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

My Lords, a review of the Royal Navy's requirement for a replacement for the Sea King helicopter is now nearing completion. Should this confirm the projected Anglo-Italian EH 101 aircraft as the preferred option, it will be necessary for the United Kingdom and Italy jointly to conduct a detailed study into the feasibility of a collaborative solution to the respective requirements of their navies. Preparations for such a study have been completed.

My Lords, while thanking my noble friend the Minister for that Answer, may I ask whether he can confirm that the Memorandum of Understanding No. 2 has already been signed by the Italian Government, though I do not believe by us? Is he further aware that if we are to get into this very large market in 1987/88 of about 2,000 helicopters, which would exclude the United States, time is of the essence? Furthermore, is he aware that if the EH 101 aircraft is to be launched we should achieve around 40 per cent. of this market?

My Lords, my noble friend is correct in saying that Italy has recently decided in favour of the joint studies with the United Kingdom, aimed at establishing the feasibility of this collaboration. In regard to the market, I am delighted to hear what my noble friend says, particularly in relation to the civil side of that market, and his view of the degree to which we might capture a share of it. That is indeed the kind of desirable market approach we need from industry if the costs of these highly sophisticated projects, which escalate so much between one generation and another, are to be ably handled.

My Lords, can my noble friend indicate what the development costs of this project are likely to be?

My Lords, I would rather not do that at this stage before the joint feasibility study has even been decided upon.

My Lords, will my noble friend bear in mind that a joint venture of this kind between two countries as a result of a Memorandum of Understanding is highly desirable since it means a sharing of the development, the early production costs and the trials of these potentially successful helicopters? Will he therefore give this a favourable push in the right direction so that we can get on and help to meet these considerable markets, both civil and military, which are going to be available within this decade?

My Lords, what my noble friend says is noted. The benefits of international co-operation are indeed very real and it is essential that we should make them work. I think the history to date has been that some have worked much better than others.

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

My Lords, as my right honourable friend the Secretary of State for Defence has explained in another place (Official Report, Commons, Vol. 3, col. 88, 14.4.81), his visit to Saudi Arabia, Oman, Qatar, the United Arab Emirates and Bahrain between 23rd March and 1st April was designed to demonstrate the United Kingdom's strong interest in this region, to establish personal contacts, and to discuss both bilateral defence assistance and wider strategic questions. During his talks in the area, my right honourable friend made clear the Government's resolve to deal positively with requests for all types of military assistance and for defence equipment. He also assured all the countries involved that we were ready to consider the provision of limited military help in an emergency if invited to do so—probably in concert with our major allies.

My Lords, since the visit of the Defence Minister there has been the visit of the Prime Minister. Is it not the case that it is very dangerous to be supplying arms in this explosive area? Is it not the case that it is not merely the issue between the Soviet Union and the West but between Israel and the Palestinian issue, and even between Arab countries, and, by providing arms to different interests on different sides, are we not encouraging this area to become a crucible for a world war?

My Lords, so far as the Prime Minister's recent visit is concerned, the Prime Minister will be making a Statement at a time which she finds appropriate. So far as the question of arms for the Middle East is concerned, we, and all other countries engaged in the manufacture of arms, do sell our arms to areas where we believe that the balance of advantage to the free world against potential aggressors and adventurers, who have shown their true colour in the recent invasion of Afghanistan, makes this a correct policy. We shall continue to follow that at their request and we shall take a positive attitude, as I have described. I hope that, in this way, the potential aggressor will be deterred from any more adventures.

My Lords, the noble Viscount has just stressed the benefits of co-operation between ourselves and our partners in the Common Market. How does he reconcile that with the fact that we are competing with the French in the sale of armaments to the Middle East?

My Lords, I believe that two things take place in this kind of area and both, in their own field, are thoroughly healthy. There is competition, both national and international, and there is at times collaboration. For instance, a number of aircraft which we have ordered in this country are the result of collaborative ventures, and any sales of those aircraft are the subject of the collaborative agreements which have been made. But in the case of the Hawk aircraft, which was referred to in relation to the Prime Minister's recent trip, this is a wholly British aircraft and is the finest trainer-cum-strike aircraft in the world. So I think that both competition and co-operation, each in its right place, are correct policies.

My Lords, may I ask the Minister whether he would clarify the relationship of this country in its proposed contribution to the rapid deployment force which America has suggested? Is it the case that the Prime Minister has made it quite clear that the force would be used only with the consent of the Gulf States? Is it true that the United Emirate states have rejected any facilities for such a force? Could the Minister also say whether Her Majesty's Government have made any response to the proposal, which was first made by Jordan and is now made by Kuwait and the Soviet Union, for a world conference on the Middle East to end the dangerous arms race there?

My Lords, I do not think I can add to what my right honourable friend the Secretary of State said in the other place on 17th March, before he went on his Middle East tour, in relation to the mobile force, where we have promised—within the severe limitations of our capability—co-operation with our major allies, the Americans. We do not envisage that this force, even when it is available, should be used other than at the request of friendly nations and in accordance with their agreement. So I hope I can assure the noble Lord on that. On the question of bases, there is, so far as I know, no consideration at the present time of any land base in the Middle East, although our ally the United States—and the noble Lord will be aware of the recent visit of Secretary Haig—has been discussing with the countries of the Middle East what would be their wishes against a situation of increasing threat, which they all perceive. But at the present time no land bases are envisaged and the mobile force is a matter for discussion.

My Lords—

My Lords, I think that we should move on to the next Question. We have already had a number of supplementaries on this Question.

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

My Lords, a decision on the choice of a new heavyweight torpedo for the Royal Navy will be taken later this year. Two options are currently being studied: a British development by Marconi Space and Defence Systems Limited drawing on the technology used in Sting Ray, and a United States development of their Mark 48 torpedo.

My Lords, I thank my noble friend the Minister for that Answer. Is he aware, all things being equal, that if the American torpedo was built it would do the United Kingdom industry—an industry which has been built up very successfully by Sting Ray—a lot of harm and, furthermore, it may damage Sting Ray's export potential? Secondly, would he agree that, in the past, decisions to buy American conventional weapons have often proved to be much more expensive than originally anticipated, and also that any offset work in the United Kingdom has often been very disappointing?

My Lords, I can assure my noble friend that all those considerations will be taken into account in any decisions which we come to this year. I note what my noble friend says in relation to foreign equipment perhaps proving to be more expensive than was at first thought. But I believe that the experience of the staff in the Ministry of Defence is well up to making a realistic assessment of all these factors and of the practicality of offset.

My Lords, can the Minister tell me what is the advantage of this new suggested torpedo against the Mark 8, which we now have in the submarine service of the country? What happens to the Government's policy on Trident, if they are going to follow these two torpedoes?

My Lords, I think it is generally recognised by the experts concerned—and we hope very much that other countries will also do so— that a new generation of light torpedoes such as Sting Ray, and a new heavy torpedo, are currently required. I do not believe that this question overlaps with the Trident question any more than does the fact that the Trident decision is one decision within a comprehensive defence budget.

My Lords, could the noble Viscount say what will be the estimated cost of these alternative torpedoes, and whether it will be additional to the anticipated £5,000 million expenditure in this field?

My Lords, I must say to the noble and learned Lord that the linking of the torpedo decision with the Trident decision, which has been well aired both in this House and in the other place on many occasions, is not relevant. So far as the costs of the torpedo are concerned, I am not at present in a position to reveal these. There are two contenders, and their bids in relation to both cost and technicality are being examined.

My Lords, is my noble friend aware that the technologies incorporated in these two new torpedoes cover electronics, engineering and underwater, that they all have a considerably advanced background and, as my noble friend will remember from his days in the Ministry for Industry, that they are potential growth areas for jobs in this country? Therefore it is extremely important that we should encourage home development, home production, and the jobs which will go with them.

My Lords, I am aware of the points which my noble friend has made.

My Lords, could the Minister tell me what is the greater destructive power of this new Marconi torpedo compared with those which we use now? As an ex-submariner, I am puzzled as to what all this is about. Whatever torpedo it may be, the mechanics inside it cannot be altered for the submarines that we have now.

My Lords, in the noble Lord clearly I have an expert in the technicalities of torpedoes. Therefore I shall not attempt to argue with the noble Lord, though I promise to write to him. All the experts in the Services and in the Ministry of Defence believe that a new generation of heavy torpedo is essential to our national security.

My Lords, when the option is between two contenders, one British and one foreign, and when the price is about the same, can the noble Viscount say to what extent consideration is given to the fact that, of the British cost, probably about one-third is directly returnable to local and central Government by way of taxation—profits tax and income tax—and rates?

My Lords, those considerations which the noble Lord, Lord Beswick, has raised are of course always at the back of our minds. I wish it were true that in every case of alternative supplies offered, costs were nearly the same.

My Lords, are the Government thinking of deploying the 3 million unemployed that we have in this country and putting them entirely into the arms industry?

No, my Lords. Whatever we did to the defence budget, there is not room to put all the 3 million unemployed, even if that were a practical figure for employment, into the defence industries. However, we are well aware of the employment benefits of the defence industries, of their high technology and of the need to buy British, wherever that is the practical course to follow.

