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

My Lords, as my right honourable friend the Minister of State for Overseas Development said in another place on 2nd November, a second, more detailed phase of the Sino-British talks on Hong Kong's future began in July and is continuing through diplomatic channels in Peking. The fifth session of this phase was held on 19th and 20th October. Both sides agreed it was useful and constructive. A further session is taking place today and on 15th November.

My Lords, while recognising the difficulty of Communist control of a capitalist economy, is not an agreement urgently necessary in view of the deterioration of the Hong Kong dollar, already causing higher prices and unemployment? Also, have not the Chinese said that they would impose their own plan if an agreement is not reached by September?

My Lords, we and the Chinese are agreed that the common aim must be to maintain Hong Kong's stability and prosperity, and both parties are therefore proceeding with that in mind. I think it would be unhelpful if I were to make additional comments, because we think that the negotiations are best conducted in confidence.

My Lords, can something be done to relieve the frustration among the people in Hong Kong—98 per cent. Chinese—because the talks are conducted by a non-elected Governor of a non-elected Legislative Council? Could not consultants be appointed to the talks to represent the Chinese community?

My Lords, I can assure the noble Lord that those who are representing the United Kingdom in these discussions are taking very fully into account the views of the people of Hong Kong.

My Lords, in view of the immediacy of the talks in Peking. would not my noble friend agree that this Question is somewhat inopportune?

My Lords, the tabling of Questions in your Lordships' House is not a matter for me.

My Lords, is it not important to recognise that to the Chinese sovereignty over Hong Kong is at least as vital and as undoubted as sovereignty over the Falklands is to Britain? Can the Minister say whether, on the British side, the negotiations are being conducted with that in mind and with that conceded?

My Lords, the principal aim, as I said just now, is for the negotiations to have regard to the prosperity and stability of Hong Kong. It would be unhelpful, I think, if either party went into these negotiations with any preconceived notions.

My Lords, is my noble friend entirely satisfied with the vigour with which the negotiators on behalf of Her Majesty's Government have put to the Chinese the point that the making of unilateral statements while negotiations are going on is generally extremely counter-productive?

My Lords. I can assure my noble friend that the Chinese are well aware of all our views in these matters.

My Lords, would the Minister not agree that it is ironic that democracy should be withheld in Hong Kong for fear of Chinese opposition, when the Chinese themselves are now suggesting that the administration should be selected in consultation with community organisations?

My Lords, as I said just now to the noble Lord, we fully take into account the views of the Hong Kong people in these matters. There is a certain parliamentary system in Hong Kong, but, of course, I recognise it is not of the same kind as ours.

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

No. my Lords. it would not be appropriate to amend the British Nationality Act in the way suggested.

My Lords, while of course many recipients of the order would not wish to live in this country, is it not very anomalous that those whom Her Majesty has delighted to honour in this particular way do not necessarily have the right to enter or to live in this country which has honoured them?

My Lords, membership of the order would not be an acceptable criterion for the automatic grant of citizenship because that would be contrary to the scheme provided by the British Nationality Act 1981.

My Lords, will the noble Baroness not agree that it really is high time that there was a general review of the British Nationality Act as so many important amendments are needed to correct situations which have arisen, and since the Act has resulted in so much doubt, injustice and hardship to so many people?

Nonsense!

No, my Lords, I do not think this would be appropriate. Neither do I think that one should give thistles to Members of the Order of the Thistle nor baths to Members of the Order of the Bath.

My Lords, is not membership of the Order of the British Empire a compliment which Her Majesty pays to some people who have no real connection with this country but who have performed services which the people of this country have admired?

My Lords, my noble friend is absolutely right.

My Lords, may I ask my noble friend to comment, following her reply to the noble Baroness, Lady Birk, with regard to a review of the British Nationality Act, whether in due course she would have the Government look at the matter of charges—which I understand are now amounting to a large profit—for those people applying for nationality? While I would not be asking her to abolish those charges, may I ask her to look at this matter with a view to not increasing them in the years ahead until they have become uneconomic?

My Lords, while I have listened to my noble friend with interest, I submit that that is another question.

My Lords, will the noble Baroness agree—I am sure she will not—that the whole of the British Nationality Act is very misconceived indeed, in that it refuses British nationality to those who are obviously of British descent simply on the grounds that they happen not to have been born on British soil?

My Lords, that also is another question.

My Lords, since the noble Baroness agrees that the people of this country have admired those who have received this order, would it not be fitting that the people of this country should also offer them hospitality when they need it?

My Lords, hospitality is in the eye of the beholder.

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

My Lords, we understand that the Soviet state border for their airspace is the line established by the Soviet Law on the Border of the USSR of 24th November 1982.

However, the Soviet authorities are still engaged in defining their claims in the sea area to the north of the Soviet Union and, in answer to recent inquiries, were able to tell us only that they would publish the results of this work when it has been completed. We shall continue to seek this information.

My Lords, are the Government aware that since I tabled this Question, which was itself a follow-up to an earlier Question in May, I have had a helpful letter from the noble Lord's colleague, Mr. Whitney, saying that whereas earlier the Soviet Government refused to disclose anything about these maritime zones to us or to any other Government, they have now formally told our embassy in Moscow that they are working out base lines around their territorial waters, which would of course generate airspace zones above? Will the Government inform the Soviet Union that we expect these base lines to be fully in accordance with international law—that is to say, that they will not enclose bays of more than 24 nautical miles across; and also will they inform them that we will not recognise any so-called historic seas on their Arctic coast, except the White Sea?

My Lords, I think we would prefer to comment on these proposals when we see them, rather than some way in advance. But I can assure the noble Lord that we shall have his concerns very much in mind when we do receive them.

My Lords, will the Minister accept the importance of this Question in respect of having internationally agreed definitions of airspace and also procedures? Will he also accept that it is essential to have agreed procedures to deal with violations in a safe manner? Will he recall the horror that gripped the world in respect of the incident referred to in the Question, lest in future such incidents have nuclear dimensions?

My Lords, I certainly accept the general importance of this matter, although it is perhaps worth saying that the number of flights that operate in the region which is of concern to the noble Lord is very few indeed.

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

My Lords, the Board of Crown Agents have submitted proposals for substantial reorganisation following their loss of the investment management of the Government of Brunei's funds. These proposals are under urgent consideration and I hope that a decision will be reached shortly.

My Lords, I thank the noble Lord for his reply. Will he hear in mind that the Crown Agents not only provide a greatly appreciated service for many countries in the third world, but provide invaluable orders for British exporters to the tune of well over £100 million a year? Secondly, and in particular, is he aware of the special services which the Crown Agents offer to small firms in Britain which cannot themselves undertake the promotional task, especially in distant and smaller markets?

My Lords, I can certainly confirm that these are just the sort of factors that the Government will wish to take into account in reaching a decision on this matter. But, of course, some of the arguments apply the other way as well.

My Lords, is my noble friend aware that the Crown Agents are trustees for the payment of pensions from the Central African pension fund? Is he further aware that they administer the payment of pensions to 50,000 colonial pensioners and that they carry this out with great efficiency, in spite of the tremendous difficulties which they have encountered?

My Lords, my noble friend is quite right in saying that the Crown Agents administer payment of a large number of overseas pensions of various kinds on behalf both of the ODA and, indeed, of certain overseas authorities. I can assure my noble friend that satisfactory arrangements will be made for handling these pensions if the Crown Agents cease to exist.

My Lords, is it not the case that the House has not yet debated or discussed the report of the inquiry which was presided over by Mr. Justice Croom-Johnson into the various problems that arose in regard to the Crown Agents? If we have not yet debated it, is it not about time that we did so?

My Lords, the noble and learned Lord is right to say that we have not yet debated that report. No doubt an arrangement can be made through the usual channels, if that is thought appropriate.

My Lords, is the noble Lord aware that the last sentence that he used in answer to the question before last seems to be a very sombre warning that the Crown Agents may cease to exist? Is he aware that many of the projects undertaken by the Crown Agents provide opportunities for British firms and personnel to undertake consultancies, which are paid for not out of British funds but from funds from the World Bank. the European Development Fund and similar international agencies? Is there not a danger that, unless the Crown Agents are maintained at their present level, those consultancies bringing rewards to British firms may be lost?

My Lords, as I said in answer to an earlier question, that is just the sort of consideration that the Government will wish to take into account in reaching a decision on this matter. No final decision has yet been taken and I am certain that the House will want to take an opportunity to hear it when it is made.

My Lords, in the noble Lord's answer to my noble and learned friend, did I understand him to say—or, if he did not, would he now say—that no decision will finally be taken without there being an opportunity for the House to discuss this extremely important question?

My Lords. I do not believe I gave any assurance of that kind. In any event, it would not be a matter for me. I was referring, in answer to the noble and learned Lord, to his question as to whether we had had a discussion on an earlier report.

My Lords, is my noble friend the Minister aware that until a Question was tabled in your Lordships' House for answer no attention appears to have been paid by any body to Mr. Justice Croom-Johnson's report?

My Lords. I can assure my noble friend that although your Lordships have not yet seen fit to discuss it the Government have been considering it.

