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Commons Chamber

Volume 165: debated on Wednesday 17 January 1990

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House Of Commons

Wednesday 17 January 1990

The House met at half-past Two o'clock

Prayers

[MR. SPEAKER in the Chair]

Private Business

Greater Manchester (Light Rapid Transit System) (No 3) Bill Lords

Read a Second time, and committed.

Bromley London Borough Council (Crystal Palace) Bill

Ordered,

That the proceedings of 7th December 1989 on consideration of the Bromley London Borough Council (Crystal Palace) Bill be null and void.—[The Chairman of Ways and Means.]

Oral Answers To Questions

Trade And Industry

English Estates

1.

To ask the Secretary of State for Trade and Industry if he will make a statement on the future of English Estates.

The Secretary of State for Trade and Industry and President of the Board of Trade
(Mr. Nicholas Ridley)

As already announced, a consultant's study is looking at a variety of aspects of English Estates' activities.

Given that his father was a founder director of the enterprise as long ago as 1936, does the Secretary of State accept that there must be some remorse and resentment because the Government may dismantle the corporation in the near future when the consultant's report is produced? Will the Secretary of State make a statement on that? About 5,000 factory units provide a large amount of employment in areas such as the north-west that are experiencing industrial decline. At 1989 prices, since the last year of the Labour Government—1979—the north-west has suffered to the tune of about £180 million through lost regional selective assistance and regional development grants.

I shall take the hon. Gentleman's points in the reverse order. First, 1979 was a bleak time indeed for the north-west and the regions, but the situation has greatly improved since we have had 10 years of sound Conservative Government. I am grateful for the hon. Gentleman's acknowledgement of that. Secondly, I have no intention of dismantling English Estates. It might be of value to use the large amount of capital that is invested in factories in more productive directions in future, but that will not affect the factories themselves. Thirdly, I am extremely grateful to the hon. Gentleman for the tribute that he paid to my father for responding to the needs of the time when he assisted in setting up English Estates. I, too, intend to respond to the needs of the time in the most helpful way possible.

My right hon. Friend will be aware that the headquarters of English Estates is on Tyneside. May I draw his attention to the considerable part that English Estates has paid in the success story of the transformation of industry and commerce in the north-east? In particular, I commend the quality of management of English Estates. We should retain that asset in future.

I am grateful to my hon. Friend. I agree that the cradle of English Estates' birth was in the north-east, and its activities there have been immensely beneficial to that region. Needs and requirements change at all times, and it is correct that we should look at how best to help the regions, particularly through the vehicle of English Estates and, if necessary, make changes. I have not received the consultant's report, but when I do I shall report to the House on the Government's conclusions on it.

Hon. Members are interested in what the Secretary of State has said, but there are bleak times ahead for small and medium-sized businesses. It has already been pointed out that English Estates operates about 5,000 small and medium-sized businesses around the country, with a value in excess of £400 million. Will the Secretary of State give a clear commitment that English Estates will not be privatised and that, when he receives the consultant's report, he will consult widely with people who have been assisted and people who, in future, will look to English Estates to help small businesses with a technology base?

I do not believe that there are bleak times ahead for small and medium-sized businesses in this country. The future holds great prospects, provided that the hon. Gentleman and his colleagues are kept out of office.

My right hon. Friend will be aware of the considerable success of English Estates in my constituency, the only county in the United Kingdom that is a development area under the Rural Development Commission. Might an alternative be for English Estates to divest itself of its property on the market and start all over again in areas where private enterprise is still not always providing the nursery units that are essential to the Government's policy of self-employment? The Government have achieved a tremendous record in start-up businesses and self-employment—the largest number in the history of the country.

The function that English Estates has performed so valuably has been to provide factory space, both large and small, managed and unmanaged, in areas where the economic situation was so unfortunate that the private sector was not prepared to do that. However, that situation has changed in many parts of the country, but not in all. We now want to see how best the large capital that is employed by English Estates can be deployed for the benefit of the nation as a whole.

Cars (Import And Export)

2.

To ask the Secretary of State for Trade and Industry how many cars were imported into the United Kingdom in 1988; and how many were exported.

A total of 1·357 million cars were imported and 261,000 exported in the period under review.

Does the Minister agree that those figures are appalling and that they are 27 per cent. worse than when the Government took office? When will the Government get tough, in the same way as the Governments of France, Italy and the USA, against the Japanese imports that pour into this country? Why do we give subsidies to Nissan and allow Toyota to come here to Derby to steal the skilled labour force at Rolls-Royce—[HON. MEMBERS: "No."] Of course that happens, that is why Toyota came—to take the skilled labour force at Rolls-Royce. Why do the Government have a policy of selling off Austin Rover at rock bottom prices to British Aerospace and of using the car industry for the profits of their friends? Why can we not have the same sort of restrictions that we have for farming? Why will the Government invest in and protect farming, but not do the same for manufacturing industry?

The Labour party, in power between 1974 and 1979, presided over a massive increase in import penetration of cars into this country from 27·9 per cent. to 56·3 per cent. Under the Conservative Government, import penetration has stayed around the 56 or 57 per cent. mark. The Government's policies have seen a remarkable influx of inward investment by three leading Japanese car producers and we are on target for a major expansion of car production in this country. We may well see it expand in this decade from 1·3 million cars to around 2 million cars. That is the best answer of all to the hon. Gentleman's question. Our economic policies are working and Conservative Members welcome the new investment from Japanese companies because they have skills and jobs to offer us.

To what extent does my hon. Friend estimate that the decline in the British car industry was due to the actions of the trade unions, which refused to accept new industrial practices and favoured restrictive practices, go-slows and strikes? To what extent does he think that the Japanese decided to invest in this country because we have a Government who believe in private enterprise and the open market?

My hon. Friend is absolutely right. However, the trade unions were aided and abetted in their destructive policies in the 1970s by wrongful Government policies as well, which gave exactly the wrong signals to the car industry. The 1980s have proved much better and we now have a firm base of sounder industrial relations as a result of the new labour relations law, which has proved attractive to inward investors.

Does not the Minister accept that the consumer faces a problem nowadays because the brand names no longer state clearly whether the cars are made in Britain? Nissan cars are made in Newcastle, Peugeot in Coventry and Ford cars are possibly made in Spain or in West Germany. Will he encourage the manufacturers that wish to promote British goods to put the necessary stickers on their windscreens?

I thought that the right hon. Gentleman and his party—whatever it may be called—welcomed the integration of the European market. It has long been the case that various manufacturers that assemble in the United Kingdom also import components for their cars, and sometimes whole vehicles. It makes sense for a company such as Ford to choose where to produce in the European Community. We obviously welcome more investment from that company and expansion of the car lines that it thinks are best suited for this country.

Does my hon. Friend accept that over the years many of us have fought the importation of cars, especially from the Japanese, who would not allow our exports into their country? However, if we continue with what looks like happening now, when the Ford workers here are demanding a 14 per cent. increase, compared with the Ford workers in West Germany who have accepted 3 per cent. with much greater productivity, many of us who have said that we should not allow car imports must recognise that the British people have a right to buy cars and that if the Ford workers in the United Kingdom will not work, the British people should still be able to buy cars that might mean more imports and lost British jobs.

My hon. Friend speaks from experience. He is right that it is in the hands of Ford managers and workers to set the right level of pay in relation to output and productivity. I hope that they can settle on a good level of pay, which reflects the underlying improvement in productivity. That is the way to protect and expand jobs and to give the customer a good deal.

How does the Minister square his previous comments on the supposed recovery of the British car industry with the trade deficit in automotive products of £6·5 billion for the first 11 months of this year? Does he accept that the principal cause is that cars such as Vauxhalls and Fords are stuffed with components made in Europe? Is he prepared to open talks with companies such as Ford and Vauxhall and to insist that they increase the sourcing of components from the United Kingdom?

I want companies here to make the best commercial decisions. That is the way to secure jobs and a good package for the costomer. The hon. Gentleman should note that several major investments in British components manufacturing have been announced as a result of our success in attracting assemblers and new car production. The important point about the 1980s is that import penetration did not rise, but the total market expanded. That is why we have imported more cars. People are better off under a Conservative Government and they choose to use their purchasing power to buy new cars.

Does my hon. Friend agree that it is extraordinary and appalling that Opposition Members do nothing but criticise and knock the car industry although there is good news on the horizon? Was not the only contribution that we ever had from that lot, the £400 million investment in Dundee being stopped by their paymasters in the Transport and General Workers Union? Is it not the case that, as a result of inward investment by Japanese car manufacturers, there will be a massive increase in car exports from Britain in coming years? Does my hon. Friend agree that there is now a serious threat from eastern Europe and that we must ensure that the economic and industrial conditions here remain attractive to those who wish to invest in this country?

That was a long question and it leads to a long answer, which is problem.

I agree with my hon. Friend that the trade unions have a role to play in helping, rather than hindering, inward investment in Britain. I agree that the industry should remain competitive. I am not surprised at the attitude of the Labour party. It belongs to the wining and dining school where wining is spelt with an "h". It believes that it should issue lunchtime directives to car companies. When it tried that policy in Government, it met with disaster.

Washing Machines

3.

To ask the Secretary of State for Trade and Industry if he will estimate the percentage of the home market of washing machines supplied by imports.

Imports of washing machines are estimated to be 38 per cent. of home market sales by value in 1988—the latest full year for which figures are available.

During the past 10 years have not the Government presided over the decimation of the electrical manufacturing industry in Britain? Are they proud of the fact that the British public have to rely on foreign goods to clean their dirty linen? When will they take action to bring manufacturing of electrical goods back to Britain and allow the British public to do their washing in British washing machines? When the trade figures are published on Friday, will the Minister ponder that we have a massive import bill, while thousands of unemployed men and women are desperate to work to produce much-needed electrical goods, which would reduce the import bill?

I am pleased to say that most British people still wash their dirty washing in British machines rather than machines imported from overseas. There were high imports in the 1970s. The Government have a sound and firm economic policy that will allow companies to compete and to manufacture the things that people wish to buy. Naturally, I wish the washing machine industry and other British industries every success.

Does my hon. Friend agree that the only way in which British manufacturing can compete is by producing better goods than those produced by overseas competition? Does he share my delight that the consumer magazine Which? has judged a British washing machine, the Hotpoint 800 series, as joint best value and best buy? For once, it is clear that we can fight back with the right type of goods at the right price.

I am delighted to hear that news and I hope that my hon. Friend's message has been heard more widely, beyond the House.

British Steel

4.

To ask the Secretary of State for Trade and Industry what representations he has received about his use of the golden share in British Steel.

9.

To ask the Secretary of State for Trade and Industry what representations he has received about his use of the golden share in British Steel.

Does the Secretary of State accept that the golden share was introduced to protect vital national interests? In the Scottish context, that means the preservation of the Scottish steel industries. Is he aware that British Steel is starving Ravenscraig and its associated works of investment and that, without that investment, any paper guarantees given are worse than useless? Therefore, will he make representations to British Steel to ensure that investment is forthcoming in the Scottish steel industry?

The purpose of the golden share in British Steel was to protect an industry, which had been badly damaged by a long period of public ownership, for a limited time against unwelcome takeovers when it emerged into the private sector. The circumstances where it would have been appropriate to use that golden share have not arisen. The golden share is not available for the purposes suggested by the hon. Lady. It was made clear at the time, and I make it clear again, that the Government had no intention of using that golden share for any purpose other than that for which it was first introduced.

Is the Secretary of State aware that we are concerned that, in a privatised British Steel, the Scottish plants might be subject to unwelcome elimination? Although British Steel lied in the first instance, it has now confessed that, along with the Davy Corporation, it is storing a second-hand Japanese plate mill at Lackenby. Although the right hon. Gentleman might say that he has no responsibility as the golden share owner, does he accept that he has responsibility as the Secretary of State for Trade and Industry? Therefore, will he press upon British Steel that, should it go for a single-plate strategy, it should be at Motherwell and not at Lackenby?

I understand that the chairman of British Steel recently reaffirmed that the company statement of 3 December 1987 on the future of the Scottish plants still stands. There is no way in which I can intervene—it would be quite wrong of me to seek to do so—on where plate capacity is located or what happens to a particular plant.

Does my right hon. Friend agree that the concept of the golden share is alien to the work of the stock market? It depresses the value of shareholders' investment and it could have extremely damaging effects on the pension funds that are largely invested in the companies concerned. Will my right hon. Friend confirm that the Government have no plans to extend the use of the golden share and that, unlike the Labour party, they will never extend the golden share into the private sector?

I have come to agree with my hon. Friend even more strongly since the publication of the Labour party policy review, which states:

"The Golden Share already establishes the principle of separating voting rights from the other incidents of equity ownership".
That means that the Labour party thought it had a precedent for telling companies what to do and for overriding the interests of the share owners, without compensation, in the interests of pursuing policies that have been seen to fail in eastern Europe.

Will my right hon. Friend pass on the congratulations of my hon. Friends to the management of British Steel on making it profitable at long last? It is now one of the most profitable steel manufacturers in western Europe. Under no circumstances should it turn itself back into a charitable institution as suggested by the Scottish Nationalists, the hon. Members for Moray (Mrs. Ewing) and for Glasgow, Govan (Mr. Sillars).

I shall pass on the comments of my hon. Friend, who paid tribute to the management of British Steel for turning it into one of the most successful and profitable companies in the world since it was freed from the shackles of public ownership. I reaffirm that the Government have no intention of doing anything that might prevent that highly successful British company from conquering world markets.

Now that the Government have so recklessly handed over to Brussels the right to decide—to veto or approve—transfrontier mergers and takeover bids, will not the golden share now take on added importance as our one remaining defence against unwelcome takeover bids that are against the national interest?

Neither of the right hon. Gentleman's propositions is true. First, the Commission has power, and has been using it under articles 85 and 86, to clear or not clear mergers without reference to the United Kingdom authorities on monopolies and mergers. The total confusion about that matter has been brought to an end. Secondly, the golden share in British Steel has only a relatively short time to run, after which it expires. British Steel will defend and protect itself by the excellence of its economic performance—a concept unheard of by the right hon. Gentleman.

Does my right hon. Friend agree that the privatisation of British Steel made all the shares golden shares, and they have been profitable? Compared to the other steel industries throughout the European Community, British Steel's record, once the dead hand of Government was taken away, has been one of enterprise. We can congratulate it on its excellent progress.

I agree with my hon. Friend that the only share in British Steel that is not golden is the one held by the Government.

Is the Secretary of State aware that the undertakings given by British Steel about the steel industry in Scotland have to be read carefully? Will he do as the Secretary of State for Scotland has recently done and ask British Steel to explain its plans in Scotland? Is he aware that the trade gap last year and the increased plans for motor car production in the United Kingdom point to a continuing need for steel in the future? It would help greatly if the Secretary of State asked British Steel to update its commitments in that sector.

The hon. Gentleman has seen a policy by which British Steel was nudged, asked, interfered with, intervened in, pushed, pressed and generally mucked about by Government over 20 years with disastrous results. That policy was replaced by one through which the Government privatised it and allowed it to get on with running its own business, and it has subsequently shown itself to be one of the most successful steel companies in the world. I do not understand why the hon. Gentleman wants to return to the policies of eastern Europe, which is what he is advocating.

