for more effective forms of decision making in the Community, while reserving the right of the national veto.

Is it not a good thing that most of the nations of the EEC take decisions which are based upon their own national interests? Is it not clear that it would be absolutely disastrous if all the EEC countries took the same sycophantic attitude towards the United States of America and President Reagan as the Prime Minister does?

The hon. Gentleman has put to me a somewhat extraordinary jumble of ideas. He is correct in saying that individual countries have national interests which they are concerned to protect. Her Majesty's Government formulate foreign policy based on what we believe to be in the best interests of the United Kingdom.

The hon. Gentleman must know that he is deceiving the House by going on about the number of reservations that Her Majesty's Government have made. Surely the significant point is the nature of the reservations. Will the hon. Gentleman agree that the unwillingness of Her Majesty's Government, in conjunction with the Greeks and the Danes, to see an improvement in the decision making procedures of the Community is a bad thing?

I suspect that the hon. Gentleman has not read the report in question. If he had, he would have noticed that in that part which deals with decision making the United Kingdom did not enter a reservation. Two options were put forward in the main body of the report, one of which was supported by representatives of a number of Community countries. The other option was supported by other representatives. There was no footnote reservation or qualification of the kind that the hon. Gentleman suggests.

The Minister may have entered reservations on the question of majority voting, but he has conceded in his reservations the principle of more frequent use of majority voting on major EEC matters. Will the Minister be frank and tell us precisely to which areas the veto will not still apply? In which areas will the Government stand up for Britain?

As the hon. Gentleman will be well aware, the vast majority of areas permit voting under the treaty, but it has become increasingly customary for the Presidency not to ask for a vote on them in the Council. We have argued that that is undesirable. There are many areas of progress on which, if votes were taken, the United Kingdom would happily be with the majority, seeking certain changes—for example, on the completion of the internal market. That is an obvious example to which Britain has attached great importance. We have no objection to increased use of majority voting as long as there is reserved to each national Government the right, as an ultimate defence of its national interest, to apply a veto as provided for in the Luxembourg compromise.

Spain

8.

asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on the implications of the membership of the European Economic Community of Spain for Britain's ties with Gibraltar.

The United Kingdom's ties with Gibraltar are not affected by Spain's membership of the European Community. We remain committed to honour the wishes of the people of Gibraltar as set out in the preamble to the Gibraltar Constitution Order 1969.

Will my right hon. and learned Friend assure the House that the signature by Spain of the treaty of accession to the EEC will in no way be allowed to prejudice or weaken the close, historic and unique link which the peoples of Gibraltar and Britain enjoy at this moment?

The position is exactly as I stated in my original answer. The constitutional position of Gibraltar remains as set out in the preamble to the constitution order, which rehearses the well known assurances. We shall fully respect the freely and democratically expressed wishes of the people of Gibraltar.

One of the questions that some people are asking about Gibraltar is put simply this: "Do you think that the Tory Government will treat Gibraltar in the same way as the Falklands, or will they treat Gibraltar in the same way as Hong Kong, which they gave away?" It is an intriguing question. I should like the Foreign Secretary to tell us precisely how the Government will treat Gibraltar.

That question is founded on a huge lack of comprehension. The British Government will treat Gibraltar as they should treat Gibraltar. The three cases are entirely distinct from each other, historically, geographically, politically and in every other sense. The position of Gibraltar is governed by the constitutional provision to which I referred, by the existence of our title under the treaty of Utrecht and by the entire difference in attitude of the Spanish Government to the people of that country. I hope that the hon. Gentleman will be glad to hear that, as a result of the agreement that was put into force in February this year, there has already been a massive increase in the movements of people across the frontier. Almost 500,000 people have entered Gibraltar since 5 February. That represents a powerful foundation for growth of economic co-operation and prosperity in Gibraltar.

In the light of Spain's accession to the Community, will my right hon. and learned Friend take this opportunity to let the House know what progress is being made to organise a new extradition treaty with Spain?

That does not arise directly out of this question, but the position is that negotiations on the new extradition treaty, to which I know the House attaches importance, are far advanced. We hope to bring them to a conclusion before too long.

Have the Spanish Government made any proposals to the British Government about the issue of sovereignty and, if so, when might the British Government's response be made public?

As I think I told my hon. Friend the Member for Banff and Buchan (Mr. McQuarrie) on 20 March, the Spanish Government have delivered proposals concerning the future status of Gibraltar. I have told the Spanish Foreign Minister that those proposals will be studied against the background of the undertaking to which I have referred. The details of the proposals must remain confidential at this stage, and it is too early yet to decide at what point that position will change.

European Community (Reform)

11.

asked the Secretary of State for Foreign and Commonwealth Affairs if he is satisfied with the progress to date in achieving reforms in the European Economic Community; and if he will make a statement.

Considerable progress has been made. The Council has agreed the arrangements for implementing the budgetary reforms negotiated at Fontainebleau. A start has been made on the reform of the common agricultural policy. The European Council has agreed that action should be taken to reduce the burden of regulation on business and has set a target date for the completion of the common market in goods and services. A number of practical proposals for improving the functioning of the Community institutions are now under discussion.

Does my right hon. and learned Friend agree that, despite all those wonderful pledges and assurances, the plain fact is that the Common Market is now spending over £20 million a day on dumping and destroying food surpluses, and is vastly overspending its agreed budget? Does my right hon. and learned Friend further agree that the only way to secure reforms is to control the supply of money to the Common Market? Therefore, would it not be crazy for the Government to ask the House, at a time when we are cutting back on essential services at home, to give an extra 25 per cent. in real terms to the Common Market?

I cannot accept my hon. Friend's approach to the matter. Of course, it is important to maintain the pressure that we have successfully maintained for the establishment of effective budget disciipline in the Community. That is why we welcome the establishment of that discipline. It will also be important to bear that in mind when we introduce the own-resources decision. We have made it plain that we will not introduce that until all the components about which we have been concerned are in place.

How did the Foreign Secretary respond to the views put to him yesterday by the delegation from the European Parliament? Has his attention been drawn to early-day motion 630? If so, will he comment on it?

Yesterday I met the delegation from the Western European Union. I shall be meeting the European Parliament this afternoon and will be discussing the Spinelli report with it.

As my right hon. and learned Friend said, it is very important that rapid progress should be made towards a common market in goods and services. Will he tell us what progress is being made?

At the request of the Council at its last meeting, the Commission is drawing up a full programme, which will be published during the summer for the achievement of the internal market by a date that has been fixed in 1992. That is over and above the steps that have already been taken for the harmonisation of standards over a whole range of goods. Our objective is to take harmonisation much further and to complete the internal market by 1992.

Why have the Government just agreed to an extra £240 million contribution this year to the Community budget? When is Parliament likely to be consulted, if at all, about such an outrageous decision?

We have made it quite clear that, as happened last year, Parliament will be consulted. The agreement states clearly that our contribution is dependent upon the completion of our national parliamentary procedures. There is no question of asking Parliament to approve the agreement until our abatement has been guaranteed — that is, until the provision for our abatement has-been adopted. The amount agreed has been substantially reduced from the Commission's original request. As a direct result of the Fontainebleau mechanism, the net cost of the United Kingdom contribution will be less than our contribution to the intergovernmental agreement last year.

Will my right hon. and learned Friend resist the temptation to do a European deal on the European Parliament's draft treaty of union and trade away what it suggests with anything else? Will he also look closely at the terms of reference of the suggested conference that is to deal with that treaty. It is to discuss only the treaty. Any other solutions to European Community problems will be unable to be considered.

The Community will consider these matters in the light of the recommendations of the Dooge committee, which will be considered again at the Council meeting to be held in Milan in June. No decision has yet been taken as to whether a conference would be appropriate. Our view is that we are most likely to achieve decisions by taking them at Council. level. However, we shall discuss whether a conference is necessary.

How can the Foreign Secretary say that budgetary control has been achieved when yesterday's agreement on the £240 million was the third such agreement on similar amounts to have been reached within the last 12 months, either by loans or by advances which can be reimbursed? How can he say that there has been a reform of the budget when more money is to be spent upon the open-ended commitment to agriculture and less upon regional and social policies which would help Britain? As he knows, I received a reply a few days ago from his hon. Friend the Minister of State, Foreign and Commonwealth Office, in which I was told that of the 50 poorest regions in Europe, 21 of them are in the United Kingdom. Should he not be fighting for money for those areas?

The hon. Gentleman does not seem to appreciate that powerful arrangements have been set in place which come into force upon the adoption of the own-resources decision for the achievement of budgetary discipline within the Community. Throughout the consideration given both to last year's budget and to this year's, including yesterday's consideration, all those measures have been taken closely into account.

Central America

13.

asked the Secretary of State for Foreign and Commonwealth Affairs what recent discussions he has had with his American counterpart concerning United States involvement in Central America.

I discussed the problems of Central America most recently with the American Secretary of State Mr. Shultz on 21 February.

As the United States Congress has made clear its desire not to pursue a military solution to the situation in Nicaragua, will the Foreign Secretary and his EEC colleagues urge President Reagan to abandon support for the Contras, to sign the protocol to the Contadora treaty and seek genuinely to help the Contadora countries in finding a peaceful solution to the problems of Central America?

The hon. Gentleman rightly reminds the House of the sustained commitment of European Community countries to the Contadora process. The United States has repeatedly stated that it wishes to see political reform in Central America through peaceful means, and we support that objective. The United States reiterated its support for the Contadora process at the recent session of the General Assembly.

Were not the recent highly successful elections in San Salvador a further endorsement of the American policy of encouraging democracy and moderate politicians in Central America?

I entirely agree. The recent elections in El Salvador were a clear demonstration of the consolidation of democracy in that country. The Salvadorean Government will continue to have our support in their efforts to place that democratic process on a stable foundation.

Does not the continuing desire of the United States President to interfere in Central America tend to undermine the stability of all electoral processes in the area, so that countries, such as Costa Rica, which have continually presented a democratic front will eventually be undermined unless a united effort is made to counteract the efforts of the Contras to be based in all parts of Central America?

It is worth remembering that we share with the United States Administration the common objective of a settlement in Central America on the basis of the Contadora principles. As I have said more than once in the House, there is a need for restraint on all sides in the present situation, and not least a need for Nicaragua to end the substantial build-up of arms, troops and military advisers and to stop supporting attempts to destabilise neighbouring Governments.

As both the Pope and the President of Colombia have stated that President Reagan has misrepresented their views on Nicaragua, and as President Reagan has been compelled to drop his proposals for military aid to the Contras and had his revised proposals rejected by the House of Representatives and passed by only a small majority in the Senate, will the British Government now support the forces of common sense in that area and drop their poodle-like devotion to a policy which the American President himself has already abandoned?

I have not heard myself expressing poodle-like devotion to any policy, today or on any other occasion. I have made it plain that we support the common objective of a peaceful settlement in Central America on the basis of the Contadora principles, and we shall continue to support steps directed to that end.

Mutual And Balanced Force Reductions

14.

asked the Secretary of State for Foreign and Commonwealth Affairs what proposals he is considering for an initiative in the Vienna talks on mutual and balanced force reductions.

With our NATO allies, we are currently studying carefully the Eastern proposal of 14 February, which repackages elements of the East's 1983 proposals. This followed the negative response of the East to the Western initiative of April 1984, which offered a real opportunity to resolve the long-standing dispute over the size of Eastern forces.

Is it not deplorable that the talks have gone on for 12 years without any real achievement? Does not the accession of Mr. Gorbachev provide an opportunity to accept the Russian offer to withdraw 20,000 troops from Europe if America will withdraw 13,000?

I agree that it is very sad that no progress has been made in 12 years in these very important talks. Our objective is to work for a reduction in conventional forces on both sides on a mutually balanced basis, but we cannot yet reach agreement about the size of the forces on each side. It is our firm belief that the Eastern side underestimates the size of its forces by more than 200,000 men. Until we can reach agreement on data and the actual numbers on each side, it is very difficult to make progress, let alone to solve the problem of verification?

Does my hon. Friend agree that in all arms control negotiations sweeping declarations of intent are of little value unless they are accompanied by offers on verification and inspection?

I agree entirely that the true test of progress is not great declarations but agreement on the nuts and bolts, which in this case includes verification. We have not yet been able to persuade the other side to make good progress on that aspect. Until that is achieved, it is not possible to reach an agreement which has the trust of both sides.

Have not the Government reacted disgracefully, as has President Reagan, to the statement by Mr. Gorbachev, just after his election to the leadership of the Soviet party and Government, that the Soviet Union was prepared to suggest that there should be a freeze on nuclear weapons? Without any question, or even study of the matter, the Prime Minister and President Reagan have immediately rushed in and said that it is not practicable. How can there be any serious discussion of force reductions if our Government and the Americans take that stupid attitude?

I must disagree with the hon. Gentleman. The true test whether both sides have good intent and are sincere in their desire to make progress in arms negotiations is whether they make progress in the confidential surroundings of Geneva, not what they say in public declarations and public sparring. That is the only way in which to make progress. In this case, as far as 1NF is concerned, a freeze would ossify an imbalance of six to one in favour of the Soviet Union and remove the incentive to make progress on overall arms levels, which is what we want.

Does my hon. Friend agree that, as a fully participating country, Britain has leverage at the talks? Will my hon. Friend use that opportunity to impress on the Soviet Union the fact that there is no conceivable defensive reason for its overwhelming conventional superiority in Europe? Will he also impress upon the Soviet Union that a breakthrough at the talks would not only ease tension in Europe but, in turn, help towards progress at the Geneva talks on arms reduction?

That is an important point. We have a number of opportunities to talk to the Soviet leaders. We shall continue to use those opportunities to put across such points. If the Soviet Union genuinely wishes to make progress towards mutually balanced conventional forces, we must reach a proper agreement on data.

Does the Minister agree that what is required for a genuine arms control agreement is a bit of imagination and some political will, which seem to have been singularly absent from the MBFR talks over the past 12 years? With a new Soviet leadership and new offers on the table implying a reduction of more than 50 per cent. in Soviet troops than American troops in the European theatre, should not all forces in the West grasp the opportunity to try to break the logjam that threatens us all?

Sadly, the talks have indeed lasted for 12 years. No progress was made even during the long period of the Labour Government. There is no lack of will on our part. We are trying very hard. What we are aiming for is a balance of forces on both sides and a reduction to 900,000. I believe that that was the objective of the Labour Government. That objective makes sense, but we need a response from the other side on questions of data and verification.