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

My Lords, I am advised by the Manpower Services Commission which is responsible for operating the Youth Opportunities Programme that there are no plans to extend the length of work experience on employers' premises schemes in agriculture and other allied industries beyond six months. The main purpose of a work experience scheme is to provide unemployed young people with a realistic introduction to working life and this can normally be satisfactorily completed within six months.

My Lords, perhaps I should declare an interest, in that I have a young man from the Youth Opportunities Programme whose licence has been extended after considerable discussion with the Department of Employment. Is it not possible for Her Majesty's Government to realise that this flexibility does exist and that it is important, since the good God made the world go round in a year, not in six months? The rules which govern engineering and industries like it obviously are not time consuming, whereas agriculture, forestry, et cetera, are.

My Lords, we are all very grateful for the help which my noble friend gives to the Youth Opportunities Scheme. I hope that my noble friend and the House noted that in my reply I said that work experience on employers' premises schemes can normally be satisfactorily completed within six months. But there are of course exceptions. I am advised that in all cases flexibility is encouraged by the department. I hope this is so in the cases which have been mentioned by my noble friend. We all realise that, depending upon when a young person starts work in an agricultural environment, he may cover some of the seasons, while others he may not.

My Lords, in considering the question of opportunities for the young, would the noble Lord keep in mind the position of the National Youth Orchestra which is threatened with closure owing to financial difficulties?

My Lords, that is possibly a trifle far from agriculture. However, I shall certainly endeavour to convey the noble Lord's comments to my right honourable friend, given the pipes of Pan among shepherd boys.

My Lords, I beg to move that this Bill be now read a second time. I should first remind your Lordships that this Bill deals with a number of different subjects. It also deals with the subject of Lloyd's. I am a member of Lloyd's. The Bill deals with the supervision of insurance companies generally. Two of the clauses in the Bill touch upon Lloyd's. However, these two clauses do little more than repeat the provisions of the Lloyd's (General Business) Regulations 1979 and also the Insurance (Transfer of General Business) Regulations 1980. They only apply to Lloyd's as a whole some financial and other requirements that the Bill in earlier clauses applies to insurance companies. Having said that, I hope that your Lordships will see no difficulty in my speaking on behalf of the Government to the Bill.

Before I turn to the main provisions of the Bill, it might help if I were to set out the context in which we are bringing forward this legislation. Most existing primary legislation particularly concerned with insurance companies was consolidated into the Insurance Companies Act 1974. The method of insurance regulation set out in that Act has four main aspects. First, a system for authorisation: that is, determining that a company wishing to enter the industry has the resources and the integrity to meet obligations which are uncertain and may arise far in the future; secondly, a system of scrutiny, for verifying that the company continues to have adequate financial reserves available at all times to meet possible claims; thirdly, a system for intervention to protect policyholders where there are signs that a company is nevertheless running into difficulty; and, finally, provision for the winding-up of an insurance company. Fortunately this is a very rare occurrence.

The 1974 Act is the result of more than a hundred years of regulation. In part, developments have been in response to cases where failures of insurance companies have caused great harm to policyholders. The most recent noted failures influencing our legislation substantially were the collapse of Fire, Auto and Marine in 1966, and of Vehicle and General in 1971. But regulation in the United Kingdom can still be best characterised by the phrase "freedom with publicity". The industry is free to decide the nature of its policies and its premium rates, in contrast to the situation in many other countries. And there has not been Government direction of the investments of insurance companies in this country. Control in our legislation over entry into the market has not been aimed at restricting competition but at ensuring a company's ability to withstand it for that reason. I believe that the United Kingdom's approach to supervision has been a factor encouraging a healthy and diverse industry with the versatility to expand the range and volume of its business both in this country and abroad.

The role that the industry plays in the United Kingdom and overseas is of great importance. The security offered by our insurers meets the increasing needs of both private individuals and the business community in a complex society. In 1979 there were some 150 million personal life and general insurance policies in force in the United Kingdom. Four out of five households had life cover of some form, three out of four households had household insurance, and over a half of the households had motor vehicle insurance. The great variety of cover offered to commercial bodies includes transport insurance, cover against fire and other damage and a wide range of liability insurance. And of course a substantial proportion of United Kingdom pension provision is made through insurance companies.

At the end of 1979 there were 823 authorised insurance companies, some big, some small, and there were 404 syndicates at Lloyds' providing these services. While the figures may overstate the degree of diversity—some insurance groups, for example, comprise a number of separate but scarcely independent companies—they indicate that the market in insurance is a genuinely competitive and free one.

The importance of the industry is reflected in other ways. Employment was around a quarter of a million in 1979. Among its wide spread of investments are substantial holdings of company securities. And of course its net foreign exchange earnings have for many years been vitally important to the economy. In 1979, which was the last complete year for which records are available, those earnings amounted to £957 million, roughly half the total net earnings of "City" institutions.

I should like now to turn more directly to the Bill. Since 1973 Brussels has been an important influence on our insurance legislation. Freedom of establishment and the freedom to provide services are rights laid down by the EEC treaty. As noble Lords will have seen from the Explanatory Memorandum to the Bill, the prime objective of this Bill is to give effect to two European Community directives which cover most of the provisions needed to make effective the right of establishment for life and non-life insurers in the Community. The implementation of the 1976 directive has been largely accomplished through regulations made under the European Communities Act. Because of the way in which these regulations have overridden the 1974 Act, this has led to an undesirable degree of complexity in insurance legislation.

The Bill covers comprehensively, either directly or through regulation-making powers, all the requirements of both life and the non-life directives; it extends them as appropriate to insurance undertakings outside the scope of the directives, and introduces a number of other innovations. The result is simpler and more logical legislation, which will in addition permit a further simplifying consolidation covering the Bill itself, the 1974 Act, and the Insurance Companies Act 1980. Noble Lords may recall that this last measure extended Great Britain insurance companies legislation to Northern Ireland.

Implementation of the 1973 directive by regulations has led not only to complexity, but also to a distortion in the structure of insurance companies law. For many years United Kingdom supervision of insurance treated direct insurance and reinsurance similarly. But so-called pure reinsurers—that is, companies engaged solely in reinsurance—are outside the scope of the directives, and hence could not be covered by the regulations under the European Communities Act. This Bill reinstates a broadly uniform régime.

While the changes to United Kingdom law necessary to implement the directives are substantial, they do not involve a radical reconstruction of the supervisory framework which I outlined at the beginning of my speech. There are differences between our system of supervision and the approach of some of our European partners. While their approach is reflected to some extent in the directives, I believe that this Bill demonstrates that it is possible to marry the two together without changing that fundamental characteristic of "freedom with publicity".

Earlier I mentioned four aspects of supervision—authorisation, scrutiny, intervention and winding-up. I should like now to turn to the provisions of the Bill as they affect three of these. Winding-up I shall leave aside—the Bill contains no amendments to the winding-up provisions in earlier legislation.

Part I of the Bill is concerned primarily with conditions for the authorisation and the termination of authorisations of insurance companies. It replaces completely Part I of the 1974 Act and the classification and authorisation regulations made in 1977 to implement parts of the non-life directive. Many of the provisions are therefore familiar—for example, the exceptions for members of Lloyd's and certain other limited groups, the requirement to submit a business plan as a condition of authorisation, and the requirement that directors, controllers and managers be "fit and proper persons". Almost equally familiar are the arrangements applied to general business companies by the regulations made under the European Communities Act and extended by the Bill to life companies and, where practicable, to reinsurers. I have in mind particularly the different arrangements which apply to companies depending on whether their head office is in the United Kingdom, or another member state or outside the Community.

I should like to comment on two other changes to the controls on companies wishing to enter the industry which reflect national policy and are not part of the implementation of the directives—the one on extension of the "fit and proper persons" powers, the other relating to benefits in kind.

The 1974 Act provides that the Secretary of State shall not authorise a company if it appears to him that controllers, directors and managers are not fit and proper persons for those posts. These are important powers which have on occasions proved controversial, leading in one instance to proceedings before the European Commission on Human Rights. I am glad to say in that case the action of the Secretary of State was upheld. I should stress they are not arbitrary powers—the Secretary of State is always open to challenge in the courts if the rules of natural justice are not followed. This Bill applies the powers for the first time to the general representative that a company from outside the United Kingdom must appoint, and to those underwriting agents who can commit a general business company to a significant part of its business. Such agents are designated in the Bill as "main agents". Underwriting agents accept risks, issue policies and handle claims on behalf of insurance companies. Larger companies often use them to handle parts of their general business, while smaller and foreign owned companies may use them to write the whole of their general business in the United Kingdom. Such agents can have just as significant an effect on the fortunes of an insurance company as managers. Although cases where underwriting agents have acted discreditably or incompetently are rare: there have been some instances where policyholders' claims have been put at risk. In saying this, I am not making in any way a general attack upon underwriting agents; but it is anomalous that companies should be answerable for the fitness of managers but not of their main agents. I should emphasise that there is to be no power to intervene directly against main agents. The Secretary of State will, however, be able to intervene in the affairs of an insurance company that has appointed an unfit main agent as it can when an unfit manager has been appointed.