Will the Secretary of State confirm that all respectable forecasts for world and European demand for steel in the 1990s confirm that there is a viable future for the steel industry in Scotland, England and Wales? Will he confirm that not only has he received representations about the golden share—he has received them from me—but that the trade Minister of the day in 1988 said that the purpose of the golden share—the Secretary of State has set up more golden shares than any other Minister—was to prevent takeovers and the rundown of British Steel capacity? Therefore, will he join me and his colleague the Secretary of State for Scotland in supporting the detailed plans for new investment in Scottish steel? Will he assure the House that normal regional grants will be available to prevent another great industry from being run down?

The point that I want to get across to the hon. Gentleman is that British Steel is now a highly successful corporation. I wish to allow it to take decisions about where to invest and how to plan its business. I believe, with great humility, that British Steel knows the answers to those questions much better than I do and, I suspect, than even the hon. Gentleman does. That is why he should join me in encouraging British Steel to do what it believes to be right, in its commercial interests. I should not for one moment go further than that. The British Steel special share is time limited.

Manufacturing Industry (Defence Sector)

5.

To ask the Secretary of State for Trade and Industry if he has any plans to help the defence sector of manufacturing industry to seek alternative products in view of the military implications of developments in eastern Europe.

I thank the Minister for that answer, which is a bit of an improvement on his answer last time, when he was extremely glib.

Does the Minister accept that the major problem in Britain is that more than 500,000 people are employed in the defence industry which, in the past three years, has earned the country an average £1 billion in foreign exchange? Does he accept that if the defence talks and the changes taking place in eastern Europe continue, our defence manufacturers will have to look for alternative products? The Government should be assisting them in that and encouraging them to look for peaceful collaboration in eastern Europe.

The hon. Gentleman is at least persistent: he asked precisely the same question on 1 November 1989. That suggests that he is running out of ideas and in need of early retirement.

The motive behind the question has absolutely nothing to do with industrial strategy. The Labour party is up to its old tricks of cutting defence expenditure but trying to make it sound respectable. If anyone doubts that, he should bear in mind the fact that the hon. Member for Denton and Reddish (Mr. Bennett) is a long-standing unilateralist who prides himself on having voted against the Defence Estimates long before the relaxation in international tension.

Does my hon. Friend agree that the defence industries have a good record of diversifying into other commercial products, and that that diversification is being held up only by damaging strikes of the sort from which British Aerospace is suffering at Preston near my constituency?

My hon. Friend is entirely right. The Labour party is committed to a form of central economic planning. Page 88 of its policy review says on the subject:

"A Labour government will therefore consult unions and employers about the establishment of an Arms Conversion Agency which, within Labour's national industrial strategy, could take on the special role of providing new industries and new jobs."
That is the sort of central economic strategy and planning that eastern European countries are throwing away with contempt.

Will the Minister return to the peaceful developments in eastern Europe and confirm that since 1979 our trade with almost every country in eastern Europe has gone into deficit? This flatfooted Government have been left at the starting line while the West Germans, the Japanese and most of our other competitors have been building up trade with eastern Europe. What will the Government do about that?

Let us focus on the real issue; let us not waste our time with red herrings of the sort advanced by the hon. Gentleman. The Opposition say that they are better at industry than the major companies which have been doing so well in the defence sector. That is rubbish. There may be a case for adjusting markets and seeking new products, but that is a matter for the companies concerned, not for Opposition Members.

Does my hon. Friend agree that the United Kingdom defence industry has been a major success over the years and that that is one reason why democracy is breaking out all over eastern Europe? Does he agree that defence is a legitimate purpose for any country, and that British defence exports have helped to support the defence capabilities of many countries? Does he further agree that 500,000 jobs in the industry would be jeopardised if Labour came to power and implemented the proposals in the question of the hon. Member for Denton and Reddish (Mr. Bennett)?

It is much worse than that. The Labour party conference committed itself to a reduction of £5 billion in defence spending, or a 30 per cent. reduction in Britain's conventional defence capacity. That would lead to massive unemployment.

Does the Minister recall the Prime Minister saying that Mr. Gorbachev was a man whom she could do business with? Given that, is it not very disappointing that the Department of Trade and Industry seems to have been so unsuccessful in taking advantage of the new industrial opportunities in the large market of 420 million people in eastern Europe and the Soviet Union? Is not the Government's policy one of unilateral industrial disarmament, and are they not failing to take advantage of the new market that is on offer?

I am sorry that the hon. Lady, who I always thought was a rather respectable character when it came to the point, should be speaking in terms of unilateral disarmament of any kind. I clearly remember what my right hon. Friend the Prime Minister said about Mr. Gorbachev, and I have no doubt that the relaxation in international tension is due, at least in part, to what the Prime Minister has done in that connection. I also remember what the Prime Minister said about the dangers of relaxing our defensive capacity until we see how this matter will end.

Will my hon. Friend examine the speed at which his Department issues defence export licences? Delays in issuing those licences are a brake on successful export industries, notably in my constituency. Does he agree that the best thing for our defence export industries and especially for the Property Services Agency, which is being privatised, would be to allow them to compete internationally for the excellent defence-related services that they provide?

I am concerned at my hon. Friend's suggestion that there is unreasonable delay in the DTI over issuing licences. If my hon. Friend has specific points, I should be pleased to hear them. I hope that he will give me or my colleagues the details of the complaints.

We are making slow progress today. If we had briefer supplementary questions we might get briefer answers and could make more progress.

Northern Development Company

6.

To ask the Secretary of State for Trade and Industry what grant he proposes to offer to the Northern Development Company in 1990–91.

I know that hon. Members will enjoy this. As I told the House on 6 December in answer to my hon. Friend the Member for Tynemouth (Mr. Trotter), I expect to announce the level of grant in March.

Does the Minister accept that his answer has more twists in it than the Lambton worm? We do not have a development agency in our region. We have built one ourselves using the resources of local people. We need another £2·5 million over the next three years to promote the second industrial revolution in the region. We want to do it for ourselves, but the Government will not give us the money. The Minister should spare us the lectures and put the cheque in the post.

The hon. Gentleman is an engaging character, but in two respects he does himself no credit. First, as he has not told us about the very substantial increase in DTI funding for the Northern Development Company over the past few years, I shall do so, In 1981–82 funding of the NDC was £230,000. In 1989–90, inclusive of core funding, it is £1·182 million, which is a fivefold increase.

Secondly, unemployment in the hon. Gentleman's region has fallen by 3 percentage points during the past 12 months. The hon. Gentleman might have mentioned that.

Does my hon. Friend acknowledge the self-support provided by the region to the Northern Development Company and the funding provided by local firms and local authorities? May I remind him of the development corporation's success story, and ask him to support it on a longer-term basis? I point out to my hon. Friend the difficulties of budgeting for only one year at a time, and ask for his support for the suggestion that there should be a three-year finance programme.

Finally, may I ask my right hon. Friend to recognise the excellent support—

Order. I asked for briefer questions, and the hon. Gentleman has asked at least three.

My hon. Friend deserves some good news, and that is what he shall get. As to the rolling programme to which he refers, he will know that on 2 October 1989, I wrote to the regional development organisations accepting the proposal for a three-year funding programme which meets precisely the point that my hon. Friend so eloquently put.

Manufactured Goods

7.

To ask the Secretary of State for Trade and Industry what was the increase in import penetration of manufactured goods from 1979 until the most recent date for which figures are available.

Import penetration in manufacturing industry rose from 27 per cent. in 1979 to 36 per cent. in the year ending March 1989.

Is it not a disgraceful record for the Government of the world's first industrial power to turn the manufacturing trade surplus of £1 billion achieved under the previous Labour Government into a £20 billion deficit this year? Although the service sector is important, the Government must understand that we cannot rely on it alone. We should follow the example set by the Germans and Japanese, who plan for, support and invest in their manufacturing industries. Why have the Government failed so abysmally?

The hon. Gentleman does not appreciate that although our commitment to the European Economic Community means rising import penetration, it means also an increasing proportion of exports. Both have risen because of increasing European and worldwide trading. Six Community countries have a higher import penetration than the United Kingdom, but that does not mean that those countries or Britain have weak economies. It means instead that we are benefiting from a more open and competitive market, that our customers have greater choice, and that British businesses have more discretion in whether to produce for the home or export markets. The important point is that unemployment has fallen dramatically and is well below the EC average—it is particularly low in the hon. Gentleman's constituency. Living standards have reached new records, and consumers have unprecedented choice.

Will my hon. Friend remind the Opposition that manufacturing exports have increased by 40 per cent. since 1986, whereas manufacturing output fell under the previous Labour Government, as did our share of exports? Does my hon. Friend agree that protectionism is no way to make British industry more efficient and competitive? Will he commit himself to dismantling the pernicious gentlemen's agreement that limits car imports, and so put timely pressure on the unions at Ford?

My hon. Friend is right to say that the open trading system offers more prosperity than restrictions—as the events unfolding daily in eastern Europe show. Car imports are a matter for EC deliberation and not specifically for the British Government, and they will be debated within the Community's Councils.

The Minister will be aware that one way of overcoming high import penetration is to assist British regional development in areas where unemployment is high and incomes are low—such as my own. Will he study the example of the Bretons, who tackled the problem very successfully? They enjoy a thriving export business, but only on the basis of a regional development fund and agency.

Our policies have been much more successful in reducing unemployment than those of many other European countries. It is well below the EC average as a consequence of our open market and competitive policies. As the hon. Gentleman knows, we already have a regional policy. The main contributors to improved prosperity are an open trading system and sound economic policies that allow rapid growth of the sort seen in this country in recent years.

Will my hon. Friend give more help to smaller companies, many of which could win exports if given greater encouragement through the British Overseas Trade Board and the commercial departments of British embassies? Will he also examine the potential of eastern Europe, and ascertain whether our commercial departments there could be expanded to help British exporters, as it is difficult to export to the East at present?

I am grateful to my hon. Friend for raising this important subject. There are a number of initiatives to encourage exports. The DTI has an export initiative for smaller companies, which should get in touch with regional offices if they would like help.

I and my right hon. and hon. Friends are active in taking companies and industrialists to see the opportunities in eastern Europe. Extensive briefing is available from our embassies and from the DTI in London and the regional offices. There are enormous opportunities in eastern Europe for British business, and we would welcome companies taking up our offer of advice and help here and in the embassies abroad.

Information Technology

8.

To ask the Secretary of State for Trade and Industry what is the current balance of trade in information technology with Japan.

The Parliamentary Under-Secretary of State for Industry and Consumer Affairs
(Mr. Eric Forth)

According to the latest figures available from the business statistics office, the United Kingdom had a trade deficit with Japan in manufactured products of the electronics and information technology sector of £1·8 billion in 1987 and, provisionally, £2·2 billion in 1988.

Why is a major competitor like Japan ahead in production, and why are we, who are often in the forefront in invention, lagging behind? The Government appear to be unable to resolve that major problem. Is the Minister aware that there is a major deficit with Japan, much of it in high-technology goods? Does not that require urgent action by the Government and why do they not get on with it?

The hon. Gentleman highlights the important phenomenon that all the major OECD countries, except Japan, have a trade deficit in information technology. The sad truth is that most countries are unable to compete with Japan and certain other countries in that sector, partly because the Japanese have been very successful in identifying the sector and promoting it. Our export performance, which, as my hon. Friends have pointed out, is excellent, is across a wide range of goods. I see no incompatibility between our excellent performance across the range and the Japanese specialising, for example, in information technology.

Does my hon. Friend share my disturbance at the deficit with Japan? Will he note that in my constituency several companies in this sector are selling successfully into the Japanese market, which seems to show that what companies need most is not Government assistance but being based in Esher?

I congratulate my hon. Friend on the fact that companies in his constituency are capable of developing and making products in this sector which can be exported everywhere, including Japan. There are many such cases throughout the United Kingdom. I see no reason why, with a liberal economic regime and liberal Government policies, a low tax base and a skilled and trained work force, companies should not be able to compete in the sector and export throughout the world, including Japan.

Will the Minister try to answer the question posed by my hon. Friend the Member for Ealing, Southall (Mr. Bidwell)? What does his Department intend to do about the problem other than beating its breast and sitting on its hands?

A moment ago I told the House what it is appropriate to do: we shall continue to provide an invigorating economic climate in which companies are free to make their decisions about investment, to develop their products and to seek the most effective markets for them. I hope that the Government will not propose a latter-day interventionist policy of the sort which people throughout eastern Europe have realised, belatedly but welcomely, is a total failure. We hope to continue the excellent trend of policies that we have established over the past 10 years to liberate our industries and give them every opportunity to continue to succeed.

House Of Fraser

10.

To ask the Secretary of State for Trade and Industry what representations he has received regarding publication of the report on House of Fraser.

I have received a number of representations, the great majority of which are in favour of my publishing the inspectors' report into the affairs of House of Fraser Holdings plc. I will do so as soon as possible.

It is five years since the alleged irregularities and fraud took place, and 18 months since the previous Secretary of State received the report. Nothing can be done about alleged wrongful transfers of assets because of the previous Secretary of State's decision not to refer the issue to the Monopolies and Mergers Commission. Does my right hon. Friend accept that it is almost an insult to open government and justice not to publish the report and not to tell people exactly what went on?

As I have already told my hon. Friend, I will publish the report at the earliest moment consistent with the even-handed administration of justice.

How early is the earliest possible moment? Is the Secretary of State aware that many of us who knew little about the matter until we saw television programmes have been shocked at what has been happening? Is it not time that not only the House but the entire population had a proper report of what happened in that case?

How early is as soon as possible? It is as soon as I can do so. The hon. Gentleman should reserve judgment until it is possible to publish the report, which I have already said I will do as soon as that is appropriate in the light of possible proceedings.

North Devon Manufacturers Association

11.

To ask the Secretary of State for Trade and Industry what assistance he is giving to the North Devon Manufacturers Association.

Through my south-west regional office, which maintains excellent relations with the North Devon Manufacturers Association, my Department has supported and will continue to support events sponsored by the association whenever possible.

Will my hon. Friend accept my thanks and congratulations on the good work of his Department in sponsoring a genuine multinational, locally based collection of industries, which is leading the way in skills training, information technology and happy co-existence to provide a good basis for prosperity in north Devon?

I accept my hon. Friend's comments. Our efforts have been very successful. I recently studied the unemployment figures for the Barnstaple and Ilfracombe travel-to-work area and for Bideford, and then contrasted the figures for November 1984 with those for November 1989. In November 1984, the respective figures for Barnstaple and Ilfracombe and for Bideford were 14·7 per cent. and 17·2 per cent. In November 1989, the figures were 6·7 per cent. and 8·1 per cent. That is a dramatic improvement.

What representations has the Minister received from employers in Devon about the difficulties that might face their employees should they be forced into short-time working? Is the Minister aware that, as a result of changes in Government regulations, if an employee earns more than £43 a week on short-time working he is prevented from claiming unemployment benefit for the days that he is not employed?

Will the hon. Gentleman urgently investigate the impact of the regulations in Devon and elsewhere? Will he ensure that the Secretary of State for Social Security changes the regulations soon so that they do not force short-time workers to be penalised in that way?