Poland

15.

asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to Poland.

I visited Poland from 11 to 13 April. I had a full official programme, and met a wide cross-section of Polish society.

My official talks covered various aspects of East-West and bilateral relations.

I was powerfully reminded during this visit of the interests and traditions which the British and Polish peoples have in common. I made plain in all my contacts the importance that we still attach to those freedoms for which we fought together with the Poles during the second world war.

I congratulate my right hon. and learned Friend on his visit to eastern Europe. Can he tell us whether he met representatives of Solidarity, and, if so, what the outcome of discussions with them was?

I am grateful to my hon. Friend for his opening remark. I had contacts with some members of Solidarity, in order to hear their views about the situation in Poland. I regretted the fact that that led to a boycott of the reception at which I met the Solidarity members. It was helpful to me to learn their views.

How would the Foreign Secretary like it if the Foreign Minister of a Warsaw pact country on an official visit to the United Kingdom comported himself as the right hon. and learned Gentleman did in Poland? Will the Foreign Secretary always bear in mind the wisdom of the adage, "Do as you would be done by."?

I bear that very much in mind. The pattern is that in most countries one is able to see a wide range of people, members of the Opposition and of other parties and to visit almost any part of the country. I have not seen any inhibitions put on the programme of many visitors to this country, including Mr. Gorbachev. He was free to range in many parts of London. He did not take the opportunity to visit the cemetery that he had in mind, but he took the opportunity to go to Downing street. No comparable inhibitions were put on his programme.

Does my right hon. and learned Friend agree that it is relevant to the question asked by the right hon. Member for South Down (Mr. Powell) that Poland is a signatory to the 1975 Helsinki agreement—as is every other country in Europe — under which countries undertake to have respect for human rights? Does my right hon. and learned Friend accept that that agreement also says that the observance of human rights is an important factor in the preservation of peace? When my right hon. and learned Friend visits eastern European countries and the Soviet Union, will he continue to make that point, especially in the Soviet Union, which purports to be a great peace-loving nation?

I am grateful to my right hon. Friend. In all my visits I drew specific and firm attention to the importance of the Helsinki agreement, exactly as he described, and I shall continue to do so.

Did the Foreign Secretary feel that sufficient progress, or intention to make progress, existed in regard to human rights to enable there to be any strengthening of the bilateral economic relations between Britain and Poland?

I made it plain to my Polish hosts that their stance on and progress with human rights was bound to be a factor which would affect the rest of our relations. I also discussed economic relations. There are economic factors at work as well. We hope that they will shortly sign an agreement to reschedule their 1982 to 1984 debt. We shall continue to play a constructive role in those negotiations, but the matters cannot be separated from each other.

We warmly welcome the effective concern for human rights shown by the Foreign Secretary by his visit to the cemetery and his meeting with members of Solidarity. May we now express the hope that the same verve, imagination and force will be shown by the right hon. and learned Gentleman in respect of other parts of the world, such as Central America, Southern Africa and Indonesia, which the Prime Minister visited at the same time?

We apply the same energy to our visits in all parts of the world, Indonesia included. Questions about which the House is anxious were raised by my right hon. Friend the Prime Minister as well as by me.

Middle East Wars (Casualties)

16.

asked the Secretary of State for Foreign and Commonwealth Affairs what information he has about the number of fatal and non-fatal casualties since the beginning of 1984 in the Iran-Iraq war, the Lebanese civil war and the Arab-Israeli conflict.

Since the beginning of 1984 there has been much tragic loss of life resulting from the Iran-Iraq conflict, the Arab-Israeli dispute, Lebanese intercommunal violence and the Israeli occupation of south Lebanon. No authoritative casualty figures are available to us. With our partners in the European Community, we have consistently called for an end to the violence, and we stand ready to support all constructive moves towards negotiated solutions of the problems of the region.

Does the Minister agree that, in view of reports from all types of media, of the three areas of conflict in the middle east, the most dangerous is the Iran-Iraq war, followed by the internal strife in Lebanon and the Arab-Israeli conflict?

I do not think that it makes a great deal of sense to apportion an order of priority. In terms of casualties, the Iran-Iraq conflict is having devastating consequences for both sides. Our priority is to work as hard as we can with other parties, principally through the United Nations and the work of the Secretary-General, for a diplomatic solution. The hon. Gentleman should not underestimate the gravity of the other problems.

As the casualties, human suffering and threat to world peace will continue in all of those areas until progress towards a settlement is reached, will my hon. Friend comment on progress towards a peace settlement of the Arab-Israeli dispute? Does he think that the recent visit of Mr. Murphy has advanced the possibility of a major American initiative in the near future?

As my hon. Friend knows, we very much welcome the agreement of 11 February between King Hussein and Mr. Arafat, which we felt was a basis on which progress could be made. My right hon. Friend the Prime Minister has had two important discussions with President Reagan. We have kept in very close touch with the United States, and we welcome the President's statement that there will now be renewed efforts on his part to see whether progress can be made on this problem. To that end, we are very glad that Mr. Murphy is undertaking his tour of the middle east.

Unless I misheard the hon. Gentleman, am I right in thinking that he made reference to the Israeli occupation of Lebanon, but failed to make reference to the thousands of casualties caused by the Israeli invasion of Lebanon?

No. I have already mentioned south Lebanon, and, as the hon. Gentleman knows, the Government strongly condemned the Israeli invasion. We are extremely critical of the iron fist policies of Israel at the present time. However, we welcome the fact that the Israeli Government have decided, in phases two and three, to withdraw within their own international borders, and we hope that they will do so as soon as possible.

What further steps can my hon. Friend take to represent the revulsion felt by many people in this country at the contemptible and grotesque behaviour of the Israeli forces in Lebanon?

I have already said — and said in the House in recent weeks—that we certainly condemn the iron fist policies, as they are called, of the Israeli Government. This cycle of violence, retaliation followed by counter-retaliation, serves no one's interests, least of all those of the people of the Lebanon. What conceivable interests of Israel can this serve? We look forward to the early and orderly withdrawal of the Israelis.

Has not one of the casualties of the Arab-Israeli conflict been the fate of the 4,000 Jewish community in Syria? Will the Minister make representations to the Syrian Government on their behalf?

I can tell the hon. Gentleman that the Syrian Government are well aware of this Government 's views on aspects of human rights in Syria, and they will continue to be made so aware.

Pakistan

20.

asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on Britain's current relations with Pakistan.

Following the statement on Poland a short time ago, is it not obscene that the British Government have a close relationship with the Zia regime, which not only murders and tortures political opponents and trade unionists, but turns a blind eye to the exports of heroin to this country?

I find it quite extraordinary that the hon. Gentleman, who has twice visited Afghanistan at the invitation of the Karmal regime, should speak in such terms about Pakistan, where there are now 3 million refugees who have fled from Afghanistan and who are being looked after as well as they possibly can be by the Pakistan Government. We regularly make known to the Pakistan Government our views and concern about violations of human rights. I visited the United Nations Fund for Drug Abuse Control Centre in Peshawar in January, and I have spoken to Pakistani and United Nations officials there about their attempts to substitute the crops from which opium and then heroin come. I remind the hon. Gentleman that elections have now been held in Pakistan—admittedly under martial law, admittedly on a non-party basis—and that six Ministers lost their seats in those elections. That, for the Opposition, should be quite a good test of progress towards democracy.

My hon. Friend has already referred to the results of the elections in Pakistan. Will he encourage the hon. Member for Edinburgh, Leith (Mr. Brown) to encourage his hon. Friends to follow President Zia's example in Afghanistan, and in particular will he tell the House how important it is for the stability of Pakistan to continue in order that the oppression of the Afghan people by the Soviets may be resisted by the will of the people themselves in refugee Pakistan?

I very much endorse what my hon. Friend has just said. It would be very good indeed if the Karmal regime in Kabul would look across the mountains south into Pakistan and take some of the tentative steps towards the restoration of democracy which are now being undertaken by President Zia.

What further representations has the Minister made to Pakistan about opium production and export from Pakistan following the revelations in The Sunday Times a few weeks ago, which appear to be well documented?

I thank the hon. Gentleman for that question. It is only fair to say, and I am sure the hon. Gentleman will accept, that the responsible officials in those parts of the Pakistan Administration have, I understand, written to The Sunday Times rebutting many of the details in those articles. The growth of poppies in Pakistan is properly a matter of concern to both sides of this House, and we should all use our efforts to ensure that the crop substitution programme is successful. In fact, the Pakistanis are taking a good lead in trying to achieve that end.

Czechoslovakia

21.

asked the Secretary of State for Foreign and Commonwealth Affairs if he will make a statement on his visit to Czechoslovakia

I visited Czechoslovakia from 10 to 11 April. During the visit I met the President and Prime Minister and had talks with the Foreign Minister. I also called on Cardinal Tomasek, and met a wide cross-section of Czechoslovak society. The main theme of the official talks was East-West relations. I underlined the West's sincere wish to reduce levels of weapons through genuinely balanced and verifiable agreements. I stressed our concern for human rights throughout Europe. I also discussed bilateral relations, including trade

I welcome what my right hon. and learned Friend has said about his visit. Does he agree that one of the best ways of increasing our beneficial influence in the countries of eastern Europe and improving our relations with them is by extending our contacts through the expansion of trade? Will he comment further on the prospects for increasing trade between the United Kingdom and Czechoslovakia?

I agree with my hon. Friend that trade can play a significant part in improving contacts in other ways. It was for that reason that I discussed the levels of bilateral trade with Czechoslovak Ministers. We agreed that there was scope for a large increase in trade. I have already passed details of my talks to my right hon. Friend the Minister for Trade, who will be visiting Czechoslovakia in May

In his talks on human rights with the Czechoslovak regime, did the right hon. and learned Gentleman enlist their aid in his efforts to apply pressure on the Soviet Union to release more Soviet Jews to Israel?

I did not seek to enlist the aid of the Governments in eastern Europe on that very important issue, which we continue to press with the Soviet Union

I congratulate my right hon. and learned Friend on his successful tour to Czechoslovakia. Will he expand on his discussions with Cardinal Tomasek? Did he have any other meetings with leaders of the very oppressed Church?

I met other representatives of the Church briefly and informally, but with Cardinal Tomasek I was able to have quite a full discussion of the problems of the Church, to which my hon. Friend has drawn attention—for example, the appointment of bishops, the admission of candidates for religious qualification and freedom of assembly. He regarded the meeting as important. I raised some of the matters with the President of the Czechoslovak Government

If, as I believe, it was right to speak of human rights in Czechoslovakia, is not it equally right to speak of human rights in other countries which the right hon. and learned Gentleman visits—for example, Latin America and Pakistan? Is the right hon. and learned Gentleman aware that many people in Britain, certainly in the Labour movement, remain deeply concerned about the way in which a number of people in Czechoslovakia—certainly those associated with the regime in 1968— continue to be persecuted and harassed by the Czech authorities? The Czech Government should recognise the deep feeling which exists in Britain over this matter.

I am glad to have the hon. Gentleman's endorsement of the fact that concern in this country about respect for human rights in Czechoslovakia is widespread. It was on that basis that I raised the questions that I did. I agree that it is important to be ready to do so, as appropriate, in the many cases where that is necessary.

Central America

23.

asked the Secretary of State for Foreign and Commonwealth Affairs what recent progress has been made towards stability in Central America by the Contadora countries; and what support has been given by the EEC in this respect.

We are encouraged by the resumption of Contadora talks on 11 and 12 April in Panama. We and our European Community partners continue to give firm and consistent support to the efforts of the Contadora group. We gave practical expression to this support at the meeting of European and regional Foreign Ministers at San Jose in September, attended by my right hon. and learned Friend. It has been agreed that a further ministerial meeting will be held in due course.

Earlier, the Foreign Secretary objected to being described by my right hon. Friend the Member for Leeds, East (Mr. Healey) as an American poodle. Yet is he not just like the dog that did not bark, in that we heard him say earlier today that the American Government were seeking peaceful solutions in Central America when clearly, far from that, they are seeking a warlike solution in Nicaragua? Is it not time that the British Government placed it clearly on the record that we condemn American adventurism in that region?

The hon. Member is totally misguided in his supplementary question. The American Government have stated time and again that they are seeking a solution by peaceful means to the problems of Central America. Indeed, no country would benefit more from a solution by peaceful means in Central America than the United States. After all, the problem is very much at its back door.

I remind the hon. Member, in regard to the earlier part of his question, that our approach in that region is very much one of partnership with our European Community partners. We have together sought a joint approach. That was the attitude at San Jose last year. The same message lies behind the approach of offering European Community aid to the region.

Does not yesterday's decision by the House of Representatives encourage the Government to think again about their whole aid approach to the Contadora countries? Is it not despicable that Nicaragua's aid should be held back, that in Costa Rica aid is 40 times more and in Honduras 100 times more? Surely that is totally unacceptable

I do not think that it is for us at this stage to comment on or get involved in the process of voting that is still going on in Congress. The Senate voted in favour of the $14 million requested by President Reagan; the House of Representatives voted against. As I understand it, there are to be further votes, and the whole matter is still up for debate in Congress.

Can my hon. Friend tell the House whether Cuba interferes in Central America?

Yes. Of course, the answer is that Cuba does interfere in Central America. That is one of the things that greatly worries the United States and should worry us as well

Does the Minister agree that President Reagan's policy on Central America, thank God, is collapsing in all directions, that the Contadora countries have rejected his attempt to give military aid to the Contras and that Mexico, Venezuela, Colombia and Panama are all now attempting to achieve a non-military solution to the problem? Does he further agree that the British Government should identify themselves with all those forces inside the American Congress and in the Contadora countries which reject the President's approach to the problem? Finally, does he agree that the British Government should stop licking the President's boots, because there is no reason to do so?

The right hon. Gentleman seems to be obsessed by the metaphor about licking boots. I assure him that no one on this side of the House is licking boots. As he will know, by happenstance he and I were in Washington at the same time earlier this week. Doubtless we read the same editions of the Washington Post, and went to see Members of Congress on the same day, although perhaps different members. He will know, too, that opinion in Washington is very divided, just as it is, for example, in some of the Latin American countries. After all, the President of Colombia has expressed two different opinions about the American offer. I think it only right that we should allow time for the Americans to reach their decision as to how they spend their money in this very important area.