My Lords, at a convenient moment after 3.30 this afternoon my noble friend Lord Trefgarne will, with the leave of the House, repeat Statements which are to be made in another place on the European Community Special Council of Ministers 9th to 11th November, and intermediate-range nuclear forces.

My Lords, I beg to move that this Bill be now read a second time. This is a very short Bill—it contains one operative clause only—but it is an important Bill, all the same. Its purpose is to increase British Shipbuilders' statutory borrowing limit to £1,000 million, with provision to increase the limit further to £1,200 million. The limit was originally set at £200 million in the Aircraft and Shipbuilding Industries Act 1977. It has since been raised by two Acts of Parliament and by statutory instrument, with the approval of another place, to £800 million. This Bill makes provision for a new limit of £ 1.000 million and for the limit to be raised further to a maximum of £ 1,200 million, in steps of up to £100 million each, subject to affirmative resolution in another place.

The finance affected by these limits is almost entirely public dividend capital provided by the Government. but finance for the modernisation of the submarine facilities at Vickers yard at Barrow will be partly in the form of loans from the National Loans Fund. Other finance provided to British Shipbuilders in the form of intervention fund support for ship prices is not covered by these limits, nor is expenditure on the shipbuilding redundancy payments scheme.

The Bill reflects the extent of this Government's support for the industry, In the form of the kind of finance covered by this Bill and other elements of direct support—the intervention fund and the shipbuilding redundancy payments scheme—British Shipbuilders has received £851 million since we came into office in 1979. Most of this has gone to merchant shipbuilding. Raising limits indicates our current commitment to the industry, but that commitment is neither unconditional nor open-ended. It must depend on the industry's performance.

British Shipbuilders have had an unfortunate history in recent years. They now have a new chairman, Mr. Graham Day, who took up office on 1st September. One of his most urgent tasks was to produce a new corporate plan. This he has done, and the plan is now being considered by my right honourable friend the Secretary of State for Trade and Industry. We shall need to look at future policy for the industry in the light of that plan. I commend the Bill to the House.

My Lords, the House will be grateful to the noble Lord for having introduced this Bill, to which of course we on this side of the House would like to give our support. The problem of financing the shipbuilding industry is not, as one might sometimes be driven to think, one which is peculiar to the United Kingdom. Just to give an example, during the last three weeks one has observed that the French Government have loaned some £89.2 million to the French shipbuilding yards for a like purpose.

The House will be familiar, but perhaps ought to recall, that the shipbuilding industry not only in this country but in other Western shipbuilding nations has been in the doldrums since the mid-1970s. Indeed, the noble Lord was kind enough to point out that the original powers of lending were given under the Act of 1977, which was a nationalisation as distinct from a privatisation Act that was introduced at that time to secure the future of the shipbuilding industry.

We are common ground—I do not believe the noble Lord would dispute it—that had not those yards been brought into national ownership at that time (I speak completely aside from the warship building side) the British shipbuilding industry would have been in a very parlous position indeed. In fact, as everybody knew at that time and as I am quite sure the noble Lord knows, had the Government had not done so, most of the companies concerned would have had to apply for massive Government aid on an individual company level as distinct from taking a view of the industry as a whole. It is perhaps interesting to note that at this time it is not only the shipbuilding industry which requires further aid. I see that Rolls-Royce, whose nationalisation was carried out under the auspices of the party opposite, has applied this week for a £113 million loan in order to further its activities.

The noble Lord was kind enough to say that the new advance which has been given was not unconditional—that there were certain stipulations attached to it in regard to productivity and a whole series of questions, although he did not mention them specifically, relating to the improvement of efficiency in the industry as a whole and possibly as regards many firms in particular. I do not believe any of your Lordships would dispute the necessity for that. There is no point at this time—nor, do I think, has there been any point at any time—in providing completely open-ended aid without some degree of commitment from both the management and operatives concerned in any particular industry. Therefore. I regard that not—on the face of it, at any rate—as being any kind of threat but as a normal requirement which it is prudent for any Government to make.

However, there can be no doubt, although not particularly in the context of the noble Lord's short speech this afternoon, that the Government really expect the British shipbuilding industry—aside from the warship section to which I shall return—to be competitive at all levels; not merely with Europe but also with the Far East, with Japan, with Korea, and with some of the newly-industrialised countries.

Your Lordships will be aware that I have taken issue with the Government on this point. I indicated that at the time when the shipbuilding contract on behalf of the Central Electricity Generating Board went to a Korean firm, and I now return to it because the industry is not merely entitled to the support of the Government, subject to all prudent safeguards, in order to ensure that we have a continuing shipbuilding interest in this country and continued shipbuilding potential—but also the shipbuilding industry is entitled to all legitimate (and I use the term advisedly) protection against dumping.

This is not only the problem of the United Kingdom. If your Lordships will bear with me, I should like to give some examples. There was a feature article in the Financial Times of 17th October, written by its Asia editor, in which he discussed this problem in regard to Korea. He wrote:

"Industries, such as shipbuilding, car manufacturing and heavy machinery, which had become inefficient and, in many cases, would have been virtually insolvent without indiscriminate financial support from successive governments whose only objective was growth at any cost".

He was referring specifically to the industries of South Korea. Nor was he alone, because the Germans themselves have already made identical complaints in precisely the same direction. For example, Herr Henner Meckel, who is managing director of Bremer Vulcan in West Germany said that other companies involved in the shipbuilding supply and equipment chain would suffer if the industry collapsed. The Koreans were not expanding their shipbuilding activities just for commercial reasons, he said, but for a strategic industrial purpose and also at a depressed time for the industry.

I should just like to observe that the complaints I made at the time about unfair competition—dumping competition—from Korea were also shared in other countries—notably Germany. We find exactly the same situation in respect of the firm of Burmeister and Wain of Copenhagen—a very well known shipbuilder who, as recently as 12th October this year, were reported as saying, in referring to Korean yards that hourly wage costs are at least twice as high in Denmark as they are in Korea:

"If we are going to be able to sell our ships, we have to be able to show that we have got a better product".

So it is not only myself—and not only Britain—who is making this complaint about dumping by Korea.

Since the question of the CEGB order going to Korea was raised—and if I may remind the House, the Prime Minister refused to intervene in that matter—the first question that I have to ask the noble Lord is this: when Her Majesty's Government are talking about competitiveness, do they still mean that the shipbuilding industry of this country is required to compete against dumping of the kind that I have mentioned? The second question I have to ask the Government is: what plans have they for the future of the industry? After all, some 62,000 people are still employed in the industry; most of the sites are located in either development areas or special development areas; and there are managers also who have bound up their lives in the shipbuilding industry in connection with the shipbuilding and ship repairing industry. Those people ought to have some future to which they may look forward, and I would have thought it reasonable for them to be given some perspective.

The noble Lord has said already that he has received the corporate plan of British Shipbuilders and we should like to know from him when he proposes to let us have the Government's views on that corporate plan, as and when they have assimilated it. To what extent is it to be properly financed? What further finance will be required? How much of that finance will be required for investment, and so on? It is very important that we know the answers to these questions so that there can be some kind of perspective in an industry which has been—and will continue to be—so vital to the interests of the country as a whole.

The noble Lord has not touched upon the matter this afternoon; but in another place the Minister there seemed rather to indicate that the future of the shipbuilding industry in this country was all up to the workers. We know perfectly well that over the past 18 months or so there has been considerable unrest in the shipbuilding yards. This has to some extent been due to the quite massive reduction in the labour force that has taken place. It has declined by something like 31 per cent. I believe that nobody would wish to absolve the workers in the industry of a certain degree of responsibility—in fact, a considerable degree of responsibility—for the way in which the industry develops. But it is very often necessary—particularly when disputes arise in this extremely vulnerable industry—to bear in mind that the ship workers, who are by no means overpaid, have had a wages freeze effectively for the past 18 months.

There are very few industries in the United Kingdom, none of the professions, and certainly very few of what one might call the directoral grade of people, where there has been a wages freeze for the past 18 months, even at a time when the rate of inflation has been slightly declining. Therefore, it is up to everyone connected with the industry and to the politicians—including ourselves—who make observations on the general conduct of industry to bear that point in mind. They should take into consideration also that despite the very real fears which the operative has in the shipbuilding industry, there have been very significant advances in the period over the past 18 months to two years in terms of productivity and in terms of breaking down some of the old demarcation lines within the industry which were themselves the product of fear. I do not think that they should be denied that.

One of the most interesting experiments that has been carried out in the shipbuilding industry recently has been the arrangement that Swan Hunter have recently concluded with a Japanese firm to advise them on management. This is the last quotation with which I will weary your Lordships, but I think it is rather salutary to take into account what they have found. It will perhaps make us a little less censorious of some of the workforce in British Shipbuilders, most of whom live in distressed areas and most of whom, even with overtime, earn only a fraction of what many of us are able to earn or to receive by way of our weekly, monthly or annual remuneration. This is what they said—and your Lordships will recall that it was reported in the Sunday Times on 6th November—comparing our practices here with the practices in Japan:

"But above all the Japanese, who have observed that senior management are rarely visible in the yard, have noticed a lack of communication at all levels. 'There are many tall fences, barriers between departments'.".

