My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, the conference adopted a declaration and programme of action which, as well as containing references which ran counter to United Kingdom policy on Southern Africa, linked Israel with racism. The United Kingdom and other members of the Nine could not accept this distortion of its basic aims and withdrew from the conference.

My Lords, is the Minister aware that the Arab nations actually deleted from the declaration the statement that Zionism was racist and that the only references to Israel concerned protection for Palestinians in occupied areas and their relations with South Africa? Does not the walkout by the British and other representatives give an impression to the African representatives that we were opposed to economic restrictions and trade with South Africa and the United Nations embargo on arms?

My Lords, I cannot agree with my noble friend that the declaration, as I have it before me, is not an attempt to equate Israel with racism. Paragraphs 18 and 19 are too lengthy to be quoted at Question Time, but I will make them available to my noble friend. I hope that he will understand why not only the British representative but the representatives of the Nine decided that they could no longer continue in these discussions on that basis.

My Lords, is the Minister aware that I have read this declaration and those two clauses? It makes no reference at all to Zionism as being racist. Those two statements apply only to the protection of Arabs in the occupied territories and Israel's relations with South Africa.

My Lords, my noble friend and I and everybody else in the Nine must beg to disagree. Paragraph 18 says, among other things, that the conference "condemns the existing and increasing relations between the Zionist State of Israel and the racist regime of South Africa". This is a clear attempt to link the Israeli nation with racial policies.

My Lords, may I ask the Minister this question: Is it not disgraceful that it has taken so long for this sentence about Zionism and racism linked together to be got rid of—if that is so— by my noble friend Lord Brockway? It has taken all this time and the conference statement is really disgraceful.

My Lords, I hope that we will not quarrel unduly about interpretations of this declaration. What is important is that Europe acting together—the Community acting together—saw the matter in this light and made a proper protest on a matter of far-reaching importance, as my noble friend Lady Gaitskell has reminded us. In the meantime, having made our attitude to this perfectly clear, we and our friends in Europe propose to continue to serve the objectives of anti-racism and anti-apartheid, but not within the ambit of this declaration.

My Lords, is my noble friend aware that all fair-minded opinion throughout the world will endorse the attitude of the British delegation in this matter in opposition to a declaration that is not conducive towards peace in the Middle East?

My Lords, I am quite sure that my noble friend is right. If we had not protested with our friends against the implications of this declaration, it would have stirred up further enmities, further hostilities, in the Middle East. As it is, it has had a very good effect on world opinion. I am very glad to confirm my noble friend's statement on that score.

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, my right honourable and learned friend the Attorney-General considers that the showing of this film is not a suitable case for proceedings under Section 70 of the Race Relations Act 1976.

My Lords, is the noble Lord aware that, for my sins, which must be very much greater than his, I sat through two hours of vilification and abuse of the Turkish Government, Turkey as a country and the Turks as a people? Is he also aware that there are in this country somewhere round about 60,000 Turks, of whom probably 40,000 are citizens of the Commonwealth? Can it really seriously be maintained that a film of this character, pouring contempt and scorn and inciting hatred of the Turkish community in this country, is not a contravention of the Race Relations Act 1976?

My Lords, I can understand the feelings of the noble Lord, but this is an extremely difficult field in which to make decisions of the kind that are obviously in the mind of the noble Lord. The Director of Public Prosecutions had the film seen by one of his most experienced members of staff— one who has been doing this kind of thing for some considerable time—in relation to the impact on race relations. It was his opinion that it did not contravene the section to which the noble Lord refers and that it did not constitute an offence.

There is an added difficulty in that there is the problem of prosecuting a film that has been given a licence by the British Board of Film Censors, and I would remind the noble Lord that there have been far worse things. I think there are many people in this country who regard, for example, war films as being a particularly obnoxious form of racial hatred, and yet we do nothing about them. I think also that it would be true to say that Solzhenitsyn's Gulag Archipelago and Papillon probably come into a category similar to that of the film to which the noble Lord has referred. As I say, it has been given very careful consideration in the light of a viewing by one of the members of staff and that is the conclusion reached by my right honourable and learned friend.

My Lords, may I ask the noble Lord just what is the place of the Board of Film Censors in all this? Is the noble Lord, Lord Harlech, to interpret the law, or is that something for the courts?

My Lords, I did not wish to give the impression that simply because a licence had been given to a film nothing could be done: I was saying only that it had been looked at by the British Board of Film Censors and they felt it quite right and proper to give a licence. It does not necessarily follow that it is desirable that it should be shown, and that is why my right honourable and learned friend got a member of staff to go and look at it for himself.

Is the noble Lord aware that many people, including the 50,000 to 60,000 Turks who live in this country, have the feeling that the Race Relations Commission, if that is what it is called, is a little bit selective in its attitude towards these matters?

My Lords, I do not think I can take it any further than I have taken it, in so far as this is a decision of my right honourable and learned friend, taken in the light of the advice he has been given. I noticed that the noble Lord referred to upwards of 60,000 Turkish people in this country. My information is that there are something over 6,000—not that I think numbers are all that important so far as this Question is concerned. As I say, I really do not think I can to advantage pursue the matter any further.

My Lords, does the chairman of the British Board of Film Censors enjoy the immunities of the Judiciary or can he, like other people, be sacked "pour encourager les autres"? Would it be taken into consideration when public mistakes are made?

My Lords, I am sure everybody can be sacked, but whether this will happen remains to be seen.

My Lords, may I press the noble Lord a little further on this point about the British Board of Film Censors? If I remember correctly from the days when I was Home Secretary, they are a wholly voluntary body. I really must say that I am quite astonished to hear the noble Lord calling their view in aid as a reason—even a supporting reason—for the decision he has announced. Surely the chairman for the time being and the members of his panel are in no way responsible for this, and surely the view they express should have no bearing whatsoever on a decision as to whether or not to prosecute under the race relations legislation.

Hear, hear!

My Lords, I hope I did not give the impression that because the Board had granted a licence that was a reason for not prosecuting. What I was trying to convey to your Lordships was that an independent body, albeit consisting of voluntary members, had looked at this and, having seen it and considered all the implications, decided to grant a licence. I would not put it any higher than that.

My Lords, is not your Lordships' House in grave danger of providing a gratuitous advertisement for a rather questionable film?

My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

My Lords, the Treasury grant-aids an approved programme of research projects by the National Institute for Economic and Social Research. Grants over the last four years were as follows: 1974–75, £90,000; 1975–76, £141,000; 1976–77, £151,000; 1977–78, £177,000. In addition, smaller grants have been made to the University of Cambridge Growth Project, which produces medium-term forecasts at the industry level, using a large, disaggregated macro-economic model. Over the same four-year period, the amounts have been £34,000, £17,000, £22,000 and £24,000, respectively. The Treasury does not provide financial assistance to any other forecasting institutions.

My Lords, I thank the noble Baroness for that reply. Is it wise to concentrate £500,000 of Government contracts, and thus create a near-monopoly, with one of the bodies undertaking this economic forecasting? Would it not be wiser to spread the load between several such bodies, and perhaps thus ensure that those who have the wisest prophecies get their just reward rather earlier in more contracts?

With great respect, my Lords. I think that the noble Lord has got a little wrong the purposes with which the Treasury money is concerned. The money provided by the Treasury for the finances of this organisation is for an approved programme of work, which consists of specific research projects. The making of regular forecasts is financed by the Social Science Research Council, and not by the Treasury, so that it is not directly grant-aided in respect of forecasting. The Treasury finances the research work of the Institute because it is considered of very high quality and is therefore valuable. But it also commissions work from other institutes— for example, the Policy Studies Institute, the Institute of Manpower Studies and the Institute of Development Studies. In case the noble Lord has forgotten, annual support to this body was started in 1961 by Selwyn Lloyd, the then Chancellor of the Exchequer, and, in fact, the Government Department's contribution amounted to a similar sum in real terms during the time of the last Administration. So that support has come from both Governments.

My Lords, does the noble Baroness agree that her phrase "disaggregated macro-economic model" is somewhat difficult to interpret, and really means taking each year separately?

My Lords, what it means, to make this crystal clear, is that there is a system of simultaneous equations which represent the main quantitative relationships in the economy.

My Lords, the noble Baroness says it so charmingly, but I wonder whether she can persuade her "briefers" to use simple language, and not the eccentrically complicated language of her first reply. Does the noble Baroness consider that there are other very reputable forecasters, such as the London Business School and the Institute of Economic Affairs, and would it not be wiser to share with some of these others and not give an enormous slice of business to one in making these forecasts?

My Lords, the other organisations which the noble Lord mentioned, such as the Economic Intelligence Unit, the London Business School, the Henley Forecasting Centre and so on, can all be brought in to have discussions with the Chief Economic Adviser, and may be from time to time given different aspects of projects to work on. But I would remind the noble Lord that in April the Ball Committee published a report (Cmnd. 7148), of an analysis of recorded forecasts by these main institutes, including the Treasury. It came to the tremendous conclusion that no one is better than another, and no one is worse.

My Lords, may I just press the noble Baroness a little further on that? In her original Answer, she specifically separated support for their research work from forecasting work by this and other institutes, and she made it clear that the grant was not for forecasting. So the accuracy or otherwise of the forecasting of different bodies is irrelevant in terms of the noble Baroness's Answer. But I think that it still needs explaining why so very much greater a quantity of research grants is given to this one body than to all the other bodies in this field put together. May I support my noble friend's plea that the Government should give very careful consideration to spreading research grants over a wider range of institutes?

My Lords, this is certainly a matter for my right honourable friend, and I shall raise it with him. Nevertheless, as I think I explained and as the noble Lord rightly said, this is for research projects; it is not for forecasting. Over a period of years which covers both Conservative and Labour Administrations, this has been considered a reliable and valuable body and the fact of its not having industrial sponsors and being Government-supported has enabled it to keep its independance. This has been generally accepted. I shall certainly pass on any comments, but nothing that I have delved into has made me feel that there is anything wrong about this.

My Lords, may I ask one very particular question? Is not a conference taking place now in order to arrange that the Institute has industrial sponsors, and does not this alter its basis?

My Lords, that is entirely a matter for the Governor of the Bank of England, and it has nothing at all to do with the Government.

My Lords, if a sum of money is available to do a certain amount of research, does my noble friend not agree that to divide it into a very large number of small sums produces very little effect, and that it may be far better to use the money in a concentrated way? Does she not agree that research divided up into minute fragments is not research, but is a form of pools speculation?

Yes, my Lords. There is a great deal in what my noble friend has just said about that. I would just remind the noble Lord, Lord Carr, that we are talking in terms of very small sums.

My Lords, does my noble friend also agree that if financial assistance were given to all these other bodies we should merely be increasing the number of QUANGO organisations?

My Lords, before I move the Motion standing in my name, may I express, on behalf of the whole House, our welcome to the return to health of the Clerk of the Parliaments, and to his presence here?

Hear, hear!

My Lords, may I now move the Motion standing in my name on the Order Paper. In doing so, I should like to point out that there is an error on the Order Paper. The mark in italics at the beginning of the Order Paper indicates incorrectly that the Pensioners Payments Bill is not expected to be debated. In fact, the Bill is marked on the Order Paper to indicate that it has been set down before expiry of the recommended minimum interval between stages. This is a printer's error, and I hope that it has not caused any inconvenience. My Lords, I beg to move.

My Lords, I beg to move the first Motion standing in my name on the Order Paper.

My Lords, I beg to move the second Motion standing in my name on the Order Paper.

My Lords, I beg to move that this Bill be now read a second time. This is a very short Bill, and it is one which I feel sure your Lordships will welcome unreservedly. I do not think there is any need for me to go into any great detail about it, as it is much the same as the Bill which I introduced before your Lordships about a year ago today. Its purpose is to pay a bonus of £10 to over 10 million people, which is a larger number than ever before. Christmas, we hope, will be pleasanter for these persons because of the Bill.

The Government have decided that, despite limited resources and other competing priorities, it is appropriate to pay a bonus this year. The Bill provides, in effect, that the payments will be made this year to the categories who received last year's bonus in accordance with the provisions of the Pensioners Payments Act 1977, the only difference being that the relevant week for determining entitlement will be that beginning 4th December next. As before, the Bill extends to Northern Ireland. I am confident that this wholly beneficial Bill will receive general support among your Lordships and that it will be afforded a swift passage in order that the payments can be made promptly.

To qualify for the bonus, a person must be living or ordinarily resident in the United Kingdom or a member State of the European Economic Community at some time in the week beginning 4th December and be entitled, or treated as entitled, to payment of a qualifying benefit for at least one day in that week. The Bill provides for payments to people receiving retirement and invalidity pensions, including non-contributory invalidity pensions; supplementary pensions; widow's pension under the National Insurance, industrial injuries or war pensions schemes; attendance allowance; invalid care allowance; or unemploy-ability supplement or allowance. The bonus will also go to war disablement pensioners who have reached pension age, which is 60 in the case of a woman and 65 in the case of a man, and can be treated as retired, or who have attained deemed retirement age, 65 for a woman and 70 for a man. Generally speaking, where a married couple are both over pension age they will receive £20 between them. As I said, these categories of people are those who received the bonus last year. The bonus will be tax free and disregarded when a person's means are assessed for purposes such as supplementary benefit, rent allowance or rent rebate.