I said that the "fit and proper persons" provisions would apply only to the main underwriting agents. The Bill as introduced in another place left the dividing line between "main agents" and other underwriting agents to be drawn in regulations. Noble Lords will see from Clause 7(6) and Schedule 3 that this line is now drawn in the Bill itself. Speaking broadly, a main agent is an underwriting agent with authority to write more than 10 per cent. of the company's general business in the United Kingdom. As my honourable friend the Parliamentary Under-Secretary of State for Trade indicated in another place, these are important powers and it is desirable that the Bill should settle as far as possible which agents are now to be subject to them. A transitional provision is left to be settled by regulations, and this is an exemption for existing agents authorised without limit whom experience has shown are not accepting 10 per cent. of a company's business.

I mentioned benefits in kind. I should draw the attention of noble Lords to subsection (5) of Clause 2 and to Clause 16. These provide the Secretary of State with the power to make regulations so that insurance companies offering insurance contracts that provide for benefits in kind rather than money, and offering no other insurance contracts, may be exempted from the requirement to be authorised and indeed from the supervisory régime imposed by Part II of the 1974 Act. It is our intention in the first instance to use these powers to exempt organisations offering only roadside assistance and vehicle recovery insurance. There are two main reasons for this. First of all, the system of scrutinising insurance companies is basically financial and has little relevance to monitoring the ability of a body such as the Automobile Association or indeed the Royal Automobile Club to provide assistance to a member whose car has broken down. And, if we take no power of exemption, the bodies concerned will be forced to incorporate and restrict their activities to insurance business. In some cases this could result in an unjustified financial and administrative burden.

One other aspect deserves comment. The Commission of the European Communities has recently submitted for consideration within the Council machinery a draft directive on assistance insurance which would require the supervision of certain transactions providing for benefits in kind. This includes vehicle recovery insurance such as AA Relay and, when linked to it, roadside assistance. It is, I am afraid, too early to speak of a possible conflict between the regulations we intend to make under these provisions in this Bill and a draft directive whose underlying principles have yet to be appraised. The provisions of that draft have yet to be scrutinised by a working group of the Council of Ministers, and are open to amendment.

I turn now to scrutiny, which I have suggested is largely financial scrutiny. The main changes introduced by this Bill are to be found in Clause 21, which inserts four new sections into the 1974 Act and deals with financial resources. New Section 26A is concerned with solvency margins—that is, the required excess of assets over liabilities intended as a cushion in times of unexpected financial stress. On the general business side the net result is little change. General business companies were first required to show a solvency margin in 1946, and since the 1977 solvency regulations have been subject to the directive's solvency requirements. The main change is for life companies, which for the first time will be required from 1984, the end of the transitional period allowed for in the life directive, to show a solvency margin. Until now we have relied on the prudent valuation by the appointed actuary of a company's long-term insurance liabilities. The only formal requirement has been that the actuary must certify that the company's assets exceed its liabilities. New Section 26A imposes an obligation on all companies to maintain a solvency margin or in some cases margins, but leaves the detailed calculations to regulations. Those regulations will follow the 1977 solvency regulations for general business companies and the provisions in the life directive for long-term business.

This is perhaps a convenient place to comment on Clause 7(2), which concerns partly paid shares in insurance companies. We do not believe that it is desirable that insurance companies should rely on the unpaid portion of partly paid share capital to meet their solvency requirements. While the directives permit one half of any share capital not paid up to reckon towards the assets representing the solvency margin once 25 per cent. of the total share capital has been paid up, this does not mean that member states are under an obligation to allow companies to issue partly paid up capital. There is no guarantee that shareholders would answer a call for capital promptly. Some might not have the means, and others, interpreting the call as a sign of weakness, might be slow to answer that call. It would not be right to take retrospective action against existing unpaid share capital; thus Clause 7(2) provides that companies that do issue partly paid shares after the commencement of the section may not be given an authorisation. Clause 11(2) permits intervention if an authorised company issues such capital.

Clause 21, by adding a new Section 26D to the 1974 Act, also provides a new power to allow the Secretary of State to make regulations to meet the requirements of the directive on what is called in the Bill the "form and situation of assets "and in the directives "matching and localisation ". By "matching" is meant the matching of the currency in which a liability has to be met by assets expressed in that currency. The objective is to prevent changes in exchange rates placing an unnecessary strain on a company's resources. Let me give a brief example. A United Kingdom insurance company that entered into substantial business in the USA and covered its possible obligations by investing in property in the United Kingdom and elsewhere in Europe might have to sell some of that property and convert the proceeds into dollars to meet the claims in the United States. The adequacy of the investments in such a case depends on the exchange rate at some future and uncertain date. Matching avoids this uncertainty. It is no more than good practice to cover substantial risks arising in foreign currencies by investments in those same currencies.

The principle of localisation is also basically simple. It is the requirement for assets to be located in a particular country, most obviously in the country where the insurer is established. The object is to allow checking and control of an insurance company's assets much more easily.

But, while these concepts appear straightforward, their expression as a legal obligation is very complex. The directives do not cover all the details which we feel need to be settled before precise rules can be laid down in our legislation. As with the detailed solvency requirements, it is entirely appropriate that the detailed rules should be left to regulations. The process of consultation about those regulations is already well under way.

The other important aspect of supervision to which I referred is intervention. The approach in the directives tends to be to relate a specific form of intervention to specific failures. It is less flexible than the present approach in this country. Some modifications to our existing powers are necessary. The main change, found in Clause 23, affects the grounds on which we can require a company to place assets in trust. We shall no longer be able to impose this requirement because the company is newly authorised or because there has been a change of controller. The other significant change is the recasting of the power to "stop" an insurance company—that is, to prevent it from entering into new contracts—which has been up till now in Section 29 of the 1974 Act. A directive-style provision for the withdrawal of an authorisation in respect of new business is found in Clause 11 of the Bill. It has, however, been possible to modify the existing powers of intervention to take account of the directives without radically altering our approach to intervention or weakening our powers to take appropriate action where we believe policyholders' interests are at risk.

I have spoken for some time, but I should like, if I may, to comment briefly on other aspects of the Bill. Clause 15 restricts the business of insurance companies to insurance business, subject to one minor exception. If a company carries on other business, then the pressure to invest funds in that business may be great, even though the assets involved are unsuitable to cover the company's insurance liabilities. Taking that further, losses on the non-insurance side can result in insolvency, with partial or total loss of cover for policyholders. In fact, separation of insurance business from other business is already almost complete in the United Kingdom. Clause 15 should not present companies with any great difficulty.

Clauses 17, 19 and 20 affect life companies, and they modify Sections 14, 24 and 25 of the 1974 Act. These clauses are concerned with improving the control over the movement of assets from the long-term business fund of a life company to the shareholders' funds and with protecting the rights and expectations of policyholders.

Clause 17 requires annual rather than triennial valuations. This is already the practice of the great majority of companies, but the clause also places a new obligation on companies to establish a separate surplus arising from a particular part of the business where policyholders' rights relate to such a part of that business. Clauses 19 and 20 remedy technical deficiencies in Sections 24 and 25 of the 1974 Act, and they also improve the protection of the interests of long-term policyholders. A number of useful and improving amendments were made to the Bill after its introduction in another place, but none that made a major change to its structure or, indeed, its effect. There will be few, if any, proposals from the Government for amendments to the Bill here, in your Lordships' House.

This is a significant and a worthwhile measure. While it takes us several steps further down the road towards a free market in insurance in the Community, it should not be seen simply as legislation at the behest of Brussels. As I hope that I have explained, the Bill includes items that do not flow from the directives, and it would be wrong to suppose that without these directives the United Kingdom would have taken no steps in their direction, although I would not pretend for a moment that we should have gone in exactly the same direction. The Bill also provides for a much needed simplification of the legislation governing insurance companies, and for that reason I commend it to your Lordships' House. My Lords, I beg to move.

My Lords, we on this side of the House will do everything we can to facilitate the passage of this Bill trough your Lordships' House, subject always, of course, to more detailed scrutiny and some arguments that may conceivably arise on the Committee stage. We are able to do so for two reasons. The first is that when the Bill was considered in another place any political differences arising on the Bill were most difficult to perceive. As I read them, the proceedings on Second Reading were most harmonious and that harmony was rendered even greater when the Bill went to Standing Committee D in another place where, so far as I can see, there were no divisions; there were no political divisions that were reflected in the Lobbies; a number of constructive suggestions that were made from all sides of the Committee appeared to receive sympathetic consideration; some of the amendments were withdrawn and others were adopted, and on others the Government promised suitable action. That is the first reason.

The second reason is, of course, the felicitous manner and the very comprehensive terms in which the noble Lord opposite addressed us on this, the Second Reading of the Bill in your Lordships' House. Consequently, it will be unnecessary for me to follow in detail any of the ground that he has covered, because I am largely in agreement with his own explanation of the terms of the Bill and of its relevance, save only perhaps for this. In his concluding remarks the noble Lord was at pains to point out that the Bill would probably have been necessary in any case and that, aside from its implications for the domestic market, there were, of course, certain EEC matters that had to be taken into account. In another place the real purpose of the Bill was, of course, fully set out in his honourable friend's statement on Second Reading:

" The main reason for the Bill, as hon. Members will have realised from the explanatory memorandum, is to give effect to two European Community directives harmonising certain features of the supervision of insurance undertakings within the Community ".—[Official Report, Commons, 2/2/81; col. 103.]