Then the writer goes on to offer the observation:

"The roots of Japan's success lie in better management, more efficient use of employees' time and the refining of production systems like heat line bending of steel plates—a technique which Swan Hunter abandoned in the complacent days of full order books in favour of less accurate quicker means of pushing work forward to the next stage".

The summation of the opinion is:

"Poor control, created by inadequate organisation and leadership, reflects the failure of shipyard management, which has recently been reshuffled at Swan Hunter".

It is not my purpose to knock management, just as I hope it is not your Lordships' wish, on whatever side of the House, to knock the workers. The problem is both sides. If the loan facilities granted under this Bill are to be used properly, are to be used to aid the shipbuilding industry to what I hope is a recovery of some success, it will be the function of management not to lead by inculcating fear into the operatives, not to try and rule by brandishing the fear of unemployment, but simply to bring the best out in people. This, indeed, of course, is the function of all true leadership, as anyone who has had any experience in manufacturing or service industry knows full well. Those who try to rule by fear and by threats ultimately end up by being the recipients of hate.

The Government have a similar responsibility. I hope that they will take this Bill as a first step in doing exactly the same themselves—trying to lead (and it is a very difficult task) not by fear but by bringing the best out in people. One of the ways in which they can do this is to show the industry, both management and operatives, that when the shipbuilding industry is in need of legitimate protection against dumping then our Government, like the Governments of other countries, will not hesitate to protect them. This need not be a pillow on which they can cushion themselves: but it gives them a feeling of oneness, a feeling that they are not alone in their battle against adversity. They do not need to have, and will resent having, their noses continuously rubbed in it. With these sentiments in mind I commend this Bill to the House, and I hope that at any rate some of the considerations I have ventured to lay before your Lordships will receive at any rate sympathetic consideration.

My Lords, I should like to thank the noble Lord the Minister on two counts. The first is for allowing me to intervene, albeit very briefly, although my name is not on the list in accordance with the usual practice. Secondly, I should also like to join with the noble Lord, Lord Bruce of Donington, in thanking the Minister for his concise and short speech in introducing this Bill.

I should like to follow the noble Lord, Lord Bruce of Donington, on two points. First of all, would it be appropriate for the Minister at this stage to give the House any indication about the future plans that the department or the Government have in regard to the future of the industry? It is known, of course, that these loans are conditional, and in connection with the word "conditional" the word "efficiency" is introduced—a rather general term. I wondered whether the noble Lord would find it appropriate at this stage to say something about the kind of efficiency that the Government require under these conditions. Would it be that the workforce is to be maintained or increased, and will there be any incentives given to the workforce in regard to innovation?

My second point—and I fully realise that this is a somewhat technical point of which I should have given notice, so may I again apologise to the Minister—is that it has been brought to my notice that one of the difficulties which shipbuilders in this country, and indeed in many countries of the EEC, are experiencing at the present time arises from the competition laws of the EEC under Articles 85 and 86 of the Rome Treaty, in particular. The noble Lord, Lord Bruce of Donington, raised the question of difficulties in regard to competition arising from dumping, but I am referring to another aspect of the effect upon shipbuilders when they enter into contracts which may not conform, or in respect of which, at any rate, it takes a long time to find out whether they conform, with the competition laws of the EEC.

May I also, in conclusion, join with the noble Lord, Lord Bruce of Donington, in saying that I hope this is a first step that the Government are taking in regard to the recovery of the British shipbuilding industry.

My Lords, I an grateful to the noble Lord, Lord Bruce of Donington, and the noble Lord, Lord Lloyd of Kilgerran, for their general support of the Bill. The purpose of the Bill is limited, of course, to providing the money necessary (if I may be forgiven for using the phrase) to keep British Shipbuilders afloat. Perhaps the most appropriate time to be discussing the future of the industry and its future shape will be when Mr. Graham Day has completed work on the corporate plan and my right honourable friend the Secretary of State for Trade and Industry has considered it and come to a conclusion as to the future policy to be followed.

There are one or two points raised by both noble Lords that I should like to follow up very briefly. I entirely agree, of course, that the problem is not confined to the United Kingdom, that the whole of the shipbuilding industry throughout the world, and in Europe in particular, is going through a very difficult period indeed. But none of this ought to blind us to what are our own deficiencies. The simple truth is that in many of the yards operated by British Shipbuilders productivity is actually lower than it was before nationalisation, despite the very heavy investment that there has been; and in many other yards it is no better than it was at the time of nationalisation. It also compares unfavourably with productivity in many European yards. That point is important because the tendency is for people to talk in terms of competition from Korea or Japan. Competition from the European yards is just as important and I suggest to the noble Lord, Lord Bruce of Donington, who specifically raised the question of Burmeister and Wain, that he should look at its productivity because despite its complaints about Korea he will find that it is significantly higher than that of British Shipbuilders.

I realise that wage levels in Korea are lower than in the United Kingdom, although they are not as low as most people suggest; but it is relevant to refer your Lordships to what Mr. Day himself said about competition from Korea. He said that if farm boys in Korea can learn the modern techniques of making ships competitively, why cannot our people, with decades of shipbuilding experience behind them? That is the sort of challenge we need to face.

I do not want to go through a long list of unfortunate events which have occurred in British shipbuilding during the past few years because I prefer, as indeed do both noble Lords, to look to the future rather than the past, but we have lost a lot of orders through circumstances which, frankly, were entirely within our own control. It is no good blaming the Koreans if we have strikes in this country or if orders are running very late indeed. The question of the oil rig for Britoil has been raised on a good many occasions. I hope in the end that that contract can he salvaged. It is not a very happy story from the point of view of performance of our own shipbuilding industry. However, I prefer at present to leave it on that basis.

There is, in fact, considerable subsidisation of shipbuilding prices throughout the whole of the European Community. There is an intervention fund which at present provides a subsidy of 15 per cent. on price and we told the Commission that we regard the current rules governing shipbuilding aid as unrealistic in the present market. We accept that there is a need for our industry and that of Europe to restructure, but that the restructuring must be planned and orders must be obtained to keep our best yards going and to provide the breathing space they need to improve their competitiveness. We have, therefore, proposed that the intensity of the intervention fund—that is, the percentage by which we subsidise virtually all merchant shipping orders—should be increased from its present level of 15 per cent. We have argued that the amount of money available must also be increased. It would be wrong to hold out hopes of instant solution and instant agreement in Brussels, but we are pressing very hard on this point.

If your Lordships agree, I will leave matters there and as soon as my right honourable friend has completed his review of the future of the industry we shall clearly be in a position to discuss the situation against a background of knowledge of the specific plans that British Shipbuilders itself and the Government have in mind. Meantime, I am sure that all of us wish Mr. Graham Day every success in his efforts to improve the efficiency and performance of British Shipbuilders.

My Lords, I beg to move that the Travel Concessions for the Unemployed Bill, to permit an extension to be made in assisting the unemployed when seeking gainful work, be now read a second time. It would be inconsiderate of me if I took up a great deal of your Lordships' time, particularly as this Bill was debated eight months ago and then delayed. However, I believe I have a responsibility to adumbrate some of the fundamentals in the Bill and also to lament, I hope on behalf of us all, that unfortunately there has not been any sizeable reduction in the number of our fellow Britons who are out of work since the last time I sought to have the approval of the House in moving that the Bill be read a second time.

I thought of this yesterday when, as vice-president of the Greenford branch of the Royal British Legion, I was laying my wreath, and then afterwards talking to many of the chaps from different regiments in the Army, or who had been in the Navy or the Royal Air Force, and were regretting the fact that they had now been out of work for six or seven months and sometimes as much as a year. They had never believed that the time would come when, just as they are getting to the awkward age of 60, they would be flung onto the scrap heap. While no one argued that they had been deliberately flung onto the scrap heap, naturally they had become a little impatient.

We must understand that it is not simply a question of being without a job; it is also the economic factors that play on the nerves and the emotions of the man who is out of work and his family. What hurt me was to hear some of the things said yesterday, on that great day, and to wonder whether they were said at Westminster, at the Cenotaph, or in the thousands of other remembrance services held throughout the country. There is the other extreme of seeing young cadets, marching proudly to honour those who gave their lives in two world wars for this nation, some of whom are unemployed. That cannot be a good thing.

I want the House to realise just a few important features. First, the cost of looking for work has become more expensive since the last time this Bill was debated, but there has been no corresponding increase in unemployment benefit. The unemployed are naturally asking, "Are we now in the new army?" At one time it was said that the Burma army was the forgotten army, but is the forgotten army of the British nation now the army of the unemployed? This afternoon we have a wonderful opportunity to say, "You are not forgotten". Are the Government going to tell me, as they did eight months ago, that if this Bill is enacted it will cost the country another £90 million a year? That is roughly £20 per unemployed per person a month, and one is not going to travel very far in Great Britain in a month for that amount. That is how the men and women of this awkward age, and the young people, look at it. This matter is viewed by both the CBI and the TUC with grave concern.