How can the hon. Gentleman, speaking on behalf of the Government, say in all honesty that the United States wants a peaceful solution when in recent days President Reagan has said on television—I am sure that many hon. Members saw the programme—that the Contras were like the French Resistance? First, there can be no such parallel, and, secondly, that can hardly be described as any idea of a peaceful solution

The hon. Gentleman appears totally to forget the effect of the presence of Cuba in countries such as Nicaragua and the fact that there have been Marxist-Leninist infiltrations into Central America and a spread of arms and violence in Nicaragua. That is what the United States is worried about, just as the hon. Gentleman would be if this country were in the same geographical position to Central America as the United States. That is why this issue gives the Americans such deep concern, although, of course, they want to achieve a solution by peaceful means

European Community Questions

3.30 pm

On a point of order, Mr. Deputy Speaker. I wish to draw your attention, in case it has escaped your notice, to the fact that this is the first occasion of the use of the new experimental system under which the 20-minute slot traditionally allocated to European Community questions has been absorbed into the overall hour for Foreign and Commonwealth Office questions

I make no complaint about the fact that on this occasion only three European Community questions were reached, instead of the normal seven, eight, or nine which would have been reached under the previous system, but I wish to inform you that this change, which was announced by the Leader of the House just before Easter, on a Friday, in a written parliamentary answer — it having been agreed between the usual channels—does not reflect the feelings of a large number of Opposition Members. I cannot speak for Conservative Members

The Leader of the House should take note of the fact that at the end of the experimental period we shall expect to be consulted not merely by our own usual channels but by him, perhaps in a debate on the subject, so that we can make our views absolutely clear. It is wrong that the new questions system should apply to an organisation such as the European Community, which, unlike South Africa, the countries of central America or the countries of eastern Europe, has the power to tax and legislate for the British people. We should have a separate slot to enable us to question Ministers on those matters.

Further to that point of order, Mr. Deputy Speaker. Can you advise the House of the length of the experimental period for EEC questions? As we are about to enter a crucial period of major decisions being taken on the EEC, it would be regrettable if hon. Members were denied the opportunity to ask questions on Common Market matters because such questions are now subject to the usual ballot rather than to the certainty of the previous system. Can you say for how long the experiment is likely to run?

Further to that point of order, Mr. Deputy Speaker. May I ask you to advise me and other hon. Members who feel outraged at this decision, announced in a written answer, what rights we have as Back Benchers to seek to bring about a change in the situation? For example, are we able to put a motion before the House? What can we do to stop what has been unilaterally imposed, against the wishes of Back Benchers?

Further to that point of order, Mr. Deputy Speaker. I appreciate that the responsibility for this change in the system cannot be put on your shoulders, but do you agree that it would be a good idea for you to examine the matter in view of the fact, as my hon. Friend the Member for Walthamstow (Mr. Deakins) said, that few questions relating to the Common Market were asked today under the new system? It is fair to assume that had we been allowed the 20 minutes which used to be available for EEC questions there would have been a call for a Division on the £240 million which the Government have agreed to pay, as part of the £1.2 billion settlement, to bale out the Common Market. There were few questions on the EEC, and therefore, incredibly, on the day after we heard the news about the increase, we did not have an opportunity to raise the matter

I hope, Mr. Deputy Speaker, that you will take this matter back to Mr. Speaker, so that we can return to the old system and have a real good crash-in against the Common Market in order to reflect the views of the majority of the members of the Parliamentary Labour party, and eventually get out from underneath the gigantic mess into which the Tories, the SDP and the Liberals dragged us a few years ago

Further to that point of order, Mr. Speaker. The House has surrendered its sovereignty over trade policy. The House has surrendered its sovereignty over agriculture policy. The House is increasingly surrendering its sovereignty over the taxation of our people. Are we also to surrender the right to debate and discuss this issue? How was this decision arrived at, and what can we do about it?

Further to that point of order, Mr. Deputy Speaker. Has not the House been unfair to the Government about this? I am sure that the Government wish to explain their attitude, and it would be unthinkable for them—

Order. I thought that the hon. Gentleman was raising a point of order

My point of order is that the Government, and particularly the Foreign Secretary, should be allowed an opportunity to explain—

Order. That is not a point of order. I am prepared to accept points of order, but not speeches. We cannot debate this matter now

Further to that point of order, Mr. Deputy Speaker. Is it not a fact that the change in the way that questions are asked on Foreign Office days was made after wide consultation—

—and after widespread demand? How is it that so many hon. Members are complaining about the new situation when they could perfectly well have put in questions to be answered today if "they had wanted to?

May I, Mr. Deputy Speaker, perform my usual role as a pourer of oil on troubled waters? I wish first, to mitigate any embarrassment which you personally, may feel, by saying that I understand that this was agreed between the usual channels. Secondly, we would have had twice as many questions on the European Community if all those who had put down questions had bothered to turn up for Question time today. Thirdly, I ask for an assurance from the Government that they will, as I have requested, make a statement tomorrow on the budgetary decisions of the European Council. I understand that the Minister concerned was rather too tired to make that statement today

Order. It may be helpful if I say something now. First, the House will recognise that these matters are not for me but for the usual channels and for the House to decide. I deliberately allowed points of order to be freely expressed, because the House will notice that the Leader of the House is with us. I thought it right that he should have the opportunity to hear the House's response to what I understand is the first time that this experiment has been tried. I was aware that this was an experiment, so when we came to EEC questions I allowed a little more latitude than I might otherwise have done.

However, these matters are for the usual channels. I understand that the experiment was introduced after consultation and in the light of representations that had been made. I hope that the House will now leave the matter, in the knowledge that the Leader of the House has heard a fairly wide cross-section of views. Therefore, I hope that we can proceed to other business

Further to that point of order, Mr. Deputy Speaker. While it is advantageous that the Leader of the House is present, it is you who protects the minorities' interests. We in the Liberal party, who are in favour of the Community, are also in favour of retaining the Community section for questions

On a point of order, Mr. Deputy Speaker. You represent our interests. To say that the usual channels represent Back Benchers is the most ludicrous thing of all. The usual channels represent only the interests of the Front Benches on either side of the House. We Back Benchers, who are the great downtrodden majority, are asking you to accept that if there are Question Times for Scotland, Wales and Northern Ireland, which, in God's name, cost us all enough, we should have a chance to ask specific questions on the Common Market, given what that costs us. We appeal to you, and not to the usual channels

On a point of order, Mr. Deputy Speaker. The House will be aware that there was an adverse proportion of voices opposed to these new arrangements. It is essential that it should be made clear that a large number of us eagerly support the new arrangements. They mean that there is more time for real foreign affairs questions. If the complaint is that there is not an opportunity, with these new arrangements, to make representations about the taxing capacity of the Community, should not those questions be transferred and taken out of Treasury time rather than Foreign Office time?

Further to that point of order, Mr. Deputy Speaker. Several of us have been following this issue for some time. In the past few years there have been occasions when up to 80 questions have been tabled to the Secretary of State for Foreign and Commonwealth Affairs, all relating to the rest of the world. Of them, about 10 or 12 have been reached. However, in a period of 20 minutes, eight or 10 questions addressed to the Foreign Secretary may all be answered, all relating to the EEC. On several occasions I have called the attention of the House to that anomaly. It puts one part of the world—the EEC—in a privileged position, to which it is not entitled

As my right hon. Friend the Leader of the House is present and is listening carefully to this short exchange, I hope he will realise that many of us think that the experiment should be regarded as a permanent change for the better

Order. We cannot debate this matter now. It is turning into a debate on an issue for which I have no responsibility. It is not for Mr. Speaker to determine what time should be allocated to which Departments when answering questions. That is a matter for the Leader of the House and the usual channels. The Leader of the House has been present throughout the exchanges, has heard what has been said, and will doubtless take it into account. We must now move on to the next business

Schoolchildren (Absence From School)

3.42 pm

I beg to ask leave to move the Adjournment of the House, under Standing Order No. 10, for the purpose of discussing a specific and important matter that should have urgent attention, namely,

"the encouragement of young people to go on strike in our schools tomorrow."
All hon. Members accept and understand the legal obligations on children to attend school. Indeed, all parents accept them, too. Local education authorities provide the means for the education of our children. However, it has come to my attention that adults are encouraging schoolchildren to play truant from school tomorrow. Several Young Socialists recently attended my constituency surgery in Basildon and proudly told me that they had been distributing leaflets and posters in my constituency about the strike tomorrow. When I told them that I suspected that this strike was one of the few which the Labour party would not be supporting and that I suspected it would be the Militant Tendency Members who would support it, they said that it was nice to know that there were at least a few decent Members of Parliament left.

I have received many anxious telephone calls from parents, who are greatly worried about the situation. I seek to move the Adjournment of the House in a spirit of helpfulness. I wish to help the Labour party. I believe that if we—

Order. The hon. Gentleman cannot move the Adjournment of the House in that spirit. He must have regard to the Standing Order, which requires him to tell the House why it is a specific and important matter that should have urgent consideration

If an Adjournment debate were held on the subject, it would give the Leader of the Opposition and the Labour Front Bench an opportunity to state clearly where the Labour party stands. The county council election is to take place on Thursday 2 May, and many people wish to decide for whom they will vote on the crucial matter of education.

I believe that all hon. Members and parents would welcome a debate on this subject, and I hope, Mr. Deputy Speaker, that you will allow it to take place

The hon. Member for Basildon (Mr Amess) asks leave to move the Adjournment of the House for the purpose of discussing a specific and important matter that he thinks should have urgent consideration, namely

"the encouragement of young people to go on strike in our schools tomorrow."
I listened with care to what the hon. Gentleman said, but I regret that I do not consider that the matter that he has raised is appropriate for discussion under Standing Order No. 10 and I cannot, therefore, submit his application to the House

Avon

3.45 pm

I beg to move,

That leave be given to bring in a Bill to make further provision for local government services in Avon.
I move this motion on behalf of my right hon. Friend the Member for Bristol, South (Mr. Cocks), whose parliamentary duties make it impossible for him to do so

It is a pleasure to move this motion because I did national service in the RAF in what is now part of the county of Avon, and because the area has strong and historic links with Birmingham and the west midlands through their shared background in manufacturing industry. Both areas have benefited from the genius of Isambard Brunel, the pioneering engineer of whom we have such sore need today.

The Bill seeks to bring the Government to book for the damage that they have inflicted on the county of Avon. This destructive Government's general policies on local government are bad enough alongside their belief that the faceless men and women in Whitehall know better than elected local councillors, but the Government's rate support grant policies have also hit Avon hard. Since 1980 no less than £81 million has been stolen in RSG from Avon by the Government. That is bad enough in terms of services which matter vitally to many families, including the lowest paid and the poorer families among the 930,000 people of Avon. But that is not all. In 1975–76, 36p in every pound of council spending was met by local ratepayers, with the other 64p coming more fairly from central taxes. Ten years on, in 1985–86, ratepayers have to pay 72p in every pound, central taxes only 28p. The Government have stolen local money to spend more nationally. The burden has been deliberately switched from taxpayer to Avon ratepayer under an unfair system which the Prime Minister promised to abolish and has not. The blame for the burden of rates rests four-square with this Government

In 1974, Avon county was conjured up by the then Tory Government out of Bristol and parts of Somerset and Gloucestershire. It had no administrative centre on which to build and its creation had more to do with expected political advantage than anything else. The new area was expected to repair years of Tory neglect in the rural areas to bring services up to those earlier achieved in Bristol. To a large extent Bristol was expected to pick up most of the bill.

Labour-led since 1981, Avon has done much to try to improve services, with declining support from the Government and, indeed, financial harassment. With assistance from bodies such as the Avon Co-operative Development Agency and the Avon Enterprise Board, new hi-tech industry has been attracted into the county from the nearest end of silicon valley around Swindon. Now, 98 out of every 100 children entitled to three years of infant education are getting it. That is no mere statistic, because education missed before the age of five, or, for that matter, at any other time, is education lost for good. Sixteen new nursery classes have been opened by the county council and the pupil-teacher ratio has been reduced in both primary and secondary schools to give better attention to pupils' needs

There are 1,000 more elderly and handicapped people who now have home helps and extra places in residential homes. Small workshops have been built and financial help has been given from the £2 million economic development fund to help to create and expand jobs and business. Bus services have been improved and fares kept down—so much so that there are more passengers

All this energy under the leadership of Councillor Andy Pott contrasts with the record and threat of the Conservatives. All that they want are cuts, poorer services and higher charges — the same old dismal recipe by direction of "Her Mistress's Voice"

The Liberals are as bad. As late as June of last year they wanted a 2p in the pound cut across the hoard, irrespective of what that would do to schoolchildren, the elderly and the handicapped

The Bill requires the Secretary of State to report on the damage done to Avon through successive cuts in rate support grant and to propose ways in which this can be reversed, in order better to meet the known needs of the people of Avon

I pray in aid as well the report by the Comptroller and Auditor General, which includes extracts from the report of the Audit Commission for Local Authorities in England and Wales, published yesterday, when it makes the point:
"Some authorities are receiving less grant than their circumstances might warrant; and, by the same token, some are receiving more. The difference for a large city could easily amount to +£15 million in grant every year."
The report continues with a message for the Government:
"Local authorities' expenditure targets different from the GRE (revised) should be abolished as soon as practically possible, thus removing some of the perverse incentives in the present system."
It then adds, and this is the justification for the Bill:
"Local market forces (i.e. the local electorate) should eventually determine the level of local expenditure—provided that local accountability can be suitably strengthened"

3.51 pm

Does the hon. Member wish to oppose the motion?