The vast majority of payments will be made by post offices, and I am sure that your Lordships would like me to express our gratitude to the staff of the Post Office and to sub-postmasters who will be carrying out the additional work involved at a time when pressure is beginning to build up just before Christmas. It means a substantial amount of additional work. I am also grateful to the staff of my Department who will be arranging for payment in cases not covered by the Post Office. The great majority of people entitled to the bonus will receive it in the week beginning 4th December, and nearly all payments should be made by Christmas.

Finally, let me say something about the financial provisions of the Bill. The bonus payments will cost about £106 million. This will be met out of monies voted by Parliament and, in respect of beneficiaries in Northern Ireland, from the Consolidated Fund of Northern Ireland. I do not think there is need for me to say anything more at this stage. Therefore, I commend the Bill to your Lordships and move that it be read a second time.

My Lords, I should like to thank the noble Lord for the explanation he has given to the House of this very short Bill. The Bill is warmly welcomed by my noble friends and myself. I should like to join the noble Lord in thanking the members of the Post Office and his own Department's staff who make the purpose of this Bill administratively possible. I am glad that the bonus is to be paid to the same categories as last year.

I said last year—and I should like to repeat it—that the payment of this bonus does not in any way solve the problem of providing an adequate week-by-week income for those who have already retired and those who are shortly to retire and who will receive little advantage from the earnings-related scheme which has recently been introduced. That problem remains, and on other occasions I have put forward suggestions for dealing with it. Nevertheless, the bonus provides a welcome extra at Christmas.

However, I should like to ask whether it is not now time to consolidate the bonus. To pay it in some years but not in others seems to be purely arbitrary and not related to need. If the bonus is to be paid every year, then it seems to be unnecessary to have an Act of Parliament each year. If the principle were once approved, then each year all that we should have to do would be to discuss the amount, as we do with National Insurance benefits.

If I may speak about the amount, I understand that a sum of £22·50 would be necessary to maintain the value of the bonus at its 1972 level, and I hope that the Government do not intend to let the bonus reduce in value year after year, as has been the case with the National Insurance death grant. May I suggest to the Government that they should put the bonus on a permanent basis and that at the very least they should index-link it for the future. In the meantime, I am happy to support the Second Reading of the Bill.

My Lords, the structure of the Bill is to reproduce for operation this year the arrangements that were made last year. It is with this particularly in mind that I want to repeat a question which the noble Lord may recall I asked him on last year's Bill but to which, despite his habitual courtesy, he was not in fact able to give a satisfactory answer.

My point concerns the position of war pensioners, in particular of war pensioners below the age of 65, in the case of a man, and 60, in the case of a woman, who are not in receipt of ordinary social security benefits. Although the noble Lord on the Government Front Bench referred a moment or two ago to payment under the war pension schemes, he went on later to spell out specifically that the bonus would be paid to war pensioners aged above 65 and 60, with the clear implication that it would not be paid to those war pensioners who were below that age and who were not in receipt of benefits under any other social security scheme. The first question I want to ask the noble Lord is whether I am right in drawing that inference and, if I am—as I understand he last year subsequently admitted that I was—why such discrimination is exercised against this particularly worthy and admirable section of holders of public pensions.

Some years ago, when I was Minister of Pensions and National Insurance, it was our proclaimed policy—and, as I then understood it, the policy of all Governments—to give priority in our system of social benefits to those who had suffered injury in war in the service of their country. That priority was quite emphatically marked by the payment to them of higher rates of benefit for comparable injuries than were paid under the generality of social security schemes. It therefore seems quite extraordinary that, first last year and now, apparently, this year, a measure of discrimination in respect of this very welcome bonus should be exercised against war pensioners. This is made the more conspicuous by reason of the fact that, if I understood the noble Lord aright, a bonus is to be paid to those who draw their benefits under the Industrial Injuries scheme—the casualties of industry but apparently not to those who are the casualties of war unless they have reached retirement pension age.

I understand that, should the Government wish to rectify this apparent anomaly or injustice, it would not be necessary to amend this Bill to do so because, if I recall the matter aright, they could in fact pay this bonus by administrative act, by Royal Warrant under the War Pensions Scheme. Unless the noble Lord can satisfy me that my construction of the provisions of this Bill is wrong (as it may well be, because the House knows how difficult it is for those of us who have not got official support to know the whole technical structure of these measures) I really must press him very hard to go back to his right honourable friend and ask him not this year to discriminate against the war pensioners but to use the powers that he has under the Royal Warrant, however late in the day, to make a similar payment to them. There are still a considerable number of war pensioners below the ages concerned. The sad tragedy of Northern Ireland is in all our minds; one saw a picture in the Press only the other day of a guardsman in his early 20s who has suffered appalling injuries in a bomb explosion. There are plenty of cases of that sort. I shall take —and I think the House will—a great deal of satisfying that it is right to dis- criminate against this particularly worthy section of public beneficiaries to whom we all owe so much.

My Lords, I should like to add my thanks to the noble Lord, Lord Wells-Pestell, for his clear explanation of the provisions of this Bill. As he explained, it is a carbon copy of the 1977 Bill and it has been drafted in such a way that it is not practicable to amend it, so that all we can do today is to pass or reject it. From these Benches we welcome the Bill and I doubt whether there are many, if any, noble Lords who would not also extend a warm welcome to it. Apart from a couple of hiccups in 1975 and 1976 and much hesitation last year—or perhaps I should say that in April it was decided not to pay the bonus and after the autumn Budget it was decided to pay it—the Christmas bonus has been paid by Governments of both major Parties since it was initiated by the Conservatives in 1972. It has been welcomed in another place and I hope the Bill will be speedily passed by your Lordships today.

I should like to make one suggestion, which is that next year we should have a debate on the Christmas bonus well before November. Both in 1977 and again today we have debated this subject at the eleventh hour, just in time for the Post Office to make the payments in time for Christmas. Last year utterly divergent opinions were expressed. My noble friend Lord Drumalbyn asked why we were only legislating for a single payment, and I think he took the view that if it was a good idea to pay the Christmas bonus for one Christmas it must be good for each Christmas. The noble Lord, Lord Banks, has just said much the same today. The noble Lord, Lord Houghton of Sowerby, took quite the opposite view and said it was undesirable that the Christmas box mentality should be repeated as a feature of our social benefits. However, whatever his views, no noble Lord wished to oppose the payment of the bonus and the debate fizzled out.

When replying for the Government last year the noble Lord, Lord Wells-Pestell, while agreeing with the views expressed by the noble Lord, Lord Houghton, explained that the Chancellor was paying the bonus because he was in a position to put a very substantial amount of money back into the community. I hardly think that that is the position today, but it is still intended to pay the bonus. There seems to be a lack of clarity about this issue and that is why I think it should be properly threshed out in debate. Is it right that the bonus should be dependent upon the whim of Government? Should it depend on the state of the economy? Are the right people receiving it? An example relating to this point was raised by my noble friend Lord Boyd-Carpenter last year and again today. Should the bonus be discontinued when pensions have reached a certain level or should it be paid annually in accordance with what I am authorised to say is the present Conservative policy? I think this is the kind of issue on which a consensus is desirable and I hope this may be achieved in a future debate which is not rushed. In the meanwhile, I hope that your Lordships will support the Bill.

My Lords, I am grateful to the noble Lords who have participated in this debate. The only comment I want to make on what the noble Lord, Lord Banks, said about the value of the bonus now as compared with 1972 is that, of course, it is considerably less. I accept that, but I think I must point out to the noble Lord and to your Lord-ships that the Government have been much more concerned about the level of pensions week by week and it was this Government that decided to increase pensions according to the level of prices or earnings, whichever was the highest. Also, as your Lordships know, it is only a matter of days since all pensions were substantially increased, at a cost of no less than £1,700 million. This is a substantial amount in the times in which we are living. We have given increases across the board to people in our community who are in need of being helped amounting, as I say, to a sum of £1,700 million.

The noble Lord, Lord Boyd-Carpenter, puts me in some difficulty. It may well be that when I was standing at this Dispatch Box, I think a year ago today, my reply to him was not satisfactory and might have been a little confusing, but I did write to him a very long letter on 28th November setting out the position in full, to which the noble Lord replied on 6th December.

Then the noble Lord tabled a Question for Written Answer which in fact I dealt with on 17th January this year, and in which I set out very fully the position with regard to war disabled. As I now understand the noble Lord's point, he is complaining —that might not be the right word, but he is commenting on the fact that this bonus is not going to every war disabled person. If that is the substance of the noble Lord's point I would ask him, with the greatest respect, why he did not do something about it in 1972, in 1973—

My Lords, would the noble Lord allow me to answer that question very simply? In both of those years at this time of year I was the holder of a Crown appointment which inhibited me from any partisan or controversial activity in this House.

My Lords, I knew that the noble Lord was going to say that, because I took the trouble to find out what he was doing in those years. It may well be the same answer applies to 1974.

It does, my Lords.

But the noble Lord is an experienced Parliamentarian. If he had thought this was a very important matter he could have got somebody to raise it for him in this House or the other House. This is something that is quite frequently done. This was not done. In 1972 and 1973 no one under pension age, whether a war disablement pensioner or anybody else, received the bonus. In 1974 recipients of unemploy-ability supplement or invalidity benefit below pension age were brought in, thus covering war pensioners whose disability prevented them from working. But, if I am judging the situation correctly, what the noble Lord is saying is that a person who is a war pensioner suffering from a disablement and getting some disablement benefit and who is able nevertheless to work—otherwise he would probably qual-fy for some addition—should, notwithstanding the fact that he is under 65, receive the bonus. I cannot accept that.

My Lords, if the noble Lord cannot accept that, can he explain why under these proposals an industrial injury pension holder who is fit to work does receive it? While I am on my feet, is his argument that this should have been raised, even by those of us under some inhibition through somebody else, in the 1970s? Is it really a very good argument by a member of the Labour movement that this has never been done and therefore cannot be done?

My Lords, I am merely expressing surprise that somebody waited until 1977, when the first bonus was given in 1972. What I am saying is that the war disabled pensioners who are able to work, and therefore have another income apart from their pension, as many of them have—many war disabled pensioners are able to follow full-time employment—if under 65 should not expect to get the Christmas bonus.

My Lords, would the noble Lord now answer my question as to why, if that is so, the industrial injury pensioner does?

Because, my Lords, the industrial injury pensioner is not in a position to be able to follow his employment.

Some of them are.

My Lords, I think the only other comment I want to make is on the point made by the noble Lord, Lord Cullen. I hope he will not mind if I say that I think it is a year ago today that he made his first speech from the Bench opposite and we on this side would like to congratulate him for surviving so long on that Bench. The short answer to the noble Lord, Lord Cullen, is this, that the Government remain of the view that a bonus is not the best way to help social security beneficiaries. I think there is a strong case to be made out for saying that at certain times of the year or at a certain period of the year the extra money will come in useful; but I would have thought—I am expressing a personal point of view here which is a view, I know, held by the Government—that the best way to help people who are receiving pensions is to see that the amount that they receive every week is really adequate for their needs. I said that the £10 Christmas bonus this year will cost no less than £106 million. I would prefer to see it given through an increased amount every week than to have this Christmas bonus, but, as I say, that is a personal point of view. As I say, the Government would prefer to be able to increase pensions than perhaps to assist in this particular way. My Lords, I think I have dealt, perhaps inadequately, with some of the questions which have arisen, and therefore I beg to commend this Bill to your Lordships.

rose to move, That the draft Employment Protection (Variation of Limits) Order 1978, laid before the House on 8th of November, be approved. The noble Lord said: My Lords, I beg to move the approval of the Employment Protection (Variation of Limits) Order 1978 and to speak to the Unfair Dismissal (Increase of Compensation Limit) Order 1978. For the convenience of the House, I intend to deal with both orders in one speech, and I have already advised the Opposition and the Liberal Benches to that effect. Of course, naturally, at the end of the debate I shall move each order separately to meet the requirements of the House.

My Lords, I am grateful to the noble Lord, Lord Wallace of Coslany, for outlining the orders, although I cannot say that I like them very much. We are not opposed to the principle of the awards enshrined in the orders, nor, in these wretchedly inflationary times, to an annual uprating. However, an increase of 10 per cent. to take effect next February is surely confusing and hard to justify.

Last February I acknowledge that there was a 10 per cent. increase in the maximum limits, but at least at that time the Government's guidelines—their pay policy, as it were—took the form of a 10 per cent. pay policy. But, notwithstanding local difficulties over pay policy, the Government say that they are now standing firm on a 5 per cent. pay policy. So, surely, unless and until the Government admit that the 5 per cent. policy is unworkable and too restrictive, the limits enshrined in these orders should be increased by only 5 per cent.