I must once more point out that the whole idea of these travel concessions for the unemployed was the result of concern expressed by Manchester City Council, which instructed its transport executive to see whether it could work out a scheme whereby the unemployed could be assisted. That, roughly, is the essential reason why the Bill was introduced, although it can affect so many.

I have to make this point. I have taken legal advice and I am told that in no way does the Bill say this. This relates to the same thing as the Transport Act. It may be that we shall not get the full co-operation immediately of all local authorities. We can make very certain of this at the Committee stage. It was submitted in argument against this Bill that there exist among the unemployed a number of cheats who will use the Bill, for example, to travel from Scotland to London to see an international football or rugby match or to see relatives in different parts of the country. That argument is in the previous Second Reading debate. It is suggested that they would abuse the concession. That would be impossible.

The quintessential point of the Manchester City scheme was this, and I endorse it thoroughly. If the Bill became law no unemployed person would get a concession of one halfpenny until he had sought employment. He would have to take a pro forma with him. The CBI pointed out that there is support for this. The prospective employer would have to sign to say, for example, that the person had come from Hammersmith in West London to the London docks in East London and that it had cost £4. He would have to certify that the person had done that. The person could then make application to recover some if not all of that fare. What is wrong with that?

There are attitudes to this Bill similar to those propounded by the massive ignoramuses inside and outside Parliament when the legislation on the National Health Service was introduced. It was argued that there would be floods of all sorts of medicaments. As we all know, a person cannot get one aspirin on the National Health Service unless a doctor signs for it on the prescription record. Will all the employers cheat and connive with the unemployed? That argument is not worthy of being entertained. The prospective employer will be a witness that the job was advertised and that a number of people came to be interviewed. He might even regret that he could not give them all work. He might say that he had difficulty in making the ultimate selection but that these people did apply. Let us not make it an offence to seek gainful employment. Let us not prohibit it by making it too expensive to seek gainful employment.

This Bill is particularly relevant in our great connurbations. Lots of former dockers live in Fulham, Hammersmith and even Greenford. Many of them know only that great trade and skill. There might from time to time be pro tem employment. There may be a rush to the dock. It may interest your Lordships to know that to travel on public transport from Hammersmith, Fulham or Greenford to our great dock areas will make a big dent in £6. To do that two or three times a week would make a massive hole in a man's unemployment benefit, unless he happened to be on special supplementary benefit—and I do not think that we intend that should happen.

The former Secretary of State for Employment, Mr. Tebbit, asked everyone to get on their bikes to look for a job. That may be a very good idea, but I do not believe for one moment that his father cycled 40 miles there and 40 miles back looking for a job every day of the week. The idea is to get out to look for work. I do not suppose a person would mind looking round most parts of Manchester or of many other big cities, but to look for work in Glasgow or Clydeside a man could walk nearly 100 miles in a day. To look for work in our capital city—in Greater London—he could walk or bicycle 100 miles a day if he could not afford the Underground or the bus. That applies to Glasgow, Sunderland, Swansea, London and even in Manchester. I hope that that point will be seriously considered.

From reading the previous debate and from conversations, I can readily understand that there are genuine apprehensions in the breasts of many who would like to support the measure. I am equally convinced that they can be overcome in Committee. This happens in practically every Bill. From my not inconsiderable experience long before I came into the other place of examining in detail parliamentary Bills, particularly if I thought that they affected Fulham Borough Council or any other council, I know that is so. Later in the other place I examined Bills and watched the changes in Committee. Many of them were for the good. I believe that that argument still applies. Many of the apprehensions could be overcome in Committee.

I also acknowledge that there might be genuine criticisms of the unemployed. I do not think that they are meant in a mean manner. There are arguments in local newspapers. There are about 20 to 25 local newspapers in London alone; and the same may be argued about Glasgow, South Wales or the Midlands. There are a number of job vacancies. But there may be a chap living at one extreme point of London and looking for a job that might suit him. He might like to try for it but he cannot afford the expense of travelling. He might have been out twice that week and already spent £15. This Bill would assist him. The employers argue that it would be an additional aid to make the unemployed more mobile. The employers and the unions say that we cannot tell people that they have no right to look for work beyond the immediate vicinity of their home.

I commend the Bill to the House. I hope that the House will support the Bill on behalf of the unemployed to show them that we acknowledge their endeavours to find employment. Despite the large number of unemployed, the case is advanced by employers that there are a number of vacancies which people do not want, perhaps because they cannot afford to travel or wonder whether it is worth it. The cost of the Bill is trivial when one considers what mass unemployment is costing this country. It is not unlikely that we could recoup the cost of this little Bill in 12 months with all the extra jobs being filled. The measure is supported by the unemployed, by the professions and by the trade union movement. It has the wholehearted support of the CBI and the chambers of commerce. Everyone who has anything to do with commerce and industry thinks that it is a good idea. All I ask, my Lords, is that, given that all those sectors of British commerce and industry believe it is a good thing, I hope that your Lordships will as well and will give this little Bill a Second Reading.

My Lords, with your Lordships' permission, I should now like to intervene to repeat a Statement that is being made by my right honourable friend the Foreign and Commonwealth Secretary in the other place. The Statement is as follows:

"I attended the Special Council in Athens on 9th to 11th November, accompanied by my right honourable friend the Minister of Agriculture and my honourable friend the Economic Secretary to the Treasury.

"This was the sixth meeting of the Special Council set up by the European Heads of Government to carry forward the work agreed upon in Stuttgart in June. The Special Councils have concentrated on three main topics: measures to ensure greater budgetary discipline and effective control of agricultural and other Community expenditure; measures to ensure more equitable sharing of the burden of financing the Community budget: and the establishment and implementation of new Community policies.

"As honourable members know, Community spending is now up against its revenue ceiling. A number of member states are pressing for an immediate increase in own resources. My right honourable friend the Prime Minister made clear at Stuttgart, and I stated again at Athens last week, that we would be prepared to consider this provided that two very important conditions are met: first, that agreement is reached on an effective control of the rate of increase of agricultural and other expenditure; and second, that it is accompanied by an arrangement to ensure a fair sharing of the financial burden.

"As far as the first condition is concerned, there is agreement within the Community that the present rate of growth of expenditure on the common agricultural policy cannot be allowed to continue. Early in the negotiation we put forward a proposal for a strict financial guideline which, as part of the Community's budgetary procedure, would ensure that agricultural spending was rigorously controlled. Some of our partners are not yet willing to go nearly far enough to secure effective control of such expenditure, but others are now pressing as strongly as we are for an effective mechanism across the board. Even those who have so far resisted a legally binding guideline, such as the Commission themselves, have tightened up their proposals considerably in response to our ideas.

"At an equally early stage we tabled a proposal for a safety net which would limit a member state's contribution to the budget in accordance with its relative prosperity and its ability to pay, and so meet our second condition. Here, too, a number of other proposals have been tabled, including the ill-advised ideas put forward by the Commission last week, which sought to reduce the problem by redefining it in a wholly arbitrary way. Other proposals also fail to measure adequately the true budget burden borne by the United Kingdom. But some of them represent significant movement towards our thinking about the essential elements of an agreement on the budgetary arrangements.

"I again emphasised in Athens last week that, if there is to be agreement at the Athens European Council in December, our two conditions must be met.

"Last week's Special Council also took forward discussion of the future development of the Community in other fields. Here, too, we have tabled important proposals for the council's consideration.

"The Special Council will meet again in Brussels on 28th November. It is generally agreed that decisions will only be taken at the European Council on 4th to 6th December and that individual questions will only be resolved as part of an overall agreement."

My Lords, that concludes the Statement.

My Lords, the House will be grateful to the noble Lord for having repeated the Statement made in another place. We should like to assure the Government of our complete support of the rejection of what the Government politely describe as a "wholly arbitrary" method of determining the United Kingdom contribution to the European budget. It is quite clear, as Commissioner Tugendhat has made out, that there is not even the remotest justification for the Commission's plan to whittle away in mathematical terms the financial deficit which this country still incurs by virtue of its membership of the Community; and we hope that the Government will not in any way waver in their complete rejection of the plan that has been put forward by the Commission.

I was a little worried by the conditions contained in the Statement for the Government agreeing to the raise in the Community's own resources. Among others, I have warned Her Majesty's Government over the last four years of the undoubted fact that the 1 per cent. VAT limit on the Community budget would soon be passed due to the yearly increase in agricultural expenditure. The Government have been warned about this repeatedly.

I gather from the Statement that the Government are prepared to consider an extension of the Community's own resources on the basis of the rate of growth of agriculture expenditure being brought under control, or under stricter control. That is not the position of the Government that they have put forward to the country every time there has been an annual price review. I remember the Government having stated on at least three occasions that they would resist any price increase on items of agriculture in structural surplus. Every year there has been the brave statement that they are going to resist increases. Yet every year the Minister of Agriculture has come back with a new triumph—that the rate of increase has been contained within 4 or 7 per cent. I should much prefer it, and we on this side of the House should much prefer it, if the Government stuck to their guns and said that agricultural expenditure must be contained within its present levels. Many methods are available for this to be done. The Government can transfer expenditure from the guarantee section of the fund to another section of the fund which is concerned with providing more direct aid to farmers; and I hope that we may have an assurance from the Government on that point.