Therefore, whatever other items there are in the Bill—items with which we ourselves are in entire agreement—the main purpose of the Bill is to follow the EEC directives. In this connection I have a number of questions which I should like to put to the noble Lord.

The directive which lies at the root of the present Bill is, of course, No. 79/267/EEC, published in Volume 22 of the Official Journal of the EEC on 13th March 1979. This stipulates in Article 40 that:

"Member States shall amend their national provisions to comply with this directive within 18 months of its notification and shall forthwith inform the Commission thereof. The provisions thus amended shall, subject to Articles 33 to 36, be applied within 30 months from the date of notification".

It is thus quite clear, and I make no critical point of it, that if Article 40 of the directive were to be complied with, this Bill ought to have gone through both Houses of Parliament before 15th September 1980. Consequently, we are a little late. Nor do I make any complaint of that. I well recall the circumstances when the EEC issued its VAT Directive No. 6, which was to come into operation on 1st January 1978. This country introduced the VAT regulations in the Finance Act 1977, so it was only this country and Belgium that had, in fact, complied with the VAT directive by 1st January 1978. At the time I left the European Parliament in July 1979 there were still three member states which had not ratified. Therefore, I do not reproach the Government in any way for being a little late.

But I must ask the noble Lord what other member states at this stage, talking as of today, have passed through their respective Parliaments legislation on the lines that is today before your Lordships' House, in compliance with the directive. I may prove to be very wrong and if I am, I apologise in advance, but I doubt whether quite a number of countries have as yet gone as far as Her Majesty's Government. However, it would be nice to know who at this stage still has to fulfil this particular obligation.

The reasons for my asking this question are very clear; because, of course, there has been in existence for a long time—in fact, since 1973—a draft directive which has sought to establish freedom of establishment of insurance institutions throughout Europe. I have referred to this on a number of occasions, and when I had the honour of addressing your Lordships' House on this subject over a year ago, your Lordships will recall that the original draft directive which gave the freedom to establish insurance institutions and to trade across national boundaries in Europe had been unduly delayed by quite deliberate frustration and quite deliberate obstruction in the European Parliament for four years; and that it had also been frustrated by deliberate action at Council and at other levels, the main reason, of course, being that the French and the German insurance companies were scared stiff of British insurance competition in the non-life market in their respective countries. I think that many of us on both sides of the House took a pretty dim view of that.

The second question therefore follows from that. In answer to a Written Question in another place on 19th March, the Chancellor of the Exchequer stated—and this is quoted from column 177 of the Official Report:

"After discussing the draft insurance services directive, which will give insurers freedom to operate across frontiers within the Community, the Council confirmed the importance it attaches to making this freedom effective. Officials were instructed to prepare a report on the main issues for discussion at the May Finance Council".

The question I have to ask the noble Lord is: has any further progress been made so that British insurance institutions can have the freedom which was originally provided for under the treaty itself and which other members of the European Community, for quite selfish reasons, have declined to bring into operation in order that the very free and competitive conditions can in fact apply and benefit the British insurance market?

It will be easily seen that this question is also linked to the first question that I posed. This may be entirely untrue and may be falsified by the answer which the noble Lord will in due course give me, but it might be that two member states have not gone so far with this directive as we have and that itself might be used as a further excuse for postponing the coming into operation of the directive, which provides for the freedom of services and the establishment of services across frontiers which was envisaged at the outset, some nine years ago. I should therefore be very grateful if the noble Lord opposite could reply to that point.

I have only one other point to make because I find myself in so much agreement with the explanations which have been given by the noble Lord, Lord Lyell, and indeed with the purposes of the Bill. This point does concern the nature of an amendment that was put forward in another place and which does seem to me to embody a point of principle. Your Lordships will recall that it was proposed in another place to introduce a new Clause 14 which would provide for actuarial intervention—and here I am not quoting exactly from the amendment involved—to ensure that a report was made of changes of policy carried out by individual companies. It will be appreciated that an insurance company can change its policies in one of two ways, or can undertake actions which may have an adverse effect on its existing policyholders in one of two ways.

An insurance company can embark upon a type of life insurance business on terms which are really financially unsound in themselves. In other words, it can conclude a bad bargain with those to whom it offers life insurance. That is one way. In that case the intervention of an actuary—and I do well bear in mind that they do now report every year—might well be desirable. If for example an actuary comes across instances where, notwithstanding the maintenance of the existing solvency margins (and British companies by and large maintain higher solvency margains than do companies on the Continent), he thinks that the newly-issued policies are being issued on terms which he regards as themselves financially unsound from the actuarial standpoint, then he ought to be in a position to report specially upon it.

The other aspect of unsoundness which might affect the policyholder arises on the type of investments that the company makes. It may well be that certain insurance companies occasionally act injudiciously in regard to the selection of investments which they make with the policyholders' money they receive. This is a matter of some consequence. The insurance market is a fairly considerable investor and this is not only a question of the individual policyholder being involved; it is also a matter of public interest. The amendment that put was forward in another place was rejected—I believe in part because it was thought that the role of an actuary ought not to be too far extended in this regard. Whereas it would be quite feasible and proper for an actuary to report on the nature and trends of the business that was being concluded to the policyholders themselves, I should have thought it more the role of an accountant or an auditor actually to report on the status of the investments which the insurance company is making with the funds it receives. Of course that is a matter that can be pursued in Committee but it is for consideration whether as a note to the accounts, the insurance company's holdings as assets might well follow the classification which is reproduced in Table 3.46 in the appendices to the Wilson Report. Command 7937.

If the noble Lord, Lord Lyell, will turn to page 459, he will see that the holdings of insurance companies are classified by categories. The noble Lord will note, for example, that in the case of long-term funds some 22.3 per cent. of funds are held in property and some 7·9 per cent. in mortgages and loans—which makes nearly 30 per cent. in the property field. Some 26 per cent. of funds are held in UK listed ordinary shares and 25·4 per cent. in British Government securities. It is for consideration as to whether insurance companies might well be required to publish as an annexure to their accounts an analysis of their holdings by broad general categories, as set out in the Wilson Report. It would not reveal any competitive details that would be of advan- tage to any other insurance company, but it might be a matter of some public importance, and it might also provide a substitute for a more detailed investigation by accountants or actuaries as to changes in investment policy. From year to year, by comparing these holdings, one could gather in which way a company's holdings were going and which trends its investment policy was following. I just leave that suggestion for the Government's consideration.

As I have said, in view of the long explanation given by the noble Lord, Lord Lyell, I shall not go into any further details on the Bill because I should only be repeating exactly the information which the noble Lord has given to the House. In general terms we welcome the Bill: we shall as always subject it to diligent and detailed scrutiny, but for our part we shall do everything to facilitate its passage.

My Lords, I must begin by declaring an interest since I am a registered insurance broker, having registered under the Act which I had the privilege of piloting through its Committee stage in this House. I should like to join in thanking the noble Lord, Lord Lyell, for his thorough explanation of the provisions of this Bill. As he explained, and as the noble Lord, Lord Bruce of Donington, underlined, this Bill amends the law relating to insurance companies principally in order to implement the European Communities insurance establishment directives. But it is clear from what the noble Lord said that no substantial change is envisaged in the system of supervision now operating.

In its passage through another place, as the noble Lord, Lord Bruce, said, the Bill was not controversial so far as its contents were concerned. The discussion was only controversial in so far as Members took the opportunity to raise matters well beyond the confines of the Bill. I should like to welcome the tribute to the insurance industry which was paid by the noble Lord, Lord Lyell, because the importance of the service rendered to individuals, to families, to corporate bodies in this country and abroad, and the importance of the invisible earnings secured by the insurance industry for this country, cannot be exaggerated.

As the noble Lord, Lord Lyell, explained, the industry is controlled by the 1974 Act, which is now to be amended in certain respects by this Bill. That Act is also supported by the Policyholders Protection Act, about which we had some lengthy discussions in this House. The pension part of the insurance business is covered by further complicated legislation. But generally speaking the aim of the legislation has been, first, to see that adequate information is available to the Government to monitor what is happening in the industry, and secondly to ensure that sufficient safeguards are established for the policyholder. The industry has then been left free to run its own business in its own way. If it is clear that things are going wrong, the Government can intervene.

In Part I of the Bill, which as the noble Lord, Lord Lyell, explained deals with the authorisation of those carrying on insurance business, there are two significant changes which he singled out for mention. First, the Secretary of State is given the power to exempt companies offering only benefits in kind, and secondly main agents are to be subject to screening as to whether they are fit and proper persons. It seems to me that both these changes are desirable for the reasons which the noble Lord gave. Under Part II of the Bill, dealing with the regulation of insurance companies, stricter conditions are laid down for life insurance companies, including the solvency margin, but this should not prove a problem for companies transacting life business in this country.

The question of control by the Government of investment policies of insurance companies was raised in another place. The suggestion was made that the minority recommendation of the Wilson Committee should be applied to insurance companies; namely, that 10 per cent. of their investment should be compulsorily directed towards industry. I have doubts about the wisdom of that. In the discussions in another place it was argued in reply that the degree of insurance investment in industry is already far from negligible and that insurers are the best judges of their policyholders' interests, which must be paramount. Whatever the merits of the two arguments—and it is certainly right that the implications of the growth in institutional investing should be faced and discussed—this question is too wide to be settled by this Bill because it affects all kinds of institutional investments and not insurance companies only.