Yes, Mr. Deputy Speaker

I seek to oppose the Bill because, once again, the House has been faced with nothing more than a publicity stunt. It is all part of a scheme to try to enhance the chances of Labour in the county council elections on 2 May

Avon has been targeted because Labour can see that it will lose its overall majority, which is just two. In a sense this attention is welcome, because it shows a great respect for the view that Avon county council will again become Conservative on 2 May

There has been a long-running campaign, of which the Bill is part, and the other day it even included a visit from the Leader of the Opposition, the right hon. Member for Islwyn (Mr. Kinnock). It was ironical that when he was delivering meals on wheels the first recipient was a Conservative voter. I understand that today we have a visit from the Opposition Front Bench spokesman on education. I wonder whether that attention will still be given after 2 May

The use of propaganda has become widespread in Avon. We have a fine example of an unbiased free newspaper, "Avon Report", delivered to every home, full of photographs of Labour members, at a gross cost of £210,000 to the ratepayers, while that excellent local paper, the Western Daily Press, is banned from local branches of libraries. Even the county's logo is copied on Labour party literature. Arrangements are being made to open long-standing projects during the three weeks in the run-up to the election, for propaganda purposes

How can the Bill be introduced when the Labour leaders of Avon county council know full well that since 1981 the rates have increased by 71 per cent., the second highest of the shire counties in the country? During the same period earnings have risen by 30 per cent. and prices by 25 per cent

There have been many fine examples of senseless overspending, such as a welfare rights campaign costing £200,000, a Sheffield-based local government campaign unit, £5,000, and CND, £900. Those are just a few examples

Unemployment is a serious worry, particularly for young people, and many prospective employers have been frightened away — with a consequent loss of job prospects—by high rate charges and uncertainty. The Bristol chamber of commerce, representing many employers in Avon, has said that ratepayers face either a significant rate rise in 1986–87 or a sudden unplanned cut in services. That information came from recent rate consultation meetings with Avon county council

Much of the problem has arisen because of the administration's policy, regardless of the means of the ratepayers to foot the bill. The county plans to spend £349 million in 1985–86. That cost has been reduced by the so-called financing adjustments, but it is still £10 million over the Government target. That overspending attracts a grant penalty of £28 million, payable to central Government. Many of the financing adjustments cannot be repeated next year, and similar overspending would entail a much increased penalty

The rate increase for 1985–86 of 6·5 per cent. is acceptable. Members of the Bristol Chamber of Commerce warned that in 1986–87 the rise in rates could be at a level not known in recent years if there was no change in policy. Such high rates would mean less money for industry and commerce to spend on investment and jobs. That is the view of a responsible, non-political body —the Bristol chamber of commerce—and many others.

Avon citizens are entitled to good services and a well-run and caring administration at a price that can be afforded. That will be achieved when, again, we have a Conservative administration in the county of Avon. Therefore, I ask the House to reject the motion

Question put, pursuant to Standing Order No. 15 (Motions for leave to bring in Bills and Nomination of Select Committees at commencement of public business):

The House divided: Ayes 95, Noes 166.

Division No. 194]

[3·55 pm

AYES

Ashdown, PaddyClark, Dr David (S Shields)
Atkinson, N. (Tottenham)Clarke, Thomas
Bagier, Gordon A. T.Cocks, Rt Hon M. (Bristol S.)
Beith, A. J.Concannon, Rt Hon J. D.
Benn, TonyCook, Frank (Stockton North)
Blair, AnthonyCorbett, Robin
Boothroyd, Miss BettyCorbyn, Jeremy
Bray, Dr JeremyCowans, Harry
Brown, Ron (E'burgh, Leith)Craigen, J. M.
Bruce, MalcolmCunningham, Dr John
Campbell-Savours, DaleDixon, Donald
Canavan, DennisDormand, Jack

Dubs, AlfredMitchell, Austin (G't Grimsby)
Eadie, AlexMorris, Rt Hon A. (W'shawe)
Eastham, KenNellist, David
Evans, John (St. Helens N)O'Neill,Martin
Ewing, HarryOwen, Rt Hon Dr David
Forrester, JohnPark, George
Foulkes, GeorgePatchett, Terry
Fraser, J. (Norwood)Pavitt, Laurie
Freud, ClementPenhaligon, David
Godman, Dr NormanPike, Peter
Gould, BryanPowell, Raymond (Ogmore)
Hamilton, James (M'well N)Radice, Giles
Hamilton, W. W. (Central Fife)Richardson, Ms Jo
Harman, Ms HarrietRoberts, Ernest (Hackney N)
Hattersley, Rt Hon RoyRobertson, George
Heffer, Eric S.Rooker, J. W.
Hogg, N. (C'nauld & Kilsyth)Sedgemore, Brian
Hoyle, DouglasSheerman, Batty
Hughes, Roy (Newport East)Sheldon, Rt Hon R.
Johnston, RussellSkinner, Dennis
Kaufman, Rt Hon GeraldSmith, Rt Hon J. (M'kl'ds E)
Kennedy, CharlesSoley, Clive
Kinnock, Rt Hon NeilSpearing, Nigel
Kirkwood, ArchySteel, Rt Hon David
Lambie, DavidStrang, Gavin
Lamond, JamesThompson, J. (Wansbeck)
Lloyd, Tony (Stretford)Tinn, James
Loyden, EdwardTorney, Tom
McDonald, Dr OonaghWainwright, R
McKay, Allen (Penistone)Wallace, James
McKelvey, WilliamWelsh, Michael
McNamara, KevinWinnick, David
Madden, MaxWrigglesworth, lan
Marshall, David (Shettleston)
Mason, Rt Hon RoyTellers for the Ayes:
Maynard, Miss JoanMr. Frank Haynes and
Meadowcroft, MichaelMr. John McWilliam.
Mikardo, Ian

NOES

Adley, RobertCarlisle, Rt Hon M. (W'ton S)
Alison, Rt Hon MichaelCash, William
Amess, DavidChope, Christopher
Arnold, TomClarke, Rt Hon K. (Rushcliffe)
Ashby, DavidCockeram, Eric
Baker, Nicholas (N Dorset)Conway, Derek
Baldry, TonyCoombs, Simon
Beaumont-Dark, AnthonyCope, John
Best, KeithCurrie, Mrs Edwina
Biffen, Rt Hon JohnDickens, Geoffrey
Blackburn, JohnDouglas-Hamilton, Lord J.
Blaker, Rt Hon Sir Peterdu Cann, Rt Hon Sir Edward
Boscawen, Hon RobertDurant, Tony
Bottomley, Mrs VirginiaEdwards, Rt Hon N. (P'broke)
Boyson, Dr RhodesEggar, Tim
Brandon-Bravo, MartinEvennett, David
Brooke, Hon PeterFallon, Michael
Brown, M. (Brigg & Cl'thpes)Farr, Sir John
Browne, JohnFavell, Anthony
Bruinvels, PeterFenner, Mrs Peggy
Buchanan-Smith, Rt Hon A.Fletcher, Alexander
Budgen, NickFookes, Miss Janet
Butcher, JohnForsyth, Michael (Stirling)
Carlisle, Kenneth (Lincoln)Forth, Eric

Fox, MarcusNeedham, Richard
Fraser, Peter (Angus East)Nelson, Anthony
Fry, PeterNeubert, Michael
Galley, RoyNicholls, Patrick
Garel-Jones, TristanNicholson, J.
Goodlad, AlastairNorris, Steven
Gorst, JohnOttaway, Richard
Gow, IanPage, Sir John (Harrow W)
Gower, Sir RaymondPage, Richard (Herts SW)
Greenway, HarryParris, Matthew
Grylls, MichaelPawsey, James
Hamilton, Hon A. (Epsom)Pollock, Alexander
Hargreaves, KennethPortillo, Michael
Harris, DavidPowell, Rt Hon J. E. (S Down)
Haselhurst, AlanPowley, John
Hayhoe, BarneyPrice, Sir David
Heddle, JohnRees, Rt Hon Peter (Dover)
Higgins, Rt Hon Terence L.Renton, Tim
Hind, KennethRifkind, Malcolm
Hirst, MichaelRoberts, Wyn (Conwy)
Holt, RichardRost, Peter
Howarth, Alan (Stratf'd-on-A)Ryder, Richard
Howell, Ralph (N Norfolk)Sackville, Hon Thomas
Hunt, David (Wirral)Shaw, Sir Michael (Scarb')
Hunt, John (Ravensbourne)Silvester, Fred
Hurd, Rt Hon DouglasSkeet, T. H. H.
Jopling, Rt Hon MichaelSmith, Tim (Beaconsfield)
Joseph, Rt Hon Sir KeithSoames, Hon Nicholas
Kellett-Bowman, Mrs ElaineSpeller, Tony
Kershaw, Sir AnthonySpence, John
Key, RobertStanbrook, Ivor
King, Roger (B'ham N'field)Stevens, Lewis (Nuneaton)
King, Rt Hon TomStewart, Allan (Eastwood)
Knowles, MichaelStewart, Andrew (Sherwood)
Knox, DavidStewart, Ian (N Hertf'dshire)
Lamont, NormanStradling Thomas, J.
Lang, IanTaylor, Teddy (S'end E)
Latham, MichaelTebbit, Rt Hon Norman
Lawler, GeoffreyThomas, Rt Hon Peter
Lee, John (Pendle)Thompson, Donald (Calder V)
Lennox-Boyd, Hon MarkThorne, Neil (Ilford S)
Lewis, Sir Kenneth (Stamf'd)Thornton, Malcolm
Lightbown, DavidTownend, John (Bridlington)
Lilley, PeterTracey, Richard
Lloyd, Ian (Havant)Viggers, Peter
Lloyd, Peter, (Fareham)Waddington, David
McCurley, Mrs AnnaWakeham, Rt Hon John
MacGregor, JohnWaldegrave, Hon William
MacKay, Andrew (Berkshire)Walden, George
MacKay, John (Argyll & Bute)Walker, Bill (T'side N)
Madel, DavidWalters, Dennis
Major, JohnWardle, C. (Bexhill)
Malone, GeraldWatts, John
Maples, JohnWhitfield, John
Marlow, AntonyWood, Timothy
Mather, CarolYeo, Tim
Mellor, DavidYoung, Sir George (Acton)
Mills, lain (Meriden)
Mills, Sir Peter (West Devon)Tellers for the Noes:
Montgomery, Sir FergusMr. Jack Aspinwall and
Neale, GerrardMr. Rob Hayward.

Question accordingly negatived

Financial Services

Motion made, and Question proposed, That this House do now adjourn. (Mr. Neubert 1

4.6 pm

This is the second opportunity that the House will have had in nine months to debate matters concerning the financial services industry, the protection of investors and the City of London. Last July the House debated the Gower report. Today, we have before us the Government's White Paper

It is remarkable how both the financial markets and perceptions of the requirements of investor protection have been changing since Professor Gower started his work. The scene is still changing, but our objectives remain the same: first, to enable the financial services industry to provide services to industry and commerce, private investors and the Government in the most efficient and economic way; secondly, to stimulate and encourage innovation; thirdly, to inspire confidence in issuers and investors by ensuring that the financial services sector is, and is seen to be, a clean place in which to do business; fourthly, to ensure that the system of investor protection is flexible enough not to cramp structural and other changes in the industry and not to be overrun by events. The White Paper which I published in late January is aimed at those objectives. The legislation which I hope to bring forward in the next Session will be designed to create a regulatory system powerful enough to deliver the objectives, but flexible enough to remain effective during further periods of rapid change

It is change which has characterised the City in recent times, especially since July 1983. It was then that my right hon. Friend the Member for Hertsmere (Mr. Parkinson), then Secretary of State for Trade and Industry, told the House that the Stock Exchange had put forward proposals which were an adequate basis for legislation to stop the case brought by the Director General of Fair Trading against the exchange in the Restrictive Practices Court

Of course, the ill-informed and the prejudiced described that as a sell-out and claimed that it would leave the status quo unchanged. Indeed, some of the well-informed and unprejudiced also questioned my right hon. Friend's judgment. They were of course wrong. Change has gone on apace since then. Many stockbroking or stockjobbing firms have formed links with banks or other institutions outside the exchange

Stock Exchange members are now considering constitutional changes which could lead to corporate membership. New trading systems for both equities and gilts are planned for 1986, in time for the end-year deadline set by the Government for the abolition of minimum dealing commissions

The shape of the City is changing, in response both to the growing internationalisation of markets, to new developments in information technology and to the need for fresh sources of capital to exploit those opportunities. There is no lack of urgency in the City. Indeed, the emergence of firms willing to trade in listed securities outside the Stock Exchange emphasises the need for swift completion of the reforms

I believe that the changes in the City are serving to enhance the status of the United Kingdom as one of the primary financial centres of the world. The flexibility and expertise of practitioners providing a wide range of financial services have long been and will continue to be among the principal factors in our favour. The removal of restrictions such as exchange control has given the markets a liberal environment in which competitiveness between businesses and between our market and those abroad is enhanced

The White Paper proposes a new regulatory structure to maintain and improve that spirit of competition, ensuring that it will meet the needs of those dealing in the market and thus consolidate the United Kingdom's international standing. As I have said, subject to the parliamentary timetable, I plan to present in the next Session legislation to implement the White Paper proposals

The general reaction to the White Paper proposals has been favourable. The basic approach of self-regulation within a statutory framework has received widespread support, as indeed have the main elements in our proposals. We have also received many constructive and helpful comments and suggestions

The drafting of the legislation is proceeding on schedule, but many details remain to be worked out, so in many cases further comments, from whatever standpoint, can still be taken into account. Indeed, this debate comes in time for the House to make its views known

Before I go on to consider the White Paper proposals, I should again pay tribute to the work of Professor Gower, who has been responsible for so much of the change in thinking that has taken place in recent years. His report and the many discussions and consultations leading up to it have made an invaluable contribution to the thinking on this subject. Indeed, as I have said they have profoundly changed the thinking and played a key role in developing a new regulatory structure able to command the support and respect of both the financial community and investors

Much of the interest in the White Paper has centred on the institutional framework that it proposes. I decided not to uproot the system which has served so well in the past but to build on it, to strengthen it, to repair its faults, to bring it up to date and to provide for future developments. Let there be no doubt, however, about the extent of the changes which the White Paper proposes

The powers to regulate are to be granted by Parliament to the Secretary of State for Trade and Industry, and only at his discretion will those powers be delegated to bodies meeting the criteria of the legislation and his approval. Those powers will be granted to the bodies only so long as they are properly used, and the Secretary of State will retain the power to withdraw the powers from a body or bodies and grant them to another, or indeed to wield those powers himself

It would be an unwise Secretary of State who took such action except in circumstances which, I believe, are so unlikely as to be almost beyond reasonable speculation, but I do not believe that Parliament would be prepared to grant the necessary powers "freehold" to the new authorities

I understand that, although the Secretary of State will retain power to alter things, he will need the agreement of the Bank of England to appoint the chairman. It would certainly be unwise not to consult, but: constitutionally it would be a great weakness to give any outside body the power to overrule the Secretary of State, and thus the House. In my view, although it is clearly right to discuss the matter with the Bank of England, handing over a power of veto is a constitutional outrage to which the House should not agree. The power should stay here and not be handed over to anyone else

I hope that my hon. Friend will not be unduly outraged. I believe that there is a place for the influence of the Governor of the Bank of England and for the influence of the Secretary of State. As my hon. Friend knows, in the area in which the Department has been the traditional regulator—the area to be covered by the marketing of investments board—the Secretary of State will appoint all the members. In the area which has traditionally been governed to some extent by the Bank of England as well as by the Secretary of State, there is a joint approach embodied in our proposals for the appointment of members of the securities and investments board. I think that it is overstating the case to refer to that as a constitutional outrage. In my view, it is a practical way of handling the problem of dual oversight of some markets.