As regards the other matters that are to be raised at the next summit, I should like to express the hope that after a period of eight years and five separate assurances given by the Government on the subject, some positive decision may at last emerge on the proposal that British insurance companies, other than those dealing with life assurance, should be allowed to function on the Continent. This question has now been under discussion for some time, and it would be refreshing if at last the insurance community received some redress in this matter, which is fundamental to the free provision of services in the EEC.

My Lords, this is an interim report and we are very glad to see that it does in fact report signs of movement towards our point of view in these important matters—and about time too, given that it is the report of the sixth of only seven meetings that are to be held by the Special Council before the Athens summit itself. Now that the Prime Minister and the British Government have begun to treat the United States Administration as one group of friendly adults in charge of a modern nation state should treat another, would it not be very fitting to make use of the Athens summit to begin to use a corresponding (if I may say so) change of tone there? The only favourable result which can emerge from the Athens summit will be the highest common denominator of what is insisted upon by all the member states. It cannot be anything else, and we cannot forever conceal this fact from ourselves by using the language of exasperated crusaders. Will the Government agree that the Athens summit provides an opportunity for the other half of the beneficial change in emphasis in foreign affairs which was inaugurated by the Government a couple of weeks ago?

My Lords, I am grateful to both noble Lords for their response to the Statement. The noble Lord, Lord Bruce of Donington, thought that he apprehended some change in our approach to the revision of the budgetary arrangements generally. I can assure the noble Lord that that is not so. We have consistently argued, as the noble Lord knows, for thoroughgoing reform of the common agricultural policy which we are certain will bring in its train at least a containment and perhaps a reduction of the amount of money spent in that particular area.

The essence of the problem of the common agricultural policy—is it not?—is the difficulty in its continuing to subsidise the production of various things which are already in surplus and of which we subsequently have great difficulty in disposing. But there are certain other spending policies within the Community that perhaps do not deserve the same critical scrutiny as the common agricultural policy. We would certainly be willing to contemplate an appropriate growth in those areas. That was the meaning of the words repeated in the Statement.

The noble Lord, Lord Bruce, also asked me about the progress of various directives relating to the operation of insurance companies. I am sorry to tell him that I do not have immediate information about them. It was not, I think, one of the subjects discussed at the recent meeting. I shall find out what I can and write to the noble Lord.

The noble Lord, Lord Kennet, asked me about the prospects for the Athens summit. Of course, this Statement only foreshadows certain items at the Brussels summit. I would not want to be dragged, at this stage, into discussion of what other matters might be raised at the Athens summit but the matter of political co-operation within Europe, which has given us so much more of an effective voice in the councils of the world, will doubtless be discussed at Athens in December.

My Lords, I share, of course, the moving and eloquent concern of the noble Lord, Lord Molloy, for the unemployed, and the mounting cost of the search for work. But this Bill is ill-fated. It is open to objection in principle. It is unworkable in practice. This is not only because it imposes an unreasonable burden of administration on local authorities generally, even if acceptable in Manchester, but also because it is fraught with confusion. For the tacking process to Section 138 of the Act confuses the concept of grant with that of concession; the status of unemployment with that of the elderly, blind and disabled; and the limited purposes of a grant to travel in search of a job with the general purpose of unlimited travel.

Surely, it is difficult to envisage how such objections in principle could dissolve at Committee stage. There is an MSC grant available to those unemployed in receipt of supplementary benefit to enable them to travel in search of a job. If this was to be extended to those in receipt of ordinary benefit, surely the point of principle which the noble Lord, Lord Molloy, contends, could be met, because, adverting carefully to his speech at the point where he dealt with the "hole in the pocket" observations, it seemed to me that that might have been the main gravamen of his complaint arid, if not. that this might go some way to meet his sincere and genuine concern.

One would assume that since 11th March my noble friend the Minister may have considered this suggestion and has no doubt received some advice as to the extra cost involved both in terms of the extended grant and in terms of the extra costs of administration. It would surely be most interesting to hear, when my noble friend the Minister replies, if he has any proposals in this regard—proposals that, in the event, might well tend to render, in due course, further consideration of this Bill unnecessary. In conclusion, I am grateful to the noble Lord, Lord Molloy, for affording your Lordships' House yet another occasion when this important question of this MSC grant may be raised and discussed.

My Lords, I hope that you will forgive me if I intervene again to repeat a Statement made by my right honourable friend the Secretary of State for Defence in the other place about cruise missile deliveries. The Statement is as follows:

"With permission, Mr. Speaker, I should like to make a Statement about preparation for the operational deployment of cruise missiles in the United Kingdom.

"On 31st October, this House reaffirmed by a majority of 144 its support for the NATO 1979 twin track decision on intermediate range nuclear forces, its backing for the West's efforts to achieve a balanced and verifiable agreement at the Geneva negotiations, and confirmed that in the absence of agreement on the zero option, cruise missiles must be operationally deployed in the United Kingdom at the end of 1983.

"In the course of that debate, I indicated that the initial supporting equipment for the first flight of cruise missiles had been arriving at RAF Greenham Common for some time, that further equipment, including the transporter-erector-launchers, would be arriving shortly, and that I would make a further Statement when the missiles arrived in this country. In honouring that commitment, I should inform the House that, earlier today, the first cruise missiles were delivered by air to RAF Greenham Common.

"The delivery of the missiles is wholly consistent with the Alliance decision to achieve an initial operational capability by the end of 1983 in the absence of agreement on the zero option. Much work remains to be done, including the final assembly and testing of equipments and personnel training, before the missiles are operational.

"I wish to emphasise that these continuing preparations for operational deployment do not in any way lessen NATO's commitment to negotiations or reduce the desire of the Alliance to reach agreement on arms control with the Soviet Union. The NATO deployment is planned to be completed over a five-year period; it can be halted, modified or revised at any time if results in Geneva warrant it.

"But the fact remains that since the 1979 decision the Soviet Union has almost trebled—from 126 to 360—the number of SS.20 missiles it has deployed. Even since the debate on 31st October we assess that another nine missiles are operationally deployed, compared with the figures I gave the House on that occasion.

"In contrast. I would remind the House that last month NATO Defence Ministers agreed to the most radical reduction in the number of nuclear warheads deployed in Europe that has ever taken place. The effect of this decision will be to reduce the number of NATO nuclear warheads in Europe to their lowest level in 20 years, even if full deployment of Pershing II and cruise missiles takes place. The number of these warheads will be reduced by one third from their December 1979 level, and the number of warheads for shorter-range systems will be reduced by one half.

"The Government hope that the Soviet Union will now respond positively to the radical proposals put forward by NATO for arms control. That is our foremost hope. But let me make it clear that this Government will remain resolute in their commitment to take those steps which are essential for the defence of this country and our allies."

My Lords, that is the Statement.

My Lords, the House will be grateful to the Minister for reading this very important Statement to the House. We are grateful also to the Secretary of State. I understand that he has travelled some distance in order to come to Parliament to make this Statement at rather short notice. Perhaps the Minister would comment on that. In view of the fact that the Secretary of State is keeping his promise to inform Parliament of the deployment of missiles, does this not suggest that he had very little knowledge of when the missiles were actually coming to this country? If that is so, then surely the state of consultation between the United States and ourselves is something which could be vastly improved? Does the Minister not agree that, even when a Minister is acting possibly as a type of messenger from the United States, he should have good notice before he delivers such messages to Parliament?

As the missiles are mobile, will Parliament be informed of any proposals to move them to other sites throughout Britain? Will the Minister say what those sites are? Is he aware that over 90 per cent. of people of all parties want dual control? Will he heed such overwhelming views even at this late stage? The Minister says that the preparations for operational deployment do not in any way lessen NATO's commitment to negotiation. Does he really expect the Soviets to continue negotiations when such action is already being taken by Her Majesty's Government in consultation with the United States well before the end of the year which we understood was the deadline if the Geneva talks failed? While reductions of warheads are welcomed, is it not the fact that the nuclear capability will be all the greater in view of the very advanced technical superiority of the weapons with which we are now concerned?

In the light of the Korean airliner incident, to which reference was made in Question Time today, can the Minister say what safeguards there are as regards adequate consultation between allies and between NATO and the Soviets? Finally, the House will be looking forward to tomorrow when we may debate these matters so vital to our future in greater detail.

My Lords. I thank the noble Lord for repeating the Statement. Is he aware that his Statement quotes as a reason for deployment the failure of the Soviet Union to accept the zero option? But was this not the original demand of the United States when the negotiations began two years ago? Is that not proof that any changing of the offer by the United States since has been purely cosmetic? Can the noble Lord give any precedent in international negotiations for a country stating its requirements and its first negotiating position, and negotiating or pretending to negotiate for two years, then restating the original demand at the end of the negotiations?