I should like to join with the noble Lord, Lord Bruce, in asking what the position now is with regard to the draft services directive. Has there been any progress since we considered the report of the Select Committee on insurance contracts in the debate we had in this House on 9th December last? I would venture to put another question about a matter not unconnected with the Bill although not actually covered in the Bill. Broker intermediaries are now covered by a statutory code of conduct, but I wonder what the Government's long-term intentions are with regard to non-broker intermediaries. The British Insurance Association and the Life Officers' Association have introduced voluntary codes and these are to be welcomed so far as they go, although they have been subject to some criticism. Have the Government any plans to give statutory backing either to these codes or to revised versions of them?

Another development in the insurance industry recently which is worth taking note of has been the establishment by a number of companies of an insurance ombudsman to whom complaints about matters affecting their company can be referred. This too must be welcomed, and I would certainly hope that eventually the industry as a whole might co-operate in this or a similar venture. May I say in conclusion that we on these Benches have no objection to the Bill in principle and we support its Second Reading.

My Lords, I am sure that all of us are grateful for the benign and charming reception that this Bill has received from your Lordships this afternoon, and, especially in view of the detailed explanation which I gave, I regret that my preliminary comments were considerably in excess of the joint comments of these two experts, one of whom is a broker and another an eminent chartered accountant, speaking from the Liberal Benches and the Opposition Benches. But I thought it right, and I hope the House thought it right, that I should spell out the Government's views and reasons for bringing forward what appears to be a fairly straightforward Bill when one reads through it, yet a Bill which covers consolidation of at least two Acts, two directives, and other measures beside.

The noble Lord, Lord Bruce, was kind when he stressed that there was no political difference between any of us on this particular Bill either in another place or, we hope, here. The noble Lord asked me one or two questions. I particularly appreciated his comments in relation to Article 40 of the 1979 directive. If I quote him accurately I think he said that we are a little late. That may be the case, but he asked me whether I would be able to enlighten him or the House which other member states of the Community were dealing, or had dealt, with the directive as of today's date. I am afraid that I cannot give a complete and concise answer this afternoon. I shall pursue the point. May I inform the noble Lord by writing, and may I be allowed to send a copy to the noble Lord, Lord Banks, as he has contributed so kindly to the reception of the Bill this afternoon? I shall endeavour to see that he receives a copy of the information that I send to the noble Lord, Lord Bruce. I am given to understand that there was a verbal report from a member of the Commission staff in December 1980 which indicated that most member states had started but not completed the necessary legislation to implement the directive. Given the fairly obtuse expressions by, I concede, a member of the Commission's staff, or indeed by anybody involved in such dealings, I am sure your Lordships would appreciate that the legislation may well be under way in most of the member states but that this particular legislation may be in an uncertain form.

The noble Lord, Lord Bruce, and indeed the noble Lord, Lord Banks—and I believe quite rightly—had some fairly harsh things to say about the continuing delay in the progress of the draft insurance services directive. The noble Lord, Lord Bruce, and I—and indeed I think many other Members of your Lordships' House—have discussed this matter. Therefore, this will be a familiar—I would not say battlefield but place upon which we meet and discuss insurance directives. The Government share the impatience of the noble Lords, Lord Bruce and Lord Banks, over the tremendous delay there has been in agreeing the non-life services directive. Indeed, we would go so far as to say it is deplorable that nearly a quarter of a century after signing the Treaty of Rome we still do not have a free market in services which is as much a treaty right as a common market in goods.

With his great knowledge of European institutions, the noble Lord, Lord Bruce, will know that the directive has been in various corners, so to speak, of the Council's table since 1975. From time to time it has looked as though some member states were encouraging the onward progress of the directive, while on the other hand there were other member states which were positively anxious to postpone agreement indefinitely. Far be it for me to mention names, although the noble Lord, Lord Bruce, hinted at at least two of the member states concerned.

I did not just hint at them, my Lords; I stated them.

My Lords, I do not think the Government would flinch from saying that probably there might be others, so the blame might not be totally on those two or more member states. Be that as it may, many difficulties have been put in the path of the directive. It is a very welcome development that the Council of Ministers has taken a close interest in the directive. At the meeting of the Council of Ministers in March last, the Council of Finance Ministers confirmed the great importance of implementing the freedom of services and the need to make more rapid progress. Those terms we have heard in relation to all sorts of legislation, both in this House and elsewhere. Nevertheless, if the Council of Ministers uses such terms, then at least the onward march of the services directive is beginning to gather steam.

The noble Lord will be aware, my Lords, that almost identical terms were used over three years ago. This is therefore nothing new.

My Lords, have I not heard ex Africa semper novum? But possibly that was in the days when Rome's Empire stretched across the Mediterranean. However, I hope something new will come from Brussels. Later this year the presidency will pass to the United Kingdom, and it is to be hoped that the noble Lord's efforts here and his noble friend's efforts elsewhere, and indeed the main thrust of the Government's efforts in this matter, will not be lost in this year of all years. In March of this year the Council instructed the Committee of Permanent Representatives to prepare a report as a matter of urgency, and I recall mentioning that fact myself. Therefore I regret that there is nothing new for me to say from this Bench about the past two months. Nevertheless, as the noble Lord will be aware, the Government will have a major part to play in the presidency of the commission's institutions later this year and we shall be out to see that a timetable is adhered to and that final decisions are taken very soon. If there were a will on all sides to reach agreement on this directive, it could be reached quite quickly. I assure the House that pressure will be brought by the Government to agree upon the directive. I know this is a festering sore, but I assure the House that we have views equally as strong as those of the noble Lord, Lord Bruce.

The noble Lord, Lord Bruce, commented on the publication of the assets of insurance companies and how they were held, and he referred particularly to the Wilson Report. Despite the close discussions the noble Lord and I, along with others, have had over other measures, such as the Companies Bill, he might agree that this might not necessarily be the right vehicle for such detailed legislation, particularly as the Wilson Report is fairly fresh and its ideas are still under discussion. I will take advice on the points raised by the noble Lord and write to him. He also suggested there was to be a new Clause 14. I wondered about that as, glancing through the Bill, I noticed that Clause 14 dealt with offences.

I referred to Clause 44, my Lords.

I apologise, my Lords. I am sure it would be desirable that actuaries should act as an auditor might act when he is looking at the accounts of a company, and I hope that actuaries will continue to carry out their duties on an annual, not a triennial, basis. I understand that at present they examine the assets of long-term life companies on an annual basis in most cases, and the Government would consider it desirable that actuaries should continue to carry out their duties as they see fit on an annual basis.

The noble Lord, Lord Banks, believed we should leave the question of the direction of insurance companies' funds, pension fund investments and so on to the insurance industry. On that the Government agree with the noble Lord; namely, that the policyholders who have entrusted their money to the insurance industry and pension funds are the ultimate beneficiaries and that it is their interests which must be safeguarded most of all. We are grateful for the kindly reception the Bill has had from the noble Lords, Lord Bruce and Lord Banks. I have promised to write to Lord Bruce on certain matters and I shall let Lord Banks have copies of all the information I convey. I beg to move that the Bill be read a second time.

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

moved Amendment No. 1:

Page 2, line 10, at beginning insert ("Subject to the provisions of subsection (4A) below").

I should like to support the principle behind my noble friend's amendment, though I have a reservation, which I shall outline to the Committee. My noble friend Lord Mansfield knows a great deal about salmon, his home being near the Tay, and so I shall not need to remind him about them. However I should like to remind the Committee that although this Part of the Bill deals with the sea fish industry and the authority is called the Sea Fish Authority, salmon and migratory trout spend a great deal of their lives in the open sea.

In Scotland we had particular problems in the early 'sixties when sea fishermen started fishing for salmon with drift nets, largely because of the new man-made fibres which made nets with that kind of mesh much stronger than nets used previously. In the past salmon had been able to break them, but from the 1960s onwards salmon could be caught or badly damaged by them, and it would have been possible virtually to wipe out the whole salmon population of Scotland by keeping up a 24-hour drift net operation around the mouths of rivers. As a result of the first Hunter Report the drift netting of salmon was banned in Scotland. I shall not go into the question of what happened off the shores of England because this is still a controversial issue between fishermen in England and those in Scotland.

Salmon and migratory trout have to return to the rivers in order to spawn and to continue their species. We have had trouble with Denmark and other countries which do not themselves have salmon rivers but have caught these fish right out in the Atlantic. That is of course the subject of international agreement. But I would remind the Committee that in my area of Scotland there was unfortunately very great hostility towards Denmark at the time that was happening, because this matter involves a very important part of the local economy. I refer not only to tourism and the sport of angling, and the amount of money that comes in from foreigners who take part in the activity, but also to the fact that much money that is raised in this form goes into the local government institutions and forms part of the financing of areas of Scotland which are not very highly populated but which have salmon rivers flowing through them.

Therefore I agree with my noble friend that salmon and migratory trout must be regarded as sea fish as well as fresh water fish at various times in their lives. But I come now to my reservation. The Bill says that there shall not be more than 12 members of the new body, and there are a great many interests to be covered. At the Second Reading we recognised that there would be geographical claims from various parts of the country. The South of England has special problems; there are also problems encountered by the fishermen of the West of Scotland. We can all think of the geographical claims. But, in addition, there are different kinds of sea fish industries which have been active in the past. Unfortunately, the deep water large trawler side of the industry has been greatly reduced; but none the less its interests must be represented. In fact this particular side of the industry probably needs to be represented more than any other.