My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) is not alone. There is great concern that the proposals for the SIB, as opposed to the MIB, effectively give a power of veto to the Governor of the Bank of England because in this case his agreement is required, whereas for the MIB only consultation is required, as with other sections of the industry. Many of us are concerned about the steady encroachment of the Bank of England in this area. We trust the judgment of my right hon. Friend the Secretary of State in the appointment of the chairman of the SIB, and we do not want the role of the Bank of England to be extended in that way

I am grateful to my hon. Friend for the kind way in which he has suggested that he trusts my judgment, perhaps even more than that of the Governor of the Bank of England, in this respect, and no doubt I shall remain Secretary of State for a long time—but not for ever. At some time, a Secretary of State whose views are not so understanding of the City may have these powers. Many people in the City feel that it is a nice balance to have the influence of both the Bank of England and the Secretary of State in this respect

As the right hon. Gentleman has referred to a future Secretary of State, perhaps he will allow me to intervene. He has suggested that the purpose of the Bank of England veto, which is understandably criticised by his hon. Friends, is to guard against what a Labour Secretary of State might do. Will he explain why the Secretary of State in a Government accountable to Parliament should permit an appointment suggested by him to be vetoed by an official of the state? It is a monstrous proposition, given that the right hon. Gentleman, for all his faults, is accountable to the House, whereas the Governor of the Bank of England is not

I am prepared to take criticism on this from my hon. Friends, but I am certainly not prepared to take it from a man who served under a Prime Minister whose motto was, "Find out what the trade unions want and give it to them." If any Government allowed the proposals of Parliament to be vetoed by outside bodies, it was the Government in which the right hon. and learned Gentleman served.

I am trying to deal with a perfectly practical problem, to find the best way to set up a self-regulatory agency under the statutory powers to be delegated to it. There is a strong body of opinion in the City to the effect that it is no bad thing to have the influence of professional City opinion alongside that of politicians, of whatever party, in this matter.

The right hon. and learned Gentleman constantly calls it a veto, but we consult and then reach a conclusion. The Secretary of State also has a profound influence over the appointment of the board members, who are in the majority. It is a nicely balanced arrangement. The right hon. and learned Member for Monklands, East (Mr. Smith) is trying to make bricks without much straw

Does my right hon. Friend agree that the criticism of my hon. Friend the Member for Birmingham, Selly Oak (Mr. Beamont-Dark) might be more forceful but for the nationalisation of the Bank of England? The Governor is now, as the right hon. Member for Monklands, East (Mr. Smith) said, not an independent figure. He may wish to appear independent, but he is a servant of the state, and to that extent subordinate to the Government

Chancellors have in the past occasionally suggested that the Governor was too independent. My hon. Friend's point is interesting, but this is not a matter of great constitutional propriety. My hon. Friend the Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) may feel that it is, but his colleagues in the City may not share his view about the practicality of these matters

This is an important issue. My right hon. Friend says that some of my friends in the City may not share my view. I speak as an elected Member of this House. In the end, those who are elected to this House are answerable to the House, not to the City. Cannot my right hon. Friend see the difference between being in the City and being elected to this House? My right hon. Friend keeps using the word "consultation". If the Bill were to stipulate that we must consult the Governor of the Bank of England, that would be right. If it refers to agreement, there is a veto. For the House to agree to a veto is a constitutional outrage

My hon. Friend has already made that point. I am aware of the difference between being a Member of this House — or, more particularly, a Minister—and being in the City. For a start, we earn much less

We are trying to design a practical system of regulation which has the confidence of investors and practitioners in the City. That is why I say that my hon. Friend might consider consulting those who are to operate the scheme in the City, and those who use the services of the City. He will find that the general mood is one of support for my proposal, rather than one of outrage at what I do not believe is a constitutional issue

Can the Secretary of State tell us how many other instances there are in which the appointee of one Minister exercises a veto over the appointment rights of another Minister?

I cannot. I am not especially concerned about that matter. I am concerned with constructing a practical system that will work. No doubt we shall be able to dredge through the records and eventually find a precedent— [Interruption.] The right hon. Gentleman should not be so contemptuous of officials of the Department. He should have more respect for them

There is a long tradition — overwhelmingly an honourable tradition—of self-regulation in the City, but markets are changing at a remarkable pace. New products, new services and new traders are coming into the markets and some wide gaps are showing between the regulated areas as well as weaknesses within them. The Government have concluded that regulatory coverage should be extended to cover all investment business. To that end, both investment and investment business will be defined in the legislation

As the House knows, it is proposed to delegate power to the two new proposed bodies, the securities and investments board and the marketing of investments board. It will be for those bodies to draw up rules for the authorisation of investment business and the conduct of business. These rules will have to give effect to the principles described in the White Paper; safeguards against conflicts of interest, compensation proposals, protection of clients' assets and disclosure, and so on. Clearly, I shall have to be convinced that the rules are adequate and will be effectively enforced before I delegate powers

Practitioner-based regulation will not be a soft option. Since the bodies will involve both practitioners and users of financial services as well as market regulators, the identification and response to rule-breaking or new forms of misconduct can be rapid and flexible. They will be up with or ahead of the play in a way which an undelegated system could not hope to be

The task of the boards will not be easy, so I am particularly pleased that Sir Kenneth Berrill and Mr. Mark Weinberg have agreed to take charge of the preparations to set them up, and that Mr. Martin Jacomb has agreed to act as Sir Kenneth's deputy chairman. I am sure that the House will agree with me that the willingness of men of such calibre to serve is a good omen indeed, and reflects well on the system of finding such men

The composition of Mr. Weinberg's committee has already been announced and it has met. It has put it to me that its work would be assisted by the appointment of a person with knowledge of building societies. I have accepted that advice and hope to make an appointment shortly. The names of Sir Kenneth's other colleagues will be announced quite soon.

There has been criticism of the White Paper's proposal of two boards rather than one. It has been suggested that one board would be a tidier arrangement. The background to the proposal lies in the advice received from the Governor of the Bank of England and a group of insurance and unit trust representatives. It is not a point on which my mind has finally been made up. Sir Kenneth and Mr. Weinberg and their colleagues will have views. The House will have views. I shall certainly not insist on there being two boards, if no advantage is seen in this arrangement

There is ample work to be done by the two organising committees in preparing for the implementation of the new system

Sir Kenneth Berrill is reported to have said, on his appointment, that he did not see himself as a policeman. Given that one of the underlying principles of the White Paper is crime prevention, surely that is precisely what he ought to be.

My hon. Friend may have misunderstood Sir Kenneth's point. What he meant was that his job as a regulator will not so much be to track down crime as to prevent crime and to make sure that the City is a clean place in which to operate. Sir Kenneth lays great stress on that aspect of his work

Before leaving the question of structure, I should say that I am mildly surprised that there should be any doubt about how the costs of regulation should be met. It will fall to the beneficiaries — those who use the financial markets

I want now to consider the objectives of the new regulatory framework as a whole and how the Government's proposals will achieve these objectives in relation to each of the main groups of interests involved — investors, those seeking to raise finance and practitioners

First, I should like to say a word about the small investor. Believing in the benefits of wider share ownership, the Government have acted to encourage the spread of share ownership through the halving of stamp duty, the abolition of investment income surcharge and within the privatisation programme. Although large investors and professional institutions have access to the expertise needed to assess the merits of investment proposals and advice, the small investor needs more help and protection and will benefit from the Government's proposals

As I have said, there will be a new and comprehensive definition of what constitutes investment and investment business and it will be an offence to carry on such business without authorisation. The investor dealing with an authorised business will know that that business is regarded as being "fit and proper" to undertake investment activities and is subject to rules designed to ensure the proper conduct of those activities. There will be rules requiring disclosure of the information an investor needs to make up his mind about an investment, and the definition of investment business will include the giving of investment advice

Advisers will be under a duty of skill and care, requiring them to take account of the circumstances of each client and to disclose their interests in any investments which they might recommend. Many small investors depend on professional advice, and these provisions will help to ensure that it should be unbiased and relevant to their financial needs and interests

The principles governing the conduct of business rules will ensure that the boards make rules requiring investment businesses to segregate funds belonging to their clients and to have adequate compensation arrangements in the event of loss arising from fraud, negligence or failure to comply with the requirements for the protection of clients' assets.

Some of the comments that we have received on the White Paper suggest that our proposals on these points go too far and will be unduly costly. We shall consider these comments, but it remains our objective that there should be full segregation and full compensation for private investors in the circumstances which I have described

Of course, many small investors prefer to invest in "collective" forms of investment, such as unit trusts or life assurance policies, which offer a wide spread of holdings and the benefit of professional management. We propose to avoid over-regulation of unit trusts so as to enhance the range of schemes available, while maintaining essential safeguards. The legislation will also extend the mainstream investor protection system to cover life assurance policies for the first time

Standards for the selling of life assurance have much improved and the profession's status has been raised—for example, through the establishment of the Insurance Brokers Registration Council—but the proposals in the White Paper go further

(Harrow, West): The Insurance Brokers (Registration) Act 1977, which is known more intimately nationally and internationally as the Page Act, will be amended, and I wonder whether, when my right hon. Friend amends it, he will think of extending it to cover a wider range of insurance intermediaries

I note what my hon. Friend says. I pay tribute to his part in that legislation. If I can, I shall endeavour to take a page out of his book. I suppose that that is the right expression. I propose that, unless intermediaries are tied to an insurance company which takes full responsibility for them, those who sell life assurance will in future need authorisation and be subject to conduct of business rules about, for example, avoidance of conflict of interest and the protection of clients' funds, which will ensure protection similar to that available to those who buy unit trust and other securities

The White Paper, and the Bill that will follow it, are about the protection of investors and investments. In such a measure it would not be right to cover non-investment aspects of insurance. That different area of activity might or might not need attention in due course, but this is not the right vehicle for any changes

All of the measures that I have described will be of considerable benefit to the small investor and will, I believe, help to encourage more people to invest directly or indirectly in shares and similar investments

While discussing the interests of small investors, will the Government apply to themselves the same standards as they propose to apply to others when offering investment vehicles? My right hon. Friend might recall a poster which depicted the beatific scene of a clergyman radiating confidence in the financial aftermath of buying national savings certificates. Does my right hon. Friend agree that inflation is the worst fraud that can be perpetrated on the public? Will he deplore that and bear such considerations in mind?

I have frequently described inflation as the most unjust form of taxation that has yet been devised. I stand by that view. I do not know who the beatific clergyman in that advertisement was, but perhaps we could sponsor a contest for who to put in the next one

However well regulated the system, and however adequate the disclosure of relevant facts, there will always be people who make bad decisions or who take a risk that goes wrong. The responsibility on the individual for his own decisions on how he invests will in no way be diminished, nor should it be

The larger individual investor and the professional investor will also benefit from the investor protection measures which I have outlined. The professional investor is, however, in a better position to assess risks for himself, so we propose to continue to allow certain circulars and other offers of investment to be sent to professional investors, even though they may not be sent to other investors, and to allow certain information requirements to be dispensed with in their case

We also propose to widen the definition of eligible professionals to include those dealing extensively in futures, and we propose to allow authorised business to pass information about less orthodox investments to clients who, although not professionals, are sufficiently expert to understand the risks involved

There has been some criticism of this proposal, but I believe that it is a desirable recognition of the differing needs of different groups of investors and the need to avoid over-regulation and nannying of those well able to take care of themselves

Those who talk about the financial markets often seem to forget the needs of those who want to raise capital. They too will benefit by the removal of restrictions and the promotion of competition, which will ensure a wide choice of methods of raising capital in the cheapest possible way

The White Paper proposes changes in the law on prospectuses to standardise rules governing civil and criminal liabilities for omissions and mis-statements in offer documents and to bring the content of all offer documents within a single set of provisions. The law on this subject is now out of date and complex. Clearer provisions will help companies wanting to raise finance as well as investors trying to understand offer documents

We do not intend to impose unnecessary requirements on companies. Indeed, smaller companies will be able to take advantage of the proposal that offers of securities in a company made to fewer than 40 people will no longer be regarded as offers to the public and will not be subject to the full prospectus requirements. This should facilitate the raising of capital for small companies. The choice of 40 as the permitted number of recipients of such offers is of course somewhat arbitrary, and I would welcome views on the matter

I have already said something about practitioners. Our aim is to strike a reasonable balance between investor protection and over-regulation which would be likely to stifle new developments and increase the costs. It has been argued that the cost of regulation will make the United Kingdom a less competitive place in which to do business, but if investors believe that their interests will not be adequately protected they will take their business elsewhere. Over-regulation would also be damaging and we are determined to avoid it, but a clean well-regulated market will attract more business to the United Kingdom

The growth of financial conglomerates and the growing amount of international business raise new problems for regulators. Many of the new financial conglomerates will undertake a much wider range of activities than those covered by the financial services White Paper, but reform is going on apace

The White Paper and the subsequent legislation are but one aspect of the modernisation of the laws and regulatory arrangements in this area. Company law has, at long last, been consolidated, although I fear that it will not be many years before another companies Act comes along

The Government are drawing up legislation on building societies. A review of banking legislation is currently under way. A consultative document on personal pensions has been published. When all these exercises have been completed, we shall have a modern legislative framework

On the enforcement side, the new fraud investigation group has been set up to facilitate the investigation and prosecution of major fraud, and Lord Roskill's committee is considering the conduct of criminal proceedings arising from fraud. Whatever regulatory framework we design, however, financial conglomerates, by their very nature, will be subject to more than one regulatory regime in respect of their different activities

Our regulators will have to work closely together to avoid unnecessary duplication of requirements and to ensure that there are no gaps in the regulatory system, and that the overall financial and technical resources of a business are adequate for the whole range of its activities. Naturally, we shall also continue to develop close relationships with those concerned with investment supervision overseas both to facilitate co-operation against international fraud and to encourage the opening up of overseas markets to British firms

My hon. Friend the Parliamentary Under-Secretary of State with responsibility for corporate affairs has recently returned from visits to other European capitals and to the United States for some talks on these subjects, and he will no doubt say something about them later in this debate if he has the good fortune to catch your eye, Mr. Deputy Speaker