Is the Minister aware that many of those who, unlike the Labour Party, supported the twin-track decision, deplore the passive acceptance by the British Government of this hard-line American negotiating position? Now that the Soviet Union has scaled down to 140 the number of SS20s which it would deploy against Europe, is the Minister aware that the gap between the two sides, in terms of warheads, is less than 3 per cent. of the total warhead stockpile of the two sides? Will the Government therefore now inform the United States that before actual deployment takes place they will be looking for a decisive shift in the American negotiating position at Geneva and also that they will, in any case, under no circumstances support the deployment without agreement that Britain shall share the physical control of the missiles?

My Lords, I am grateful to both noble Lords for their response. The noble Lord, Lord Bishopston, asked me first of all about consultation. I can assure the noble Lord that the British Government have been in the closest consultation with the United States over all the matters referred to in the Statement, and the type of insinuation that was contained in the noble Lord's supplementary question was quite without foundation. As for the question of training deployments, these have yet to be decided upon in detail. I am afraid that I cannot give the noble Lord the assurance that each and every one will be notified to your Lordships or to the other place beforehand, but the plans, as I say, are presently in formulation.

The question of dual control or dual key is a matter which your Lordships will be debating tomorrow evening, and I hope therefore that your Lordships will forgive me if I am not dragged into that discussion at this time. The question of arms control negotiation was raised by both the noble Lord, Lord Bishopston, and the noble Lord, Lord Mayhew. Your Lordships may have temporarily forgotten quite what proposals the West has been making in recent months in these particular areas. In the INF talks, for example, the West, in the form of the United States, made the zero option proposal which would of course eliminate the whole of this class of nuclear weapon. That offer is still on the table but, if that is too radical for the Soviet Union, then we are certainly prepared to agree a genuine balance at as low a level as the Soviet Union will accept. Indeed, President Reagan recently announced further flexibility in the United States' negotiating position specifically geared to take account of expressed Soviet concerns. There have been other Western proposals in some of the other disarmament fora recently, generally all with an equally dismal response from the Soviet Union.

The noble Lord, Lord Mayhew, also referred to the balance of nuclear forces in Europe and he said that he thought that the balance was about 3 per cent. or so. But the noble Lord seems to have forgotten, if I may say so, that we are now facing some 360 SS20 missiles, as was said in the Statement, while we on the Western side have none of these intermediate range weapons at all. That is the cause of the present deployment.

My Lords, is the noble Lord aware that, while it is the policy of the Labour Party that cruise missiles should not come here at all, it would, since they are apparently arriving, be appropriate for us to concentrate on the question of operational deployment? In those circumstances will he bear in mind, before he comes to consider this question—and I gather that it will he some time before the question is finally decided—the view expressed in national opinion polls by the British people, including apparently 96 per cent. of Conservative Party voters, that physical operational control at the point of delivery should rest in British hands or at least in shared hands? In those circumstances, is the noble Minister in a position to give us a particular assurance on this point, recognising the strength of opinion, on an all-party basis, on this question?

My Lords, I certainly recognise that there is more than one view about the point that the noble Lord is making to me. The Government have made their position very clear on this matter and I have no doubt that the noble Lord will make his position equally clear when we come to discuss this matter tomorrow evening.

My Lords, is my noble friend aware that from both Front Benches opposite there has been no request, no demand and no coercion as regards the USSR to make any gesture at all in reducing the threat from 360 three-headed SS20s which have been deployed over the last five years? Is it not sad that in this House we have reached a state of affairs which one would doubt existed in the Liberal/SDP Alliance? Will we not get a more robust attitude from David Owen in another place and not have this abject surrender, which means that all efforts must be made by this country and by their NATO allies to reduce our armaments, rather than putting the pressure on the USSR, where the pressure should be put?

My Lords, the noble Lord is quite right. Of course it is the policy of this Government to pursue multilateral balanced and verifiable disarmament proposals, and that is what is happening in the various fora.

My Lords, the noble Lord talks about the dismal responses of the Soviet Union. Would he not agree that there have been endeavours (as we understand from the reading of what one might describe as "the more responsible press") by the Soviet Union to try to get together to talk about these matters? Will he bear that in mind? We cannot, on the one hand, as we have heard a moment ago, ignore the massive advantage that the Soviet Union has in nuclear weapons, in tanks and all types of weapons—they have this massive advantage and they are being recalcitrant. On the other hand, many of us think that they want to talk about it. If they were being really logical, they would start now before the Americans and the United Kingdom can catch up. So let us be sensible in trying to initiate talks with them.

My Lords, as I have said, we are having talks with the Soviet Union in the various disarmament fora that are presently in being. There are the INF talks, the START talks, and the MBFR talks in Vienna concerned with conventional weapons; there are the general disarmament talks taking place in Geneva, which at the present time are particularly concerned with chemical weapons. The United Kingdom is playing an important role in the forthcoming conference on disarmament in Europe. Therefore, talks are going on. We are now looking for a positive response from the USSR.

My Lords, will the Government and noble Lords opposite accept that the Alliance is, indeed, most anxious and insistent for Soviet reductions in intermediate range missiles, but that the Alliance has also noticed that the Soviet Union has offered to make such reductions and that the United States has also offered to make reductions in its deployments? Will the Government not agree that the time to discuss the operational deployment of the cruise missiles is not yet, but when we know the final position of the two sides at the Geneva negotiations, which is not yet known and may not be known for weeks? Will the Government also note that we here agree with what the noble Lord has just said, that the time to discuss dual key is tomorrow night? In the meantime can the noble Lord the Minister of State comment on a recent report in an American magazine—a normally reliable one—to the effect that there exists a joint Anglo-American operational plan to lay down the conditions under which both British and United States troops at Greenham Common would open fire upon people who might approach the perimeter fence? I hope it is as obvious to the Government as it is to me that this cannot possibly be true. Can the Government please set the mind of the House at rest on that?

My Lords, I have not seen the report to which the noble Lord refers, and I know of no such plan.

My Lords, I know that this is a hypothetical question, but let us suppose that the negotiations on intermediate weapons continue in Geneva—and we all hope that they will—and let us suppose that during these negotiations the Russians come forward with a further offer (apparently they have already offered to reduce their weapons to 130 or 140) to reduce them to, say, 100. In order to facilitate these negotiations, would the Government contemplate halting the importation of cruise missiles, reserving their right, however, to resume the importation if, after all, the negotiations fail?

My Lords, the West will certainly be willing to consider any proposals put forward by the Soviets at the INF talks at Geneva which could lead to a settlement on this matter. However, the difficulty which faces us at the present time is that the Soviets have an overwhelming superiority in this type of weapon. Indeed, as I mentioned earlier, they have 360 rockets, which, as my noble friend Lord Orr-Ewing reminded us, each have three warheads, while at the same time we have absolutely none of these land-based intermediate range weapons. So any proposal which the Soviets may make by way of a reduction in the numbers which they are prepared to contemplate will have to be considered by us in that context.

My Lords, in view of the comments by the noble Lord, Lord Orr-Ewing, which allege that Members on these Benches are not anxious that the Soviets should also proceed towards disarmament, may I ask whether the Minister recalls that I asked him whether he expects the Soviet Union to continue negotiations when the Government have taken the action that they have? The promise earlier in the year was that if the talks fail after Christmas, then deployment will take place. Apparently talks are still taking place, and deployment is proceeding. That surely will torpedo the possibility of success of these important talks, which are vital to both sides.

My Lords, I very much hope that the Soviets will not withdraw from the present talks in the light of today's events or of any other news. After all, the United States has remained at the table in Geneva despite the continued deployment of SS20s by the Soviet Union throughout that time.

My Lords, the noble Lord talks about the overwhelming superiority of the Soviet forces. Will the noble Lord tell us what is the difference to a recipient whether he is hit by a land-launched or a sea-launched missile?

My Lords, I agree that if you are sitting underneath it the difference is not very great, if any. But the distinction is the question of deployment. These SS20 missiles are a wholly new element in the nuclear equation, and that is why we had to make the response that we did.

My Lords, in order that there should be an accurate record in Hansard—and I do not wish to appear niggling—could the noble Lord confirm what he originally said in repeating the Statement, or perhaps he could revise it? I have reason to believe that in another place his right honourable friend said that the NATO deployment can be "halted, modified or reversed". The noble Lord the Minister said that it could be "revised". There is a considerable difference between "reversed" and "revised", and I wonder whether he would be good enough to confirm which is the correct version?

My Lords, I am grateful to the noble Lord for asking that question. If I said "revised" I was mistaken; the correct words are, of course, "halted, modified or reversed".

My Lords, is there no chance of the United Kingdom being represented at these talks instead of being represented by the United States, allies though they may be, in view of the fact that the Labour Party has sent its former leader, Mr. Foot, and also Mr. Healey and Mr. Callaghan to the Soviet Union to talk on these matters? We are often told that if we have these weapons, we have a right to put our legs under the table, but in this case Britain is not represented.

My Lords, it is indeed the case that we are not represented at the INF talks; but then, of course, we were not the progenitor of these weapons so it would not he appropriate.

My Lords, after that interesting excursion perhaps I can draw you back to the subject of travel concessions for the unemployed. First, I should like to apologise to the noble Lord, Lord Campbell of Alloway, for being absent from the Chamber during the first few minutes of his speech. I made the mistake of thinking that the two Statements would run one after the other.