Then there are the inshore fishermen who in the past have had interests quite different from those of the distant water fishermen. They are now if anything expanding, with their seine net vessels and other vessels. It is a quite different kind of fishing, as well as a different structure, in that most of them are share fishermen; they are not employees of a company. They have quite a different attitude. There are also the herring boats, the shell-fish boats—the many different kinds of fishing industries. So I would say to my noble friend that it would be quite difficult to accommodate all the interests, of which there should be some knowledge—I would not say representation—on the new body.

Therefore, my request to my noble friend and the Government is that if they say that it is not possible to have one member of this new authority who is there solely to represent the interests of those who know about salmon and migratory trout, then there should at least be one member who has experience and knowledge of these matters. He may well have to be a member who also knows about other aspects of the sea fish industry; but I think the Government ought to make certain, perhaps by some other form of amendment if they cannot accept this one, that at least one of the members has knowledge and experience of the whole question of salmon and sea trout.

This is an exceedingly important asset to the United Kingdom. It is probably more important to Scotland than to other parts of the United Kingdom. It could easily diminish and disappear—this is not simply a rich man's sport; it is something which is of tremendous value to the country as a whole and, as I say, it would be a great loss to local government finance if the fish were to disappear. So I would ask my noble friend to look with sympathy upon this amendment, and if he cannot accept this then at least to accept something which makes sure that the expertise and the knowledge on this side of the fish industry is represented on the authority.

I am grateful to my noble friend Lord Balfour for tabling these amendments, because it gives us an opportunity to refer to the question of salmon and trout and migratory fish generally, even though it is not the intention of the Government that such fish would be within the competence, so to speak, within the control, of the new authority, any more than they were under the old White Fish Authority; and I hope I can persuade the Committee that this is a proper way to look at it.

So far as the conservation at sea is concerned, it is of course within the competence of the EEC, so to speak, to go into matters of conservation, so far as salmon and trout are concerned, beyond the territorial limits of the countries concerned. So that if, for instance, we were to put salmon and trout within the control of the authority, then the authority would have control, as it were, within the territorial limits but it would have no responsibility for maritime salmon conservation outside those limits. So there are some real difficulties in the way. When we discuss matters relating to international control so far as salmon are concerned, we use the European Community channels, and that applies particularly, for instance, to the salmon convention, which we hope will come into existence before very long. As the Committee may be aware, there is a proposed North Atlantic Salmon Convention. The Government are very keen to see progress made in negotiating this convention, which will, one hopes, have the effect of managing and indeed protecting salmon stock throughout the North Atlantic.

Noble Lords, I have no doubt, will be aware of the concern felt in the United Kingdom about the salmon fisheries at Greenland and the much more recent and expanding fishery in the Faroes. Both of these intercept salmon coming from British rivers, and we would regard control of these fisheries as essential to safeguard the future of our own domestic salmon industry. We feel that the convention offers the best prospect of achieving some form of harmonisation and control which will be agreed by all the countries interested. There are a number of problems which still have to be discussed and, indeed, solved. Discussions with other interested countries have indeed taken place—and they include Canada, the United States, Norway, Ireland, Sweden and the Faroes—and, as I have said, consultations with our own salmon interests have also taken place and will continue to do so before the next round of formal talks takes place in May.

I turn to the matter which my noble friend Lord Campbell touched on but which, with his well-known diplomatic instincts and skills, touched on, if I may say so, ever so delicately, and that is drift netting. There are, of course, certain interests which have to be regarded and, indeed, protected, and the Government have these matters under review at the moment. In each country—that is, in England and Scotland—we shall be consulting all the interests involved over the whole matter of salmon before very long, and as I think I said on Second Reading, each country is going to issue a consultative paper because the law and indeed the needs of each country are so very different. I have no doubt that this is one of the problems which will be discussed in the English consultative paper, and the various reactions which come forth, I have no doubt, will give rise to considerable debate. The Government will no doubt have to take stock of the situation in the light of the representations which are made following the issue of these consultative papers.

Perhaps I may come to the point of my noble friend's amendment. I respectfully agree with my noble friend Lord Campbell of Croy that it would be wrong and most undesirable to have sectional interests directly represented, so to speak, on the authority. It is, I suggest, no more appropriate to have somebody who is going to have regard to salmon interests written into this statute, as would be the case if my noble friend's amendment were accepted, than it would be to write into the Bill a demand that, say, shell-fish interests, deep water fishing interests, inshore fishing interests, pelagic fishermen or demersal fishermen should in some way be represented on this authority, and I hope that on reflection my noble friend Lord Balfour will see that this is right.

For the reasons which I have outlined to the Committee, we do not think that it is suitable for this authority to, as it were, extend its range into migratory fish, because different considerations apply to them. We are going to have regard to the whole question of salmon and migratory fish in general, as I have outlined; and in the light of what I have said I would therefore hope that my noble friend would see fit to withdraw his amendment.

I thank the Minister for his reply. I think he has more faith in future action of the EEC in a reasonable course of time than I have. I only hope that I am wrong and that he is right. Secondly, I cannot quite agree with him about the danger that my noble friend Lord Campbell of Croy dealt with, the danger of having sectional interests, because you already have sectional interests in the set-up of the authority. You have certain representatives of the fishing industry and you have certain representatives of consumers. What I am now suggesting is that there should not be an executive, such as is put forward in the Bill, for those interests, but that there should be a watching brief. However, if my noble friend feels that that is not desirable, while I retain my view I am afraid I have no option but to ask leave to withdraw the amendment.

I want to concentrate on the structure, the set-up, in other words the organisation, of the sea fish industry. I do not disagree with the noble Lord, Lord Campbell of Croy. I believe that he welcomed this Bill, and I more or less agree with what he has said. I should like to ask the noble Earl this question. Which Minister, apart from the Minister of Agriculture, will be responsible in the end? What about Northern Ireland? I assume the Secretary of State for Scotland; but what about Wales? I hope we can have an answer on this. I want to stress the difficulties of Clause 1 which provides for the establishment of a Sea Fish Industry Authority consisting of not more than 12 members, four of whom would be independent of and eight of whom would be representative of the sea fish industry. The duties and powers of the authority are largely those of the White Fish Authority and of the Herring Industry Board—bodies which the authority replaces.

I emphasised on Second Reading how much difficulty could arise through thinking in terms of separate sections of the industry. I went on to say:

"The industry comprises catchers; salesmen; buyers and merchants; freezers; canners; smokers, and other processors; distributors; wholesalers; retailers; fryers and many other parts too numerous to list. The ratio of onshore and offshore employment is thought to be in the region of 5 or 6 to 1 …".—[Official Report; col. 123, 31/3/81].

Here is a clause the implementation of which may give rise to great difficulties. However, I hope we can be successful. While the authority should restrict its numbers as far as possible, we find it difficult to believe—or, at least, I do—that the many and varied interests of the industry can be truly represented by eight members. This is a very large industry. Furthermore, if the authority is to have executive powers, as appears to be the case, I think it is highly unlikely that such a variation of interest can ever achieve unanimity, let alone a clear majority. The Minister may be more optimistic.

This will mean inevitably that, more often than not, decisions are going to be taken by the four independent members. To achieve an efficient executive management, I think we should have a smaller non-representative board, co-opting the senior full-time executive. To satisfy the need for representation, there should be a larger advisory authority and the chairman of the executive board also should be the chairman of that advisory authority. We must get this policy, this restructure, right. Therefore, I hope that the Minister will carefully consider the points that I have made.

Far be it from me to chide the noble Lord the Leader of the Opposition, but the Minister would have considered even more carefully what the noble Lord has said if it had been in the form of an amendment with a suggestion as to the course which the Government might have taken other than the course that they are taking. I say that humbly to the noble Lord, for whom I have great respect. I say this because this particular question as to the form of the authority, the number of members who should be appointed and their particular functions, was exhaustively debated in another place—I hope I do not say that too contentiously—and, indeed, the eventual conclusion to which the other place came was that this was probably a reasonable way of solving what everyone agreed would be a difficult problem. But certainly everyone was agreed that the arrangements would have to be different from what was originally contemplated as far as the White Fish Authority were concerned and that this is as good a way as any of retaining firmness of purpose and speed of execution with sufficient dexterity of manoeuvre to react to the changed conditions in which we find ourselves today and which have led to the establishment of this new authority.

The appointments will be made by the fisheries Ministers, of whom the noble Lord, Lord Peart, was a very distinguished member in his day. I do not need to tell him how the fisheries Ministers, like the agriculture Ministers act as (shall I say?) a team, not always unanimous to begin with but certainly unanimous by the time the appointments come to be made. It seems to work reasonably well and I have no doubt that the interdepartmental discussions and negotiations will go on as in the past and that it will be just as satisfactory.