It is in fact the employers who will be hit by the increased awards. Between now and next February—when the new limits will come into operation—the Government say that they are resolutely determined to ensure that employers paying wage increases in excess of 5 per cent. will be subject to somewhat unspecified, and I would argue arbitrary and doubtfully constitutional, punishments and sanctions. Therefore, like it or not, it is quite clear that employers will be in for a hard time generally.

Therefore, it seems that there are not only double standards of treatment as between workers and employers where pay policy is concerned but also double standards of inflation. Only yesterday in another place the right honourable gentleman the Secretary of State for Prices and Consumer Protection revealed that the rate of inflation over the past 12 months was 7·8 per cent. The latest economic forecast published six days ago by the Treasury suggests:

"Price inflation will stay near the present rate of about 8 per cent. a year".

Even if the Treasury performed its average forecasting error of 1·1 per cent. for the first half of the forecast riod, the figure is still, under its notation, expected to be less than 10 per cent.

I think that there is a further cause for concern. The gracious Speech referred to the Government's intention to implement a scheme to provide compensation for short-time working. Can the noble Lord, Lord Wallace of Coslany, explain whether the limits in the order before us—notably the limit on the amount of guaranteed pay payable to an employee in respect of any single day—will be varied to take account of overlap? In other words, will the limits for payment be overtaken by the proposed short-time working scheme?

While I am on that subject, I have one more question for the noble Lord. When do the Government plan to introduce the short-time working scheme which is outlined in the Queen's Speech? Are they in fact, varying the present guaranteed payment limits because they know very well that the scheme in the Queen's Speech is, in fact, window-dressing and has very little chance of being introduced in the present Parliament?

Perhaps one might not quibble over a few percentage points if the whole system of employment protection and industrial tribunals was at present operating with the general confidence of the public. However, regrettably, since the case of the night shift sleeper in particular, this is no longer the case. Indeed, the system is something of a laughing-stock. Only last week, as if they did not at present have other problems on their hands, Vauxhall Motors were ordered to pay more than £7,000 in compensation to an employee dismissed for sleeping on the night shift. It is not for me to question the verdict of the tribunal where liability is concerned, but I suggest that the figure seems unduly large. The tribunal decided that the employee was 50 per cent. to blame, yet I understand that the employee received £4,894, out of a maximum compensation award of £5,200; in other words, he received over 95 per cent. of the maximum. Of course, we all take 40 winks on the job from time to time; it is not unknown in your Lordships' House. But if your Lordships were to receive £7,000 each time you nodded off in debate you would be richer than at any stage since Magna Carta.

In closing, I have two constructive suggestions to make to the Government. First, I think they should subject the workings of the Employment Protection Act—and especially the sections relating to unfair dismissal—to a thorough and immediate review. Secondly, they should postpone the implementation of these orders—and they are perfectly able to do that if they wish, as the orders are to come into operation only in February— until the 5 per cent. policy has been seen to be adhered to in accordance with recent and forthcoming negotiations. Otherwise, the upgrading will continue to be manifestly unfair to employers on whom, as I said earlier, the burden of the present counter-inflationary policy falls. It seems to me that it would be better to return to these orders in a more realistic climate, if and when realistic pay settlements are made.

My Lords, we on these Benches should also like to thank the noble Lord, Lord Wallace of Coslany, for the clear way in which he has explained to us the aims and content of these orders. We agree with him that it is for the convenience of the House to take them together.

About the orders themselves we have little to say. As the noble Lord has explained, they are pretty straighforward in themselves, raising by 10 per cent. the limits on the amounts payable under certain provisions of the relevant Act in respect of redundancy compensation for unfair dismissal and so on. I am bound to say that I have some sympathy with the view just expressed by the noble Earl, Lord Gowrie, in questioning whether, at the present time a more appropriate increase in the limit might not be 5 per cent. as opposed to 10 per cent., having in mind the Government's general guideline on pay policy. However, our understanding is that these orders are not to be debated in another place until next week, and we believe that, because of their financial nature, this House should do nothing other than approve them today.

However, the occasion gives us the opportunity, very briefly, to contemplate the present standing of the Act from which, in a sense, these orders ultimately stem—namely, the original Employment Protection Act. As the noble Earl has reminded us, cases such as the £7,000 compensation recently awarded to the Vauxhall employee who was sacked after having been found asleep on the job, have brought industrial legislation of this kind into some ridicule. Of course, the higher the amounts that become available under orders such as those before us, the more disreputable this particular Act is at least in danger of appearing.

There is conflicting evidence as to how far mistrust of the original Act by employers—and particularly by those running small businesses, on which our economic success for the future so largely depends— stems on the one hand from lack of knowledge of the provisions of the Act, or, on the other hand, from inherent weaknesses in the legislation itself. But either way there is little doubt that, although the Act does much to protect existing jobs, it cannot in any sense be said to create those new employment opportunities that are so desperately needed by the country.

In our view, there is an urgent need to make a fundamental review of the workings of the Act. I very much hope that this will be done on the basis of its actual effects on our economic and industrial performance, rather than on the extent to which it continues to accord with a particular political philosophy. It follows that when industrial legislation of this kind is revised it should take as much account of the views of the employers who actually have to operate it as of the views of the trade unions.

How cheering it would be if all this could be achieved in the last Session of the present Parliament, but I suppose that one has only to voice such a thought to be considered politically somewhat naive. Therefore, maybe it will have to wait until a new Government has been formed. In conclusion, I would simply say that it is greatly to be hoped that the outcome of the next General Election will be such as to enable a consensus to be forged on this subject, for it is very badly needed.

My Lords, this seems to be a suitable occasion on which to raise a subject which I have raised before in this House. The orders contain provisions to raise pecuniary amounts appearing in orders or Acts to compensate for the effects of inflation. Many Acts of Parliament specify financial amounts for damages or fines for crime or civil actions or, as in this case, financial amounts for compensation or allowances. In the past, my suggestion has been that the Government should consider the idea of taking a decision each year as to the amount by which financial amounts appearing in every Act of Parliament and every order should be raised if, indeed, inflationary trends make that necessary. That would save a great deal of Parliamentary time because, as we have seen, a number of Acts and orders are amended in this way. On the other hand, a large number of financial amounts appearing in Acts are not amended for very long periods of time. If inflation has gone on in the interim then the original intention of Parliament is defeated. In many cases one notes that fines or damages become ridiculous in the light of inflationary trends. If every Act containing financial figures had to be amended before both Houses in each year when inflation took a real effect on those amounts, then Parliament would be overburdened with such activity.

The last time I raised this, the noble and learned Lord who sits on the Woolsack gave me the answer that to follow the recommendation I was making would imply that we accepted the progress of inflation inevitably into the future. I did not think that that was a sound reply. If we did not have inflation we should not need to do anything; if we have inflation it is surely right to take account of its effect on Acts of Parliament where, unless we do so, the original intentions of Parliament are clearly defeated by the advance of inflation. I make this point on this occasion, and I hope that if it goes on being made the Government will take some note of it.

My Lords, the noble Lord, Lord Wallace of Coslany, will not, I hope, think it offensive if I say to him that I think he owes it to the House when he replies to make rather more of an attempt than he did in his opening speech to justify the Government's decision to increase the amounts dealt with under these orders by 10 per cent. Although there is some charge to public funds most of the cost of this will, as I understand it, fall on employers, and here perhaps I should disclose an interest. It would be at least interesting to know whether the Government, through the mechanism of the Price Commission, are going to make allowance for this when price increases are sought.

This is a charge analagous to wage payments and it comes into the costs of production. It will be quite unfair to put this additional load on employers without at least accepting that when applications are made for price increases the Price Commission and the Secretary of State for Prices and Consumer Affairs would take it into account. The amounts in individual cases are quite substantial. That leads me to a second and unrelated question. Can the noble Lord tell me —I suppose I ought to know, but I do not—whether the payments made under these two orders are subject to tax, or are they tax free payments? They are in some cases substantial amounts, and it would be interesting to know whether, in approving an increase in these already substantial amounts, we are or are not increasing the size of tax free payments.

Finally, I would ask the House and your Lordships to consider this: the Government have put us in a strange and almost ironical position by producing these orders at this moment, as the noble Earl on the Front Bench pointed out. The Government are apparently still, according to the Prime Minister, wedded to no greater increase in actual earnings than 5 per cent. in the period ahead. Yet apparently they see no inconsistency in coming forward with proposals that those who are ex hypothesi not earning and producing, but are either redundant or being compensated for dismissal, shall receive an increase of 10 per cent. It must create a curious impression in the minds of economic commentators, ex-pecially in other countries, that the British Government at this moment are more concerned to build up the standards of life of those who are redundant or are dismissed than they are to maintain the standards of life of those who are working and on whom our whole economy depends.

My Lords, I should like to support the noble Lord who has just resumed his seat, and also my noble friend Lord Gowrie, in what they have said. It seems inconsistent that when the Government have a pay policy of 5 per cent. they are raising the figures of compensation in these two orders by 10 per cent. What worries me is the effect of this whole Employment Protection Act on small employers. I declare an interest in that I have suffered under it. I first of all suffered under the Sex Discrimination Act, which is parallel to this order, in that I employed a woman, and the man who also came for the job went to the tribunal. Had it transpired that I had employed the man, then the woman would have gone to the tribunal, so it was really collusion. I had to go to the trouble and expense of fighting the case.

I should like to see a great deal of streamlining of the whole procedure of the hearings of these tribunals. I was surprised to hear the noble Lord, Lord Wallace of Coslany, say, I think, that the maximum award that can be awarded for unfair dismissal is £5,000. I cannot remember the exact figure but I thought that the maximum award that these tribunals can give is £13,400. What is surprising—I think it has surprised employers—is that the average awards last year up to July 1977 were running at only £355. That the number of dismissed employees who were successful was only 33 per cent. shows the great number of irresponsible and vexatious claims that are brought before these tribunals. I understand that there were 41,000-odd applications, but the cases heard were 18,962. As I say, of those only 33 per cent. were successful.

This raises a point because the CBI says that the cost to employers of defending these cases varies between £400 and £1,200. The aspect of this that I do not like is that lawyers have now come into these hearings in a big way from the point of view of the defendant and the applicant. I thought originally that these tribunals were going to be hearing cases between laymen. When you get lawyers involved you have a great deal of delay and a great deal of expense. I believe it is true that, owing to the large proportion of claims that failed, it now costs at least £3,000 to employers, applicants, and public funds to make a single award of £525. To have such a great volume of litigation for such a small sum is surely exceptional.

May I make a few suggestions as to how this Act could be improved? No good employer objects to employees being well compensated if they are unfairly dismissed. Of course a good employer would not unfairly dismiss them, but you have bad employers and of course bad employees. If somebody is unfairly dismissed I am all for him having considerable compensation. Nobody objects to that. In this country if one is charged with an offence one is always innocent until proved guilty, but at these hearings any employee can say he has been unfairly dismissed and then the employer must prove he is not guilty. Surely that is turning our law upside down. I should like to see an employee making a claim having to say why he has been unfairly dismissed; it seems most unfair just to let him say he has been unfairly dismissed without having to explain why. In other words, the burden of proof should be reversed from the employer to the applicant, and I am sure that if we did that the number of irresponsible claims would be greatly reduced. There are a number of other suggestions I should like to make but I do not want to speak for too long. I hope the Minister will give some hope that this legislation will be reviewed because as at present enacted it is unfair.

My Lords, I agree broadly with many of the comments that have been made about the order. I am more worried about the order on unfair dismissal because we have been studying the way in which this has been operating recently and we have seen a particularly unhappy example of its operation. It is not for me or any other noble Lord to query whether the judges were right by saying that the sleeper was correctly or incorrectly found not guilty of being asleep on the job. What rather fascinated me, however, was that when he had been dismissed he was receiving, according to newspaper accounts—I know the newspapers can occasionally be a little inaccurate—considerably more than I or several noble Lords I see in the Chamber were receiving as Cabinet Ministers, so he was not being done too badly by the social services in being dismissed.

It is becoming more and more difficult for many of us—and I am glad I have got beyond the stage of employing a great many people—to find any reason for which we could, if we wanted to, dispense with anybody without penalty. If you dismiss somebody, almost however heinous his crime may be, because of the state of the law today it is likely his case will not come before any court within six, nine or even 12 months, and therefore you must go on paying the person in case the court says he is not guilty; if you sack him and the court says he is not guilty you are then liable for enormous damages. This does not seem either sensible or just in any real sense of the word.

I have considerable sympathy with the noble Lord, Lord Brown, of Machri-hanish—apart from the fact that he took his title from a very attractive part of Scotland—when he says that many of these things would be made much easier if one took account of inflation automatically on a great many issues. I will support him to the hilt if he will support the same effect on taxation when it comes to capital gains tax or other things in respect of which the Government gloriously also completely forget inflation has an important part to play. If noble Lords feel that this order is not satisfactory I will happily support them in opposing it.