During my own recent visit to Japan I stressed the importance which we attach to the liberalisation of Japanese financial markets. Some results are beginning to be seen. The granting of branch licences to United Kingdom firms to deal in securities has begun, and I hope that more liberalisation will be forthcoming. I also emphasised the potential benefits to Japanese investors and those seeking capital of using the City of London's unmatched expertise in investment management and financial advice

Over recent months the Government have received plenty of advice of these matters of investor protection and market reform. Much though not all of that advice has been well considered and well informed. However, even within that category there have been widely differing views

In principle, we have rejected both the nostalgic extreme views on self-regulation and the demands for bureaucratic state or neo-state regulation. On that matter the Government's position is absolutely firm. Equally, we believe that the pattern of self-regulation under delegated powers set out in the White Paper forms a coherent response to the needs of the City and its customers

There are, of course, details on which my mind is not finally set, and I have referred to some of these in my speech. I would welcome the views of the House particularly, and of others outside. There is no supreme single everlasting right answer to many of the problems that we face in regulating these markets. It is in that spirit that I commend the White Paper to the House

4.43 pm

I am grateful for the way in which the Secretary of State ended his speech, which seemed to indicate a disposition on the part of the Government to listen to observations that will be made during the debate. As the Secretary of State indicated, this is not the first opportunity that the House has had to discuss part one of Professor Gower's report "Review of Investor Protection". If there were a conclusion to be drawn from the debate of 16 July 1984, I think it would be that the message of the House was that a minimalist solution to the problems of the City was not enough, and something more would have to be done. I think that it would be fair to say that this is not a minimalist solution

I shall criticise some of the Government's proposals. They are criticisms designed to elicit a response from the Government rather than being merely of a denunciatory character

I think that there could be unanimity on a number of matters. First, I think that it was widely perceived by the House and by many other commentators that the existing law and its means of securing investor protection have become very deficient in the market place as it has developed. I am thinking particularly of technological innovation, the increasing internationalisation of markets and the number of events that have not brought credit to the City or to financial institutions

It is a matter of concern for us all, and not only those who practise in the financial markets, that there have been major scandals. There is a widely perceived view that a number of people have been able to get away with things which, in a properly organised system, they ought not to have been able to. That is alarming both to the public and to those who practise in the City, and it is bad for the City' s international reputation. In so far as these measures go some way to remedy that problem, we of course welcome them

There is another reason why that change is necessary. It is that other changes will take place in the organisation of the City, most of which emanate from a decision of the present Secretary of State's predecessor to do a deal with the Stock Exchange in return for the Stock Exchange not being referred to the Restrictive Practices Court. I am not sure whether the changes that were found acceptable by the previous Secretary of State will have either the effects that are proposed or the advantages that are sometimes canvassed for them. However, they are going ahead. In a sense, they have been anticipated almost before the event. One suspects that changes have been made in anticipation of them which might be even greater than those that might be made as a result of them. But, whatever happens, whether for good or for ill, a new situation will obtain quite different from that which has obtained in much of the recent past. In that circumstance, this seems a desirable time for us to review the way in which the law is framed and enforced

We have had a valuable report by Professor Gower. I was glad that the Secretary of State paid a handsome tribute to him. If I may say so by way of minor criticism, I thought that the White Paper did less than justice to Professor Gower's contribution by saying that the Government were greatly indebted to him. I am glad that the Secretary of State took the opportunity to express it today in more handsome terms. We owe a great debt to Professor Gower not only for proposing an intelligent way in which the law should be framed — and I draw a distinction between the law and the way in which it will be enforced—but, as I think the Secretary of State said, almost for changing the nature and tenor of the debate that has taken place among those who have considered the matter since the report. We have the White Paper, and we shall of course be moving to legislation

The Opposition's judgment is that the proposed framework of the law is broadly correct. It is largely what was in the Gower report. The notion of having a fit and proper test for all those who wish to practise in the financial markets, and the notion that these should be licensed by the state before being permitted to do so, is one that we endorse

So far as I can see, although this is a matter at which we require to look carefully when the legislation is presented to the House, the rules for the conduct of businesses seem to have a good deal of sense in them, particularly those parts dealing with the principles which should be applied, the way in which conflicts of interest should be managed and the importance of compensation for the victims of any malfeasance or fraud by those who practise in the financial markets

At this stage, I raise one point of detail on the question of compensation. In dealing with compensation, at page 21 the White Paper states, I think properly, that the aim should be for the private investor to receive full compensation. That is, of course, a feature of quite a lot of professional obligations. For example, a solicitor undertakes to pay in full for any client of a solicitor who is the victim of defalcation in respect of an individual solicitor. The White Paper states in paragraph 7.12:
"As far as negligence is concerned, professional indemnity insurance could be made a requirement."
That "could" should be changed to "should". I can think of no reason why it should be left in the air or why there should be no obligation on those who practise to take out insurance against professional negligence. It would round off a system of protection for the investor. I hope that the Secretary of State will give sympathetic consideration to that proposal

I entirely take the right hon. and learned Gentleman's point and the manner in which he made it. The key sentence in paragraph 7.12 is:

"The aim should be for the private investor to receive full compensation."
The manner in which that is achieved will be the subject of a great deal of discussion, but I do not think that either of us has any differences about the aim

I am grateful to the Secretary of State for that intervention. I quoted that because I consider it to be the key sentence. However, I am puzzled about why the qualification was inserted in the sentence which immediately follows. Having announced the aim to give full compensation, it would seem sensible to adopt the most intelligent way of doing so. So far as I can see, no other options are canvassed in the White Paper

If the right hon. and learned Gentleman reads the report carefully, he will see the comment upon the manner in which we might approach compensation for what is essentially a breach of propriety. The latter part of paragraph 7.12 deals with professional negligence as opposed to improprieties

I hope that we shall not get bogged down on this point, because I did not intend to say a great deal about it. The Secretary of State has taken my point, and I am grateful for the way in which he has responded. Ultimately, if there is a difference of opinion, we shall wait to see what the House decides

Paragraph 7.21 refers to the possibility that because of technological advance we shall shortly move to the transfer and ownership of shares without physical documentation. I readily accept that that is within the range of technology, and I would be grateful if the Under-Secretary, when replying, could give some information on how this will be accomplished. The law will have to grapple with new technology, and I should welcome a glimpse of how the Government propose to deal with it in the forthcoming legislation. I am sure that many hon. Members will offer advice on how simple that will be, but I would prefer to wait until we see what the Government propose

The Government may have placed too much emphasise on the notion that if competition is permitted and encouraged, that somehow has a regulatory effect. That does not necessarily follow. A distinction must be made between efficiency in the market place and protection for the investor. It may or may not be true that competition leads to greater efficiency, but it is disputable that it inevitably leads to greater protection. Indeed, cut-throat competition might stimulate abuse of the market place and, by its very existence, might require even greater protection by way of regulation. It is not good enough to take refuge in some theological position and to argue that releasing market forces somehow leads to greater protection for the investor

We have more doubts about the regulatory system. That brings me immediately to whether or not there should be a self-standing commission. When Professor Gower looked at this he came to a fairly balanced view, and his report sets out the argument for and against. On reading the report, my impression is that Professor Gower was, if anything, inclined towards a self-standing commission, although he said that there were arguments on both sides. My own party made representations to him which he took into account

In principle, there are three possible ways of approaching the matter. The first is that the Department itself should regulate. I am strongly against that. I do not think that the Department of Trade and Industry is likely to acquire a sufficient expertise or range of talents—I mean no disparagement because the Department has other work to do—to regulate the City effectively or to keep up to date with those who are operating on the edge of good practice. I am not sure whether that is the sort of thing which we should ask a Government Department to do

Another view, which I am glad to say is receding in its attractiveness, is that this can be left to the professions and the practitioners —that we can rely on self-regulation and that the City will look after itself. Recent experience indicates that that cannot be relied upon. It would not be relied upon given the new circumstances in which the market will operate, given that it is becoming increasingly international and given that technology makes the speed of decision such that it is extremely difficult to keep pace with what is happening

There is much merit in the self-standing commission approach. The Government have landed themselves somewhere between self-regulation and the self-standing commission. It can hardly be said that what they propose is self-regulation. I do not make that allegation, because the statutory framework is much more onerous on those who practise in the City than old-fashioned notions of self-regulation. However, I am puzzled as to why the Government held back from going as far as a self-standing commission. It could be that they want to propitiate opinion in the City, which has so far been hostile to it

I am just developing my argument, and I hope that the hon. Gentleman will contain himself for a moment

The opposition to a self-standing commission seems to relate almost entirely to the experience of the American system. It is felt that on the whole the Securities and Exchange Commission has been unsympathetic to people from this country who have come into contact with it

It is said that it is an excessively legalistic and bureaucratic apparatus. There are reasons why that is so. The United States is a very complicated, legal world with a federal system and the laws of individual states. According to one's view, the United States is either a lawyer's paradise or a client's nightmare. It is certainly one of the most litigious countries in the world. The conflict between federal jurisdiction and the jurisdiction of the states is so easily exploited that the way in which to deal with it is very different from what would be necessary in this country. In addition, the size of the market is much greater, and what is suitable for a smaller market is not necessarily suitable for a larger one. As I have already said, the legalistic and litigious nature of United States society encourages such tendencies in an organisation which is set up to control the market place

That need not happen here, and a self-standing commission in the United Kingdom need not apply the same deficiencies as those which occur in the United States

In a speech in February this year, the chairman of the Stock Exchange almost anticipated a move towards an independent commission. In the president's lecture to the Insurance Institute of London, he said:
"If the structure"—
that is, the structure in the White Paper—
"does not work, there will be no alternative but to set up a statutory commission"
That is simple reality, because one cannot go back to the previous self-regulation or to the Department. He continued:
"Under this government the Department of Trade will have neither the political backing nor the resources to enable it to undertake the responsibility itself'.
I would add, "under any Government." He went on:
"A statutory commission is likely anyway to be our ultimate destination, but to set one up in the immediate future would be a worse situation. It would introduce immediately"—
we should note the word "immediately"—
"into regulation a legalistic dimension which could do harm to Britain's competitiveness, and it would be unhappily devised without any of the evolutionary experience which the present proposals offer"
Those sentences were carefully constructed, and seem to indicate a disposition on the part of Sir Nicholas Goodison, if no one else, to accept almost the inevitability of moving to a self-standing commission. They almost argue that it would be better to approach it by this careful route rather than to take it at one go. On the merits of having a self-standing commission, there is not exactly stout opposition from the chairman of the Stock Exchange

That may be how things will develop and through that route we may end up with a self-standing commission. It might be better for us to move to that now. The city could swallow that just as well as it has swallowed recent changes. In the hybrid solution proposed by the Government of self-regulation within a statutory framework there is a danger that the simplicity and clarity that are necessary for any effective system will be lost

A complicated system is proposed. The Secretary of State will get power from Parliament. He will then delegate that as he chooses, but he has announced that he will delegate it almost entirely to two separate bodies, the Securities and Investments Board and the Marketing of Investments Board. Under the SIB there will be other regulatory bodies. For example, the Stock Exchange will have regulatory capacities. In addition, there will be a tribunal to which those who have been denied a licence to practise can appeal. If a person appeals against a refusal of a licence by the Stock Exchange he will have to appeal also to the SIB before he can appeal to the tribunal because he cannot go straight from the Stock Exchange to the tribunal. We are already getting into considerable complications without going into the argument about whether there should be one board or two

It would be much simpler and clearer to all involved, and certainly to the ordinary public, if we moved immediately towards a self-standing commission. I argue that on the basis that it is inevitable anyway, and that we might as well get there now and set it up properly so that it may last for a fairly long period. In the present circumstances, that seems to me not so much a revolutionary proposal as almost simple common sense

Of course, the proposed system is complicated and it may not work, but if there is the will to make it work it will for two reasons be infinitely preferable to what the right hon. and learned Gentleman proposes. First, it will have considerable flexibility, which his self-standing commission would not have, and, secondly, it would build on existing foundations

I am not persuaded, with respect to the hon. Gentleman's point of view, that there would be arty greater flexibility under either model. It depends on the view taken by those who have to administer the law. The law will be the same whether we have a self-standing commission or these bodies. The crucial matter will be the view taken by those responsible, whether they are in the commission or in the hybrid bodies. On the whole, having considered the arguments over a period, I think that the arguments against a self-standing commission have become less compelling as time has gone by. I judge that they are being put forward with less passion now. It is almost as if the markets are coming round to an acceptance of that point of view

On the question of two boards, I was glad to note that the Secretary of State did not nail his colours too firmly to the mast. Opinion is moving very heavily in favour of the common sense conclusion that there is little point in having two boards when one could do the job perfectly well. Indeed, it becomes ridiculous when one understands that the majority of people will have to register under both the SIB and the MIB because the merging of different functions is such that, according to the White Paper, there will have to be provision for the exchange of information between the two boards. Therefore, a person may give information to one board or the other and they will be busy exchanging the information

I can imagine what the Secretary of State would say if this were a Labour proposal. If the Labour party had made such a proposal we would have had to accept mocking sarcasm about such a Socialist solution — setting up boards, not even statutory boards, that were obliged by law to exchange information. I can well imagine the sort of speech that the Secretary of State might have made. When he goes home tonight perhaps he should reflect on what he might have been saying if I were the Secretary of State making these proposals. He might find that the most compelling argument of all that he has listened to in the long period since the Gower report came out

In regard to enforcement, however we devise the law and however brilliant it seems, if it is not enforced it is not worth having. In the proposals which the Secretary of State makes new sanctions are produced. I welcome some of them. The revocation of authorisation is a very important and obvious one. I worry a little about it because it is a nuclear weapon. Will it not be a sanction that those responsible would be reluctant to operate?