The four plus eight, I suggest, is a reasonable way of proceeding. To add eight representative members to the four independent members, in the Government's view, will strengthen the body. The involvement of representatives from the industry will bring an expertise directly to the decision-making of the authority, and their presence will, we trust, assist the authority to command the confidence of the industry; and that is absolutely essential if it is to do the work that we hope it will. The industry iteslf was divided at first but eventually expressed a clear preference for this proposal. As far as the eight members are concerned, the fisheries Ministers will have to choose them to give the broadest coverage possible of the industry—and that applies both to sectors and to geographical considerations. I said in relation to the first amendment that I do not believe it is right to try to write such considerations into a Bill; and I think that on reflection most Members of the Committee would agree with me on that.

The eight will not represent particular organisations. That would be quite wrong and self-defeating. The eight members will be representative of the whole industry, and I have no doubt that the Ministers will be concerned to select persons who will command the confidence of all the main sectors of the industry and that there will be consultations with the industry before these appointments are made. The Bill does not give the authority powers to regulate the industry. My noble friend Lady Hornsby-Smith is not in her place. It might have been thought from her remarks on Second Reading that she thought that the industry in the South-West would not be properly served unless one of the eight was from the South-West. But that is taking the wrong view of the powers and functions of this authority. The powers given to the authority over such matters as research and development, advice, training and the promotion of sales are not the type of function which call for the voice of each fishing community round the coasts to be separately represented on the decision-taking body. If they were, the body would be able to function only fairly incompetently.

One of the things which the noble Lord, Lord Peart, asked about was the position of Wales. Wales has a Secretary of State. He counts as a fisheries Minister and therefore he will play his part in what would be a triumvirate, except that there happen to be four of them—whatever the word is for that. I have no doubt that he will play a full part. I hope that the Committee will give its blessing to this clause being made part of the Bill.

moved Amendment No. 3:

Page 3, line 9, leave out (" for assisting persons to meet ") and insert (" to persons incurring ").

moved Amendment No. 4:

Page 3, line 25, leave out (" loan or grant ") and insert (" financial assistance ").

moved Amendment. No. 5:

page 8, line 2, after (" affairs ") insert (" at the end of the financial year and of the Authority's income and expenditure in the financial year ").

moved Amendment No. 6:

Page 40, line 13, at beginning insert ("As from the transfer date").

moved Amendment No. 7:

Page 21, line 12, leave out ("fishing boat") and insert ("vessel").

moved Amendment No. 8:

Page 21, line 13, leave out ("boat") and insert ("vessel").

moved Amendment No. 9:

Page 21, line 17, leave out ("boat") and insert ("vessel").

moved Amendment No. 10:

Page 26, line 36, after ("11") insert ("12").

moved Amendment No. 11:

Page 27, line 7, leave out from ("to") to second ("the") in line 8 and insert ("any relevant provisions of the said Act of 1967 or").

moved Amendment No. 12:

Page 27, line 29, leave out from beginning to (" the ") in line 32.

The matter was discussed in the other place, as the noble Lord has said. As was said on behalf of the Government in Committee, and as I am happy to repeat now, we are by no means unsympathetic to the representations which fish farmers have made that they should become eligible for national capital grant assistance on a similar basis to agricultural farmers. I understand the wish of fish farmers to be treated like other farmers, and the Government's sympathy towards the industry has already been illustrated, at any rate in part, by the noble Lord, Lord Cledwyn.

We have given a considerable amount of assistance; we have de-rated fish farms. Fish farmers are eligible for development grants under the Agriculture and Horticulture Development Scheme. Where fish farmers are involved in marketing or processing both their own and other fish farmers' production, they may qualify for a grant under the Community Marketing and Processing Scheme. Fish farming co-operatives may receive grants under the Agriculture and Horti- culture Co-operation Scheme for certain non-capital expenses. Fish farmers in England may receive grants from the Council for Small Industries in Rural Areas and in assistance areas from the Department of Industry. In Scotland grants are available in proper cases from the Highlands and Islands Development Board, provided that the area is within their area of responsibility.

Clause 31 makes yet more assistance available. It will ensure that where fish farmers are eligible for grants from the European Community they can receive what I might call the necessary national backup. That is already so in Northern Ireland, where Northern Ireland Ministers have the appropriate powers. So there is no question but that the Government are sympathetic to the needs of fish farmers and indeed our minds are open, as was said in Committee in another place.

The question is as to how one puts this sympathetic frame of mind into action, so to speak, in a proper case. The only issue that I take with the noble Lord, Lord Cledwyn, is that there will be not one but two consultative documents—one for England and Wales and one for Scotland—because, as I have already said, the conditions are so very different in the three countries.

That being so, I must repeat what my honourable friend the Minister of State said in another place. We are having a major review. We are by no means sure that an amendment such as this, well-intentioned though it is, would, in fact, by giving wide powers to Ministers, advantage the fish farming sector in the way in which it should be advantaged. We need to consider what aid fish farmers require and there may very well be different requirements in different sectors of fish farming.

We have therefore decided that in these consultative documents the matter will be fully set out. There should then be a full debate as to the needs and priorities. I must stress that at a time of scarce resources there is no money to fling about for fish farmers, any more than there is for any other sector, however deserving it may be. Therefore, we shall have to establish some form of priority for this type of assistance and there must be a full debate, as is only right and proper. Then, in the light of the various consultations and debates, we shall have to take the action required.

One asks: if this amendment were written into the Bill, would fish farmers get one penny sooner than they would if the Government are allowed to continue in the way in which they want to continue; that is to say, by having these consultations and thereafter proceeding towards action? As the noble Lord, Lord Cledwyn, has very fairly said, these are merely permissive powers, and I have no doubt that if they were written into the Bill they would not be acted upon until precisely the same consultations and debates had taken place as will take place under these consultative documents.

So far as the fishing industry is concerned, whenever the industry has proved that an urgent need has arisen the Government have acted very swiftly indeed. I believe that over this matter the Government will act just as directly and just as swiftly, when we realise what is required. By the list, which I have produced, of aid which has already gone to fish farmers in one form or another, the Government have already shown, as it were, an earnest of their intentions and goodwill towards the industry. In the circumstances, I can only ask the noble Lord and his—for this purpose—friends, who added their names to the amendment, to bear with us and I have no doubt that proper assistance will go to fish farmers in due course.

I have put down my name to this amendment. I am very sorry that the noble Viscount, Lord Thurso, is not here. I imagine that he is still waiting at Wick airport until the current dispute is finished and he can get an aeroplane south.

I am not very impressed by the arguments put forward by my noble friend the Minister on this amendment. I welcome all he said about the support which the Government are giving to fish farming and, although I declared an interest as a fish farmer when I spoke on Second Reading, it is only right that I should re-declare my interest, if there is such a word as "re-declare". But the very fact that he mentioned all the things that the Government are doing for fish fanning does, if anything, argue against his own case. He points out all the ways in which fish farming is being encouraged, and then says that we do not want to go the whole way and treat it as if it were agriculture. The very fact that the Government are treating it as agriculture, in so many ways, speaks against him.

I should also like to point out that in these amendments there is nothing at all about flinging scarce resources around to fish farmers. The powers are purely enabling. The Government make many points about the recession finishing, and rosy days being around the corner, so I should have thought it would have shown a very welcome intent on their part to accept this amendment, in the sure and certain knowledge, as they say, of the rosy days which are coming. The fish farmers will then have something when these rosy days arrive.

I did not like the tenor of my noble friend's last remarks, when he said that the Government would not act any more quickly if this amendment were passed than if it were not. That seemed to me to smack a bit of sour grapes, but I am sure that that was not what he was hinting at. These would be purely enabling powers, to put the industry on a par with capital grants for agriculture. It is something that has been promised by successive Governments since 1978. With all the goodwill in the world, the Government may think that as soon as their White Papers have been discussed they can get the legislation through. But with my very moderate experience of parliamentary procedure, I know that Governments do not always find it easy to get their legislation through quickly. This seems to me an ideal opportunity and I very much support this amendment

I should like to support this amendment, while once more declaring an interest as I derive financial benefit from fish farming. I, too, am a little disappointed with my noble friend's answer. I am an English fish farmer—not a Scots or Welsh fish farmer—and no grants have come my way. It has always been my impression—and I say this carefully—that the industry has done extremely well in England through not having any grants. But there is no question of dishing out money to fish farmers. This is merely giving the Government the facility, at reasonably short notice, to provide grants outside Community instruments and so on. That seems to me to be the very greatest sense, and I back it up with only one point which I have made before.

The industry in this country is a very new one indeed; in fact, no one really knows what its needs are. So it seems only sensible to have this modest insurance, as the noble Lord, Lord Cledwyn, put it, so that should some need arise the Government could step in and provide aid. So as a fish farmer who is absolutely against any handouts, I should like to back this amendment, even though there is sometimes a little resentment against farmers in the Highlands and Islands who seem to come off better than we do in the South. But I feel that this amendment should be incorporated in this clause.

Like the two noble Lords who have spoken I, too, am disappointed with the Minister of State's reply. I thought that on this occasion he could have been more forthcoming because, contrary to what he has just said about appeals to fling around scarce resources, we are not, in fact, asking for any money for fish farmers at this time. What we are asking for is that in this legislation proper preparation should be made for the future. The noble Earl, Lord Mansfield, said that, if and when it is necessary, the Government will act swiftly. I am sure that his own personal intentions are good, because he expressed sympathy for the industry. But he knows, and the House knows, that when the time comes Governments cannot act swiftly on a matter of legislation.