My Lords, what disturbs me, apart from the comments made by some of my noble friends, is the cosy atmosphere in which this order is being debated. In my view it should not be looked on as the noble Lord, Lord Brown, suggested, as being just a rule of thumb extension that should not be debated at all but which should be built in. This is an occasion when we should—and we would be well within the rules of order in doing so—debate the general effect of the parent Act from which this legislation flows. There is no doubt in the minds of people who are still in business that the Act is a positive time bomb which is affecting any possbility of the 800,000 small businesses making their contribution to reducing the unemployment level.

There is no doubt but that while one finds criticism from all sides about the lack of investment and the lack of initiative on the part of management, where they have the finance and are eager to put investment into operation, the way this legislation is being operated kills all of that. In innumerable cases when the final decision has been made and everything else is in favour of extending a business or doing things which would take up some of the unemployment, that is killed by the fear and very real dangers that flow from this Act. I have examples of small business extensions which have passed every other test and where they would employ perhaps another 15 or 20 people, but those plans have had to be ended in the view of those making the investment because the Act means that managers are no longer allowed to manage their own show.

The noble Lord, Lord Wallace of Coslany, comfortably presented the order as though it were one of those little automatic things like the old age pensioners' £10 at Christmas and completely ignored the danger this is having on the general industrial vitality of this country. Far from agreeing with Lord Brown, I am disturbed that your Lordships' House, on an occasion when we are having a go before the other place, should not have reflected on the legislation ladieng up to the present state of affairs. The suggestions of my noble friend Lord Gowrie were right, but the only points that came near to underlining the dangers that the Act is inflicting at a time when we need all the vitality and risk-taking we can get were made by my noble friend Lord Massereene and Ferrard.

I hope that on future occasions Acts of this sort will be examined because we have an opportunity to do that when reviewing orders of this kind. In other words, I hope noble Lords will reflect on what is the mood of the industrial and business life of the country. The way in which the order was presented and is being operated was a grievous mistake and examples such as the sleeper undermine the confidence we need if we are to get Britain out of the slough of despondency, falling production and higher unemployment.

My Lords, the noble Lord, Lord Harmar-Nicholls, knows very well that the point I was making had nothing to do with many of the points that have been made by speakers on the Benches opposite. It so happens that I agree with much of the criticism which has been made of the Act; it was right in conception but it is going wrong very badly and needs amending.

My Lords, the noble Lord is absolutely right in that I am criticising him because he is in a better position than many of his colleagues on the Labour Benches to know the danger in this matter, but neither the tone of his voice nor his words at all reflected the danger that he knows exists. I have now gained a little support which we would not otherwise have had, but I should have liked to see the noble Lord make a real, robust speech with all the influence that that would have had, through coming from the other side of the House. But that has not happened.

My Lords, I cannot agree with the noble Lord who has just sat down that the whole of my explanation of the order was presented cosily. Before I arrived in the Chamber I spent considerable time going into points on this very important matter, and if it was presented cosily, I can plead only that that must have been due to my bedside manner. There is certainly no cosy atmosphere in the Chamber this afternoon. If the provisions of the Act need to be debated—and the noble Lord quoted many cases—then all I can say is, fair enough. The Opposition have debating opportunities; it is up to them.

I turn now to general criticism. Several noble Lords, including Lord Gowrie, Lord Boyd-Carpenter and Lord Rochester, raised the question of 5 per cent. rather than 10 per cent. Of course that is a CBI view. The CBI wished to have 5 per cent., while other organisations said 15 per cent. Last year there was a figure of 10 per cent. However, it was not a question of the rate of inflation to be considered, but rather a question of the average level of earnings increase and the Minister has to decide upon that basis. Under those circumstances, and taking into account the economic situation, inflation and so on, he decided on 10 per cent. He could have decided on 15 per cent. or 5, but basing it on average earnings—which he is bound to do by Statute—he took 10 per cent. as a reasonable and fair decision.

The noble Earl, Lord Gowrie, the noble Lord, Lord Rochester, and many other noble Lords referred to short-time working and, inevitably, the case of the sleeping worker arose. I am placed in a difficult position here because of the need to reply adequately, while at the same time observing certain proprieties affecting this and other cases. The position generally was that the tribunal had employer and employee representatives, and in this particular case the decision was unanimous. The worker was not receiving more than a Cabinet Minister, though he was receiving more than £100 a week—

My Lords, will the noble Lord bear in mind that what I very carefully said was what one used to receive as a Cabinet Minister, not what a Cabinet Minister gets today, when inflation has brought about a very considerable advantage for Cabinet Ministers and sleepers?

I wish, my Lords, that that also applied to Lords in Waiting, but that is another story. The general criticisms on unfair dismissals, coming from the Conservative Benches, are welcome, but I would remind the Opposition that they were responsible for introducing the original provision in the Industrial Relations Act 1971. Great stress has been put on the sleeping worker. I have seen the newspapers, listened to the radio, and watched television, and I have noted that that is all that the media has concentrated upon. I have seen all the details of this case up to date, but noble Lords must appreciate that the time for an appeal has not yet expired, and so I must be very careful in what I say in case I affect any possible appeal which may be made. I think that noble Lords will accept that position.

With regard to short-time working and the legislation envisaged, I can say that that will come. Very detailed negotiations are taking place at present, but they will take some time, and so I cannot estimate the date when the legislation will be put before the House. Consultations are under way at present. If a short time working scheme is enacted, it will replace the guaranteed pay provisions.

In reply to my noble friend Lord Brown, who raised several points, I must point out to him that amounts can be increased only if there is a specific provision in the Act allowing the Minister to do so. The noble Lord, Lord Boyd-Carpenter, raised the question of the payments and asked about tax. I am advised that the amounts are tax-free up to £10,000, and beyond that tax is payable—

My Lords, will the noble Lord amplify that a little? I understand that that figure is consistent with other figures, including "golden bowler" figures and others, but what about the weekly payments? Are they subject to income tax?

I cannot answer that point immediately, my Lords. It is a very involved matter, but I shall certainly get the information and see that the noble Lord is fully advised.

Much obliged.

My Lords, I do not think that there is any other point with which I can usefully deal at the moment. The noble Earl, Lord Gowrie, and other noble Lords referred to certain suggestions being put to the Minister. I can assure the noble Earl and other noble Lords that we shall put suggestions for improvements, as well as other proposals, to the Minister, and no doubt we shall in due course have a debate upon the general position of the Act. In the meantime—

My Lords, the trouble is that for many applicants who are successful a great part of the award goes in legal fees because the fees are so high. If only we could keep the lawyers out of this! The lawyers are having a field day in these hearings.

My Lords, I agree that at times lawyers do not help; they complicate matters. The position is that the employer may engage a lawyer if he so desires, but the choice is up to him, and if he does not want to get an expensive lawyer, and possibly get confusing advice, he will deal with the matter in another way. The choice so far as legal advice is concerned is up to the employer.

My Lords, the employers would like to have a payment-in system, so that if an employee said that he had been unfairly dismissed, the employer could pay perhaps £200 or £300, and so much trouble would be saved. If the applicant considered that to be fair, there would be no case. If he did not consider it fair, he could proceed, though if he lost he would then be in a rather bad way.

My Lords, I should like to make a helpful suggestion here. It is well known that employers have very powerful organisations, and surely it is not beyond the wit of those organisations to set up their own scheme to assist their members in this kind of matter, without involving them in great legal expense.

My Lords, before my noble profession is further slandered —and here I declare an interest—may I ask my noble friend whether he agrees that the information available to him would show that the contribution made by the legal profession in this particular sphere is to prevent the tribunals, quite literally, from being troubled with thousands of cases upon which lawyers have advised that there is no case? Will my noble friend also agree that the complicated legal matters and issues that now come into the working of the Act make the intervention of lawyers of help, as employers have undoubtedly realised? Will my noble friend further agree that employees are entitled to similar advice?

My Lords, I would accept what my noble friend has said as far as the question of employees receiving advice is concerned. It is a well-known fact that trade unions have their own legal departments, anyway, and they are in fact very skilled at their job. So far as the general position of lawyers is concerned, I do not want to involve myself in too much criticism because there are too many eminent lawyers glaring at me at the moment from certain Benches; but no doubt the point will be taken.

My Lords, I beg to move that the draft Unfair Dismissal (Increase of Compensation Limit) Order 1978 be approved.

rose to move, That an humble Address be presented to Her Majesty praying that the Food (Prohibition of Repricing) Order 1978 [S.I. 1978, No. 1014] laid before the House on 24th July 1978, be annulled. The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. This order was considered by the Joint Committee on Statutory Instruments on 1st August, its last meeting before the Recess. The order, among others, was held up as it was felt it required further elucidation from the Department of Prices and Consumer Protection. This the Department provided in a memorandum received during the Recess, and it was further considered by the Joint Committee at their first meeting of the new Session on 7th November. The Department's explanations were considered unsatisfactory, and they were invited to give evidence before the Joint Committee on 14th November. This they duly did. The Joint Committee reached the conclusion that the order should be drawn to the special attention of both Houses, and this they have done in their Second Report of this Session.

My Lords, the House will be grateful to the noble Lord, Lord Ampthill, for drawing attention to this order and, further, it will be grateful to the Joint Committee on Statutory Instruments for drawing the attention of both Houses to this particular order. This is Order No. 1014. It is fortunate, again, that we have the printed paper which was published on 15th November because, as the noble Lord, Lord Ampthill, rightly pointed out, the oral evidence has not been published to date; and contained within that oral evidence some important factors have emerged. I am grateful personally to the noble Lord, Lord Ampthill, for giving me a copy of this evidence, otherwise I should have been but poorly prepared.

Your Lordships have heard of the unenforceability of this order, the number of exclusions and the strong possibility of bona fide errors occurring. I should like to examine in a few moments another aspect of it altogether which is quite outside the question of the merits or demerits of this order. That is the question of the Negative Resolution procedure. We have this afternoon a situation which has occurred before and we also have carried out a particular procedure this afternoon which may help remedy it in that the Lord Chairman has proposed the re-appointment of the Committee of this House to examine practice and procedure.

I should like to suggest from this Dispatch Box that one of the practices and procedures which is worthy of examination at an early date is the Negative Resolution procedure. That is because we have this situation. The time will expire on this order, as I understand it, at the end of this week. Another place will not have the opportunity of debating this order and, therefore, the order will become law unless your Lordships take another decision or the Government choose to withdraw the order or some other course is adopted.

It is a situation in which very important matters can pass into law without the opportunity of discussion; and here is where your Lordships' House is fulfilling a public function in drawing attention to what might otherwise be a very unfortunate procedure during a period of business, the Christmas shopping period, in which a great many problems could occur. Only two courses are open under the procedure. The House may accept or the House may reject the order. There is no third course of amendment and I would respectfully suggest that this is a point which may well be looked upon by the Practice and Procedure Committee; otherwise the situation may well cause even more serious problems in the future.

I should like to suggest to the noble Lord, Lord Wallace of Coslany, that the Government should reconsider these regulations and withdraw them. Your Lordships will have heard from the noble Lord, Lord Ampthill, that the Joint Committee on Statutory Instruments have already examined this order three times: on 1st August, on 7th November, and again on 14th November. On each occasion they have been most dissatisfied with the procedure. No substantial Amendments have been made to them by the Government and their advisers. I think that one very important matter should be reconsidered by the Government even at this stage because it is the burden of this side of the House that it is a totally unnecessary piece of legislation. It is over-legislation of the worst sort because it is our submission that in Section 11 of the Trade Descriptions Act 1968 the necessary powers already exist; and this order is quite unnecessary.

This often occurs. It occurs, unhappily, because the state of the law is so complicated. And here is a newly-fledged Department, the Department of Prices and Consumer Protection, stretching its wings, seeking powers from Parliament to bring into force an order which is wholly unnecessary. Ten years have elapsed, 10 years' practice; and the Conservative Government of 1970 did not overturn this section of the Trade Descriptions Act 1968. They had no cause to do so because the terms in which it was expressed were deemed at that time to be satisfactory.

The problem is very considerable. If I may delay your Lordships a little by quoting from Section 11 of the Trade Descriptions Act, I think it would be for the benefit of understanding the problem. The Trade Descriptions Act included this special clause which is headed, "Misstatements other than false trade descriptions":

"11.—(1) If any person offering to supply goods of any description gives, by whatever means, any false indication to the effect that the price at which the goods are offered is equal to or less than—

(a) a recommended price; or

(b) the price at which the goods or goods of the same description were previously offered by him;

or is less than such a price by a specified amount, he shall, subject to the provisions of this Act, be guilty of an offence.".

These are very wide powers. Very wide powers are in existence on the Statute Book. It applies not only to food, as this order does, but, as the Act says, to "goods of any description". I cannot believe that the Government have examined that section of the Trade Descriptions Act with sufficient assiduity, otherwise they would have noticed that it is applicable to the situation which they have in mind. We do not quarrel with a very careful examination of consumer affairs. Far from it. But we believe that this order is unnecessary.