I am not so sure about some of the civil remedies that are proposed. We will have to examine them in detail because they are not articulated all that clearly in the White Paper. I am not complaining about that because one cannot include all the detail in a White Paper but we shall need to consider these with some care

The background to all this is a worry amongst the public that fraud in the City is not pursued or prosecuted properly by the authorities of the state. That point has been put to me with some force by people in the legal profession and by people who operate in the City, and I take it seriously. If an official of the Post Office steals money from a letter, he is likely to be visited with the full wrath of the law, to be prosecuted, to go to gaol and to lose his job. Of course, there is nothing wrong with that. But if a person deals in fraud on a much larger scale and runs off with £200 million to £300 million, the chances of him being brought to book are much less

I am afraid that that is true and is perceived to be true. The reason is that those who deal in larger fraud have more resources and skill in avoiding the reach of the law. They are able to have much more elaborate and expensive defences. Worst of all, they are able sometimes either to avoid the jurisdiction easily or to create such apprehension in the minds of those pursuing them that they come to the conclusion that it is not worth continuing the pursuit. That is thoroughly bad. The Government, as a matter of urgency, should take on board the whole matter

It is not just a simple question of having a jury. In some cases that is a side issue and we are in danger of going up a cul-de-sac in considering it. The question is whether the country is prepared to put the necessary resources behind investigating authorities and prosecuting authorities to ensure that major fraud is prosecuted with the same rigour and diligence as minor fraud. That is a slightly different issue, but it needs to be tackled by the Government

The right hon. and learned Gentleman is, of course, right in saying that large-scale financial fraud is a most difficult crime to bring home and to secure a conviction on, not least because so often it is internaional in its nature and there is a reluctance of witnesses who are outside our national jurisdiction to attend court. There are problems here which are probably much more those of the law than they are of resources, although certainly we have managed to increase the resources and reorganise them recently in a way that I hope will make them more effective

The Secretary of State is referring to the fraud investigation group which was established recently. I think that may be a useful exercise in co-ordination, but he will forgive me if I am slightly sceptical about Governments saying that they will co-ordinate their activities. I have been involved in so-called co-ordinating activities so often in the past that I am sceptical that coordination always achieves its objective. The immediate reaction in Whitehall to any interdepartmental problem is to propose greater co-ordination. We shall be persuaded that something is being done when there are major prosecutions and when major criminals are brought to book instead of laughing at this country from the havens to which they have escaped. They have brought the sense of fairness in British society into scepticism

I was about to move on to the international dimension that the Secretary of State mentioned. Professor Gower drew our attention to the international dimension when he referred on page 176 of the report to the new phenomenon of international white collar crime. He argued for much greater international co-ordination. I wonder if we have done enough about that. I do not think that enough is said in the White Paper about the offshore problem. It needs greater attention by the Government

There may be ways of doing something about it. Why cannot those who beam their activity to the British market from abroad, from Amsterdam or wherever, be penalised in relation to their other activities in Britain? If we could find some way of doing that it would be extremely useful

I do not have an easy answer to what is a complicated problem. My impression is that not enough attention has been given to it. It is clear that there are problems of international law and national jurisdiction. We should pay more attention to the problem and see if there is a way, for example, to tackle people who have activities in this country and who indulge in activities from offshore havens, one being connected with the other. We should not enable them to have a free run in Britain, as it were, while cocking a snook at our laws from a haven elsewhere

I am anxious not to interrupt the right hon. and learned Gentleman too much; I do not want to make this a debate between him and me. If persons were operating in that way, both outside the United Kingdom and had an operation here, that might lead the boards to the conclusion that they were not fit and proper persons

It is helpful to have that remark on the record. If the Secretary of State thinks that it would be important to bring into consideration the question of authorisation, or the withdrawal of it, if unpalatable activities from an offshore haven had an impact on United Kingdom activities, that is a useful idea. That is not quite said in the White Paper. It would be a view for the regulating authorities to take, and no doubt they are able to take a step for a hint. I hope that that was what the right hon. Gentleman was giving

Other activities are encompassed in the quite wide definition of what is marketed in the financial world. For example, franchising is developing greatly in this country. It might be argued that that is outwith the scope of the measure—that we are not dealing with investment when we are dealing with franchising—but I suggest that it is getting near the line when people are dealing with a product and are almost licensed to distribute it. I raise that as a minor point which might be considered; perhaps some protection should be given in that respect

The Opposition are not slow to criticise the City when it needs to be criticised. We have often said that it is inadequate in dealing with the problem of financing British industry. I am glad to say that that view is no longer held exclusively by those on these Benches. Indeed, members of the Government sometimes express it. In a recent eloquent speech, the Secretary of State for Wales berated the City for the inadequate way in which it approached industrial investment in Britain. [Interruption.] I hear some muttering from Conservative Members. I think they are showing that they do not take the Secretary of State for Wales seriously. I am sure that my hon. Friends who represent. Welsh constituencies will bear that in mind

I note that the Secretary of State for Trade and Industry has been careful to keep a straight face; I can see his face, whereas his hon. Friends behind him cannot. He has been careful not to betray the confidence of a colleague. I was under the impression that when a Cabinet Minister made a serious and important speech, a speech obviously considered carefully in advance, he spoke on behalf of the whole Government and not just for himself.

:I believe that the Secretary of State is telling me from a sedentary position that I should not operate on that assumption. Where, then, is collective responsibility?

:I was wondering how the right hon. and learned Gentleman of all people, having served in a Labour Government, could say that with a straight face

I gave way to the Secretary of State because I thought it only fair to enable him to announce once again the doctrine of collective responsibility. I noticed with care that he avoided that opportunity. But, then, having regard to his colleagues, he was probably wise to do so

Is it fair for us on these Benches to assume that the right hon. and learned Gentleman accepts collective responsibility for the recent remarks made, and reports put out, by his hon. Friend the Member for Oldham, West (Mr. Meacher)?

I have been in the House long enough not to rise to the most obvious lures, especially from Conservative Members. I should be delighted to answer such questions if I thought that I could do so without breaching the rules of the House. I need only comment that the doctrine of collective responsibility is noticed in its absence rather than in its fulfilment by some members of the Government

While there are serious deficiencies in the way in which the City serves British industry, it is important—there will be unanimity about this — for us to have an efficient, internationally competitive and fair-dealing system of financial markets in this country. It is in the national interest and in the interest of the prosperity of our trade and industry that it be maintained, particularly as the City of London is now under intense foreign competition

I end on that note. An approach to this matter that guarantees fair dealing in the City is also the best way in which we can advance its efficiency and competitiveness. It is not just a method of protecting investors. It is a way of offering a guarantee to those who deal with it—both in this country and from abroad—that they can expect honest and fair dealing in Britain. We shall have differences of approach, but if we keep that principle in mind we shall achieve something good for the nation at the end of this whole process

5.16 pm

I agreed with much of what the right hon. and learned Member for Monklands, East (Mr. Smith) said, in particular his concluding words. He made an admirable speech and the whole House appreciated its constructive nature. He was right to say that we should now be considering updating the law

I am only one of many who take part in debates of this kind, inside and outside the House, and who give a warm welcome to the general principles of the White Paper. It is timely and well done. My right hon. Friend said he thought that it had had a unanimously successful press. I had not noticed that. I thought it did not have as good a press as it deserved. It is an excellent and constructive piece of work, and any criticisms of mine are more in the nature of anxieties about the detail rather than the direction in which my right hon. Friend intends to move, which I strongly support

I have an interest to declare. I have been involved for many years in the unit trust, insurance and banking industries in Britain. I am the chairman of a unit trust management company. I was one of the sponsors of the Insurance Brokers (Registration) Act 1977, which was introduced by my hon. Friend the Member for Harrow, West (Sir J.Page) and which has been most successful. I am also a vice-president of the British Insurance Brokers Association

I have therefore been a practitioner in these spheres for many years. Indeed, I have been involved not only in practice but in regulation, both as a Minister and as a member of various bodies. I speak from that standpoint

That lifetime's experience leads me to say that the White Paper provides a desirable and practical framework for protecting the interests of the investor, and it should help to ensure the healthy development of this fast-growing financial services sector of the economy. It is not only fast-growing. As the Secretary of State and the right hon. and learned Member for Monklands, East said, it is fast changing, too. I am not sure that I approve of all the changes that I see

Generalism is all very well, but the City of London has grown and prospered and has brought great strength and wealth to the nation because of its concentration largely on specialist skills. Anything that mitigates its effectiveness would be a pity. The financial services industry has been a great employer. It employs 1 million people. It has provided a great service to our fellow citizens at all levels. In other words, it is a great national asset. It has an important social and economic purpose, not least because of its £4 billion a year overseas earnings

My right hon. Friend is therefore right to say, as he writes in the White Paper, that his first purpose as a responsible Minister must be to provide the public, the nation, with protection against deceivers, both the deliberate ones to whom the right hon. and learned Member for Monklands, East referred—I agree with him that the methods of international protection against deceit need to be sharpened because they are pitifully weak—and those who are careless. My right hon. Friend is right also when he says that disclosure has to be the norm, so that a man who is undertaking an investment knows exactly what he will obtain. At the same time, my right hon. Friend says—again I believe that he is right—that caveat emptor must remain the rule. The House has no business protecting people from their own folly or greed

In choosing self-regulation as the means for achieving these objectives, the Government are giving this sector of our economy the opportunity to devise a detailed scheme to achieve a high standard of conduct by practitioners, an adequate level of competence within the industry and a proper protection for the consumer, and that too is right. There have been precedents at various levels for doing this. For instance, there has been the gentle discipline of the Association of Unit Trust Managers, of which I was one of the founders. That has been very effective. Now, with legislation, Lloyds is doing a powerful job in ensuring that the best practices are conducted there. This applies also to other aspects of the broking industry

The House will remember that, through the Insurance Brokers (Registration) Act 1977, all intermediaries who chose to call themselves insurance brokers have, since December 1981, been regulated, and are required to observe a code of conduct that ensures their independence and requires that the interests of the client are always their first consideration. They have to meet tests on financial solvency. They are required to take out their own indemnity insurance to allow for compensation to the client if they are negligent in conducting his business. Here then is a system by which, under a general code of law, the consumer has been well protected and the industry is well self-regulated

It is all very well establishing the idea of self-regulation, but in the end this depends on those who are doing the work of regulation. Everything is people. In insurance broking, we have been enormously lucky to find excellent people to do this work. I cannot pay a high enough tribute—some hon. Member should—to Mr. Francis Perkins, who was the chairman of the committee that brought together the four associations in broking and turned them into one. His successors, Mr. Findlay and now the excellent present man, Mr. Alexander, are also devoted people. They, and others, not least the chairmen of the registration councils and the like, and all their supporters, have done some marvellous work. My right hon. Friend will have to exercise all his ingenuity and persuasive powers to make certain that their example is followed in other respects. It is important to get the right people if self-regulation is to be made to work

Self-regulation in the intermediaries sector anticipated my right hon. Friend's White Paper by a number of years, but it is effective only for those who have volunteered to use the title "insurance broker". Someone who wants to call himself an insurance consultant or an insurance adviser can practise as an insurance adviser without any control. This, contrary to the principles laid down by my right hon. Friend's admirable White Paper, has impeded the raising of standards. There is no doubt about that—this is a matter of fact. The fact that there is a cost of registration as an insurance broker has penalised those who wish to practise professionally and ensure proper protection for the insurance buying client

We should be foolish to perpetuate that situation. My view, which I think is the view of the profession as well, is that one major shortcoming in the White Paper is the failure to provide for proper regulation of all insurance intermediaries. Life assurance policies, as long-term investments, will be covered by the proposed legislation and those who market them by the new self-regulatory system. However, non-life insurance policies —household and contents insurance, motor car policies, travel insurance and so on—are omitted altogether. As I understand it—this was confirmed by my right hon. Friend—it is because they are not commonly regarded as an investment. I do not accept or agree with that view. This is a serious omission, and I hope that my right hon. Friend will be willing to think again

The private individual can suffer catastrophic loss just as much from inadequate or incompetent advice, or even from fraud, on his home insurance, for instance, as on a life policy. The White Paper could make this more likely, as those insurance advisers who fail to achieve the necessary standards to become authorised to market life policies will be able to switch their attention to the other general sector of insurance. Furthermore, the ability to opt out will inhibit the general raising of standards

I go so far as to say that, if we do not include all intermediaries in the way that I suggest, much of the work that we have tried to do in the British Insurance Brokers Association may be valueless. What is the point of bothering to be a member of that institution and meeting its high standards and conforming with the requirements of the registration council and the rest if somebody can go down the road and do what the devil he likes?

Unless the Government bring in control of intermediaries offering advice on general insurance, we shall be losing a great opportunity. The present deficiency will not only be perpetuated but even accentuated by the new system for regulation of life assurance. It is the function of the insurance broker that needs to be controlled, not just the title of insurance broker

In an intervention, my hon. Friend the Member for Harrow, West referred to the part of the White Paper that says that the Government propose amendments to the Insurance Brokers (Registration) Act to fit the Insurance Brokers Registration Council for its new role in the self-regulatory structure. They should extend those amendments to provide for a proper regulation of anyone wishing to offer independent advice on insurance. If anyone is unable or unwilling to comply with the requisite standards, he could continue to trade as agent of an insurance company, provided that it is willing to take responsibility for his actions

I am sure that my right hon. Friend the Secretary of State and my hon. Friend the Under-Secretary, who is to wind up, will have seen that there is early-day motion 460 on the Order Paper, entitled "Protection for Policy Holders". It proposes the changes that I have outlined. Without any canvassing for signatures, it has attracted signatures from some 67 hon. Members from both sides of the House. That goes to show not only that what I have attempted to talk about is a matter of wide concern in the House, but that the remedy for it has wide agreement also

I move on to the White Paper as it affects life insurance. It asserts that the law and the regulatory system must be fair and not create artificial distinctions between services competing in the same markets. I am sure that that is the right policy. Unfortunately, it fails to achieve that objective in one major sector. It exempts what are known as tied agents from the duty to disclose their remuneration to potential clients. In so doing, it does not serve the consumer interest and it runs the risk of diminishing the sources of impartial advice available to the public

We have heard a lot about Gower this afternoon. In his report on investor protection, Professor Gower recommended that the regulation of commission payments should apply to all intermediaries, whether independent or tied. That was his plain recommendation. I am aware that this is the view of many responsible companies, including almost all leading assurance companies in the market

The White Paper requires only that the independent intermediary should be so regulated. But the tied agent working for an insurance company owes his first duty to the insurer and not to the purchaser of the policy. He receives commission from that company and other financial support such as office rents, phone bills and other indirect payments. Thus the White Paper's proposals create an artificial distinction and do not meet the White Paper's principle that there should be "equivalence of treatment" between services competing in the same market

I do not think that that distinction is right. It means that the purchaser will know how much he is paying for independent advice, but not how much the tied agent is receiving. The consequence could be a diminution in the independent broker market and thereby an undesirable restriction on the comsumer's access to independent advice. That would be a pity, and it would be wrong to put the man who offers independent advice at a competitive disadvantage. Therefore, I hope that my hon. Friend the Minister will be able to say that this matter will receive further consideration. If there is to be any requirement to disclose commission and other payments, it should be fairly and universally applied. That is the best way to avoid market distortion and an unnecessary and undesirable commissions war

There is another aspect of the White Paper where "equivalence" appears not to have been observed. The White Paper proposes that certain professions, such as accountants and solicitors, should be exempt from the regulations, provided that investment business is not a "significant" part of their activities and provided that their professional bodies have standards that offer equivalent safeguards to the investor. Great care will have to be exercised over what is to be regarded as "significant", since this could be a loophole through which large professional practices, which handle much more business than small insurance brokerages, could slip with, again, a potential distortion of market forces. If one group of people is obliged to disclose, everyone should be obliged to do so. That is my plain view.