Let me start by thanking the noble Lord, Lord Molloy, for his persistence in this matter. This is the third occasion in the last eight months on which this area has come before your Lordships for debate—first, on an amendment by the noble Lord, Lord Underhill, and the last occasion when a Bill in the name of the noble Lord, Lord Molloy, was before us. Therefore, it will come as no surprise to your Lordships to realise that we on these Benches are prepared to give general support to this Bill. I gave that support to the noble Lord, Lord Underhill, on his amendment; and, in an interesting and I thought moving speech, my noble friend Lord Lloyd of Kilgerran gave support to the Bill when it was last before your Lordships' House. In view of that I do not propose to detain your Lordships for more than a few minutes.

Basically there is a problem here. I think we all recognise that there is a problem, and support for that view comes from all sides of the House. The question is how we should tackle it. In my view, the problem comes in two parts: first, the question of people seeking work, where the present arrangements are not satisfactory. I think that the noble Lord, Lord Campbell of Alloway, hinted that he would like to see some modifications, though not necessarily in this form. I do not think that they are satisfactory because it is very difficult to be fast enough off the ball, if you like, when various bureaucratic processes have got to be gone through.

There is no doubt that people trying to get work have to do a great deal of scouring through the market before they find a job. It is not just a question of going for one interview or making one train or bus journey. The people who get the jobs are those who are up early in the morning and moving about the whole area as fast as they can to try to find work wherever it exists. It is for that reason that a more general system of allowing people travel concessions than is allowed under the present arrangements is necessary.

I would not want to underrate the need for social mobility. Again the noble Lord, Lord Underhill, referred to this in his speech on the Transport Bill amendment. The feeling of being isolated from the community because you simply have not got the money to be able to use the local buses, however low fares may be in certain parts of the country, is a serious problem. It is a deep, psychological problem which adds to the burdens which the unemployed already have.

It may be that the Government will feel that this Bill is too open-ended in that general direction. I am sure that the noble Lord, Lord Campbell of Alloway, would feel that. However, again, something must be done to try to assist the unemployed in what is a serious area of feeling locked into their own front rooms, not able to go out, not able to take advantage of those services, recreational or otherwise, which may be free once you can get to them. It is for that reason that I feel that this Bill moves in the right direction.

It may well have need of modification. For instance, the reference to the YOP people should probably be extended now to the YTS, because the proportion of people on the YTS compared with that on the YOP is now much higher. It may be that the Government may be able to come up with some sort of constraints which do not undermine the principle that we are all trying to achieve but which at the same time make it perhaps less expensive to the Exchequer while achieving the same objective.

On the question of the £90 million, it is a substantial sum of money. I question whether that figure is absolutely accurate, although I do not in any way doubt that the noble Lord, Lord Lucas, is being absolutely sincere when he puts it forward. I wonder how that costing has been made. Is it the total cost of the travel, or is it a contribution to the fixed cost, or is it some variable cost of the travel which is involved'? If the Government could come up with some other mechanism for achieving this necessary principle to help the lot of the unemployed, both in their social life and, much more particularly, in their ability to rove about the areas in which they live in order to seek those rare moments when a job is available to them in which their skills fit a particular specification, then the Government should this afternoon come forward with some alternative proposal if they are not prepared to accept the Bill as it stands.

My Lords, I am delighted that my noble friend Lord Molloy has again brought this proposal forward. As the noble Lord, Lord Tordoff, said, we have had this before your Lordships on three occasions. When I proposed amendments dealing with this principle at the Committee and Report stages of the Transport Bill, emphasis was laid on the fact that the Transport Bill was not the correct vehicle for such a proposal, even though we went on to discuss certain aspects of it. My noble friend's Bill for the same purpose was not thrown out on principle in March this year. The amendment that it be read six months hence was carried, if I remember correctly, by a majority of 15 votes on a Friday afternoon. I hope that we may have a different result today, and I am delighted to learn from the noble Lord, Lord Tordoff, that he and his colleagues will give the Bill their support.

When we debated the Bill on the last occasion emphasis was laid by Ministers—and the noble Lord, Lord Campbell of Alloway, has repeated this today—on the DHSS and the MSC schemes of assistance to persons to travel to obtain work. There are conditions attached to those two schemes. I am not going to go into them again today except to say that included in the conditions is that a person has to be unemployed and in receipt of supplementary benefit, and there are large numbers of unemployed who are not in receipt of supplementary benefit. They are debarred. Emphasis was laid on the fact that there is assistance for travelling for training schemes. Again—and here the point made by the noble Lord, Lord Tordoff, arises, that we may have to ensure that the new scheme will be covered—it was emphasised that reimbursement is after the first £4 per week. Therefore, under the schemes referred to in March the unemployed have to bear the first £4 each week themselves for training. Anybody who has been out of work and on the benefit scheme will realise what a burden that can be. Many will find it hard to meet that sum.

I want to emphasise, as I did on the previous occasions, what the noble Lord. Lord Tordoff, has said: that while assistance to travel to work, and assistance for training schemes are important, the question of help for unemployed persons to live a proper social life is equally important when we are considering my noble friend's Bill. Some of the arguments put forward the last time were that it was not appropriate to link such a scheme with the elderly, the blind and the disabled. Why not? We were told that it was not appropriate; we were not told why.

We were told that other sections of the community are also in need. This is a time-honoured procedure to stop doing one thing by saying that many other people are in as equally bad a situation. We were told that not all local authorities had made use of the provisions of the 1968 Act. So what? If some authorities are progressive and humane enough to want to apply Section 138 of the 1968 Act, good. We want to give local authorities provision to go a bit further.

Then we were asked whether subsidy was the best way of helping those out of work. We were never told another way of helping them so that they could lead a full and proper social life. This is one way in which the fortunate members of the community who are in work can give assistance. Then the noble Lord, Lord Lucas, speaking for the Government, said on 11th March, at col. 452:

"The principal objection to this Bill"—

note that—

"is that it would have very considerable consequences for public expenditure".

"The principal objection", my Lords. If we can get over that one, then we can possibly get the Bill approved.

First, we are not talking about assistance from the Government. If there has to be any revenue support, it will be the local authority deciding to raise this from its rates in order to ensure that the majority of its people help the minority who are out of work. My noble friend referred to the Greater Manchester scheme. I understand that they wanted to have the scheme used in off-peak hours, and the cost to the Passenger Transport Executive would have been very low indeed. What Manchester wanted to ensure was that if they went ahead with such a scheme they could not be challenged on the grounds of illegality. My noble friend's Bill would put that right.

The social needs of the unemployed are vital. Help for them to visit friends and relatives is vital. We all know of cases in conurbations where the parents are situated near the town centre and the younger families have moved out, and we know the cost of travel. If anybody does not believe that, come to where I live, Buckhurst Hill, the first district over the Greater London boundary, and work out what it costs you to visit friends in Southwark. It is not far off £3. When that is multiplied to provide for husband and wife, and so on, it is a big burden to meet.

The social aspect is very important. There are various establishments, boating and leisure, which are arranging special facilities for the unemployed so that they can get admission at a low figure. You can even come to my GLC public golf course and, as an unemployed man, play there Monday to Friday for 55p; but you have to get there. If you look at the map and see where Hainault Forest is, you will realise the problem of getting there. The cost of travelling is very important.

We have to avoid the tendency today of there being two nations. We have heard about this before. That is, those who are in work and those who are out of work. The number of those who have been out of work for 12 months or more is round about the half million mark, and these are the people finding it difficult to meet travelling costs to lead a normal, decent life. I hope that we shall not have a repeat—and I do not think the noble Lord the Minister will repeat it—of the reference made last time about the unemployed travelling on long journeys. My noble friend referred to this. Under Section 138 of the 1968 Act, to which we refer, any concessionary fares apply only in the area of the local authority which makes the decision. Therefore, that point is absolutely clear. The other point is that it is not mandatory, any more than the present Section 138 provisions are mandatory. It is permissive, depending upon whether a local authority wishes to apply it.

Thirdly, a local authority may lay down its own conditions if it wishes. My noble friend's Bill proposes to extend the facilities for the elderly, the blind and the disabled to the unemployed. I can see no reason whatever why the Government should not give this support. If the Government do not give support and my noble friend decides to press the matter to a vote, I hope that not only my noble friends on these Benches but noble Lords throughout the House will support this measure as one way whereby those of us who are in a better situation can help the unemployed, not only to travel to work and training schemes but to travel also to live a decent life, which all of us want.

Every noble Lord knows the considerable benefits that attract great appreciation from the elderly—many noble Lords in this House use the concession to the elderly. Not only the concessions to the elderly, but the concessions to the blind and the disabled also are well appreciated. I assure your Lordships that, whatever one says about the Greater London scheme, the fact that the elderly in the Greater London area can move and travel around has transformed many of their lives. We want to ensure that it also covers the unemployed as well.

My Lords, it is clear again this afternoon in this debate that there is one thing that unites all sides of the House and that is our real concern for the problems which are created by unemployment. The Government are concerned with these problems also, but particularly with the problem of unemployment itself. We now seriously consider that there are grounds for believing that the underlying unemployment trend has been reversed. If I say that, I hope that no Member of your Lordships' House will accuse me of complacency about the difficulties facing those who are unemployed.