My Lords, I should like briefly to support this Motion, particularly in relation to the fact that the order does not provide for bona fide mistakes. This is referred to in paragraph 7 of the Second Report of the Joint Committee. One can understand the basic idea behind the order: that shopkeepers, having bought goods at the old wholesale price, ought to be satisfied with selling them at the old retail price. When there is a price rise, the shopkeeper should be discouraged from withdrawing the old stock and taking advantage of the increased price so as to sell stock at a greater profit which he has bought at the old wholesale price. One can sympathise with the idea behind that, but it seems a very sad lacuna that the order does not provide for the bona fide mistake. I do not know how many thousand items of food supermarkets sell, nor do I know how frequently prices change. But I know it is practically impossible to go into a supermarket without finding sales assistants pricing goods and putting them on the shelves and, at the same time, being asked questions by customers and interrupted in various ways. One simply cannot believe that bona fide mistakes will not sometimes occur. Surely this ought to be provided for.

Supposing there is a dispute between the enforcement authority and the shopkeeper as to whether in a particular instance it is a bona fide mistake, and supposing the court either entirely believes the shop-keeper or at least gives him the benefit of the doubt, the court will be advised, as I understand it, that because it is an absolute prohibition they have to record a conviction. That is not satisfactory. Admittedly, they will not impose a very heavy penalty, but every time somebody is convicted where it is quite clear they were not intended to be convicted, and they are only being convicted on a technicality, this tends to undermine the rule of law and to bring the law into disrepute.

I join with the noble Lord, Lord Sandys, in regretting that the evidence that was before the Joint Committee is not yet available to your Lordships. As I remember it, those arguing in support of the Minister were contending that, if there is a bona fide mistake, if the shopkeeper marks 50p on a packet of biscuits and that is a mistake, that 50p marked on the biscuits is not a price because it is not the figure at which he intended to sell the biscuits. It is not a price; it is only an amount. All I can say about that is that I would not back myself to persuade a bench of magistrates that that was a convincing argument. I hope that this order will be taken back at least for the purpose of providing for the case of the bona fide mistake.

My Lords, may I for a moment speak upon this order not from the point of view of its contents but from the point of view of Parliamentary procedure, which has already been mentioned by noble Lords. Here we have, under the Negative Resolution procedure, an order; the timetable in the other place is such that it cannot be discussed there; we are told by the mover of the order—and there is no dispute about it—that it is a bad order, in that it cannot be enforced and it has various loopholes in it. Yet tonight we are asked as a House to pass a piece of legislation for which there will be no turning back. It seems to me almost an insult to Parliament that the Executive should expect this House to assent to the passage of such an order. I do not know the authority which the noble Lord on the Front Bench has, but I would appeal, if necessary, to the Leader of the House to come here and give the authoritative decision that this order should be withdrawn in the interests of proper, respectable Parliamentary government.

My Lords, I should like strongly to support my noble friend Lord Ampthill. I had not seen or heard of this order until about an hour ago, I admit, but, having read through it quickly and heard my noble friend's admirably clear and full explanation, it seems to me to be nothing more than an electioneering gimmick and a snooper's charter. After all, it would require an elaborate and expensive spy network to discover whether a retailer had illegally slapped one penny on to the price of a tin of luncheon meat by surreptitiously peeling off one label after closing hours, and sticking on another. Any slight saving that there might be in the house- wife's weekly shopping bill—and it would be very slight indeed—would be more than counter-balanced by the increased taxation necessary to pay for a swollen bureaucracy.

My Lords, it is not my day today: I have already dealt with two very unpopular measures and now I have another one! I do not think that we should make too much heavy weather over this particular order. Thanks to the noble Lord, Lord Ampthill, I am glad to have an opportunity to refer to the background to it and explain, if I can, some of the things which the order does not do and why we had to limit it in the way we did.

A practice in the retail trade which infuriates consumers—and I can assure noble Lords that it does, my wife is one and I am another—is the pricing upwards of goods. This may take several forms, but the commonest is often referred to as the sticky label problem. Prices— especially in supermarkets—are often marked on goods by means of printed sticky labels which a shop assistant attaches to individual articles such as tins, bottles and packets. In some cases, it is even more blatant. Customers have actually seen shop assistants sticking new higher priced labels over the old ones.

The customers complain, understandably, that there is no justification for charging higher prices for goods which have been standing on the shelves. This has been going on. A few years ago it was even worse under the Conservative Government. I have had many complaints and received articles to which three or four labels have been attached, one after the other, always increasing the price. The situation is a little better now; but, my Lords, remember this: When we talk about the consumer, especially on this issue where some people say it is only a small matter, it affects the housewife. I can assure your Lordships (if you do not know already) that a ha'penny added to the price of an article is like a red rag to a bull so far as the housewife is concerned. Consumers are far more incensed to complain about this than about many other issues. About 100 complaints have been made each quarter to the Department, of which some 10 or 20 are about food prices.

Complaints will continue to be made and therefore we have to take some action, unsatisfactory as it may be to some. The Government share the customer's view and regard the practice as an abuse. Up to the end of July, retailers repricing goods in this way were in breach of the Price Code. However, we felt that control of the practice should be put on a more permanent basis. Therefore an order was made which is the subject of this debate and which came into force on 14th August.

The effect of the order is that when an article of food or drink for human consumption has been displayed for sale with the price marked on it, it may not subsequently be sold at a higher price. The only exception is that goods may be repriced once on the expiry of a special or introductory offer, provided that the offer has been identified as such during its currency, that it does not last for more than three months, and, in the case of a special offer, the new price does not exceed that prevailing before the offer commenced.

I should at this stage explain briefly what the order does not do. It does not require retailers to display their prices either generally or in any other specific manner. That is the function of the Government's Price Display Programme, under which the requirement to display prices is being extended progressively to cover a wide range of goods and services. The relevant part of that programme is the Price Marking (Food) Order, which came into operation on 1st July this year. The general effect of the price marking order is to require shops and other outlets to display their food prices so that customers can read the prices at the time when they choose the goods. It is important to note that under the price marking order it is left to the retailer to decide how to comply with the order, using whatever method or combination of methods of display best suits his circumstances. The relationship between the price marking order and the re-pricing order we are now debating is that, if a retailer subject to the price marking order marks his prices on individual articles, those articles are then subject to the provisions of the Food (Prohibition of Reprioing) Order.

In view of the various points that have already been raised, I shall explain the precise scope and effect of the order in a little more detail. Why is the order confined to food and drink for human consumption? There are essentially two reasons for that: first, the food sector was in the past responsible for a significant proportion of the complaints and, secondly, the powers given under Section 2 of the Prices Act 1974 are limited, and a more wide-ranging order would be extremely difficult for consumers and retailers to understand and for trading standards departments to enforce. We believe that by laying down clear rules in a sector which concerns all shoppers we shall give a lead in helping to eradicate the practice altogether.

Why is the order confined to articles which have been individually marked with a price? We were concerned here with rules which were enforceable. We could certainly have included goods for which the price has originally been shown by other methods, such as shelf marking, price lists or hanging signs, but it is clear that it would be almost impossible to prove that a particular item bearing either no individual price indication or a single price indication had previously been subject to a lower price indication by way of, say, a shelf marking. We preferred a narrower, but enforceable scheme to a wider order which in practice might have been flouted.

I think all the speakers have raised the question of mistakes. All people make mistakes, and I suppose that does not exclude shopkeepers. As to what happens if a shopkeeper makes a mistake, that is a subject on which the noble Lord, Lord Airedale, has gone into great detail: he has had correspondence and interviews with civil servants and so on, and is still unrepentant and unconvinced. May I say that his very persistent attitude is not surprising. But what happens if a shop-keeper does make a mistake and puts an incorrect price on an article which he places on display for sale? Is he liable to prosecution if he then corrects his mistake? I should like to make it quite clear that we have no wish to prevent people correcting genuine mistakes; nor do we believe that the order does this. It would be open to a retailer charged with a contravention of the order in such circumstances to give evidence that he never had any intention of marking the lower price as his price on an article. Consequently, there is no price with which, in the terms of the order, a comparison could be properly made. It is, of course, for the court to decide in the light of particular facts whether to accept the retailer's evidence that an item was displayed at a price which was not the price at which he intended to do business. In view of this, no specific defence seems to be necessary, but I must point out that in any event the enabling Act does not give my right honourable friend any power to create defences, so that it would not be open to him to include in the order the defence of a mistake to cover the sort of circumstances to which I have just referred.

Several other points have been made —very important ones, if I may say so. So far as the Negative Resolution procedure is concerned, naturally this is a matter for the House. It seems very obvious to me that this is a suitable matter for the Committee to consider and, as a Member of the House, I certainly have no objection to this. Then the general attitude was: what about the Government reconsidering withdrawing the order? The noble Lord, Lord Balfour of Inchrye, was a little more specific. I cannot claim any tremendous power in this matter, and indeed it would be wrong for me to-indicate any decision; but what I will do is to ensure that the views expressed and the whole of these proceedings this afternoon are conveyed to my right honourable friend as quickly as possible.

This is not a very big order, I must frankly admit. I know from practical experience, because I am one of those "sticky label watchers" myself as a sort of assistant housewife, that this sort of thing goes on and does irritate people. I will not say that it is widespread today— I would not claim that—but it does exist. There are a few bad eggs who carry out this practice, but the mere fact that this order is in operation, will, I think, have a deterrent effect. I would not claim in any case that it is a great issue, but at the same time I will certainly put the views of the House to my right honourable friend as quickly as possible in order that some possible reconsideration might take place. I am not in a position to take that decision and I am sure the noble Lord will accept that fact.

Therefore, I do hope that the House will not proceed to involve itself in rejection. As I have explained, I know it is limited. On the other hand, limited as it is, it is a valuable measure for protecting consumers againt a form of sharp practice by some—a very small minority—of retailers. As that is the case, I hope the House will not seek powers to annul the order but will let it go into operation and allow the views of the House be considered by the Minister, with the possibility that some amending action can be taken. I am not in a position to reach that decision myself.

My Lords, may I ask the Minister just one question: he dealt with the point I raised as to whether the Government would not withdraw this order. He said there were two courses: one was to approve it and the other to reject it. Surely a third course would be the one which the Minister is half-way going to take: he is going to forward these proceedings to the appropriate quarter. Surely he could go somewhat furtthr and save the dignity and the efficiency of Parliament by not asking us— Members on all sides—to pass an order which is admitted to be full of failures, as has twice been adversely reported by the Joint Committee.

My Lords, I cannot go as far as that, but the point is that the noble Lord and others have, with some justification, pointed out the need for some reconsideration of procedure. That is all right, and I would not object to that, as a Member of the House. I really cannot go any further, except to give a pledge that a report of what has been said today will go to the Minister. My right honourable friend takes the decision: I do not. Whether the House approves the resolution of the noble Lord, Lord Ampthill—he is a Content and I am a Not-Content, put it that way —is therefore a question for the House Members can say "Not-Content" to the noble Lord, Lord Ampthill. But we are not asking for that, if it is at all possible, thus giving us a chance to pass the matter to the Minister for reconsideration.

My Lords, I am most grateful to everyone who has participated in this debate. Good points were made by every single speaker, and I do not think the noble Lord, Lord Wallace of Coslany, has disputed that they were good points. The dilemma in which I now find myself is this. My feelings are that the whole House would rather care to divide on the Motion, but I am advised that never before has there been a Division upon a negative order. I am rather a newcomer to your Lordships' House, and it might be a little unbecoming on my part to set that precedent.

Not at all.

My Lords, I thank the noble Baroness very much indeed. The noble Lord, Lord Wallace of Coslany, will forgive me, I hope, if I say that I do not think he has made a convincing case at all. I gave notice that I would ask whether there was serious evidence that this was a practice that took place and, if I heard him correctly, he said that there are 10 or 20 complaints per quarter. If that is all that they amount to, then it absolutely confirms my belief that this is a totally unnecessary and unenforceable order. Having said that, I really feel that I must bow to the customs of the House and, with the greatest regret, beg leave to withdraw the Motion.

How silly!

rose to move, That This House takes note of the Thirty-first Report of last session of the European Communities Committee on a common system of value added tax on works of art, used goods etc. (R/75/78) (H.L. 187, 1977–78). The noble Lord said: My Lords, I rise to move the Motion standing in my name on the Order Paper. The Select Committee's report on the draft Seventh Directive on value added tax was printed on 13th June, evidence having been taken during the preceding two months. I am informed by Her Majesty's Customs and Excise that no Governmental discussions on the document have yet taken place in Brussels, and that no discussions are expected before next year. The proposals have, however, been considered in Brussels by the EEC Economic and Social Committee, which issued an Opinion on 1st June in which they made a number of criticisms on the proposals.

My Lords, today we have a welcome opportunity to consider proposed changes in the tax. Changes of such a nature rarely come before your Lordships' House, and we have the benefit in this discussion of the most excellent and concise report submitted by the Select Committee. I should, I think, in so far as it is necessary for me to do so, declare my interest in this subject as President of the tribunals established to determine disputes between the Commissioners of Customs and Excise and taxpayers concerning value added tax. In any discussion of a proposed change in the tax it is useful to start with the basic principle of the tax, then to examine the proposed change to see whether and to what extent it involves a departure from the basic principle and then to examine the results which can be foreseen if the change is put into effect both in relation to the enforcement and collection of the revenue and in relation to the affected sector of the economy. I intend to follow that pattern in raising a few points for further thought in relation to this matter.