I am sorry to disappoint the hon. Gentleman, but none of the members of the North Devon Manufacturers Association has made representations to that effect. However, they are pleased with the substantial improvements to the infrastructure in north Devon and, in particular, the large sums of money that the Government are spending on improving road links—for example, the £109 million spent on the north Devon link road.

Exports

13.

To ask the Secretary of State for Trade and Industry if he will make a statement on the actions he is taking to improve the levels of British exports.

One year ago today my noble Friend Lord Young of Graffham launched a package of measures offering a wide range of help, advice and support to firms at each stage of the exporting process. Staff in the embassies and regional offices are always available to give information and advice.

I am encouraged to note that the volume of non-oil exports in the three months to November 1989 was 13 per cent. higher than a year earlier.

My right hon. Friend's news is much appreciated. He will no doubt recognise the importance of the 20 per cent. increase in exports last year, and he is to be congratulated on his recent announcement on the Export Credits Guarantee Department. Is he aware of the importance of the export credits guarantee to the north-west of England? Can he give us a timetable for the implementation of his plans?

I am glad that my hon. Friend recognises the remarkable export performance of British industry in the past year. It represents a remarkable gain in our share of exports, to which the whole House will wish to pay tribute.

On the ECGD, my announcement before Christmas will have the effect of giving added impetus to the credit insurance industry in the long term by making sure that credit insurance will be available to our exporters within and without the Community. It will be necessary for legislation to be introduced, but I cannot estimate when it will be introduced. Apart from that difficulty, the Government will proceed with urgently required plans for the future of the ECGD as soon as possible.

What would be the impact on unemployment nationally if the Government's export promotion allowed the balance of payments to trade in surplus?

I could not be expected to answer that off the top of my head. The balance of payments includes the capital account, which produces a large amount of inward investment—about £1·5 billion from Japan alone last year—and which in turn is a major contributor to United Kingdom employment. The calculation that the hon. Gentleman seeks is somewhat wider than he would like to acknowledge.

Does my right hon. Friend agree that exports will increase in the years to come as the significant investment in manufacturing, domestic and foreign, comes on stream? Does he further agree that this is a sign of great confidence in our economy, and that if Opposition Members truly wished to support their constituents and their jobs, they would welcome that inward investment instead of carping about it, as they often do?

My hon. Friend is right. In addition to the 13 per cent. volume increase in exports in the past 12 months, export order books have been showing a distinctly healthy trend, even in the past few months. British exports in the future will embarrass Opposition Members because they never like to hear good news.

Will the Secretary of State confirm that we have not only the biggest trade deficit of all our European competitors but the highest interest rate and the worst inflation, and that that is hitting exporters? What will he do to prevent Britain from becoming the only country in Europe, in the run-up to 1992, according to CBI figures, in which manufacturing investment this year is falling?

I would not accuse the hon. Gentleman, in the words of the hon. Member for Kirkcaldy (Dr. Moonie), of being sufficiently clever to sit on his hands and beat his breast at the same time, but he was attempting to do something very similar in that supplementary question. Investment is keeping up extremely well and, in addition to the list of factors that he suggested, we have the lowest taxation on industrial payroll companies. Why does he wish to add a 0·5 per cent. payroll levy, which would raise a further £1 billion from British industry, thus severely debilitating it at a time when he says British industry needs help not hindrance?

Is my right hon. Friend aware that we must increase our manufacturing exports and that, to achieve it, the Government cannot ignore the need for a strategy for manufacturing industry? Is he further aware that unless we increase our manufacturing exports, our balance of trade deficit will continue, and there will be ongoing pressure on the pound, which will contribute to inflation and the country's economic problems?

We have a strategy for manufacturing industry, and that is to let companies get on with the job without interfering with them. I suspect that that played a large part in the highly successful performance of British exports to which I referred.

Regional Assistance

14.

To ask the Secretary of State for Trade and Industry what is his estimate of the value of grants paid by his Department in pursuit of regional assistance plans during 1989; and what was the level of such assistance in real terms during 1979.

In 1989 expenditure on regional assistance in England totalled £326·6 million; in 1979 the figure was £297·6 million. Expressed in terms of 1989 prices, the expenditure in 1979 was £594 million.

Does the Minister deny that the combined total from regional assistance and regional development grants was £1,130 million in 1979 and £470 million last year? Given the enormous increase in economic and environmental needs, does the Minister realise that that is an example of negligence and irresponsibility?

The hon. Gentleman has failed to analyse the component elements of the figures. We have discontinued regional development grant, and quite right too, because it was an automatic grant which took no account of the jobs created, or of need. We are relying on regional selective assistance, which is based on need, jobs created and economic viability. That is the way forward.

Sawmilling Industry

15.

To ask the Secretary of State for Industry what representation he has received about overcapacity in the sawmilling industry.

Apart from the points that my hon. Friend raised in his recent correspondence with my Department, I am not aware of having received any other representations about overcapacity in sawmilling.

In view of my hon. Friend's answers to my question and to the preceding one, what assurance can he give the House that regional selective assistance will not lead to displacement and overcapacity? Does he agree that such commercial decisions are best left to the market?

My hon. Friend illustrates the value of having moved away from regional development grants to regional selective assistance. When considering applications for regional selective assistance, one can take into account displacement in employment opportunities and overcapacity in existing plants. That was not the case with regional development grants.

Hong Kong

3.31 pm

With permission, Mr. Speaker, I shall make a statement on my visit to Hong Kong from 13 to 16 January.

I went to show this country's continuing commitment to Hong Kong, to meet a representative cross-section of the community, and to discuss the issues of prime importance to Hong Kong in the period before 1997—the operation of the nationality package, which I proposed to the House on 20 December, and the pace and extent of democratisation in Hong Kong.

I also discussed the problem of the Vietnamese boat people, and visited a refugee camp and a camp at which boat people are screened for refugee status.

Hong Kong has become the world's 11th largest trading entity because of the unique combination of British administration and justice, and the talent and energy of its people. The immediate sense of fear caused by the events in China last June has lifted, but those events dealt a substantial blow to Hong Kong's self-confidence, and the exodus of the talent which is needed to keep Hong Kong prosperous has continued. We believe that it is vital that those people should stay.

Everyone to whom I spoke—in the Executive and Legislative Councils, one of the district boards, the business community, public servants and other groups—had hoped that the package that I proposed on 20 December would have made provision for more people. But they also welcomed what we had proposed as a measure that would give key people the confidence to remain in Hong Kong. They recognise that it was not an easy step to take, and they are following carefully the discussion in this country. They all hoped that it would be possible for Parliament to give its approval and for the scheme to begin to operate. I assured them that the Government were fully committed to the proposal.

The second issue that we discussed was the repatriation of Vietnamese boat people. No one in Hong Kong involved in the repatriation takes satisfaction in what had to be done, but the result achieved was necessary. Having seen the camps for myself, I am more than ever convinced that return to Vietnam, in carefully controlled conditions, is preferable to camp life, with no hope of resettlement elsewhere.

Hong Kong has paid a heavy price for its principled policy of first asylum. We cannot expect it to receive this year the same number of boat people—over 30,000—that they received last year. There is nowhere for those boat people who are not refugees to go. The policy of repatriation is therefore the right one, and I hope that this may soon be endorsed by the international community.

I am grateful to my right hon. Friend the Member for Aylesbury (Mr. Raison) and to Lord Ennals for their thorough and expert report on the first 51 who were repatriated before Christmas. I would welcome monitoring by the United Nations High Commissioner for Refugees, and other agencies, of all who are repatriated in the future.

No one in Hong Kong seriously disputes the validity of the joint declaration as a basis for Hong Kong's future after 1997, but confidence in the concept of "one country, two systems" was undermined by the events of last June. Since then the Chinese Government have reaffirmed their commitment to the joint declaration, and I believe that we must make it work.

An important element in that is the extent and pace of movement towards democracy in Hong Kong before and after 1997, which as I have discovered, is the subject of intense concern and debate in Hong Kong, and we are discussing it with the Chinese Government; those discussions are continuing, and I would prefer not to go into detail today. I can say, however, that our goal is to set a system in place—beginning with elections to the Legislative Council in 1991—which will satisfy Hong Kong's aspiration for democracy and which will endure after 1997. [Interruption.] There seems to be some disarray on the Opposition Benches.

I hope to be able, after further discussion, to announce a decision within the next few weeks.

As all who know it agree, Mr. Speaker, Hong Kong is the economic success story of a region that boasts several economic miracles. As you look across the border into China you see that that economic success has spread to the neighbouring province of the mainland. China is Hong Kong's largest trading partner, and Hong Kong is also one of Britain's biggest markets in the region. All that could continue after 1997—and the plans are dramatic—or it could be lost.

The future of 5·7 million people after 1997 depends on three things. First, it depends on the talent and energy of Hong Kong's own people, and they are not in doubt. Secondly, it depends on the attitude of the Chinese Government, who need to do much more to reassure Hong Kong. But dialogue has been re-established, and we must do our best to maintain it. Thirdly, Hong Kong's future depends on Britain, as the responsible sovereign power until 1997.

After last June, the House rightly voiced its support for Hong Kong—and that, of course, must mean more than words. The people of Hong Kong are realists: for example, they accept, although reluctantly, that we cannot give passports to all. They look to us, as the sovereign power, to make the necessary decisions over the coming years, and to follow an active and understanding policy towards Hong Kong. I hope that I convinced them that we shall do so.

We thank the Foreign Secretary for making a statement to the House so soon after his return from Hong Kong. Four questions arise from his visit, from today's statement and from the statement made in Guangzhou today by the deputy director general of the Basic Law drafting committee.

First, what are the Government's intentions with regard to the progress of democratisation in Hong Kong? Everyone now accepts the timid inadequacy of the Government's decision in February 1988 that only 10 members of the Legislative Council should be directly elected in 1991. Opposition Members took the view that the first elections should have taken place in 1988. After the Tiananmen square massacre, we urged an increase in the number of next year's directly elected members to 30, with a full 100 per cent. by 1995.

The Government recognised the need for an increase, but they have done absolutely nothing. They have therefore left the field free for decisions by the Peking Government, who, as the right hon. Gentleman knows, have proposed only 18 directly elected members by 1997 —the year of the handover. OMELCO—the Hong Kong representatives—asked for 20 next year as a prelude to 30 by 1997 and the full 60 by 2003. The Foreign Secretary in Hong Kong gave an elliptical off-the-record interview in which he said that there would be 20 by next year, but he did not look further than that. Today he has given the House no information whatsoever, and that is simply not good enough.

The right hon. Gentleman said today that we are the responsible power. He said in Hong Kong that it is a decision for us and for the Government of Hong Kong to make. What does that mean? Will the Government have a phased programme of democracy in Hong Kong—not just elections next year but an increased number before the handover? He must at least tell the House clearly today.

Secondly, what has happened to the Bill of Rights? The right hon. Gentleman's predecessor, the present Leader of the House, who is sitting beside him, said on July 13:
"The proposed Bill of Rights will ensure that there is one fundamental legal text which sets out all the rights and freedoms that the people of Hong Kong currently enjoy."—[Official Report, 13 July 1989; Vol. 156, c. 1169.]
He promised that it would form part of the existing law and continue after the transfer of sovereignty in 1997.

As we know, the draft Bill of Rights has been thrown out by the Executive Council in Hong Kong as inaccurate, and reports from Hong Kong during the right hon. Gentleman's visit stated that the Government were now playing down the Bill of Rights. Today he has said not a single word about the Bill of Rights. Will he make it clear to the House? Is the Bill of Rights now expendable, or are the Government proceeding with it? We must know.

Thirdly, what international discussions are taking place on the boat people and when will they be resumed? Have the Government of Vietnam indicated whether they are ready to receive more boat people if they are sent forcibly? What action are the Government taking to provide incentives for voluntary repatriation? What action are the Government taking to provide direct economic aid for Vietnam, which is the most sensible way of giving the Vietnamese confidence to remain in their own country as it is assisted to escape from its abject poverty?

The right hon. Gentleman said in Hong Kong that he had not yet had time to read the Amnesty International report about the treatment of the boat people. He will know that that report alleges partial strangulation, kicks and beatings of boat people by Hong Kong police and that a boat person died as a result of indiscriminate kicking and the use of batons. Those are grave charges by an organisation of international repute.

Will the right hon. Gentleman set up an independent inquiry into those allegations, and will he re-examine the screening procedures, which Amesty International says contain critical shortcomings?

Finally, has the right hon. Gentleman seen the statement today by Mr. Lu Ping, the deputy secretary general of the Basic Law drafting committee, which he made in Guangzhou in which he is reported as saying that under the Basic Law top officials in Hong Kong's post-1997 Government will not have the right to live abroad and in which he further says that Hong Kong residents with British passports will not be allowed to seek British consular protection while in the territory after it returns to Chinese rule. Is that not a torpedo right through the Government's ill-conceived plans to award United Kingdom passports to 50,000 so-called key people? Does not the statement made on behalf of the Chinese Government mean that, if the British Government's plan is enacted, everyone awarded a passport will inevitably seek to come to Britain before 1997, thus making nonsense of their claim that the purpose of their plan is to anchor those people to Hong Kong?

Everyone in Britain has welcomed the magnificent moves to democracy in eastern Europe. Are the people of Hong Kong to be denied that clear progress to democracy that has been won by the Poles, Czech and Romanians? That would be a sorry epitaph to British rule in Hong Kong, and we look to the right hon. Gentleman to reassure the House and the people of Hong Kong.

The right hon. Member for Manchester, Gorton (Mr. Kaufman) asked four substantial questions. First, he asked about the progress to democracy. It is certain that that will start with elections to the Legislative Council next year, and from a substantially higher base than that proposed in the White Paper in February 1988. Hong Kong will start next year on that substantial road. I gave no figures in Hong Kong, and I have given no figures to the House, because we are still seeking what is clearly the best solution, which is that that start next year, and then in the elections in 1995, should continue after 1997, and for it to be incorported in the Chinese provisions. If someone is contemplating standing for election to the Legislative Council, it is clearly desirable and makes sense to have that upward curve, if possible, to ensure that the process which will certainly start next year will assuredly be continued after 1997.

We have been discussing that in Hong Kong and with the Chinese Government, but those discussions have not yet finished. I said in Hong Kong, and in the House today, that as soon as they have finished—they must end before long—I will let the House know. It would be a great mistake to take a decision that made impossible the longer-term progress to democracy, if such progress is attainable. If it is not, as I said in Hong Kong, we and the Hong Kong Government will have to take decisions and announce them for 1991 and for 1995.

Secondly, the right hon. Gentleman asked about the Bill of Rights. That idea was first put forward by my right hon. and learned Friend the Lord President of the Council. It has been taken up in Hong Kong, and its institutions are considering its text. The drafting of the Bill of Rights is a matter for the Hong Kong Government. The Chinese have not made any representations to us, but if they want to comment on the draft Bill once it is published, they will be entitled to do so. That matter is progressing through the institutions of Hong Kong.