Perhaps I can reassure my right hon. Friend on that point. Disclosure would be among the requirements that I would expect in the professions' codes governing these matters.

I am very pleased to hear that, and congratulate my right hon. Friend on having thought through the logic of this matter

I have three other general points to make. First, we have already had some discussion about whether we should have one or two boards. The right hon. and learned Member for Monklands, East had something to say about that. I can see the reasons that probably prompted my right hon. Friend the Secretary of State to start with the idea of two boards. In theory, marketing is probably a different aspect from the management of investments, but in practice it would be very inconvenient to have two boards. However, if my right hon. Friend thinks it right to start like that, perhaps I can invite him to have in mind the bringing together of those boards into a single board at the earliest possible moment. On the other hand, if he reconsiders the matter, he may come to the conclusion that one board now would be better than two

Second, I know how difficult this is, but I urge my right hon. Friend the Secretary of State to beware of overregulation. It is easy to believe that one has to regulate, and that one has to dot every "i" and cross every "t". But free markets—which is what the White Paper is all about—require maximum freedom. I hope that my right hon. Friend will go for the minimum rather than the maximum amount of regulation. Third, we have had some jokes about my right hon. Friend's successors in office in a hundred years' time, but I hope that he and his successors will bear in mind the great need for flexibility in the systems that we establish. As my right hon. Friend rightly said, the scene is changing. The right hon. and learned Member for Monklands, East said exactly the same thing, and it is true

My lifetime's experience in the financial and other worlds tells me that the accepted wisdom of today is generally wrong. We need to provide for innovation, as my right hon. Friend the Secretary of State has suggested. If anyone had planned the City as it is today, he would probably not have given money markets the latitude that they have had or the possibility of success. One cannot plan exactly what will happen

Perhaps I can share a memory with the House. When I, with my colleagues, started the modern unit trust industry in this country in 1957, and introduced the equity-linked life assurance concept, the City establishment bitterly attacked us. The chief actuary of a celebrated and significant life assurance company even wrote an article in Policy Holder magazine saying that what we were doing was dishonest. That was the sort of disdainful attitude that was displayed

If we had had to go to a conservative City group and say, "This is what we propose to do," we would have been turned down out of hand. Whoever is responsible for supervision—it may well be right to have a practitioner-based supervision—we should ensure that it is not just a cosy City affair and that we get in independent people I am not just talking about the statutory woman, black man or trade unionist. Let us get in people of imagination. Things are changing quickly. Let us lay down guidelines by all means, but let us give those who will pioneer new ideas a proper opportunity

I congratulate my right hon. Friend the Secretary of State warmly on what he is doing. The catalogue of events about which he spoke, together with the White Paper and ancillary things which the Government are proposing, are all intended to make financial services more generally available to the British public and to make them a continuing source of wealth and employment in our society I wish success to those associated with my right hon. Friend in what he is trying to do. Of course, it is a large job and it is being attempted in a short space of time. What happens and what is decided will have far-reaching consequences for a major and highly successful industry, which we hope will continue to be successful

Consequently, it is all the more important to ensure that we get things right—although it is easy enough to say that—and that the general principles that my right hon. Friend the Secretary of State has enunciated, which doubtless have universal support, are implemented fairly and in the widest possible interests of the industry and the public. All those who heard my right hon. Friend's speech will have greatly appreciated his readiness to listen to suggestions and ideas. I hope that those that I have been able to offer the House will be of help

5.36 pm

I listened to the Secretary of State's speech, and he seemed to be trying to be at his least offensive to the City and to be kind and humane I wish that on occasion he would show such sentiments to other people. He appeared to be saying that we must get away with the least regulation possible. I agree that a little regulation is better than none, but the right hon. Gentleman will not be too surprised to find that we do not quite agree with all that he said, and that we want to go much further

Perhaps I could suggest that the right hon. Member for Taunton (Sir E. du Cann) looks at early-day motion 460. We all agree that life insurance is important, but there is also car insurance, household insurance, insurance covering legal liabilities, and so on. All of them are equally important. Those who purchase those policies should also be protected. It is important that things should be taken more widely than at present. Indeed, I agree with the sentiments that have already been expressed on that point

People have had their fingers burnt over offshore companies. More should be done to protect investors. We all know about the collapse of Signal Insurance. The problem is caused by advice being given to people who are looking for a good return on their money, and sometimes an excessive return. Those who give that advice should be responsible for it, and some action should be taken against them

I agree with everything said by my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) I do not believe that the City should be allowed to regulate itself. There should be statutory regulation along the lines of the United States Securities and Exchange Commission. The individuals on the committee to organise the Marketing of Investments Board have been praised, but there is only one consumer representative on that committee. If we follow that pattern in setting up boards, we are asking burglars to police themselves. I believe that consumer interests should be represented more strongly

I have no firm views on whether there should be one or two boards. We must consider what voluntary regulation involves. Recently, the voluntary licensing of life assurance salesmen has suffered some setbacks. Attempts have been made to examine the voluntary regulation of commission payments to independent intermediaries since the collapse in 1982 of the Life Offices Association agreement. The key task is to consider whether the regulation of investments should be carried out by the Marketing of Investments Board separate from the Securities and Investments Board

I understand the argument in favour of just one board, because there would be less bureaucracy. Opinion is divided—the insurance industry wants two boards and the City wants one. The City does not want a supervisory body to be set up over which it has no control, and that may be the reason for its reluctance to support the setting up of two boards. Separate boards would mean that City institutions would have to obey board rules when they are allowed to sell portable pensions. I believe that the Secretary of State favours the formation of one board. The Department asked for advice, but the organising committee did not include one assurance company chairman who recommended setting up two boards

Much has been said about Professor Gower's report. I echo the point made by my right hon. and learned Friend the Member for Monklands, East, that the Government have taken a timid approach to Professor Gower's recommendations. We must never forget that Gower aimed to protect the investors. A self-regulating body will not be successful. Such a body would be successful only if those involved in it were determined to make it a success

The Government's mind may be concentrated by the knowledge that there is increasing demand for regulation. Without self-regulation, there will have to be statutory regulation. The confidence of all investors—large and small — must be gained, because they are equally important. Investors must be protected. I am extremely critical of the way in which the organising committee for the Marketing of Investments Board has been set up

A complaints procedure should be established, providing opportunities to individuals to make good any losses without undertaking lengthy legal proceedings. A complaints board should initiate action on behalf of individuals and pay compensation to them. That presupposes investigation by the board to establish a claim's validity

My right hon. and learned Friend the Member for Monklands, East said that compensation should be available and referred to paragraph 7.12 of the White Paper. We must consider the type of compensation that will be available — whether there should be a funded compensation scheme, or insurance. I am in favour of funded compensation along the lines of the levy that was charged under the Policyholders Protection Act 1975. The drawback to an insurance compensation system is that insurers would be unwilling to pay out unless a court decided in favour of compensation

Changes are taking place rapidly, and a periodic review is therefore needed. I welcome the move towards statutory authorisation of the investment business. I believe that a uniform approach should be taken to the authorisation and regulation of all financial services, taking the "best practice" as a guide. A rationalisation of the plethora of self-regulatory organisations is required, so that companies need deal with only one organisation. That would be more efficient

This White Paper is only the first step, albeit a step in the right direction. The setting up of a statutory board would be an even better step. I do not believe that the City would have many objections to setting up a statutory board. Stronger medicine is needed, as can be seen from the City's record in the recent past. The Government should have taken more radical action. I welcome the move to protect investors, although it does not go far enough. Sooner, rather than later, we shall all recognise that statutory regulation is required

5.50 pm

I think that the House has been at its best this afternoon, in stark contrast to the horrors of yesterday afternoon. This afternoon the House has been looking, in a relatively nonpartisan way, at the problems of the City and how the City can best be regulated. That must be to the advantage of all of us

I should like, first, to say a word to those of my hon. Friends who have criticised the role of the Governor of the Bank of England and the fact that he is to have a veto over appointments. It is, in a sense, a novel idea. I should like to put one reflection into the balance against that criticism. When other regulations and burdens were imposed on business over the past 30 or 40 years, if the interested parties themselves had been consulted to a greater extent at the time when the regulations were dreamt up by Parliament, perhaps some of the regulations would have proved to be less burdensome to business as a whole

There is the debating point that the Governor is responsible to the Chancellor of the Exchequer. There is also the possibility that we shall achieve a slightly better and more realistic approach to the regulation of the City by bringing the Governor into the process of consultation

On 29 January, when my right hon. Friend the Secretary of State for Trade and Industry made his announcement concerning the White Paper, my hon. Friend the Member for Horsham (Mr. Hordern)—who, unfortunately, is not able to be here this afternoon—was the first to point out that the need of the City to have the investor protected as much as possible was paramount, and that the City's reputation completely depended on that. From the debate so far—and I am sure that it is true generally—the House of Commons appears to agree with that view. I strongly agree with it. Against that very important need, we should also balance what my right hon. Friend said in his statement. He emphasised that it is very important to have a framework capable of
"accommodating rather than stifling innovation". — [Official Report, 29 January 1985; Vol. 72, c. 157.]
My right hon. Friend the Member for Taunton (Sir E. du Cann) reminded the House of his experience over many decades and reflected on the time when he was dealing with and innovating the unit trust business. He said that that innovation could easily have been stifled at that time. Therefore, my right hon. Friend the Member for Taunton this afternoon reflected what the Secretary of State said on 29 January—that it is crucial that the framework should allow innovation to take place if the City is to maintain its position in the world. I should prefer to use the word "regain", because we should not delude ourselves. Some parts of the City, like some parts of British industry, have slipped behind the rest of the world and fallen behind other financial centres. Therefore, it is crucial to be able to innovate

The hon. Member for Warrington, North (Mr. Hoyle) said that he wanted to see a tighter regulatory framework, and that may be necessary in the future, but not many of us can look round that corner at the moment. I hope the hon. Gentleman will agree that it is important that the regulations should not grow so much that they stifle the sort of innovation that the City needs

About three weeks ago the Government published a report called "The Burdens on Industry". In that report it was stated that anyone starting a business and wishing to avoid all the possible pitfalls, and wishing to avoid tripping over various laws and regulations, would need to read 270,000 words—a task that would take 24 hours. There is a lesson to be learnt from that. We must not allow the regulatory process in the City to grow to such an extent that that sort of thing could happen

In proposing the legislation, my right hon. Friend has walked a tightrope between over-regulation and under-regulation. As far as we can see at present, he has probably got it about right. It is impossible to be sure, as he would be the first to say; indeed, he implied in his speech that he would listen to comments. If it proves necessary to tighten the scheme in the future, that will have to be done

The rules and regulations should be clear, so that they can be understood by everyone. If that happens, we are much more likely to have a flexible and competitive climate in which we can encourage.new firms to come into the City

In recent weeks a great deal has been written about mergers in the City, with giant firms, merchant banks arid stockbroking firms being created. But surely we need a regulatory system to allow for new entrants with new ideas. We should allow new firms to innovate, thus ensuring that the City keeps up with other financial institutions throughout the world

When my right hon. Friend the Secretary of State said that he hoped that arrangements in the City for the new system would enable the raising of finance to be done more efficiently for the smaller business, that was music to my ears. I have in mind the larger private business and the smaller private company. At present, such businesses are not all that well accommodated by the City in the raising of finance. Perhaps new entrants can make a contribution in that respect

If we have the regulatory system right, as I believe we have, there will be freer competition; there will be competition that protects the investor. As I said at the beginning of my speech, that is crucial. Above all, we should be hopeful—as I am—that the proposals in the White Paper will allow the City not only to innovate but to grow and to regain its position as the most important financial centre in the world. If we have got it right, that can happen. As I believe that we have got it right, I hope very much that it will happen

5.58 pm

When the right hon. Member for Taunton (Sir E. du Cann) looked back into his own history and mentioned the establishment of unit trusts, he reminded many of us who have worked in the City, or have had contact with financial institutions, how much things have moved over the past 20 years—and nowhere more than in the great debate that has been going on for many years about the supervision of the City. There have been great debates within different parties about how that should best be carried out

I am very pleased that we have moved as far as we have in the White Paper and have at last the sort of framework of supervision that some of us have wanted to see for many years. It has always been difficult to get a consensus on what that supervision should be. Although they may not be perfect yet, the proposals in the White Paper mark a welcome step forward

I agree with other hon. Members who have spoken—and with a good deal of opinion in the City—that the major flaw in the present proposals is that there are to be two bodies. The most important change that the Government should make is to bring them together into one body. There is an overwhelming case for having a statutory body in the long term. That does not horrify me in the way that it horrifies some people. However, on the other hand, it is important to carry the City along with the proposals. The marrying together of a statutory framework and umbrella with self-regulation is a good way to do that

Therefore, my colleagues and I will support the thrust of the Government's proposals. The idea of a statutory commission is not as horrific to me as it is to some people

The Parliamentary Under-Secretary of State for Trade and Industry
(Mr. Alex Fletcher)

As no one else is likely to do so, will the hon. Gentleman tell us why a statutory commission is such a great thing?

If the Minister looks at the experience in many other places, in many international financial markets in the world, places as free, open and entrepreneurial as Hong Kong, and as far afield as Canada, Australia and many other countries, he will find that statutory commissions have been operating successfully for many years. Financial markets and institutions throughout the world fully understand the operation of statutory bodies supervising markets. Therefore, I do not think that the international financial world found that proposition as horrific as some people in this country did

People in the City have moved forward tremendously. As I said, I welcome that. I do not want to press the idea of a statutory commission, because I believe that what the Government are proposing constitutes a combination of statutory framework and self-regulation. I believe that it is best to suck it and see with this one and hope that it succeeds, but, if it is necessary, we should move further in the direction of a statutory body if the proposal does not work