Value added tax was introduced as a simple tax calculated as a percentage of the value which a trader adds to supplies of goods and services made by him in the course of his business. It is a tax ultimately borne by the consumer and it is widely based. In relation to goods, the consumer ultimately bears tax on the aggregate of all the values added by traders in the chain which ends with him. It differs from purchase tax where the amount of the tax was charged at the beginning of the chain and the Revenue was not concerned thereafter. The difference is important when one comes to consider enforcement and collection over not just one but perhaps many stages.

As your Lordships will be aware, the way in which the tax operates for supplies made by a dealer is that he accounts for tax on his selling prices but deducts the tax charged to him on purchases and supplies made to him. In that way, the net amount paid is the tax on the value which he has added. But this simple concept cannot be applied to all dealers in second-hand goods. In these cases, more often than not the dealer initially acquires the goods from a private individual who is not accountable for tax on his sale to the dealer and cannot charge any tax. Therefore, to arrive at the tax on the value which the dealer adds, there is no tax paid by the dealer to set against tax on the sale by him. This difficulty has been partly overcome in our legislation by the introduction of what are called margin schemes for some but by no means all second-hand goods. In these cases, provided the dealer keeps the appropriate records of his transactions, the tax is limited to the appropriate rate on the differences between his selling and his purchasing prices.

Apart from conforming to the principle of the tax, the margin schemes are designed to minimise distortions in trade as between transactions in new goods and transactions in these specified second-hand goods. We have, however, here one anomaly in our legislation in that the margin schemes apply only to certain second-hand goods. These goods roughly fall into two categories. First, there is the class which includes cars, motor-cycles, caravans, boats and aircraft. Secondly, there is the class which includes paintings, sculptures and antiques. In relation to these goods, the margin schemes work tolerably well. The main source of complaints arises in relation to the books and records which a a margin trader is required to keep under penalty of paying tax not just on his margin but on the full selling price.

The requirements as to accounting are strict, and in the initial stages of the tax dealers have been faced with the prospect of bankruptcy for failure to keep their books and records as required by officers of the Commissioners of Customs and Excise. Consideration should be given to reducing these requirements to a minimum and removing the discretion of officers to accept less than such stated minimum, a discretion which has sometimes, so the tribunals have considered, been overlooked by the assessing officers and has sometimes been exercised inconsistently in various parts of the United Kingdom.

A liability to pay tax should not depend on the decision of an officer at a local office whether or not to exercise a discretion in relation to books and records. But, as I have mentioned, most secondhand goods are not covered by our margin schemes. The latter are confined to those goods in relation to which strict enforcement and collection of tax on the basis of such a scheme is a reasonable practicability. Thus, there are no margin schemes for jewellery less than 100 years old, television sets, wirelesses, household goods such as washing machines and, going right down the line, scrap metal. It has been hard enough for the Commissioners to persuade antique dealers to keep detailed records and accounts of a margin scheme. Can we expect a scrap dealer to keep detailed records of such a scheme? Difficult problems arise in determining when goods are second-hand or used. Is a diamond engagement ring, obtained on approval and worn for a week by a girl and then returned to the jeweller, second-hand when she returns it?

The change now proposed by the Commission involves the adoption of a set formula based on selling prices for determining the tax on all second-hand goods, so first it involves the difficulty of determining in each particular case whether or not the goods sold were second-hand. Secondly, it involves the adoption of a principle under which tax is not charged purely on the value added element in the supply of second-hand goods; the charge will usually be on a greater or a lesser amount. It is easy to tell a dealer that he must either pay tax on his margins, if a margin scheme is applicable or, if it is not, on his selling prices. It will be difficult to educate second-hand car dealers in the application of the proposed formula for them, set out by the Commission. The result will be to make enforcement and collection of the tax far more difficult and the Revenue will suffer. The tribunals will receive many more appeals. In my experience there has been no complaint in this country that not all second-hand goods are treated in the same way. In my view, an answer to this problem which might be more satisfactory would be for us to be allowed to keep the margin schemes in relation to the existing goods to which they apply and which accords with the principle of the tax, but to adopt some simpler formula on the lines suggested by the Commission for other second-hand goods. That compromise might be an acceptable solution.

A second departure from the basic principle of the tax arises on the proposal to treat auctioneers and other persons— and I quote, "exercising an intermediate function of whatever kind"—as if they were selling the second-hand goods concerned. At present an auctioneer or buying or selling agent pays tax on his commission because he supplies his services for that consideration. That accords with the basic principle. The proposal that he should pay tax on the sale price of the goods which he auctions or buys or sells for his principal is a radical departure therefrom. It will prejudice the Revenue by benefiting auctioneers and dealers in New York and Geneva at the expense of auctioneers and dealers in London and, I would assume, in Paris. Works of art are difficult to contain within national boundaries. We should be slow to agree to a matter which would prejudice the London art market by a departure from the principle of the tax, and a departure which would act to the detriment of the Revenue.

Finally, I would mention that the report deals with a proposal to tax all second-hand goods on importation. At present a few goods, such as works of art executed before 1st April 1973, when the tax was introduced, can be imported without payment of tax. There is really an anomaly here and one which I should have thought we could agree to on the basis of the imposition of a general tax on all importations. It need not necessarily prejudice the London art market, as a dealer who exports goods on which tax has been paid on importation or a private individual who buys the goods from an importer or exporter, could be allowed to reclaim the tax paid. The fact that the Revenue would be obtaining an interest-free loan of the tax is not a reason for not accepting this proposal, as a great deal of the tax paid to the Revenue is in reality an interest-free loan pending the claim of input tax by the purchaser. I suggest that further representations should be made to the Commission to allow, where-ever practicable, supplies to be taxed in accordance with the basic principle and to seek to exclude special treatment of supplies which entail practical difficulties of enforcement and collection.

My Lords, unlike the noble Lord, Lord Grantchester, who has just given us a most interesting and informative exposition, I am no sort of an expert in the highly complex field of VAT and I doubt whether many of your Lordships are. But I regard the arts as a universal language transcending national boundaries, and in my view it is right that exports of works of art and museum objects—to use the phrase which is now fashionable—are zero rated for VAT, as in this country they now are. It is right that they are, but this has the distorting effect that it costs more to buy such things for the home market than for export, and while the encouragement of exports in general is clearly in the national interest, in this particular field the effect of the zero rating is thus contrary to the interests of our museums and galleries and favours the dispersal of elements of our national heritage.

It must also be said that VAT as at present administered, bears hardly, and in my view unjustifiably, on living creative artists. These are matters of substantial importance and logically the way to avoid these undesirable effects would be to zero rate sales of works of art and museum objects altogether, whether sold for export or for the home market. That is what I should like to see. I recognise that I am not at all likely to see it, that it is too much to hope for, but any step in that direction is to be welcomed.

Turning now to the report of the Select Committee, it is clear that harmonisation on the standard margin basis of the Seventh Directive on VAT would have an adverse effect as compared with the basis of actual margins as at present operated in this country. As the Select Committee point out, it would be less equitable, it would be more arbitrary and it would penalise particularly the sales at auction which are so important a feature of the fine art trade here and in which we lead the world, and I hope will continue to do so. Therefore, if the EEC harmonisation is really necessary—which I find difficult to believe—I warmly support the recommendation of the Select Committee at the end of paragraph 22 of their report, that the Commission should be asked— to quote the words of the report—

"to seek ways of harmonising in this instance community practice on the lines of the prevailing system in the United Kingdom."

If I may carry the argument a little further, if the Commission are not prepared to do so, then I hope that we shall go on with our own system rather than adopting theirs. From the EEC point of view, that may sound rather anti-social, so to speak. Harmonisation is, no doubt, in general desirable, but, after all, this is a matter of internal taxation. I suggest to your Lordships that in matters of internal taxation we are entitled to decide the detail of our own practice rather than being obliged to conform to that of other nations. I am a wholehearted European, but, after all, we should not dream of allowing the EEC to dictate our system of taxation in other respects, rates of income tax, capital gains tax and whatever. So I hope that, while conforming with the European Commission so far as we reasonably can, we shall not attempt to do so in this matter of VAT unless we are satisfied that it is desirable in the interests of equity and in the interests of this country; and I personally am satisfied, as it appears that the Select Committee are satisfied, that it is not.

My Lords, I am most grateful to my noble friend Lord Cobbold for giving the House the opportunity to discuss the report at this stage. I am also grateful to the noble Lord, Lord Cottesloe, for mentioning VAT in relation to the living artist. He has thus made my task this afternoon that much easier.

My Lords, I want to speak on the one paragraph in the draft Seventh Directive which I believe has been overlooked by the Select Committee. Paragraph 2, item 2, says:

"Member States shall exempt supplies and imports of works of art effected by the artist himself."

The 31st Report includes evidence from Her Majesty's Customs and Excise which states, in their paragraph 8, "Sales by artists":

"In the United Kingdom there is no exemption from VAT for the disposal or importation of works of art by the artist himself, whereas the Commission's proposals (draft Article 2, paragraph 2) include a mandatory exemption for these."

Here I should be obliged if, when he makes his intervention, the Minister will comment on the Labour Party's policy towards the arts which suggests that works of art should be zero rated, and could he say how he reconciles this with the evidence of Her Majesty's Customs and Excise. To return to the 31st Report, in the Summary of LAPADA's reactions—LAPADA being the London and Provincial Antique Dealers' Association Limited—paragraph 13 states:

"Exemption of supplies and imports effected by the artist himself is welcomed."

Apart from these two mentions there is virtually no evidence in this otherwise excellent report either from or about the living working artist himself. I underline "living" and "working" as the report deals with second-hand goods, and this emphasis on second-hand goods means that the report is dealing in the main with those who buy and sell artists' work and not with those who produce it; also in the art market this very often means the work of dead artists. Therefore, I should like to point out some of the effect VAT has on artists. In a recent Arts Council Annual Report it states:

"VAT has made art more expensive to buy and dealers were reporting a falling off in sales of contemporary painting and sculpture. Few of them were inclined to invest space and money in the promotion of any but artists of already proven market value."

My Lords, you can imagine that this must make it very hard indeed for the young artist to get a start in life. Further to this, to the artist who has had to register it is a direct drain on his resources. To the artist who is not registered it still tends to be an indirect drain, as his outlets have normally had to register. The seller, either the artist himself or the gallery, has then to decide whether to charge VAT to the customer over and above the price of the work, thus jeopardising the sale, or whether to include VAT in the price and pay the tax.

Another danger for the artist is that if his gross income from sales exceeds a certain figure in any given quarter he can be liable to register. A quite modestly successful exhibition could do this. Cases have been reported where an artist has been visited by Customs and Excise, told that he has committed a serious offence, and in addition to compulsory registration may have to find several thousand pounds in back tax. Thus we should take note of Lord Redcliffe-Maud's words in his 1976 report, Support for the Arts in England and Wales, that the battle for VAT zero rating on all works of art, whether on pictures, sculpture, concert or theatre tickets, must be fought.

This is where I believe we in this country can learn from our neighbours in Europe and Scandinavia. I should like to quote from the Commission's proposals for Community action in the field of culture of 1977, where it states:

"The effect of VAT on culture is not a neutral one. The situation is particularly worrying in the case of contemporary works. Their very creation may be threatened by marketing difficulties."

And further:

"It would be useful for all Member States to adopt the system of permitting artists and writers to spread their tax declarations over a period of several years in order to compensate them for the fluctuations in income."

It is perhaps ironic that this levy of VAT on the sale of work by artists should be found in this Seventh Directive, because I believe a survey would show that the turnover in second-hand art works, including those of dead artists, which may have given them very little reward in their own lifetimes, would outstrip that in direct sales from living artists. The answer to many of these questions will, hopefully, be given by the forthcoming report of the Calouste Gulbenkian Foundation inquiry into the economic situation of the visual artist. For all the reasons I have mentioned, I hope that the Government can support the adoption of the draft Directive's Article 2(2).

My Lords, if I may return your Lordships from the fine art world to the rather more commonplace world of the motor industry, it will perhaps not be necessary for me to remind you of my interest in this market. The noble Lord, Lord Cobbold, and the noble Lord, Lord Grantchester, have outlined quite perfectly the basis of VAT and the special schemes. However, because of the importance of the used car market in the United Kingdom I should like to devote my speech to that aspect.

Currently, the United Kingdom used car market is worth about £2,400 million and involves some 2·5 million used units each year. That is neither an inconsiderable amount of money nor an inconsiderable volume when one considers that the new car market involves about 1·5 million units per year. In our country the two markets—the used and the new—are related one to the other. In fact, it would not be an exaggeration to say that they are both related and interdependent, because we employ an extremely sophisticated system in this country and nearly all the used motor cars are handled, in the first instance, by virtue of part exchanges.