With regard to what will happen after 1997, the two United Nations covenants on human rights will, as the joint declaration makes clear, continue to apply to Hong Kong after 1997. There is no dispute about that, and that provision is fully reflected in the current draft of the Basic Law.

Thirdly, the right hon. Gentleman asked about the boat people. He asked for specific information about the next meeting of the steering committee in Geneva. I have been told today that it will be held on 23 and 24 January, about a week later than was originally supposed. I hope that the international community will agree at that meeting to accept in practice what is already accepted in principle—that the right place for Vietnamese who are not refugees is Vietnam. As the right hon. Gentleman said, while it is absolutely right to encourage voluntary return—as the right hon. Gentleman knows, we and the United Nations High Commissioner for Refugees are doing that—that has not proved sufficient, and therefore repatriation is necessary.

The right hon. Gentleman referred to the Amnesty report. Obviously the detailed criticisms in it must be considered by us and by the Government of Hong Kong, as I said in Hong Kong yesterday. Several of the incidents in the Amnesty report have already been investigated by the Hong Kong Government, and the criticisms have not been accepted. I visited the Hai Ling Chau camp yesterday and saw something of the screening. Obviously it was not a thorough inspection, but I was impressed by the initial interview, which was relatively short, and the three hours or so that were spent actually examining the detail. I was impressed also by the way in which, in the camp, it was stated in English and in Vietnamese that there was a clear right of appeal.

The right hon. Gentleman's final point dealt with Mr. Lu Ping's statement. I imagine that I have read the same account as the right hon. Gentleman read. We have looked at that point—it came up while I was in Hong Kong. Under Chinese law, full citizens of another country are not dual citizens. It follows that, in the case of United Kingdom citizens, they are entitled to our consular protection throughout the world. Hong Kong Chinese who are not full United Kingdom citizens are in a different position.

Article 74 of the joint declaration makes it clear that the Government of the special administrative region—the SAR—of Hong Kong may employ British and other foreign nationals in the public service after 1997.

Is my right hon. Friend aware that he conducted his recent visit to Hong Kong with great skill in appallingly difficult circumstances? Frankly, those circumstances are not being helped by the attitude of the right hon. Member for Manchester, Gorton (Mr. Kaufman).

My right hon. Friend spoke the other day about a through train to the future for the people of Hong Kong. Does he accept that the best through train is one marked "freedom and democracy" and that, therefore, his statement today that he will set in place a system of democracy that will satisfy Hong Kong's aspirations is extremely welcome?

Will my right hon. Friend enlighten the House on an important matter about the Opposition's policy? I realise that Opposition policy is not his responsibility, except in the sense that all policy statements in the House are part of the central problem of Hong Kong. Is it correct that the Opposition are now in favour of giving British passports to everyone in Hong Kong?

I am most grateful to my right hon. Friend for his comments. As he knows, there has been a concentration and focus on the figures for the number of democratically elected legislators in the Legislative Council in 1991, which is an important point. The point may have been somewhat obscure, but, in any case, the start to be made next year in democracy in the Legislative Council in Hong Kong will be an important event. It will start from a more substantial base than was suggested and discussed even as short a time as two years ago. The best way is to proceed from that base after 1997. That is why it is sensible to discuss these matters with the People's Republic, as we are doing. If that is not possible, at the end of the day, we will need to make our own decisions.

For fear of wearying the House, I did not press the right hon. Member for Manchester, Gorton (Mr. Kaufman) about Labour policies, because it takes an awfully long time to do so. I am in total confusion. No doubt there will be opportunities to explore that matter. Sometimes the right hon. Gentleman oozes sympathy, and sometimes he says that there is nothing to be done. From all his foggy phrases, I get the strong impression that the right hon. Gentleman and his colleagues have no interest whatever in a sensible future for Hong Kong.

I join the right hon. Member for Guildford (Mr. Howell) in congratulating the Foreign Secretary on the personal skill and diplomacy with which he did a difficult job in Hong Kong. However, is not the outlying situation in Hong Kong unchanged? There is no change in the hard facts of Hong Kong's position, for confidence in Hong Kong still rests on a slender thread. Does the Foreign Secretary realise that maintenance of that confidence now depends on his being very tough on two matters: first, democracy, the Bill of Rights, and the Communists in Peking; and, secondly, passports and those who pander to racism in his own party? Does the Foreign Secretary accept that what Hong Kong needs is both of those—not one without the other?

On the issue of the boat people, the Foreign Secretary said that the voluntary repatriation programme was not going fast enough, but is it not the case that UNHCR's voluntary repatriation programme has already repatriated 1,100 people peaceably to Vietnam without any of the brutality of the forced repatriations? That figure is 20 times more than the Government's programme has achieved. Indeed, another 1,300 people have applied for voluntary repatriation. Surely the Foreign Secretary now realises that this is not the time to press ahead with another brutal exercise in forced repatriation, which would not only damage Britain's name and prevent a multilateral solution to the problem, but would probably impede the process of voluntary repatriation which is proving so successful.

I came back with two main thoughts impressed on me by the people of Hong Kong. The first was, as the right hon. Gentleman has said, the enthusiasm among articulate Hong Kong Chinese for greater democracy and for a start towards democracy. The second was their wish to get away from the constant hostile statements from Peking. It will not be easy, but we have to try to reconcile the two messages that I received so clearly.

I have detected no racism on the Government Benches about this matter—[HON. MEMBERS: "Oh."] No. What I have detected—I have tried to read the speeches and to listen to the broadcasts carefully—is a natural anxiety about the consequences of what we propose for immigration in this country. I do not find that anxiety objectionable, and it is because of that anxiety that we have made our package what it is. If we had brushed aside that anxiety as of no importance, of course, we might have gone much further in the direction that the right hon. Member for Manchester, Gorton (Mr. Kaufman) has suggested, but we have not. We have tried to strike a balance, which, as I have said, is disappointing to almost everybody in Hong Kong but which we believe is a reasonable balance, taking into account the reasonable preoccupations here and the reasonable expectations there.

As I have said about the boat people, voluntary return is the best thing and I am glad that voluntary returns are taking place. However, the right hon. Member for Yeovil (Mr. Ashdon) knows perfectly well that the disadvantage and drawback of that is that very few of those who are screened out and who it is decided are not refugees are volunteering. That is why—[Interruption.] It is true. That is why we decided before Christmas to send back 51, and that is why, as I have said several times, unless there is a more dramatic change on the horizon on the part of the international community than is clear at the moment, we shall have to continue that policy.

May I join in commending my right hon. Friend for the manner in which he handled a visit in the course of which he was bound to be open to criticism from one quarter or another, whatever he said or did? Does he agree that the predominant concern in this matter is the interests of the people of Hong Kong? In those interests, will he proceed with the package of measures that he has already outlined, confident that he will have the support of the vast majority of his hon. Friends? Accepting that the reality is that the Chinese Government will be taking over Hong Kong in 1997, is it not clear that antagonising them would be counterproductive? At the same time, in his discussions with the Chinese Government, will my right hon. Friend be robust in representing the interests and aspirations of the people of Hong Kong?

I am grateful to my hon. Friend. On his first point, every right hon. and hon. Member must accept that we have a continuing responsibility to Hong Kong and to our own constituents. Indeed, many of our own constituents have or will have substantial interests in and connections with the continued success of Hong Kong, so I do not think that there is a contradiction when it comes to the point.

I entirely agree with the way in which my hon. Friend put his second point. Every time one goes to Hong Kong and looks at the geography, the food, the water, the history and the law there, one sees clearly that its future is connected with China. That means a dialogue, but it does not mean simply finding out what the Chinese want and then doing it. Until 1997, we and the Hong Kong Government have our own responsibilities, and we intend to discharge them.

Does the Foreign Secretary accept that in the long term—I do not pretend that it is a short-term solution—the only way to stop the flow of refugees from Vietnam is to end the trade, aid and credit embargo organised by the United States in which most countries, including Britain, participate to a greater or lesser extent? Has he noted the recommendation in the report by the right hon. Member for Aylesbury (Mr. Raison) and Lord Ennals that Britain should resume aid to Vietnam? No one would pretend that that alone would solve the problem. What steps will the Foreign Secretary take to persuade the United States to end its war against Vietnam?

The hon. Gentleman makes a point which, as he said, figured in the report published yesterday by my right hon. Friend the Member for Aylesbury (Mr. Raison) and Lord Ennals. Vietnam may be opened up to aid. The process of voluntary return and of repatriation is already accompanied by some help to Vietnam, although on a small scale. That may continue and develop, but the hon. Gentleman knows the difficulties.

The hon. Gentleman is right in saying that it is not an immediate solution. The immediate solution lies in continuing voluntary returns, as the report said, and in making it clearer than it now is to people in Vietnam that to get on a bus or a boat to Hong Kong is not a road to resettlement in the West for those who are not refugees. The solution also lies in the international community accepting that repatriation of people who are not refugees is regrettable but necessary, that returns should be monitored, that monitoring should not be confined to those who return voluntarily and that it has implications for financial and reception arrangements in Vietnam.

Will my right hon. Friend confirm that a high proportion of so-called boat people have made their way from north Vietnam to Hong Kong either through Chinese coastal waters or overland through China? Does not that call into question the competence and integrity of the Chinese Administration, which must be the key to the future of Hong Kong?

My right hon. Friend is perfectly right. The numbers arriving in recent months have been low because of the season. Most of those arriving recently have come, at least in part, overland. Clearly a traffic is developing and money is being made from it. People do not enter Hong Kong by land because if they did so they would be sent back immediately as illegal Chinese immigrants. I saw that happening one afternoon in Hong Kong. They make the last part of the journey by boat.

My right hon. Friend is entirely right to draw attention to the responsibility of the Chinese Government, which we have impressed upon them continually. They have given assurances, and it is up to them to carry them out.

The right hon. Gentleman said that Parliament would be invited to give approval to the scheme. When will that be? Can he assure the House that any such legislation would be regarded as constitutional and, therefore, would be taken in its entirety on the Floor of the House?

The right hon. Gentleman asks legitimate questions, but they are not for me. My right hon. and learned Friend the Lord President of the Council will have noted the right hon. Gentleman's two points.

I welcome the fact that my right hon. Friend has visited the camps for Vietnamese boat people in Hong Kong. Does he now realise just how difficult the conditions are for those people and how unwilling they are, even in those conditions, to return to Vietnam? He also paid tribute, rightly, to my right hon. Friend the Member for Aylesbury (Mr. Raison) for his report calling for wider economic aid to Vietnam. Does he accept that it would be easier for many of us to accept the policy of compulsory repatriation if he took the imaginative step, perhaps in the first instance, of offering jointly to fund the non-governmental organisations which already have programmes in the poverty-stricken areas of north Vietnam? Might that be one way of making compulsory repatriation more acceptable?

As my hon. Friend knows, I am keen that the NGOs should help to monitor what happens to people who return to Vietnam. If they came forward with particular schemes along the lines that my hon. Friend describes, I should certainly consider them.

When the Foreign Secretary referred to progress towards democracy, he spoke of a formula that would satisfy Hong Kong opinion and that would endure. It would be remarkable if both those criteria could be met. The heart of the matter, as I am sure the Foreign Secretary knows, is that a formula that will satisfy demands for democracy in Hong Kong is not likely to endure because it will not satisfy the Chinese. When faced with that dilemma, how will the Foreign Secretary's mind move? Above all, we want to hear from him that he will give greater priority to satisfying the demands for democracy in Hong Kong than he will to appeasing the people in Peking.

I am sorry that the right hon. Gentleman used the word "appeasing" in his analysis. We have no interest in appeasing the authorities in Peking as there is no particular Sino-British interest that is greater than, or outweighs, the future interests of Hong Kong. Hong Kong is the largest and heaviest component in our relations with China, and so it will stay.

We are simply concerned with what arrangements will start democracy in Hong Kong in a substantial way and which will endure. The right hon. Gentleman knows the history of this matter and he knows that democracy will start from a substantial point. The right hon. Gentleman knows that 10 directly elected seats in the Legislative Council were proposed in the joint declaration and that 10 were embodied as the starting point in last year's White Paper. I believe that everybody—I stress everybody—accepts that now the starting point will be substantially higher than that. That much has been achieved, and the right hon. Gentleman is one of those who helped to persuade us to achieve it. That much is under our belt, and it represents a big success.

I hope that we can go further and that we can reconcile the two considerations that the right hon. Gentleman mentioned. I do not know whether that will be possible, but, when we know, we will tell the House.

Is my right hon. Friend aware that a most welcome part of his statement was the fact that a large number of people in Hong Kong reluctantly accept that it is not realistic to offer a right of abode in this country to all those people who hold British dependent territory passports? Does he agree with the estimate given by the Select Committee on Foreign Affairs that those passport holders could amount to 5·25 million people by 1997? Is not this in stark contrast with what appears to be the official policy of the Opposition—certainly it is the policy of the leader of the Liberal party—that all those people should be given a right of abode here? That means that about 8,000 people with a right of abode would be imposed on every constituency.

As I understand it, that is certainly the view of the leader of the SLD and, although I believe it to be a foolish policy, he has maintained it openly. Whenever anyone suggests what is the policy of the Labour party, the right hon. Member for Manchester, Gorton (Mr. Kaufman) bounces up and down and denies it. We have no idea about the policy of the Labour party; sometimes the right hon. Gentleman gives one impression, sometimes another. As the discussion continues, perhaps he will be able to come off the fence.

An enduring future for Hong Kong depends upon agreement with China and with the Peking Government. All experience shows that that requires infinite patience, great determination and a readiness to continue to push a point long after most people would have thought that it had sunk home. In view of that, will the Foreign Secretary continue to argue that holding key workers in Hong Kong until the date of transfer offers the real prospect that they will continue to remain under the Chinese Government? Similarly, will the Foreign Secretary resist the blandishments to go further than the first tranche of democratisation in 1991, on which it looks as though there is a good chance of an agreement with China? Will he wait and hope for further agreement with China on an increased element on democratisation in the second tranche?

We have discussed the nationality package with the Chinese Government for the reasons the right hon. Gentleman has given. They have made public their concern about the package, but we have begun to persuade them that, if they want, as the joint declaration sets out, a stable and prosperous Hong Kong in 1997, a package on those lines is essential.

On the second point, I note the advice which the right hon. Gentleman gives. We shall return to this matter as soon as the possibilities for the best way forward to democracy become clearer.

Is my right hon. Friend aware that the undertaking given by the Opposition to repeal any legislation allowing 50,000 families the right of abode in this country would precipitate a major crisis in Hong Kong if ever the Labour party came to power? Does not that show that the policy statement of the Labour party spokesmen on this matter is the most cynical, demagogic and opportunistic that we have ever heard from the Opposition—and that is saying something?

Ninety per cent. of Labour party policy is obscure and the remainder is irresponsible.

Will the Foreign Secretary end the uncertainty by making a statement about the fate of the 670 tonnes of elephant ivory currently held in Hong Kong? I understand that the Foreign Office has taken over responsibility from the Department of the Environment with regard to the possibility of entering reservations to the CITES agreement. Will he say whether that reservation will be entered by 18 January? I hope that the answer will be no, but, if it is yes, does the Foreign Secretary realise that he will be condemning to death many more hundreds of elephants?