Government legislation takes time to prepare and to draft. He knows that perfectly well. It has to go through all the paraphernalia at official level, at Cabinet Committee level and in the Cabinet itself, before it becomes legislation. In which gracious Speech, I wonder, will this Bill be mentioned? It will be many years ahead. My gloom about the future was increased when the Minister of State corrected me about the review, and said that it is not one consultative document which the Government are proposing to publish, but two. This strengthens our argument enormously. There will be one document for England and Wales and, quite properly, another document for Scotland, where the problems are different. The whole procedure involved in consideration, consultation and debates will go on and on, well into the future.

We are asking for something which is very small; we are not asking for anything great. We are asking for provision to be made for this small but important sector of British industry which will provide food for our people. There is nothing more important in the world today as it develops than the provision of food. Here is an opportunity for the Government to take a small but important step. I am sure that the Minister of State finds himself in difficulty. However, if he can say that between now and the Report stage he will reconsider the position I shall of course be prepared to withdraw the amendment. If he cannot do that, then I must ask the Committee to divide.

I must have been expressing myself very badly this afternoon. Even with my poor brain power I never felt that this amendment was designed to fling money about. What I said and what my noble friend, for one, obviously did not understand, was that in an era of scarce resources we have to have some system of priorities so that we can give aid—because that is what these capital grants are, no more and no less—from the taxpayer in the right proportions to the most deserving cases. If my noble friend were to cast his mind back to the Second Reading debate—and I have a suspicion that he would not be satisfied were I to do any less than accept the amendment and also give him a roneoed form on which he could claim his subsidy—he would remember that his main concern at that moment was whether aid would be forthcoming for those who were going to provide fish for sporting purposes as opposed to fish for eating.

It would be so easy for me to say to the noble Lord, Lord Cledwyn of Penrhos, "Yes, I will go away and think about this again "—

If my noble friend will read what I have said he will see that I did not say anything of the sort. I merely asked my noble friend how one could discern between the two. I was in no way asking that aid should be given to producers of fish for sporting purposes. I was trying to find out how one differentiated between the two when they were swimming around in the same tank. I certainly was not asking for aid, either for myself or for anyone else, to produce fish for sporting interests.

And if my noble friend wants to put up a massive shed at the side of a put-and-take pond and expects to receive public money for it, how is the matter to be resolved unless one goes into it fairly carefully? I was addressing myself to the noble Lord, Lord Cledwyn of Penrhos. It would be very easy for me to say, "Yes, we will go away and think about this ". Before the matter ever reached the other place it was considered. It was considered very carefully in Committee there, and it was considered again before the Report stage. So it has had a great deal of consideration. I fully accept the point which noble Lords make, particularly when in opposition—I did it myself from time to time—that Governments have good intentions but that somehow they get sublimated by their own priorities and lack of time. I can only point to the Government's record in this field: that we said what we were going to do over, for instance, matters which were legally quite difficult, such as the derating of fish farms, and did them expeditiously, in a way which commended itself to the industry. I personally do not like the coward's way out, of saying to the Committee that I will take it away and look at it when I know very well what Government policy is. It will only lead to the same debate, possibly with an inevitable Division on Report. That is a waste of the time of this House when it is in the middle of a very crowded Session. I have explained as best I can—

For the noble Lord to say that he will take it away and look at it is not the coward's way out. It is the path of future Prime Ministers.

I have no ideas above my station. I must, I am afraid, leave the Committee to take a decision on the matter, with this final thought. As Clause 31 is drafted, it is a perfectly adequate way to give expression to what the Government want to do in relation to this admittedly rather restricted community field. If this amendment were to be accepted, it would not provide a comprehensive, logical basis for capital grants upon which any Government could act, and it would wreck Clause 31 in so far as it relates to financial assistance from community sources. I repeat that the Government are extremely anxious to help fish farmers to the limit of their ability in proper cases. We do not yet know quite the best way of helping fish farmers, maybe, but we intend to find out as soon as we can. I can only ask the Committee to vote, if it has to, with its head and not with its heart.

moved Amendment No. 13:

Page 27, line 34, leave out from (" be ") to end of line 35, and insert (" desirable for the purpose of developing the fish farming industry in the United Kingdom.")

I think it is right that I should explain to the Committee—and this is the appropriate moment to do it—that we are considering the need for amendment to this clause and to Schedule 4, which is dependent on it. I should say that this is an England and Wales problem.

The clause is designed to provide exemptions for fish farmers from certain fisheries conservation legislation which is appropriate for the protection of wild fish but not appropriate for farmed fish. The principle of making such exemptions is generally accepted and we are not questioning the principle now. However, in the course of detailed consultations that we have had with bodies which have an interest in the matter, we have identified certain defects in the definitions of the exemptions from freshwater fisheries regulations, and we have concluded that the complexities of drafting the detailed exemptions are so considerable that it would be more appropriate to deal with the detail by subordinate procedures.

We intend, therefore, to recast the provisions as they affect freshwater legislation as an enabling power by which Ministers may authorise exemptions; in fact, we shall be following the general line of the arrangements which the clause already proposes in respect of exemptions from sea fishing legislation. I understand that in view of the difficulties posed by the present draft the bodies we are consulting are considering our new plans sympathetically.

I should have liked to be able to table the appropriate amendments in time for consideration in Committee, but the time-scale defeated us and it seemed prudent to complete the consultations with interested organisations and thereby ensure that the amendment that we submit to your Lordships will be properly thought out. I propose therefore to present a new text of the clause and the schedule in good time to enable the House to consider it fully at Report stage. With the renewed assurance that we intend no changes to the principles underlying the clause and that the amendment will be ready to be moved on Report, I hope that the Committee will agree that this clause shall stand part of the Bill.

moved Amendment No. 14:

moved Amendment No. 15:

Page 34, line 5, leave out (" 37 ") and insert (" 36 ").

moved Amendment No. 16:

My Lords, I beg to move that the Commons amendments be now considered.

My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 1 to 4. I hope the House will agree my taking Amendments Nos. 1 to 4 en bloc as they all concern the same subject. As my noble friend Lord Gowrie pointed out when the Bill was considered by your Lordships' House, it provides powers for the Government to require approved operating and maintenance instructions to be supplied with new heat generators. He said then—and I am sure the point was well taken by your Lordships—that the way an appliance is used and maintained has an important bearing on its efficiency. However, in its original form the Bill did not provide similar powers in relation to gas appliances. This reflected the fact that the EEC directive on heat generators specifically refers to such instructions while the draft gas appliances directive does not.

Since your Lordships considered the Bill it has become clear, as a result of continuing work in Brussels and of comments made both in Committee in another place and by the British Gas Corporation, that proper operating and maintenance instructions are as important for gas appliances as for heat generators. The Government therefore introduced this amendment which will allow approved operating and maintenance instructions to be required for new gas appliances as well as new heat generators. I am sure your Lordships will agree that these are sensible amendments and will give them your support.

My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 5. This is a relatively small amendment to Clause 16. Clause 16 deals with the question of charges for the use of water for power generation. That is it in the Bill at all is, of course, a tribute to the praiseworthy eloquence of my noble friend Lord Strathcona, supported, I understand—I do not think I was here on that occasion—by the noble Lord, Lord Strabolgi, and others, who first raised this important subject during the Committee stage of the Bill in this House.

This amendment was introduced because it was argued by representatives of the water power users that the previous wording of the clause might have carried the implication that any use of water as a source of energy was necessarily an abstraction within the meaning of the Water Resources Act 1963. The point here is that if a hydro-power user is "abstracting" water he has to obtain a licence from the water authority and pay charges. But if he is not abstracting water he does not need a licence and does not need to pay charges. The amendment was, as I say, strongly supported by representatives of the water power users and the Government were content to accept it. I hope your Lordships will therefore agree with the amendment.

My Lords, the noble Lord has given an account of what happened during the time the Bill was before this House. The noble Earl, Lord Gowrie, did move a Government amendment on Third Reading which we felt—and I said so at the time—was something, but did not go far enough. I ventured to express the hope then that the amendment would be further improved when the Bill came before another place. This has now happened, and I certainly welcome the amendment made by the other place which the noble Lord has put before the House today.

My Lords, I beg to move that this House doth agree with the Commons in their Amendments Nos. 6 to 8 en bloc. The Bill as previously considered in your Lordships' House contained an enabling power for the Secretary of State to exempt from trade descriptions law indications of performance, such as energy consumption, which a manufacturer might be required to put on an appliance in association with a type approval mark. The purpose of this provision was to ensure that manufacturers were not open to prosecution under the Trade Descriptions Act 1968 every time the performance of one of their appliances deviated "to a material degree" from the performance particulars.

The Government accepted in another place, however, that it was not necessary to exempt indications of performance entirely from trade descriptions law. The essential point is simply to ensure that a manufacturer is not open to prosecution where there is a reasonable deviation in the performance of one of his appliances. But where the deviation seems unreasonable then there is a case, in the interests of protecting consumers, for applying the provisions of the Trade Descriptions Act.

This amendment was therefore introduced so as to enable the Secretary of State to prescribe tolerances around the indications of performance which a manufacturer might be required to supply in association with a type approval mark. The manufacturer will be liable to prosecution for a breach of the Trade Descriptions Act only if the performance of an appliance falls outside these tolerances.