The market is broadly divided into three groups. The first is the person to person group, involving the private sale. It is not a very large group and it has not attracted the interest or the envy of any other group of people. The second group is that of the unregistered trader about which we unhappily hear too much and most of what we hear is derogatory. Again, the percentage of business which such traders handle is quite small and certainly the Customs and Excise have not, in their evidence, suggested that if there is an evasion of tax through that market it is of a large order. The last group in the market is that of the registered trader. Such traders probably handle 90–93 per cent. of all the business and they are, of course, subject to the ordinary corporation and income taxes. It is here that the interdependent relationship with the new car business is evident. They are so linked that were there to be any change in the current system of taxation—in other words, the used car business moving into either of the other two areas—the damage to the new car industry would be considerable. It is particularly for that reason that the United Kingdom motor manufacturers and the retail industry are united in their belief that the special scheme as now enforced should be retained broadly as it is. As I have said, discontinuance would have an adverse effect on the new car market and that in turn would have a tragic effect on employment in the industry.

The motor industry has suffered very badly from industrial unrest in recent weeks. Your Lordships will know of the threat to employment in the motor manufacturing industry. However, any change in the balance between the two markets—new and used—would inevitably bring certain changes in the employment on the retail side as well. A change as suggested in the Seventh Directive would remove from the purchaser many of the benefits of consumer protection legislation that we in this House and those in another place have introduced in recent years and, of course, there would be the inevitable loss of revenue to the Treasury.

Those are the benefits of our sophisticated and related industry. It is not a relationship which is enjoyed in the European Common Market countries, where used car trading has little relationship with the new market. Indeed, this relationship is not evident in that mecca of car selling, the United States of America, where my understanding is that they admit to great envy of our more orderly marketing arrangements.

The Directive recognises the argument and the need for the special scheme, but unhappily it does not appear to appreciate the detail of the operation. With one exception, to which I shall refer in a moment, the proposals of the Directive are intended to achieve precisely the same ends as the United Kingdom special scheme but in practice they would cause the purchaser to believe, quite wrongly, that by going to a registered trader he would be required to pay VAT on the full selling price and that were he to avoid the registered market by buying privately he would save that money.

The essential difference between the EEC proposal and our own scheme in this respect is quite minimal, but the changes could well be, as I have indicated—and I do not think this is an exaggeration— quite catastophic as regards the industry as a whole. The exception to which I referred relates to the unnecessary and arbitrary restriction that the Directive imposes. It is imposed largely because there is a fear of fraud. The Directive seeks to restrict the notional VAT input which a trader is allowed to recover, to a maximum of 80 per cent. of that which he will pay out—the notional output. The purpose of the Directive is to cause VAT to be charged only on the trader's used car mark-up, but the 80 per cent. rule would, in fact, cause the VAT actually charged to be more than twice that intended. That is borne out by the evidence given on page 32 of the report and it was, in fact, accepted as a proper argument by the Committee.

The United Kingdom special scheme, so far as the motor industry was concerned, was designed by Customs and Excise with an eye to minimising the opportunities for fraud. The noble Lord, Lord Grantchester, referred to the amount of paperwork and the complication of paperwork. I have no doubt that the industry would be extremely gratified were the situation to be simplified. Nevertheless, it has, during these five or six years, grown accustomed to the scheme and, while burdensome, it has proved itself relatively simple and easy to understand and certainly the Customs and Excise have expressed themselves as being quite satisfied as regards fraud or tax evasion, as with other aspects of the scheme.

Finally, I think that it is no exaggeration to say that the British motor manufacturing industry, the retail motor industry and Her Majesty's Customs and Excise are of a single opinion on this subject. As that opinion is largely in accordance with the principles of the Seventh Directive I believe that we should urge Her Majesty's Government to press for the retention of the United Kingdom scheme as it is, and, in the interests of consumers throughout the Community and the industry within the Community, and, indeed, in order to achieve this desirable harmonisation, Her Majesty's Government should press for the Community to adopt our scheme as the basis upon which the harmonisation of VAT might be achieved throughout the Community.

My Lords, after the very clear explanation of this report by my noble friend Lord Cobbold, who is the chairman of the Sub-Committee that deals with this matter, I would not have risen to talk about the report but for the fact that there is one aspect of the matter which has rather been omitted; it is the effect of the Draft Directive on rural Britain. In his evidence the very distinguished witness from the Customs and Excise said that he had received representations from 24 organisations and had tried to cover all those who would be affected.

However, if one goes round the rural market towns of Britain and asks the people whether or not they have read the Draft Seventh Directive, one would find a surprising ignorance which is followed by a sense of real shock when they realise what is involved. I do not think it would be a bad thing if I try briefly to explain what is happening in this trade in rural England. Ever since purchase tax died and VAT was introduced there has been a great change in the aspect of the market towns of this country. Shops are suddenly being closed because the trader, a small businessman, does not have the staff, the time, or the expertise to deal with his VAT returns. So he goes out of business and is duly taken over by businesses like insurance companies, which have the staff behind them.

Therefore, the face of the market town is changing all the time—with one exception. With the rise of the tourist trade —and certainly in my county of Yorkshire with the attractions of the scenery— one finds that little antique shops are springing up everywhere. At present this is the one booming trade. Those who run the shops tell me that they will be blasted by this Draft Seventh Directive. Its effect will be very much harsher in rural areas than in London. I served on the Sub-Committee and we heard evidence from distinguished witnesses from all the large London auction rooms and the London dealers, but we heard very little about the small men who are struggling either with this special scheme or in the auction rooms of rural Britain. In their case the margins must be very much smaller than the margins in London and their turnover must be very much quicker. This is partly due to the fact that a great many of the competing antique shops are so small as not to be registered. Therefore, unless he has a quick turnover and a very small margin, a dealer in rural England does not have much opportunity of survival.

As my noble friend explained, this report, which is based on a split of 70: 30, has the effect of making the dealer or the shop pay on the basis of a 43 per cent. margin. I have spent the last week or so asking some of the antique dealers in my area of Yorkshire for their margins, and in very many cases they are down to 5 per cent. That is because it is a keen trade which has a very quick turnover. Therefore, this Draft Directive will have a very disastrous effect on the antique trade in rural England.

Perhaps I might illustrate what I mean. Let us take a man who makes a 5 per cent. profit; he is buying at £100 and selling at £105. At the moment he will pay VAT at 8 per cent. or 40p VAT, or, if he is dealing in silver, VAT at 12½ per cent. which is 62p. Under this Draft Seventh Directive on his profit of £5 at 8 per cent. he will pay £2·52, so whack goes more than half his profit; if he is in silver, he will pay £3·93. I hope that the Minister will go into this problem of the effect on those with this small margin who run small business in rural England.

Another aspect, which has been touched on before, but not in what I call the rural atmosphere, should be mentioned. If one reads one's weekly paper, every week one sees that unfortunately people have died and that their goods are being sold by the local auctioneer. What is forgotten is that this Draft Directive extends the VAT principle not only to the position of the auctioneer but also to the class of goods. Therefore, all those sales will come under this 30 per cent. provision; in other words, all will be on a basis of a 43 per cent. profit. This will be very awkward not only for the sales of the deceaseds' goods but also for antique fairs, which are now a common occurrence throughout rural England where people sell antiques by auction at a profit. They will be included although the owners of the goods—whether they are the personal representatives of the deceased or those who are putting their antiques into the antique fairs—are not registered persons. They will be caught under the auction sale rule, which would alter the whole of English law because it says that the auctioneer has a property in the goods he sells, whereas at the moment one merely pays VAT on the commission. Therefore, I hope that the Government will pay attention to this aspect. A country auctioneer would have to pay his 8 per cent. or 12½ per cent. although the goods were not his property; the man who then buys the goods, whatever his margin, will have to pay on the basis of the 43 per cent. profit. All in all I would suggest that this is a most unsatisfactory Directive.

However, I agree with the noble Earl, Lord Gosford, and I think that probably we should have patted the Commission on the back for dealing with the artist himself, but we thought it was such a good thing in rather a bad Directive that we kept quiet about it. However, I agree with the noble Lord that it is an advantage. Apart from that, it is an unsatisfactory Directive. It is inflationary in character and it will also require a huge bureaucracy to administer. It will be very damaging to the prosperity of rural England. Therefore, I hope that when Her Majesty's Government come to discuss this in the Council of Ministers— I hope later rather than sooner—they will express the point of view of rural Britain.

My Lords, I should like to start by congratulating the noble Lord, Lord Cobbold, not only on the way in which he introduced this debate, and for giving us a chance to air these matters, but on his report itself. It seems to me to be a model of lucidity and brevity and, above all, to list in more length and detail than many such reports normally do, the exact representations that have been brought to bear upon the Committee considering it. My brief words this evening are simply designed to throw his work into relief. That said, I have a difficulty in speaking from these Benches. I tried to persuade my noble friends to let me off and let me take two small steps back, or vault over the Front Benches landing in the laps of my noble friends behind me and talk from there, because while your Lordships are traditionally tolerant to people who declare their interest my own interest in this matter is very direct and substantial.

I am a fine art consultant by trade; I am an agent for a number of museums; I am the co-manager of a substantial art buying fund; I advise people how to buy or sell works of art on a commission—and I hasten to say that I pay my VAT on the commissions I earn. I am also a colleague—and I would say a friend—of many of the people who made representations to the noble Lord, Lord Cobbold, and his Committee (Mr. Floyd of Christies, Mr. Julian Agnew, and Mr. Godfrey Pilkington, in particular); and I act as a consultant for a firm which is a member of the Society of London Art Dealers, who made substantial representations to the Committee.

I, like the Society of London Art Dealers, am concerned with questions dealing with the export of the national heritage which my noble friend Lord Cottesloe raised and with which his name is intimately connected, though as an art dealer I would say that we sometimes go in for imports as well as exports. That is to say, we buy things, say, in America, and bring them back here.

I think that the matters raised by my noble friend are of great importance, and perhaps we should give a full day's debate to them. We have debated them before from time to time. We should debate them again. But I agree too with the noble Lord, Lord Cobbold, and the Committee that a discussion of VAT and taxation questions on second-hand goods is not perhaps the best place to raise such questions, so I shall pass over them. While I am, therefore, speaking very much for myself, I am glad to say that I shall be able to say something on behalf of the Conservative Party programme at the end and I shall make it clear when I am, so to speak, putting back on my Shadow hat.

At least such personal interest gives one a little direct experience of the really frightening consequences for the London art market if the European draft Directive on a common system of VAT on secondhand goods were to be adapted and put into practice. It is not only a scarey prospect for the London art market. It would be very damaging to the art market in the European Economic Community as a whole because, as the report argues, the market would simply transfer elsewhere, outside the Community. I am glad that less interested parties than myself —in fact every single speaker so far in this debate—have agreed with the Committee to this effect.

It is of course clear that the application of VAT to second-hand goods creates special difficulties. If I may say so, I thought that the noble Lord, Lord Grantchester, gave us an extremely erudite and lucid explanation of what exactly the difficulties were. Where the art trade is concerned, there are, I think, four salient objectives to the Directive. There is the suggestion that VAT should be payable on all sales at auction even where the auctioneer is only acting as agent for private sellers. This is manifestly unfair, it seems to me, and would of course apply to dealers acting on commission as well as to auctioneers. There is the suggestion that VAT should be payable by a dealer on a notional margin of 30 per cent. of the selling price rather than on the actual margin between buying and selling prices—on the profit, in short. This is of course a highly arbitrary basis for taxation and against, I would argue, the precedence of this country in fiscal affairs.

Then there is the suggestion that dealers should not be allowed to take as inputs the VAT on their ordinary expenses such as telephone, professional bills, framing, restoration, and the like. Now I think that that is obvious nonsense for the trade and I also think, reading between the lines, that the Commission has already more or less acknowledged this. Lastly, and I think most relevantly, there is the vital question of free imports. This is particularly important for London where so much of the world trade in art and antiques is based, and where so much exporting and importing takes place. I am, therefore, very pleased that the Committee was in sympathy with such interested parties as the trade associations who made representations to the Committee. The Committee showed its sympathy when it expressed concern that

"taxation of imports of works of art could damage the United Kingdom markets which are of international renown".

I quote from paragraph 15 of the Introduction. That surely is the crux of the argument.

As I said earlier, by implication the threat to London is also a threat to the whole position of the EEC within the world art market. If this draft Directive were to be adopted—and I cannot think that it will be; I certainly hope not—the net result would be that the art market would move, as the report suggests, to Geneva and New York. This would not necessarily be particularly damaging to successful dealers in this country as individuals or to the success of the auction houses (although they would very much regret it) because they have taken positions internationally already. All they need in order to carry on their transactions are their expertise, their diplomatic and brokerage skills and access to a telephone. It is not very difficult to conduct such transactions once you are used to them. The people whom such a transfer would damage—and many noble Lords have pointed this out—would be the Inland Revenue and the Customs and Excise in this country and by proxy therefore the citizens and Government of this country. I insist, therefore, that even allowing for the trade's interest the net loser would be the Revenue. The noble Lord, Lord Cobbold, has pointed this out at page 4 of his report.