The hon. Gentleman's last observation was nonsense because Hong Kong has already banned imports of ivory. The answer to the hon. Gentleman's other, reasonable question is yes. The Government, on behalf of Hong Kong, have today entered a six-month reservation to the CITES agreement which provides for listing African elephants in appendix 1 of the convention. The reservation will apply only to Hong Kong and will allow Hong Kong traders time to dispose of their legally acquired ivory in an orderly fashion and enable workers and carvers to find alternative employment. After that, Hong Kong will be part of the agreed system. I am sure that the hon. Gentleman will agree that that will be a considerable advance.

Will my right hon. Friend make it clear to the people of Hong Kong and the Government of the People's Republic of China that they could have given no greater total commitment to the future of Hong Kong—economic, political and free—than that they were prepared to court electoral unpopularity by undertaking to let into this country as many people as they have?

I have done so and it is clearly understood in Hong Kong. The people there follow our proceedings and discussions with great interest and—when they hear remarks which show a total lack of realism at what is happening there—anxiety.

Last summer, three major matters were pressed on my right hon. and learned Friend the Lord President when he was in Hong Kong: first, nationality; secondly, repatriation of the boat people; and, thirdly, the movement to democracy. We have taken the first crucial and difficult decisions on the first two issues. I have answered questions about the third, a decision on which will come pretty soon.

I find the Foreign Secretary's statement totally inadequate. After hearing about his expensive and well-publicised visit, I expected a bit more. Was he or his governor—who recently visited the Chinese Government—able to extract a guarantee from the Chinese Government about the security of the British citizens in Hong Kong after 1997? I say that particularly in view of statements from the Chinese Government about the peaceful demonstrations in Hong Kong which have occurred. I should like to know precisely what the Foreign Secretary's position is on that issue. Is it not a fact that the British Government are totally bankrupt of ideas on the Hong Kong issue and are merely following behind the coat tails of the Chinese Government?

The Chinese Government are certainly concerned about some expressions of free opinion in Hong Kong. The Government and the governor of Hong Kong have made it clear to the Chinese Government in many ways that an important aspect of Hong Kong is precisely that there is free expression there. If the Chinese intend after 1997 to incorporate into China a lively, vigorous and developing Hong Kong, they must accept that there will be freedom of expression and clear and rapid movement towards democracy. These are conditions of the prize; they are set out clearly in the joint declaration.

Can my right hon. Friend give the House any information about representations that the Government may have made to Commonwealth countries in which there is space and opportunity to prevail upon them to offer passports to Hong Kong residents who may wish to leave after 1997?

Yes, indeed. Since my statement on 20 December we have made representations to Commonwealth Governments and to many other friendly Governments encouraging them to follow our lead and introduce schemes of the kind that we propose, which are designed to keep key personnel in Hong Kong—for example, people working for companies belonging to these countries. The French already have such a limited scheme, as does New Zealand in one respect, and we are doing what we can to persuade other countries which could introduce such schemes to do so. My hon. Friend may have seen that Congressman Solarz has proposed such a scheme in the United States Congress.

Order. I have to have regard to the subsequent business. The House knows that there is an important debate and a 10-minute Bill, and that the debate must end at 7 pm before we go on to private business. I shall call three more speakers from each side and then I am afraid we must move on.

The Secretary of State said that the fear engendered by the events of 4 June has lifted somewhat in Hong Kong, but will he confirm that there remains among its population an underlying fear and apprehension of the Peking regime, which is unrepentant about the events on 4 June, and confirm that they have cause for that fear?

Recently the head of the supreme court in China stated as a matter of policy that the Communist party is above the law. Given that background to the fear and apprehension, how does the right hon. Gentleman think the House should reply to questions such as I heard in Hong Kong? I was asked how it is that in my part of western Europe tears of joy are shed at people in eastern Europe escaping from Communist tyranny, and the people of eastern Europe are invited to join the European Community, which would give them the automatic right of abode in any part of the community, including the United Kingdom, yet we are prepared to consign Hong Kong to the Peking regime with inadequate protection in terms of a democratic structure.

It is true that there continues to be an underlying anxiety. It has lifted a little because contacts have resumed in various ways. At lunch yesterday, I sat next to a young business man who had just returned from Peking, where he had been well received by the Prime Minister.

This underlying anxiety does not lead any of the Hong Kong Chinese to whom I spoke to question the fact that the joint declaration and the system being erected under it is the only realistic way forward for Hong Kong. Hong Kong wants us to make sense of the concept of two systems in one country, and the observations that the hon. Gentleman quoted will not apply in the special administrative region of Hong Kong.

Does my right hon. Friend concede that, if nearly 250,000 people come here from Hong Kong with the right of abode, that will permanently and irreversibly change the nature of the British people? If this step is to be taken and my right hon. Friend's Bill receives a Second Reading, does he agree that the measure should be considered by a Committee of the whole House?

The first matter is one on which every right hon. and hon. Member must make his own judgment—first, as to the likelihood of it happening; secondly, as to the consequences for the country if it did happen, given the people involved, their backgrounds, professional experience and so on. That is not a matter on which I would seek to educate my hon. Friend.

My hon. Friend's second point is not a matter for me. It is the second time it has been made, and my right hon. and learned Friend the Leader of the House is present listening.

It is clear that nothing that the Foreign Secretary is free to do will reassure the people of Hong Kong who are terrified about what might happen to them in 1997. His belated concentration on extending democracy to the people of Hong Kong must be looked upon by realistic people in Hong Kong as some sort of attempt by the Government to slide out of their responsibilities and to say. "Now that you have some measure of democracy, our responsibility is a little less than it used to be." Is not that the realistic situation?

No. That suspicion was not put to me, and I do not think that it is in anyone's mind.

is my right hon. Friend aware that in this difficult situation, which I know something about having recently visited China and Hong Kong, he has a duty to the people of England as well as to the people of Hong Kong? Is he further aware that mass immigration has been continuing for a long time to many parts of this country, including my own area? His proposal is for further mass immigration. Will that be acceptable to the mass of our people, and is it right that the Government should allow it? Is not his prime duty to maintain the social cohesion of this ancient and small island?

I entirely accept, to quote my hon. Friend, that we have a duty to the people of England as well as to the people of Hong Kong. Given my hon. Friend's background and knowledge of both sides of that equation, I should not have thought that he would find those interests in contradiction.

Will the Foreign Secretary clarify a matter that was raised earlier? If public servants and people in public office accept citizenship before 1997, will the Basic Law deprive them of or debar them from public office after that time?

Perhaps the hon. Gentleman would look at article 74 of the joint declaration, which covers that point.

My right hon. Friend said that all the people that he spoke to in Hong Kong about his package of 20 December were disappointed that the number of people to be allowed to come here was not greater. He will note that I have a motion on the Order Paper for debate on Friday. It completely supports the Government's proposed package but expresses a similar concern about the number. Has my right hon. Friend's package of 20 December had time to begin to restore confidence, or does he think that he may need to increase the number?

I made it clear in Hong Kong that I did not see any possibility of increasing the number. Members of the business community, civil servants and many others who raised the matter with me on Monday would have liked the number to be greater, but they accepted that it was as much as we would be able to implement. They made clear that my proposal of 20 December would be of substantial value in keeping key people in Hong Kong.

I am sorry that it has not been possible to call all the hon. Members who wished to participate. I shall carefully note the names of those hon. Members who have been rising and will give them some precedence when we debate this matter again.

Bill Presented

Security Industry

Sir John Wheeler, supported by Sir Marcus Fox, Sir Geoffrey Finsberg, Mr. Ivan Lawrence, Mr. Michael Shersby, Dame Janet Fookes, Mr. John Greenway, Sir Eldon Griffiths and Mr. Tony Worthington, presented a Bill to require the creation of an inspectorate to regulate the employment of uniformed guards and personnel in the security industries; and for purposes connected therewith: And the same was read the First time; and ordered to be read a Second time on Friday 26 January and to be printed. [Bill 55.]

Adoption (Amendment)

4.23 pm

I beg to move,

That leave be given to bring in a Bill to make provision for a statutory code of practice for adoption agencies; to amend the Adoption Act 1976; and for connected purposes.

In seeking the leave of the House to amend the Adoption Act 1976, I recognise that I am in a privileged position. I am the father of three small children and in 10 weeks' time I shall be the father of a fourth. We are lucky to be able to have children more or less to order while many couples are desperate to have children of their own and are not so blessed.

Just before Christmas, I visited Basildon hospital to play the role of Father Christmas. I was taken to the special baby care unit and shown eight babies. One of them had been born at 24 weeks and I am delighted to tell the House that that baby is doing well. In another cot was a big bruiser of a baby weighing 9 lb 15 oz. He had no name on his identification tag. The nurse told me that he had been born only that day and that a couple had been found who would give him their love. That certainly put the Christmas festivities into context for me.

The latest figures for England and Wales show that in the past year 69,249 children were in care and 7,390 children were adopted. Behind those stark figures lies in every case an individual human being who perhaps experienced the loss of both parents or a broken home, or who is simply unwanted. We tend to hear about the sensational cases of children being taken into care or of couples seeking to adopt. Those cases grab the headlines and tend to concentrate one's mind. I am concerned about the vast majority of cases—those that may be described as the ordinary cases.

I am anxious that the present system should overlook no one. It is difficult for people with their own children to imagine the heartbreak that childless couples can experience during the adopton process. It can be a traumatic time for couples who have been trying to have their own baby for a number of years, and who are ruled out of consideration as adoptive parents because of their age.

Most organisations involved in adoptions agree that the greatest demand is for babies and that there are not enough babies for those who wish to adopt them. Although there are enough children to meet the demand for them, sadly they do not always meet the requirements of prospective adoptive parents.

One would have to be very hard not to be moved by the details in the files of children waiting to be adopted. The smiling photographs are usually accompanied by personal details, and the overall message is of asking a family to give their love. There must be room for improvement in a system in which a boy of eight has been moved 38 times; in which some children spend all their time in care and are never matched to prospective adoptive parents; and in which other children are simply overlooked.

The overriding consideration in approving adoptive parents is the extent to which the adoption agency is satisfied that the applicants have the capacity for love, understanding, patience and flexibility that are required to meet not only the universal needs of a growing child but the specific needs of the child in question. Such considerations can include a child's physical or mental handicap, or degree of emotional disturbance, or behavioural disorders. A child may need assistance in understanding his or her origins in an unhappy or unsavoury relationship, and may also need help in learning about his or her racial or cultural origins—which may be very different from those of the adoptive parents.

Adoption agencies, rightly, wish to satisfy themselves as to the health, vigour, imagination and other capacities of the adoptive parents during the subject's childhood. But I much regret any discrimination on the ground of age, especially when it is directed at grandparents. I pay a warm tribute to the hon. Member for Ogmore (Mr. Powell), who has been active in representing the interests of grandparents. Age is certainly being used as an instrument of control by some adoption agencies. My parents may have been considered by some as relatively aged, but I do not believe that I suffered from it.

Adoption law is complicated. The Children Act 1975 was consolidated into the Adoption Act 1976. A requirement of the Adoption Agencies Regulations 1983, which came into force in 1984, was that an adoption panel be set up. The new structure comprised seven family placement panels, each serving two adjacent social service areas. The linking was based on geographical proximity and attempted to amalgamate areas with a high population of children in care with those with a smaller number.

The panels have several functions which include fulfilling the criteria laid down in the regulations regarding the adoption of children, approving or rejecting applications from all families and individuals offering permanent substitute family care, ensuring that the child's feelings and wishes are taken into consideration and that she or he is appropriately prepared for placement, and examining all short-term placements that are expected to exceed two months' duration.

The Bill will require adoption panels to produce regular reports to the adoption agency which will include a review of their policies, range and volume of work and, perhaps more importantly, will require that the children's cases are reviewed, ensuring that in future no child is overlooked. As the system operates now, there is no uniformity among adoption agencies. They should publish widely their policies and practices, and the range and volume of work that they have undertaken annually. Sadly, there are children, particularly in inner-city areas, who have no individual attached to their case. The code of practice that I suggest would require those with responsibility for such matters to report back regularly on progress in finding homes for the children; then appropriate action would be agreed.

The temptation for some individuals, remembering the graphic pictures of children in Romania, is to go abroad, bring the children into the country and then seek adoption orders. I am advised by adoption agencies that that practice is causing particular difficulties.

The specific purpose of the measure is to improve the efficiency of matching prospective adoptive parents to suitable children. As I believe that I am the last Member to have spent the night seeking the privilege of introducing a ten-minute Bill, I can think of no finer cause for legislation. I very much hope that the House will support the motion.

Question put and agreed to.

Bill ordered to be brought in by Mr. David Amess, Mr. Tony Banks, Mrs. Rosie Barnes, Mr. Harry Cohen, Sir Geoffrey Finsberg, Mr. Roger Gale, Mr. Ken Hargreaves, Mr. David Hinchliffe, Mr. Simon Hughes, Sir Charles Irving, Mr. Ray Powell and Miss Ann Widdecombe.

Adoption (Amendment)

Mr. David Amess accordingly presented a Bill to make provision for a statutory code of practice for adoption agencies; to amend the Adoption Act 1976; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 30 March and to be printed. [Bill 56.]

Parliamentary Pensions

[Relevant documents: The Review Body on Top Salaries' Report No. 26, Review of Aspects of the Parliamentary Pension Scheme and other Matters (Cm. 362), and the Report of the Government Actuary on the Valuation of the Parliamentary Contributory Pension Fund as at 1st April 1987 (HC 317, Session 1988–89).]

Motion made, and Question proposed, That this House do now adjourn.— [Mr. Dorrell.]

4.33 pm

The Lord President of the Council and Leader of the House of Commons
(Sir Geoffrey Howe)

As colleagues will know, I had hoped that it would be possible to hold this debate well before now. Indeed, on several occasions last year, we tried to arrange it, but other business meant that it had to be put back. I apologise for that. Now that we have a chance of considering these important issues, I look forward to hearing the views of hon. Members on both sides of the House.

As the House knows, parliamentary pensions are a matter of extreme technicality. I do not pretend to understand their more subtle aspects, so perhaps my speech will be longer than it should be. I apologise for that.

There are three distinct topics to consider. The first is the Top Salaries Review Body report on the parliamentary contributory pension scheme. The second is the TSRB recommendations on the pensions of certain office holders—the Prime Minister, you, Mr. Speaker, and the Lord Chancellor—and on ministerial severance pay. The third is the Government Actuary's report on the state of the parliamentary pension fund with its recommendation for a reduction in Exchequer contribution.

Before dealing with the recommendations in the TSRB report, I should like to put the matter in context by reminding the House that the parliamentary pension scheme is generally regarded, by United Kingdom standards, as a good scheme, providing a reasonably generous return for hon. Members. I do not claim that it is the best that could be found, but in most respects it is on the right side of the average. As the House is in the position to set its own terms—with a significant contribution from the taxpayer—that is the right position to adopt.

I hope that my hon. Friend will forgive me if I do not give way, but I need to make a coherent presentation and listen to colleagues thereafter.

Under our scheme, benefit accrues faster than under most other public and private schemes. It is right for us to consider the scheme from time to time, as we are doing today, and I attach considerable importance to hearing the views of hon. Members. In July 1987 my predecessor invited the TSRB to undertake a review of the parliamentary pension scheme, the pensions of certain office holders and ministerial severance pay.

The recommendations that resulted fell into two categories—first, those solely affecting the parliamentary scheme on which the trustees were consulted and which are capable of being implemented by secondary legislation; and, secondly, those relating to Ministers and office holders which we accepted in May 1988 but which require primary legislation before they can come into effect. I shall also mention the consequences of the recent Government Actuary's valuation report.

When I do that I shall be honouring a commitment given in 1987 to the right hon. Member for Manchester, Wythenshawe (Mr. Morris) that all reports by the Government Actuary on the parliamentary pension scheme will be debated. The right hon. Gentleman is the chairman of the trustees of our pension scheme. We are all grateful for the work that he and the other trustees do on our behalf. In some respects, the recommendations of the Government Actuary take automatic effect under section 5 of the Parliamentary and other Pensions Act 1972.

In 1987, hon. Members from both sides of the House raised a number of points on the scheme, which were put specifically to the TSRB. They included early retirement arrangements, resettlement grants, service as an MEP and hon. Members' contributions. The TSRB largely restricted its review to those issues. In paragraph 56 of the report, it took the view that the parliamentary pension scheme was basically a good one. However, it recommended two important improvements intended to ensure that it continued to meet the special circumstances of parliamentary life and remain consistent with good practice elsewhere.

First, the report recommended that the death-in-service gratuity should be increased to two years' salary. After consulting the trustees, I am maintaining the proposal of my predecessor that that change should come into effect from 1 May 1988. That date ensures that all deaths during the present Parliament are covered. Although that issue was not originally put to the TSRB, its recommendation brings the scheme into line with practice elsewhere. It also offers practical help where it is most needed. I know that hon. Members from both sides of the House are concerned about the position of widows. I warmly commend that change.

The second change recommended by the TSRB concerns early retirement arrangements. As the House may know, at present a pension may be paid earlier than the age of 65—the normal retirement age—providing the retiring Member is at least 50 years old. The pension paid is less than the accrued pension payable from 65, to reflect the longer period over which it is expected to be paid. If a Member retires at a general election, subject to fulfilling certain conditions, those arrangements may be modified.

Concern has been expressed about what are felt to be anomalies in these arrangements. Differences of treatment can occur in the level of pension arising from small differences in age and length of service, and that is why we asked the TSRB to examine them. The TSRB recommended revised early retirement arrangements for those retiring at a dissolution under which a full accrued pension would be payable. When the pension is brought into payment before the Member reaches pensionable age, it will be subject to an abatement to be calculated on a broadly actuarial basis, and that achieves a desirable and fair tapering.

The TSRB also suggested that the House consider whether those arrangements should apply at times other than at a dissolution. My predecessor met the trustees last year and agreed that there should be a single set of arrangements for those retiring at a dissolution and at other times. I endorse that and believe that this rationalisation represents not just a simplification of but a useful improvement to the scheme.

The TSRB also considered whether service as an MEP should count towards the qualifying period for early retirement. The House may recall that several Members raised that issue during the passage of the 1984 Act. The TSRB noted that although periods of service as an MP and an MEP may be aggregated for the purpose of establishing entitlement to a pension, they may not be so counted for the purposes of the qualifying period for early retirement. It took the view that the essential purpose of the early retirement arrangements for MPs should be to assist those whose parliamentary career had been exclusively in this House, and it concluded that an extension of the arrangements would not be appropriate.

Several hon. Members have made representations to me arguing against the view of the TSRB and arguing that, as service as an MEP can be counted for all purposes except early retirement and that because the nature of the MEPs' and Members' pension schemes are so similar, the current arrangements are anomalous.

That point is reinforced in the minds of those who advance the argument by the fact that the European salaries and pension arrangements for MEPs from this country are consistently kept in line with those of Members of this House, rather than with those of other Members of the European Parliament.

I have gone into the matter in detail because I shall be interested to hear the views of the House on that issue before finally deciding whether, in this respect, to accept the TSRB's recommendation.

The essential point appears to be made on page 6 of the TSRB's report, where it says:

"It can be argued that the occupation of MP and MEP are so closely allied".
That seems to accept that the two jobs are closely allied—that MPs and MEPs are doing similar jobs, are taking similar risks and are working under similar conditions.

Perhaps the right hon. and learned Gentleman will also examine appendix G relating to resettlement grants for MPs. If an MP and an MEP spend 15 years in the parliamentary process and the MEP has spent five years in the European Parliament, he will receive only half the resettlement grant. It seems ludicrous that if two people came into politics in 1979, one should get twice as much as the other.

That may be a valid point, but the hon. Gentleman's intervention and its detailed nature confirms my initial wisdom in deciding not to give way during my remarks. I did so on this occasion only because there appeared to be a natural break in the proceedings. The hon. Gentleman's point deserves consideration, but I wish to deal at this stage with the scheme itself.

A further point, not considered by the TSRB, is the problem of excess contributions. Some Members continue to make contributions even though they have bought the maximum number of years to which they are entitled and thus cannot benefit from their extra contributions. That arises from the 1984 Act, which provides for a limit on the annual amount of pension of two-thirds of final salary. That is the limit with which all non-statutory occupational pension schemes must comply to qualify for tax relief.

When my predecessor met the trustees in June last year, he promised to consider the matter. Several possible ways to alleviate the problem suggest themselves, although I hesitate to define, let alone explain, them. I have examined a number of them and none is without difficulty. Further consideration is necessary, and I propose to pursue the matter with the trustees in search of a satisfactory solution.

Apart from parliamentary pensions, the TSRB was invited to undertake a review of the pensions of certain office holders and of ministerial severance pay. The TSRB recommended the introduction of severance pay for Commons Ministers on broadly the same basis as that already provided for Ministers in the other place. That represents a simple recognition that an abrupt and significant financial adjustment may have to be made by an hon. Member on relinquishing ministerial office in whatever House and for whatever reason.

The TSRB's proposals would involve a single payment of a sum representing three months' net loss of parliamentary income on loss of office for whatever reason except death in service. In cash terms, that will be between £3,000 and about £7,000, depending on the rank of the Minister concerned. It is right to emphasise that that proposal was supported by both sides of the House when it was put to the TSRB as well as by the TSRB itself. As my predecessor made clear in May last year, the Government endorse these proposals.

Three senior office holders—the Prime Minister, Mr. Speaker and the Lord Chancellor—are not members of the parliamentary pension scheme. They have their own arrangements under the 1972 Act. For some time we have been aware that their arrangements contained anomalies. The TSRB has recommended that the pensions of all three of the great office holders should be fixed at half final salary, that the Prime Minister and Mr. Speaker should be able to participate in the parliamentary scheme and that restrictions on pension increases should be uncapped.

We have accepted that package of recommendations, which are not directly part of the parliamentary scheme. Their implementation, along with the proposals for severance pay for Commons Ministers, requires primary legislation, which we shall introduce in the near future.

The main issue in the Government Actuary's report is the recommendation that the Exchequer contribution should be reduced to 4·4 per cent. I shall try to assist the House by sketching out the background to that proposal, although I approach documents prepared by actuaries with considerable foreboding.

Under section 5 of the 1972 Act, every three years the Government Actuary must make a valuation of the assets of the parliamentary contributory pension fund specifically for the purpose of determining the residual Exchequer contribution. The current report, laid before the House on 27 April last, reports a significant improvement in the finances of the fund. On that basis, the Government Actuary has calculated that the notional standard contribution should be 20 per cent. of salary.

On that basis, the Exchequer contribution, after deducting the 9 per cent. of salary payable by Members, would be 11 per cent. That 9 per cent. plus 11 per cent. is not much different from the 22 per cent. recommended by the Government Actuary in his preceding report. It is the long-term total cost of the scheme to keep liabilities and assets in balance.

The Government Actuary is not required to make any recommendation about the level of Members' contributions. The increase to 9 per cent. in 1983 was made to take account of the improved rate of accrual in the scheme and, as hon. Members on both sides will recall, the House approved a rate of 9 per cent. Collectively, we accepted that because we believed it to be a realistic level, given the estimated cost of the scheme after incorporation of the improvements suggested by the TSRB. That level of contribution was included in the 1984 Act and is generally in line with other fast accrual schemes in the public service.

The fund has now accumulated a significant surplus. There are two reasons for that: first, the performance of the fund's investments, for which the skill and care of the trustees and their agents are to be highly commended; and, secondly, the very high level of contributions made by the Exchequer in recent years, for reasons which I shall explain, to a total of 18 per cent.

In determining the Exchequer contribution required, the standard contribution of 20 per cent. can and should be adjusted to take account of the surplus. By long-standing convention—not just in this scheme but in the overwhelming majority of similar schemes—such a surplus is normally used to reduce the employer's contribution—[Interruption.] That is the position. In this case, that is the standard contribution payable by the Exchequer. The Government Actuary has recommended an Exchequer contribution for the year beginning April 1989 of 4·4 per cent. of salary, and has recommended that that rate should be maintained for the next eight years. As a result of the provisions of section 5 of the 1972 Act, the recommendation took effect automatically from that date.

There have been some misunderstandings on this question, and it may help if I explain the background more fully. Section 5 provides for the Exchequer's contribution to be calculated in accordance with the Government Actuary's evaluation. My study of the statute, about which I hesitate, confirms that. Under that section, the recalculation of the Exchequer's contribution takes effect when the Government Actuary's report is laid before the House. In the present case, the Government Actuary's report covered the three years from 1 April 1987, and recommended a lower contribution with effect from 1 April 1989.

As far as I am aware, in previous years there has been no suggestion that the recommendations of the Government Actuary should be altered or rejected. The 1972 Act does not provide for that possibility. However, I acknowledge that we have not previously been confronted with a surplus in the fund—certainly not on this scale—or with a recommendation that the Exchequer should reduce its contribution. With that in mind, my predecessor gave the commitment that the House would have an opportunity to debate the Government Actuary's report before any decisions were taken.

May I just finish my point?

I regret that that may have misled the House into believing that the Government Actuary's recommendations would not take effect in the usual way. It appears that that is not the case and, although we are having a debate on the subject, the recommendations automatically took effect for the year starting April 1989.

Will the Leader of the House give an estimate of how much the Exchequer will save over the next eight years by cutting its contribution?

I would not like to give an estimate, but I think that I am right in saying that the surplus was £7·4 million. The reduced contribution is not designed to eliminate that, but to bring it back to a level that would sustain a contribution of 11 per cent. from 1989 onwards.

No. The total surplus to be reduced over the next eight years is £7·4 million, after which a normal contribution of 11 per cent. would be introduced. An Exchequer contribution of 18 per cent. for several years generated the balance, and has resulted in the recommendation that its contribution should be lower from now on.

Does the Leader of the House agree that the anomaly is that the Government Actuary can look only at the Exchequer contribution and not at Members' contributions? If the Actuary had been able to consider both contributions, he could have come up with a more sensible proposition.

The right hon. Gentleman is right to say that the Actuary is permitted to look only at the Treasury contribution as a result of the provisions of the 1972 Act. However, I would not want him to conclude that a dramatic change would necessarily result from the scrutiny of both contributions. If the greater part of the surplus was accumulated because of the high contribution of 18 per cent. by the Exchequer, that would have to be reflected in any recommendations from the Actuary.

I readily acknowledge that we are in dangerous waters on this issue. Against the factual background, I shall offer hon. Members some insight into the considerations which I think were taken into account in the most recent redesign of the system. Whatever hon. Members may say now, under the 1972 Act the Exchequer contribution was clearly intended to be the residual. It is normal for valuation changes to reflect on the employer's contribution rate since that is normally regarded as the residual, rather than the employee contribution.

In our case, the employer is the Exchequer, and its contribution was designed by the legislation to be the variable and to take account of any changes in economic trends. The Exchequer contribution has been as high as 18 per cent.—13 per cent. plus a 5 per cent. deficiency payment—since the previous evaluation report. The proposed dip to 4·4 per cent. to keep the fund in balance can be seen—this is the argument behind the legislation—as a temporary compensating relief for the higher Exchequer contribution of earlier years. The contribution was assessed in 1984 with the same aim—to keep the fund in balance.

The Government contribution being reduced 11 per cent. to 4·4 per cent. was a twist.

Unusually, I did not catch the hon. Gentleman's intervention, although I have no doubt that it was an intelligent one.

During contribution holidays—as they are described—the bulk of public and private schemes leave employee contributions unchanged, as it is generally agreed that fluctuations in the employee rate are undesirable because they give rise to uncertainty.

Before I give way to my hon. Friend, I appreciate that the House may argue that the figure of 9 per cent., which was an advance on the originally recommended figure of 8 per cent., suggests that there may have been some over-enthusiasm of judgment on the part of the House.

I accept what my right hon. and learned Friend says about the role of the Government Actuary, and about the 1972 Act. However, the Review Body on Top Salaries has a different attitude. In successive reports it has been suggested what the relationship between the Treasury contribution and the employee's contribution should be. It has recommended the level of Members' contributions, and that level has differed from time to time. Last year's TSRB report was unusual because it accepted 9 per cent. as though it had no power to recommend otherwise. If it had recommended, as I think it should, that Members' contributions should have been significantly lower, which would have been proper according to the Actuary, all would have been well. Perhaps we shall have the opportunity to debate that later.

My hon. Friend draws attention to an issue that I have already foreshadowed. In justice to history and to the previous legislation, I should expand the underlying rationale.

If the hon. Member will forgive me, I should come to a conclusion.

In favourable economic circumstances, it is not unusual for the employer's rate to fall and to be lower than the employee's rate. That certainly happens in the private sector and the public sector. The question is whether the right balance has resulted from the original legislative provisions, and the impact of the Government Actuary's report and the TSRB recommendations.

I have given in full the arguments for following the Government Actuary's recommendations, as we have done in the past. I do not think that they are likely to be set aside, but my mind is not closed. I should be foolishly over-confident if I closed my mind on any aspect of this matter. If the House expresses a clear view or preference for any improvement in the scheme, including changes in the contributions structure, I and the Government accept that the TSRB should be invited to consider all such suggestions for improved benefits.

I emphasise that any consideration by the TSRB would have to include the central question of who is to pay and what is the fair basis for payments in the long term. I think the whole House would wish that.

I hope that the process of considering possible future recommendations in the light of today's debate will not stand in the way of implementing the outstanding recommendations of the TSRB's 26th report. I visualise, after this debate, the relatively early introduction of two pieces of legislation: first, regulations to implement the TSRB recommendations for all Members of Parliament, including the revised early retirement arrangements, the improved death-in-service grants, and any other recom?mendations that result from tonight's discussions—for example, revised arrangements for Members of the European Parliament; and secondly, a Bill to implement the changes affecting the three most senior office holders and severance pay for Ministers and office holders, except for the Prime Minister and Mr. Speaker.

I wish to ensure that, after the passage of those two pieces of legislation, any further changes that might arise from the next round of TSRB considerations can themselves be implemented by secondary legislation to avoid the need for more than one Bill on the subject in the current Parliament. I am anxious that we should give ourselves the freedom to proceed through secondary legislation: it may already be in our power, but I am not confident enough to say so in terms.