Words were said, I think by the noble Lord, Lord Raglan, who is not here this evening but who sat on Lord Cobbold's Committee, to the effect that, "Well, this is all very fine but the international art market is a multimillion pound affair and it is reasonable that various Governments, whether national or community based, should take their cut". This of course is a point to be acknowledged, but if your Lordships will consider the paragraph at page 7 of the report, Sir AnthonyLusada, leading for the Fine Art Trade Working Party on VAT, answers it very well. The point has also been made earlier in the debate that of course where corporation or capital gains or personal income taxation is concerned the net British tax share deriving from the art world is considerable already, and it is that share that would move away if the Directive went through.

As I have often argued in a different contest from this debate's, Britain's manufacturing industries are the industries that are in trouble. Her invisible sector— the export of financial services and such overseas currency earners as the art market—are in fact very buoyant and successful and a lot of our continued economic wellbeing, relative as that is, depends on their continued success.

May I turn briefly to the effect of the Directive on the antique trade with which I am less personally involved. The report has made clear that if the Directive went through there would be an increase in private transactions, in black markets, in tax evasion and the like. I thought my noble friend Lord Tranmire brought out most clearly the damaging effects on tourism, though I would not go the whole way with him. I would think that the effects would be damaging in London as well as outside it. His point was interesting about the importance to market towns in this country of the smaller antique dealer.

Turning to the motor trade, the speech of my noble friend Lord Lucas of Chilworth should be read with great care; we are aware of how much he knows about the subject. I was interested in the point he made about the relative envy which other countries have towards the way we conduct our second-hand motor trade. When I first went to America I wanted to buy a second-hand car for not very much money and I went around the mid-western town where I was teaching, asking, "Will someone lead me to an honest car dealer?" A voice piped up—I will not attempt the accent—and said, "You don't want that. You want a dishonest car dealer who likes you", and I found out later that I had bought a car off the Mafia. More seriously, the point of the relative stability of the English second-hand motor trade, including its own contributions through VAT and otherwise to our Revenue, is spelt out very well at page 20 of the report, in answer to a point raised in Committee by the noble Lord, Lord Roberthall.

To sum up, what I can say for the Opposition, getting away from the personal interest declared earlier, is that we are impressed by the argument made by Lord Cobbold in the report, and underlined in the debate, that there is considerable sympathy on the part of Her Majesty's Customs and Excise themselves for the representations made by interested trade parties on this matter. Normally one has a conflict, as it were, as between the taxpayers and the taxpayees, but in this case there seems to be considerable agreement that the Directive would damage not only the interests of those who might pay VAT at the new rates but also the Customs themselves. That view is underlined by page 27 of the report. The Opposition is also concerned for the effects this draft Directive could have on London. We are all involved with the politics and economics of the capital city and the disappearance of this trade overseas or outside the Community would be particularly disastrous for the capital city.

A wider and possibly more philosophic point to which we on these Benches also subscribe, and my noble friend Lord Cottesloe raised it, is that we consider ourselves good Europeans, but as good Europeans our duty in this, as with, say, the European monetary system, which we discussed last week, is to get in there, to get into Europe, and fight in European councils and pressure groups for our own interests. On this occasion that should be an easy enough thing for us to do because most of the European interested parties themselves agree, as many speakers have said, with the way we dispose VAT on second-hand goods in this country rather than with the suggestions put forward by the Commissioners.

For all those reasons, as well as for the almost unanimous feeling in the House that adopting the Directive could be very damaging and dangerous in a number of ways, I am glad on behalf of the Opposition to endorse Lord Cobbold's report, and thank him for introducing it to us so lucidly this evening.

My Lords, I hope that when the noble Lord, Lord Cobbold, replies he will not find it necessary to repeat the complaint that Sir Anthony Lousada made to the Select Committee on 9th May when, speaking of the Germans, he said, "They only sent a lawyer to represent them at our last meeting". Though only a lawyer, I will do my best to reply to the debate, and your Lordships have made it easy for me to do so in the sense that the noble Lords, Lord Cobbold and Lord Granchester, and the report itself, explained the problem so lucidly that it would be taking your Lordships' time unnecessarily were I to attempt anything more by way of explanation. Accordingly, I shall confine myself to replying, so far as I can, to points raised in the debate.

I welcome the emphasis by Lord Grantchester on the principle of the tax as it would apply to used goods, and that is the principle or concept of value added. The Government's general approach is that this is the principle which should be applied rather than the adoption of an arbitrary basis, as it was described by the noble Earl, Lord Gowrie, for tax in this area. I can accept in full the description given by Lord Grantchester of the present United Kingdom system and I need not seek to clarify that. Perhaps, however, I might make a little point. In relation to what he said about the discretion vested in local officers, the Commissioners are prepared to consider reconstructed records in certain cases, and the local officers are aware of that, so the matter can go beyond the local officers.

Lord Grantchester was quite right in saying that, as regards rings, the United Kingdom scheme covers only antique rings. In relation to the example he gave—of the returned, slightly used engagement ring—I do not think I could offer a considered answer to that, but the test is whether or not the ring has gone into personal consumption. I am not prepared or able to go any further in relation to that example. The noble Lord, Lord Grantchester, was perhaps wrong in suggesting that much of the tax at the present time is in the form of an interest-free loan to the Customs and Excise. In fact, input tax may be deducted immediately; it is only if a trader is, on balance overall, due for a repayment that he may have to wait perhaps 14 days to have his money back.

I should indicate generally that we accept the test which the noble Lord, Lord Cottesloe, mentioned. He said, if I summarise him correctly, that one must look at the proposals and ask, "Are they in the interests of equity and the interests of this country?". We accept that, and indeed we go a little further and ask," Are they acceptable to those who are concerned?"—and that concern was raised by a number of speakers in this debate—and we also ask, "Will they facilitate evasion? Will they in fact encourage evasion? Will they distort trade? Will they damage the industry?". The noble Lord, Lord Lucas of Chilworth, was afraid of that, and of couse we accept fully the point made by several speakers that we must consider very carefully the dangers to the London art market and to the United Kingdom art market, indeed for that matter to the European Community centres other than London that have art markets.

The noble Earl, Lord Gosford, drew attention to a document which figured at the Labour Party Conference. I have to concede that not every such document necessarily enshrines the policy of Her Majesty's Government, and I would simply say that under the Sixth Directive, additional zero rating is, in effect, prohibited by Article 28(2). The general matter about VAT on culture, which was raised by Lord Gosford, raises wider questions, and I think that is why the report did not deal with it. The position is that the Government consider that here we are looking only at a particular aspect of VAT. The general directive is the Sixth Directive and we consider that questions of general importance, such as this one mentioned by the noble Earl, are questions that should be dealt with under the Sixth Directive, in which there is no provision for exemption, and the general matter he raised has no place in proposals for the treatment of used goods. The Government are opposed to the proposal, which is inconsistent with the broad-based nature of the tax, and which discriminates unfairly against authors, musicians, actors and others. That is all that I can say about that, and I think that that would also be the view of the Committee, at least to the extent that one should not look at these wider matters in the context of this relatively limited draft Directive.

I shall not deal with the other very general points that were raised by the noble Lords, Lord Grantchester, and Lord Tranmire, and the noble Earl, Lord Gosford, which again are more appropriate to a debate on the Sixth Directive, rather than to this debate on the report in relation to the Draft Seventh Directive. However, I shall certainly draw the attention of my right honourable friend in another place to the matters about which the noble Lord, Lord Tranmire, has spoken this evening, and in particular to the points that he raised about the small rural dealers, although I am sure that there must be some in other parts of the United Kingdom than England—but I put that in simply because I am a Scotsman.

The noble Earl, Lord Gowrie, declared his interest and that was indeed very fair, but his expertise merely serves to add value to his words, though we shall not seek to impose a tax upon that particular added value. I do not believe that there is any substantial disagreement between the Government and those who have spoken, and certainly there is no substantial disagreement between the Government, on the one hand, and the Committee, and I could summarise the matter in the following way. The existing United Kingdom special schemes have worked smoothly. They are not thought to have given rise to serious problems, or to evasion. They appear to be acceptable, by and large, to the traders concerned, and accordingly we shall certainly continue the pattern of consultation with the trades which has obtained in the past. We shall take them with us through consultation in all the consideration that will be given to the draft Seventh Directive in the forthcoming period of time.

I have to put it as generally as that because, although the Commission's proposals were supposed to be passed to the Council at the end of 1977, they did not in fact appear until January 1978, and indeed discussions have not yet started between the member countries. It is apparent that there is no great enthusiasm to begin the negotiations between the member countries. As the noble Lord, Lord Cobbold, said, certainly negotiations are unlikely to start before the end of this year, and as he also pointed out, the Economic and Social Committee of the EEC, in an opinion dated 1st June, has in fact said, reject the draft Seventh Directive. The position is that each member country has an approach to this problem which is different from that obtaining in any other member country. The Commission's proposals differ from any of the schemes obtaining in any of the member countries, and the only EEC body which has commented upon them has said, "Reject them". So the future can stretch for quite some distance ahead.

I do not think that I need go further, but I want to make a specific comment upon the point which was raised by the noble Lord, Lord Cobbold, in relation to paragraph 16 of the report. That was the matter of the incentive said to be given to the export of works of art from the United Kingdom, and this relates to the fact that Article 2, paragraph 7 allows deduction of VAT due or paid on the goods at the time of acquisition or importation when a work of art is exported, but no deduction is allowed in respect of a supply to a customer within the country concerned. Exports are also zero-rated for VAT purposes. The Committee commented:

"This is undoubtedly regrettable at a time when efforts are being made both in official and private circles to retain art treasures for the nation".

Certainly one does not want to do anything, or to adopt any scheme, which would encourage this regrettable tendency, but I think it is possible to exaggerate it.

Value added tax is a tax on domestic consumption, and it is a normal feature of this type of tax that it does not fall on goods sent out of the country. It is, therefore, logical to relieve such a supply from tax and to allow recovery of tax paid at the time of purchase or importation. This relief provides no incentive to a dealer to sell a work of art to an overseas buyer, since the dealer's receipts from such a sale are the same as if he had sold to a United Kingdom customer. Of course, he has to charge tax to the United Kingdom purchaser, and therefore at first sight the purchaser in the United Kingdom seems to have to pay more, but it is usual to find that the purchaser abroad has to pay value added tax on importation of the goods, and in any event he usually has to pay higher transport and higher insurance costs. So, while not suggesting that the point has no validity, I think that there is a danger that it may be exaggerated.

Quite apart from the general matters of principle, about which we are all agreed, there are matters of drafting—though I shall not detain the House with these— which suggest to us that the Draft Seventh Directive was put together fairly hurriedly in order to be put before the Council, when it was not ready and had not been thoroughly thought out. In particular, the Committee drew attention to a mistake made by the draftsman of that document in relation to the fact that the tax need not be shown on the invoice when a secondhand car is sold. So in general we shall maintain our consultations with the trades likely to be affected. We shall also maintain our links and consultations with those in other countries who, as the noble Earl, Lord Gowrie, pointed out, find our system of trading and our methods of dealing with the taxation on this type of trading attractive, and we will hope to carry the day in relation to as many of these points as possible.

This has been a valuable report and a useful debate. I am sure that your Lordships will have found that the proposals in the somewhat badly drafted Seventh Directive have been greatly illuminated by both the report and the debate. The report serves to demonstrate very clearly the very real advantages which the United Kingdom systems have and which have been found to be acceptable to the trades. I think that your Lordships will accept that the Government's position is right; that we need further consultation and argument in order to challenge the weaknesses and the disadvantages of the proposals enshrined in the Directive. I think that your Lord-ships will accept the general proposition that was put to the Committee by Her Majesty's Customs and Excise witnesses —that there is good sense in not changing a proven, workable system, except for reasons that are acceptable to the trades concerned, and which are sensible, and which seem to be in the interests both of equity and of this country.

My Lords, I shall not detain your Lordships many minutes. I wish to thank noble Lords who have spoken this evening, as well as those who have listened to this somewhat intricate subject. It is very often a matter of lament in the Scrutiny Committee, as the noble Lord, Lord Greenwood of Rossendale, would agree, that in these debates there are frequently very few speakers other than Members of the Committee. With no disrespect to the very valuable contribution from the noble Lord, Lord Tranmire, about the smaller and rural dealers—which he was quite right to emphasise—it has been very interesting to me, and I am sure to the House, to hear other speakers who are not Members of the Committee but who really know their subjects. Today we have heard from the noble Lord, Lord Grantchester, who really knows about the working of VAT, and from the noble Lord, Lord Cottesloe, about the arts, and from the noble Lord, Lord Lucas of Chilworth, on the motor car trade. The noble Earl, Lord Gosford, was quite right in saying that the report had omitted to deal with the question of taxation of sales by artists, but as the noble and learned Lord, Lord McCluskey, has indicated, I think our feeling probably was that that was a question of general VAT legislation, and did not come into the second-hand goods category.

Finally, my Lords, I think it only remains for me to thank the noble and learned Lord who has replied to the debate: a lawyer was so very acceptable on this occasion. Perhaps he would be good enough to convey to the Customs and Excise Department the great appreciation which the Committee felt for their very co-operative and helpful attitude.