We have a good scheme, and we should build on it as the TSRB report recommends. Many right hon. and hon. Members on both sides of the House clearly hold strong views on some aspects of the scheme, and—as I said at the outset—I look forward to listening to those views with care and attention.

5 pm

I thank the Leader of the House for his introductory speech. I remind him and the House that we are discussing a House of Commons matter, not a party-political matter. The House has overturned recommendations and decisions made by past Governments, and hon. Members on both sides of the House have often had to make difficult decisions themselves. Public reaction is often ill-informed, and it is therefore important that we examine this matter in some detail.

I consider the TSRB report disappointing and negative. It does not take account of the problems faced by Members and the staff of the House, and by their dependants. Far from improving matters, the report—coupled with the Government Actuary's report—makes them worse. When I gave evidence to the TSRB, I presented what I considered to be relevant but modest proposals on behalf of hon. Members who are asking not for benefits in excess of those given to other sectors, but to be treated on an equal basis with both the private and public sectors. There is no need for me to apologise for such a request; compared with the salaries and pensions in other European and Commonwealth Parliaments, our proposals are extremely modest.

The Leader of the House said that we had improved our position, and so we have. It was only in 1964, however, that a pension scheme for Members of Parliament was initiated, and we all know of hon. Members on both sides of the House who left after that time and experienced considerable financial difficulty. Slowly, we built on the scheme, and I hope that we shall continue to do so.

Is not one of the most disappointing features of the report its failure to deal adequately with widows' pensions? Many hon. Members do not come to the House until they are in their 30s or 40s, but the widow of an hon. Member who was here for 15 years may be left, in her early 50s, expecting no more than £3,900. The figure should be doubled so that widows receive a realistic pension. That is what worries us most of all.

I agree, and other hon. Members will doubtless develop that point.

I hope that the Leader of the House will take note of the strong feelings of hon. Members on both sides of the House. Before I deal with the more contentious issues, let me say that the proposal to increase the death-in-service grant to two years' salary is a welcome improvement. I agree with the right hon. and learned Gentleman that it should be retrospective to the beginning of the Parliament.

I support the view of the House of Commons trustees that it is not necessary to have two schemes to deal with early retirement: that, in my view, would lead to confusion. A single scheme should apply, whether the retirement takes place during a Parliament or at its dissolution. Again, I feel that any scheme proposed by the TSRB should be retrospective to the beginning of the Parliament. Normally, the TSRB reports only once in each Parliament. In this instance representations were made very early in the Parliament, but only now—when, as the Leader of the House has acknowledged, we are nearly halfway through the Parliament—are we discussing the report.

The limited proposals regarding ex-Ministers, the Speaker and former Prime Ministers are indeed very limited, and should have been part of a package dealing with the central issue of Members' contributions and pensions. I shall say more about that later.

The hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark) mentioned widows' pensions. Widows' and widowers' pensions are still extremely low—lower than the normal industrial level. I could quote cases of real hardship among hon. Members on both sides of the House, and in some instances that hardship is still being experienced. I believe that the pension should be increased from half the amount of the pension for which the former Member was eligible to a minimum of two thirds of that amount. If my right hon. Friend the Member for Manchester, Wythenshawe (Mr. Morris)—who is chairman of the trustees—catches your eye, Mr. Speaker, he will no doubt develop that subject further.

The report talks of increasing death-in-service grants and widows' pensions from one to two years' salary but refers to payment of a Member's salary for one year "or" repayment of the contributions made. Does that mean that those who receive the repayment will not receive the increase, or that someone whose spouse receives a lump sum will lose the repaid contributions?

I am afraid I cannot answer that question, but it is important and will no doubt be examined. I also noticed that passage in the report.

We all realise that the pension scheme does not give widows a fair deal. If the Lord President had said at the Dispatch Box that the Government's contributions would not be reduced from 11 per cent. but that widows would be given a bit more, he might have been rather better off. Does my right hon. Friend agree, however, that the staff of the pensions department, Mr. Jim Dobson and Mr. Tony Lewis—whom I welcome back after his illness—are doing a first-class job on our behalf?

I agree, and no doubt when the Leader of the House reviews today's debate he will take into account the points made about widows and widowers.

Severance pay—or resettlement grant, as it is now known—is not affected by pension proposals, although it was discussed by the TSRB. It is funded directly from the Exchequer. Many hon. Members, however, have raised with me questions about both the amount paid to Members with a short period of service and the cut-off point at 65 years of age. Payment at present is equivalent to six months salary for those with less than 10 years' service, rising on a graduated scale to a full year's salary for those aged 55 and over with 15 years' service. The simplest and most socially just solution would be to assist those Members who have completed only a short period of service by making an upward adjustment and raising the cut-off point for all Members.

The modest suggestion that MEPs' pension rights should he treated differently from those of Members of Parliament is clearly unjust and wrong. There is a direct link between the pension contributions of MEPs and Members of Parliament, and the suggestion that they should be able to aggregate their pensions should be acceded to. I note the point about resettlement grants made earlier by my hon. Friend the Member for Houghton and Washington (Mr. Boyes).

Certain problems have caused great distress to the dependants and staff of a deceased Member. It is completely wrong that any payments due to staff should be linked to the estate of the deceased and that the staff are asked to leave the House on the day following a Member's death because no proper structure exists to deal with that eventuality.

When a well-known Conservative Member died fairly recently, his secretary did not receive her salary or her P45 from the executors of his estate until long after his death. She had to take out a bank loan to cover her necessary expenses pending settlement of her salary from the estate. I stress that no blame whatsoever is attached to the family of the deceased, but right hon. and hon. Members will agree that that is a ridiculous system which must be changed.

A number of hon. Members have rightly mentioned the salaries and working conditions of staff in the Palace of Westminster. Although that goes wider than the immediate issues raised by the TSRB, the House must not overlook those important matters.

On Members' pensions, the House will be aware, as the Leader of the House has made clear, that a decision to deduct 9 per cent. of salary was upheld by the review body. However, that brings no increased benefits except for minor adjustments as outlined in paragraph 40 of the TSRB report. Paragraph 32 of the Government Actuary's report makes the startling suggestion that the Treasury contribution be reduced to 4·5 per cent. That flies in the face of what is accepted in industry in the private and public sectors, where the employer normally pays two thirds and the employee pays one third.

The Government Actuary makes that proposal based on the Treasury contribution and the healthy state of the fund. The report of the Government Actuary is extremely one-sided because he is not empowered by legislation to comment on Members' contributions, only on the Treasury contribution. That proposal turns the basis of our pension scheme upside down.

The Exchequer contribution is based on a multiple of two with a 9 per cent. contribution from the Member. That means that the Treasury contribution should be 18 per cent. producing a total of 27 per cent. The Actuary proposes reducing the Treasury contribution to 4·41 per cent. leaving the Member's contribution at 9 per cent., thereby reducing the total contribution to 13·41 per cent.—a dramatic reduction from 27 per cent.—all with effect from 1 April 1989.

To bring the scheme in to line with accepted practice, the Treasury contribution should be 18 per cent. making the total 27 per cent. Given the present state of the fund, nobody is suggesting that. Before the implementation of the Actuary's report, the Member will contribute 9 per cent. and the Treasury will contribute 13 per cent.—well below the usual factor of two.

If some readjustment is needed because of the high level of the fund, either the benefits should be improved or there should be a reduction of the Member's contribution as well as that of the Treasury. For instance, there could be a reduction of 2·5 per cent. in the Member's contribution, bringing it down to 6·5 per cent., and the Treasury contribution could remain at 13 per cent. Alternatively, the Member's contribution could remain at 9 per cent. and widows' and widowers' benefits should be improved accordingly.

The Leader of the House raised the matter of excess contributions. The position needs to be examined, because eventually many hon. Members will be making contributions when they can get no increased benefits because they will have reached the limit.

It is worth putting on record the fact that our salary is based on 89 per cent. of a senior principal grade. It is estimated that, when wage negotiations are taking place, civil servants' contributions are based on 6 per cent. Where is the "fair comparison"—the term used in such negotiations—for hon. Members?

A substantial increase in contribution, no increase in benefit and a dramatic reduction of the Treasury contribution, which in the short term, could have a detrimental effect on the fund cannot be right. Therefore, I hope that the debate will make the Lord President aware of the strong feelings in the House. We are asking only for natural justice which has not been obtained through the current TSRB report or by the Actuary's recommendation.

If necessary, some of the issues could and should be referred back to the TSRB. The House will certainly want to discuss the matter in more detail before any final decisions are reached.

5.17 pm

I have read the Government Actuary's reports for 1984 and for 1987. There seems to be some illogicality in our approach to Members' pensions. According to the 1984 report, the Member was paying 9 per cent. and the Exchequer was paying 18 per cent. The 1987 report suggested that the Member paid 9 per cent. and the Exchequer 4·4 per cent. In the meantime, the fund has grown from nearly £42 million to more than £84 million, so it has doubled in the past three years. The real bone of contention is what should be done with the surplus.

In a private occupational pension scheme, if the fund increases in value to more than 105 per cent.—that is a 5 per cent. increase—the scheme must get rid of that surplus. There are two ways in which that can be done. Either the employer can take it out of the pension fund or it can be used to provide a contributions holiday. If the employer takes out that surplus, the company pays 40 per cent. tax—the rate is higher than corporation tax. That is Government fiscal policy which was imposed because, quite rightly, the Government thought it unfair that an employer could take money out of a pension fund—which belongs partly to the employee—without any penalty and do nothing for the employee. Consequently, companies refrain from taking any surplus out of occupational pension schemes because of the 40 per cent. immediate tax liability, which has nothing to do with the company's profits, is payable irrespective of losses and is entirely different from corporation tax.

If that is the logic of the Government—and I am sure that they have not changed their logic—in our pension fund, which in many ways is analogous to a private pension fund, why does the employer or the Exchequer effectively take the lot without any penalty? In many cases, when there is a surplus in the private sector after revaluation, the contribution holiday is invariably shared between the employer and employees. Alternatively, the pension benefits are improved. I agree with the right hon. Member for Salford, East (Mr. Orme) that, irrespective of the Top Salaries Review Body, it would be a good idea for hon. Members to consider increasing widows' benefits. In addition, something should be done to help our ex-colleagues who are suffering hardship.

Figures up to last year show that Members contributed 9 per cent. and the Exchequer contributed 18 per cent. I cannot understand the logic of the Government's argument, because, in those circumstances, one third of the surplus belongs to hon. Members and two thirds belongs to the Exchequer.

I welcome the Leader of the House saying that he will discuss with the trustees the possibility of their contribution continuing after a Member has achieved full entitlement. I remind my right hon. and learned Friend that, under the state pension, if an employee continues working after 65 the employer continues to pay his contribution, but the employee ceases to pay his national insurance contribution. That could be the yardstick for hon. Members who have paid their contributions and reached full entitlement. The Government should follow the same system as the state retirement scheme, whereby, when an employee reaches full entitlement, he makes no contribution but the Exchequer continues to pay.

I pay tribute to the trustees of the pension fund and their advisers for achieving the excellent result of doubling the size of the fund over the past three years. I am sure that all hon. Members agree that they have done an excellent job.

There is an anomaly in how we deal with the fund's surplus. It is funny that, if there is a deficit, one tries to brush it under the carpet, but when there is a surplus, arguments ensue. I am delighted that my right hon. and learned Friend said that his mind is not closed to the possibility of bringing the system more in line with the logic of private pension schemes.

I am listening carefully to what my hon. Friend is saying, but he may be under a misapprehension about the scale of the surplus above actuarial liabilities—I am not challenging the legitimacy of his argument—which was £7·4 million. The fund is much larger than that, but I should not like there to be any misunderstanding about the scale of the surplus.

I agree that the surplus is immaterial. I am asking why we do not follow the example of private occupational pension schemes. What matters is not the amount of the surplus but the principle involved. If a private employer removes the surplus from a pension fund, he is heavily taxed above the rate of corporation tax. Consequently, his only alternative is a contribution holiday, during which the employers' contribution is not always reduced but is usually shared between him and his employees. I hope that my right hon. and learned Friend will consider that.

5.24 pm

I am most grateful to the Leader of the House for referring so kindly to my role and work and that of my fellow trustees on both sides of the House.

The House will expect me, as chairman of the managing trustees of the parliamentary contributory pension fund, to give their views on both the Top Salaries Review Body's proposals—some good, some less so—and the report from the Government Actuary on the valuation of the fund, in which he recommends a cut in the Treasury's contribution from 11 per cent. to only 4·4 per cent.

As trustees who are selected by the House to manage the fund, we try our best to improve its provisions in the interests both of Members, past and present, and their dependants. There have been many improvements over recent years in which the trustees have taken the leading role, including a faster accrual rate, the age-service conditions for early retirement at a general election and the provision for ill-health retirement pensions.

There is, however, a very strong and urgent case for further improvements which are now threatened, notably by the Government Actuary's recommendation that has cut the Treasury's contribution to only 4·4 per cent. I must therefore very strongly emphasise that it is ultimately for the House to decide, not the Actuary or the TSRB, if and when further improvements should be made. The scheme is a statutory one and Members have it within their power to improve its provisions.

The staging of this debate on a motion for the Adjournment does not permit of any amendment by which the House can make decisions today on the TSRB's proposals or the Government Actuary's recommendation. The House may think that this is curiously contrary to the spirit of an undertaking given on behalf of the Government by the right hon. Member for the City of London and Westminster, South (Mr. Brooke), who was then Minister of State, Treasury, during the passage of the Parliamentary and Other Pensions Act 1987:
"time will be made available for a debate on an amendable motion before any regulations amending the scheme are made under clause 2."—[Official Report, 13 May 1987; Vol. 116, c. 371.]
This debate may not be strictly covered by the letter of that undertaking, but I know that its spirit encouraged many right hon. and hon. Members on both sides of the House to hope that today's debate would take place on an amendable motion, preferably with an all-party amendment tabled by the managing trustees.

That has not been allowed to happen and I shall therefore set out the views of the trustees and also give the House our advice on the response that it should make to the two reports where they affect our remit. I stress the word "our" remit, as some of the TSRB's recommenda?tions go beyond the trustees' responsibilities: for example, those on severance pay for Ministers and resettlement grants for Members.

Soon after they were published, the right hon. and learned Gentleman's predecessor made it clear that he proposed to accept the TSRB's proposals, and to give them legislative effect. It has to be said that he could hardly have done anything else, given the very tightly drawn terms of reference that he had dictated to the TSRB. Nevertheless, the trustees were grateful that the death-in-service benefit was soon to be raised to the level prevailing in most public-sector schemes—two years' salary. This is an improvement which we have advocated for some time and I welcome the right hon. and learned Gentleman's decision to give it retrospective effect.

We also welcomed the proposed further improvements to the early retirement provisions. They will give many right hon. and hon. Members more flexibility over retirement and will mean that more of our colleagues between the ages of 60 and 65, who have fewer than 20 years' service, will no longer face the agonising decision of whether to take an actuarially reduced pension or to defer drawing their pension until they are 65. That is something for which the trustees, with others, have long campaigned. On a personal note, I should like here to pay tribute to the late Brynmor John, who took so informed and constructive an interest in the scheme, and whose loss to the House is still felt very deeply by all his parliamentary colleagues.

The trustees are much less happy about the recommendation that the Member's contribution should remain at 9 per cent. I should explain, for the benefit of those who were not Members at the time, that the figure of 9 per cent. was not the actuarially assessed cost of the revised pension package then agreed, but rather a device to deal with a revolt over parliamentary pay among the Government's Back Benchers in July 1983. In the view of many, the figure of 9 per cent. was not only incomprehensible but reprehensible.

The latest survey of occupational pension schemes, by the National Association of Pension Funds, shows that in 1988, across the board, employees contributed 4·4 per cent. to the cost of their pensions and employers 8·8 per cent.—precisely twice as much. On that basis, in our scheme, Members would pay 6⅔ per cent. and the Exchequer 13⅓ per cent. Yet we have been paying 9 per cent. since January 1987, and to eliminate the fund's surplus—which that needlessly high level of personal contribution has helped to create—the Exchequer's stake is now reduced to less than half of the Member's contribution. That is shabby.

Under the Parliamentary and Other Pensions Act 1972, the Government Actuary is required to determine the contribution from the Exchequer that is needed to balance the scheme's assets and liabilities. This means—and it is essential for it to be very clearly understood by the House as a whole—that the scheme cannot stay in surplus, no matter how well the investments perform.

The House needs to understand, too, a little of the history of the pension arrangements for Members, which were first introduced with effect from 16 October 1964. While contributions had to be made to the fund only from that date, pension accrued in respect of up to 10 years— later increased to 15 years—of service prior to that date. The cost of that concession—and the Act was quite specific—was to be met by a deficiency contribution from the Exchequer, payable over 25 years. It is important to bear in mind that the 1965 Act provided for the review, and the variation up or down as necessary, of Members' contributions and/or of benefits. Under the 1972 Act, which restructured the pensions provisions, the accrued pension rights of Members then in service were improved, at a cost to be borne by the Exchequer.

In his first report, on 27 November 1973, under section 5 of the 1972 Act, the Government Actuary indicated that the deficiency contribution to fund pensions in respect of service prior to 1 April 1972 was to be payable over 25 years from 1 January 1972. It was assessed at 7·75 per cent. in that report, had fallen to 6 per cent. at the valuation as of 1 April 1984, and has now disappeared some eight years early.

When the pension accrual rate was increased under the 1984 Act, the Government promised Members the opportunity to purchase a limited number of added years at a special price—40 per cent. of the cost—which is why the facility became known as "subsidised added years". The balance of the cost—60 per cent.—was to be borne by the Exchequer. I have to report to the House that no such contribution has been made to be fund.

All this means that the current membership is meeting the balance of a deficiency contribution which was intended to be a charge on the Exchequer. It also means that the subsidised element of the added years facility, which the Government said would be borne by the Exchequer, is effectively being paid by the current membership, some of whom did not take advantage of the facility. Others were not even Members when it was on offer. How then, with justice, can the Leader of the House possibly refuse to accept a reapportionment of contribu?tions as between Members and the Exchequer?

The House will wish to note that improvements in the scheme are now effectively vetoed, since successful investment management merely results in a reduction in the Exchequer contribution. The more the trustees succeed, the more they benefit not members of the scheme but the Exchequer.

I appreciate the trustees' work in the matter, but is it true that they could have predicted a surplus accruing over the three years of the review? Would it not have been in order for the trustees to recommend extra payment of pensions, widows' benefits and so on before the three years had elapsed, so that the £7·5 million surplus could have been spent before this Government review?

I am grateful to my hon. Friend. As the fund's performance improved, we made repeated representations in support of improvements. We gave evidence to the TSRB about a shopping list of improvements that we thought were necessary. I shall refer to some of them as I proceed. If I cannot give way again, it is because I want to conclude my speech as quickly as I can although I am, of course, giving the House what is in the nature of a report from the managing trustees.

I ask the House, in considering whether and when to use its own ultimate power to alter the scheme, also to take very careful note of the fact that our scheme compares most unfavourably with others, in terms both of the proportion of its costs paid for by Members and of some of the benefits that it provides.

There are many precedents for sharing the benefits of the contributions holiday that the Treasury is now set to enjoy in relation to our scheme. For example, the Daily Express on 4 May last reported Reed International's proposal to distribute some of the excess funds in its pension scheme, which gave some employees a 90 per cent. rise in pensions.

More recently, it was reported by the Financial Times that, as a result of surpluses in British Rail's pension fund, employees were to pay only a 5 per cent. contribution. In addition, the report states:
"substantial improvements in benefits have been made, in respect of both lump sum payments and of benefits for past service".
The trustees of the parliamentary scheme are acutely aware of the insistence, on both sides of the House, that widows' pensions must be increased. This debate is an opportunity to make the Government aware of that insistence and to offer suggestions for giving it effect. For the trustees, I must point out that, with the present surplus and continuation of a 9 per cent. contribution, we could meet the request by my right hon. Friend the Member for Salford, East (Mr. Orme) to increase forthwith the maximum widow's pension from 50 per cent. to 66⅔ per cent.

Such an increase ought certainly to have the wholehearted support of the Chief Secretary to the Treasury who, in the debate on the Finance Bill on 12 July, said:
"The really unsatisfactory feature of pensions provision is the millions of ordinary scheme members who do not receive a pension anywhere near the maximum allowable under the tax rules".—[Official Report, 12 July 1989; Vol. 156, c. 1074.]
The widows of our former colleagues, many of whom live in straitened circumstances, can be added to those millions.

As of now, the maximum widow's pension that can be awarded is of the order of £8,000, but I must stress that very few, if any, widows of Members can expect anything like that sum. For anyone to do so, until relatively recently, her husband would have had to serve continuously in Parliament for 40 years. Given that the average parliamentary career is no more than 17 to 18 years, a widow's pension under our scheme will average no more than £3,000. At his death in 1984, the widow of a former colleague and very close friend of mine, with total service of over 20 years, was entitled to less than £50 a week. That, too, is shabby.

Referring to the pensions paid to Members' widows in a debate on 27 April 1987, Sir Anthony Kershaw, then a trustee of the fund and the Conservative Member for Stroud, said:
"It is an absolute disgrace that this should be tolerated and even to speak of it ought to give one a sense of shock.—[Official Report, 27 April 1987; Vol. 115, c. 104.]
That is but one compelling reason for resisting the reduction of the Exchequer contribution to less than half that paid by Members.

As the House knows only too well, Members do not enjoy security of tenure. The nature of the job in today's world is stressful and imposes a very heavy strain on family life. It is for these, among other reasons, that the trustees want the TSRB now to be asked to look again at the basis for determining widows' pensions. The trustees are advised—and here I pay tribute to my fellow trustee, the hon. Member for Horsham (Sir P. Hordern), who has worked long and very painstakingly on comparisons with other schemes, and who I know, Mr. Deputy Speaker, hopes to catch your eye—that current best practice in private sector schemes is to provide a widow's pension of up to two thirds of the former employee's pension.

That is what we seek and we urge the House to support a two thirds pension for widows. But it will require a re-examination of the basis upon which our scheme is funded and administered. There is evidence, as I have shown, taking occupational schemes as a whole, that costs are borne in the proportion of 2:1 as between employers and employees. On that basis, even at 11 per cent. the Exchequer is already paying far too little. The TSRB has on three occasions recommended that Members' and Exchequer contributions should be fixed in the ratio of 3:5—and the trustees see no reason why that ratio, given in response to references made to the review body by successive Leaders of the House, should not be accepted.

We must ensure that, when the fund is in surplus, the Exchequer is not the sole beneficiary. It must surely be only fair that the membership of the fund ought to see some benefit, whether by way of higher benefits or reduced contributions. I am mindful also of the claims of existing pensioners.

In a further reference to the TSRB, the trustees want the review body to be asked to consider the following changes to the fund. First, contributions to the fund should in future be shared between Members and the Exchequer in the ratio 3:5.

Secondly, the Actuary's triennial report on the fund should in future recommend what the percentage rate of the Member's contributions should be for a further period of three years, on the assumption that benefits continue unchanged.

Thirdly, it should be for the House to decide, if the triennial report shows the fund to be in surplus or to have an emerging deficit, whether there should be a variation in the benefits provided, in the rate of the Member's contribution, or both.

Fourthly, if the House decides on a variation in the benefits provided, the Actuary should recommend what the percentage rate of Members' contributions should be for a further period of three years, having regard to that decision.

Fifthly, regulations to give effect to any decision of the House as to benefits, and to the appropriate recommenda?tion of the Actuary as to contributions, should be made under the Parliamentary and Other Pensions Act 1987.

Given these changes in the scheme, Members would be much better served and their dependants much better protected. At the same time, the trustees would no longer be placed in the position of seeing all their work to improve the scheme's assets result in a lower contribution from the Exchequer alone.

The TSRB might well also be asked to compare our scheme to other parliamentary schemes across the world. To give but one example, Australia has a parliamentary scheme which is infinitely better than ours.

I am glad to have been able to indicate both the current restraints on the trustees of our scheme and the way forward if we are to achieve the improvements we seek, not least for Members' dependants. I hope not only that my proposals will be given due attention by both sides of the House, but that they will soon be translated into practice. The House has the power to make that happen.

To conclude, I must place on record, on behalf of the trustees and, indeed, all Members and their dependants, our appreciation of the quiet and painstaking, but unseen administrative work of Jim Dobson, Tony Lewis, Moreen McColl and all who work and have worked with them so unstintingly to help members of the scheme, past and present, and their dependants. The House as a whole owes them its gratitude.

The debate must conclude at 7 o'clock and as I understand that at least a dozen hon. Members will be seeking to catch my eye, I very much hope that we can have brief speeches.

5.45 pm

I start by congratulating the right hon. Member for Manchester, Wythenshawe (Mr. Morris) on his work as chairman of the parliamentary trustees. We have met often and have thought carefully about the recommendations that we have made. We have met my right hon. and learned Friend the Leader of the House on a number of occasions and have made proposals to strengthen and improve the existing provisions of the fund.

I begin by saying something about the nature of our fund because outside this place it may be thought that we are concerned only with improving our own conditions at taxpayers' expense. It is important to recognise the distinction between a funded scheme and a pay-as-you-go scheme. The Civil Service has a pay-as-you-go scheme and the benefits are paid according to need. It is not a funded scheme; it does not come out of the investments that have resulted from contributions made by the employer and the employee. That is an important distinction, because we are not asking for more money from the taxpayer. We are talking about how best to reduce our demand on the taxpayer—whether that should be done by reduced contributions from hon. Members or by improving and increasing the benefits available to hon. Members and their dependants. As I have said, it is an important distinction.

I welcome very much what my right hon. and learned Friend the Leader of the House has said and his proposal to refer the debate to the TSRB. We should bear it in mind not only that the fund has done very well under the investment advisers and managers whom we are happy and fortunate to have, but that when it was last valued —the subject of the Government Actuary's report—it stood at about £87 million. However, the latest valuation is £104 million. It is a triennial valuation and as the last one was made in 1987, the next is due this year. We should ask the TSRB to look again at this whole business, because it is clear that the substantial surplus upon which the Government Actuary reported has been exceeded by recent movements in the value of the fund. That appears a good reason for an urgent review of the fund and of our benefits.

Our scheme is a funded one and hon. Members contribute 9 per cent. That is the highest rate of any funded scheme in the country. I may be wrong, but I have made extensive searches and I have not yet come across a funded scheme in which the employees pay such a high contribution. I shall return to the comparisons later because some of those other provisions are more in line with what we should be doing.

It is important to view the 9 per cent. employees' contribution in relation to what the employer pays. I agree with what the right hon. Member for Wythenshawe said about how we reached the figure of 9 per cent. in the first place. It was a great mistake. It was done rather quickly, and probably rather late at night, without anyone fully realising the consequences.

Even though 9 per cent. was decided in a moment of aberration, it is curious that the TSRB did not consider the matter seriously in the context of the total contribution made. The TSRB's latest proposal was that the total contribution required was 20 per cent., not 22 per cent. On all previous occasions, the TSRB said that the relationship between the Government's contributions and Members' contributions should be three eighths—that is, three parts Members' contributions and five parts Government contributions. That was the case in 1976 and 1983.

Only on this latest occasion did the TSRB accept the 9 per cent. contribution from Members' as correct without considering its role. That is regrettable. The role of the TSRB was to decide what contributions were appropriate for employers and employees. I hope that when it considers the position again it will revert to its former responsibility for judging what contributions should be made by Members and the Treasury.

I agree with my right hon. and learned Friend the Leader of the House that in some respects our scheme is good. We have an accrual rate of fiftieths rather than sixtieths. That is right because in general new Members of Parliament join the House in their early 40s. Sometimes they join earlier, but that is the most common age. A large number of accruals need to be made in a comparatively short period. Our scheme is not like an ordinary company-funded scheme which members can expect to join at 20 and have a long period of service. As we mostly join at 40, it is right that we should have special consideration. Fiftieths are a proper proportion.

Regrettably, there is a great deal of difference in the experiences of hon. Members. Some of us have a long period in the House and others have a short time. The turnover is significant. I asked one head of an actuarial department of a large insurance company his opinion of our starting rate of 9 per cent. He said that he could not advise any new member of any scheme that he ran to accept such a large contribution. That is a fact worth knowing.

Our scheme should reflect the nature of its membership. On the whole, we enter it late and, for some at least, there is a rapid turnover. It is important to ensure that our scheme does not provide any advantages that are not available to others in the private sector. The difference is that we pay for our contributions and we have a separate fund to which we have contributed. It is in every way our fund. The benefits that we receive come from our contributions. That is not the case with civil servants who do not have a funded scheme. However, like us, they have guaranteed index-linking. That is another advantage of our scheme.

Civil servants have some prospect of promotion. We live in a curious place which can be described only as a beehive. One spends one's early years here as a drone. Then the queen bee picks one up and one becomes a worker. Then, before one knows what is happening, one ceases to be a worker and becomes a drone again. What sort of basis is that on which to evolve a properly run pension scheme? It is difficult to keep up with the whole business. That would not be acceptable in the Civil Service. It would not be allowed for one moment. Nor would the prospect of total extinction by an ungrateful electorate be acceptable in the Civil Service.

We have real problems in adjusting the scheme to what is proper and fair. It is fair to compare our contribution rate with the high contributions paid by firemen and the police. As I said, ours are the highest contributions to any funded scheme that I can find. It is true that firemen and the police make a higher contribution.

As the right hon. Gentleman says, the reason is that they have early retirement. For example, the police retire at the age of 50. If people retire early, they can look forward to another career but for hon. Members who retire at 60 or over, the market for employment is strictly limited. Their case is not the same.

Some of us may not have the chance to speak tonight. The hon. Gentleman has not mentioned severance pay, about which he is an expert. What about the peculiar circumstances of a person aged 49 with 15 years' service who receives six months' severance pay and has to look for another job? That is ludicrous. Have the trustees considered that and decided to increase the severance pay?

Sir Peter Hordern