The noble Lord, Lord Molloy, has argued that this Bill represents a way of easing life for those who continue to be without work. We are familiar with the issues that he and other noble Lords have raised. As has been mentioned we have discussed these on three previous occasions this year—on 3rd March. 11th March and on 21st March. Indeed, the noble Lord, Lord Underhill, was quite right when he said that on the last occasion the Bill then before your Lordships' House was defeated by 15 votes.

The proposal we are considering this afternoon is important and I do not complain at all because we are considering it again.

My Lords, if the noble Lord will forgive me, he is not quite accurate in saying that the Bill was defeated. It was put back this day six months on an amendment by the noble Lord, Lord Nugent of Guildford. That is for the record, my Lords.

My Lords, I am obliged to the noble Lord, Lord Tordoff. He is quite right. It was an amendment to defer the Bill that was carried which set the Bill back. That was carried by 15 votes.

I mean no disrespect at all to the noble Lord, Lord Molloy, nor to others who have spoken this afternoon when I say that I do not think that any of the arguments we have heard today are radically different from those put forward on the three previous occasions. Indeed, it would be fair at the outset to say to your Lordships that I do not expect to make any radically different arguments myself in response. I should merely like to do what other noble Lords have done; to remind your Lordships why the Government's views have not changed.

It is the Government's firm conviction that the only basis for improved long-term prospects in employment lie in a soundly-based economy. I shall not dwell long on the larger questions of economic policy, which I was accused of doing once before, but I want to remind your Lordships that one of the central features of the Government's policy is the crucial importance of first containing and reversing the steady growth in the size of the public sector and public expenditure. We believe strongly in the need to consider the impact on the ratepayer and the taxpayer of financing public expenditure. From that perspective we could not accept that there is sufficient justification on transport grounds to increase expenditure in the way this Bill would provide.

The effect of the Bill would be to add registered unemployed persons and people working under the youth training scheme to the groups for whom local authorities have power to provide concessionary fares under Section 138 of the Transport Act 1968. These powers, as we have been reminded, are at present very strictly limited to people over pensionable age, to the blind, and to people suffering from any disability or injury which in the view of the local authority seriously impairs their ability to walk. It seems clear that these categories were intended to relate at least as much to physical handicap and frailty as to social disadvantage.

If these categories were now to be extended, then the question would immediately arise as to why one group should be covered but not another. It would be unrealistic if I did not suppose that immediately the mentally handicapped or single-parent families, for example, might have a valid claim. Might not low wage earners have grounds for complaint if the unemployed enjoyed concessions while they had no similar assistance with the cost of regular travel to work? I invite your Lordships to ponder this question: are we not at risk of contributing to a financial unemployment trap? I do not think it is an easy question. It was proposed during the passage of the 1983 Act in another place that the powers should be extended to cover people in receipt of family income supplement, children, students, people without access to cars and their dependants. At that time, as now, we would find it very difficult to know where to draw the line.

Even if concessions were to be limited to the unemployed, as the noble Lord, Lord Molloy, proposes, the consequences for public expenditure would be considerable, and I believe quite unacceptable, since that expenditure would fall upon the ratepayer and the taxpayer.

My Lords, if the noble Lord will allow me, will he give me one example of where there is another source, other than ratepayers and taxpayers, for Her Majesty's Treasury to get its finance from?

My Lords, the other source to which I am referring is the fare box. I am talking about transport costs. Already £800 million is spent in ratepayer-taxpayer money to support subsidy in local authority transport. The amount which the noble Lord suggests might be trivial, we estimate, with not too great an area of accuracy, within Greater London and the metropolitan counties, to be at least one-third of £100 million in lost fare revenue if this scheme were brought into use.

My Lords, is that figure based on assuming that all the unemployed travel at the moment and therefore pay fares, when with a concessionary scheme they would not be paying fares, or is it merely a hunch? Because many of the unemployed do not travel at the moment.

My Lords, it is certainly not a hunch. It is an estimate based on certain figures that are available to us. But if the noble Lord's implied question is, "Have we carried out a survey?", the answer is, No.

I was going on to say that I cannot believe that such an expenditure directed to one particular group of the population could be justified. I do not think that the present extravagant use by the metropolitan authorities of their subsidy powers does very much to encourage us to move further in that direction. Perhaps I might just remind the noble Lords, Lord Molloy and Lord Underhill, that Manchester already spends some £50 million a year on subsidising public transport. They could, if they wished, under provisions of the 1968 Act, embark upon a discount scheme, if they could prove it would not be loss-making and attract further support or if they were totally satisfied that they would not he challenged on this.

It might help my noble friend Lord Campbell if I said just a few words about the Manpower Services Commission's job search scheme, because in 1982–83 the Manpower Services Commission spent £115,000 on this scheme, eligibility for which is that the claimant must be unemployed or threatened with redundancy; he must be attending a definite job interview beyond his normal daily travelling distance; the prospective employer must confirm a good chance of success in the job application and there must be no expenses contribution available from the prospective employer. So there is an area in which help is given in terms of job search.

My Lords, will my noble friend forgive me? If my noble friend is leaving this subject, will he perhaps write to me on the two questions that I asked him? First, what would it cost to extend this scheme to the ordinary benefit? I think that would be sufficient.

My Lords, I was just about to leave that subject but I will give my noble friend the assurance that I will look very carefully at what he asked earlier and I will see that he gets a proper response.

The Bill also refers to people working under the youth opportunities programme. This has in fact now largely been superseded by the youth training scheme as the noble Lord, Lord Tordoff, mentioned. Trainees on all courses sponsored by the MSC already qualify for repayment of any costs in excess of £4 a week incurred in travelling to work. My noble friend Lord Campbell and the noble Lord, Lord Underhill, will want to know that the chairman of the MSC has now put proposals to my right honourable friend the Secretary of State for Employment for a reduction of up to £1.50 in the initial amount which trainees are expected to find from their own pockets before qualifying for the refund. I understand that these proposals are receiving careful consideration. So I think it would be unfair were any noble Lord to suggest that that which we have discussed, as I say, on three previous occasions goes completely unnoticed by honourable and right honourable friends in another place.

Like other noble Lords, I do not wish to repeat all that has been said previously. Let me say finally that the Government fully understand the sympathy felt for this Bill by many noble Lords on all sides of the House. I have tried to set out the main reasons why the Government have not changed their own view. May I remind your Lordships that views consistent with those I have put forward this afternoon were endorsed by the House in March this year, after three separate debates. I would not think it necessary to demonstrate these again in the Division Lobby.

My Lords, I think there might be something indicative in the fact that, while this House was discussing one aspect of grave concern, worry and irritation to millions—not tens of thousands, not hundreds of thousands, but millions—of British families who know what it is to have to endure months and months of' the breadwinner being on the dole, the debate was interrupted because of our concern that we are paying much too much money to the EC and particularly to the agricultural fund. If we could get a tenth of that back next week I am sure the Government would accept this Bill. Then there was that other massive, great big issue of a foreign country having the right to install massive missiles which will destroy in one strike millions of human beings.

I do not know whether there is a message there, but I believe it ought to give us some concern. I should like to say, if I may, to the noble Lord, Lord Campbell of Alloway, that I always listen very carefully to what he says because he has the capacity sometimes to make me amend my previous thinking. Therefore, I always listen very carefully to him. However, I regret that in this instance he called to his aid, as did the Minister, to defeat the unemployed, the sick and the old. There is a massive piece of courage if ever there was one! With regard to the MSC, of course, it is very helpful to those who are not merely unemployed but even worse off than the average unemployed, and that is why they have to be helped a little more—not out of any generosity, not out of any Christian kindness, but because it could possibly be a terrible embarrassment for other people to witness what is going on in this country. I do beg your Lordships—I do not want to see that situation and I do not believe for one moment that the massive funds we have spoken about are going to be the cost of this endeavour.

It is perfectly true, as was said so explicitly by the noble Lord, Lord Tordoff, that there are problems. I am not suggesting for one moment that this Bill is perfect in every respect. As the noble Lord, Lord Tordoff, has said, there are problems and, if I may paraphrase what he said, I believe we may have to hack our way through the bureaucratic objections which are raised by clever civil servants, aiding Ministers. Perhaps we might give them the sack, put them on the dole for a couple of weeks and let them see what it is like to realise: "My God, we can't pay the mortgage".

I believe we have to realise that when the unemployed get their dole money they immediately give it away for food, for clothes, for rent and rates; and may I say to the noble Minister that before they were unemployed a majority were taxpayers as well. What this Government have done is to lose millions of taxpayers and then they have the audacity to say that we cannot help the unemployed that we have created and from whom we get no more taxes. We are not going to help them any more because it would hurt the taxpayers. If they were all in work there would not be so much for the taxpayers to pay out. That should be taken into consideration.

I should like to express my appreciation and thanks to the noble Lord, Lord Tordoff, and to the noble Lord, Lord Campbell of Alloway, for their contributions. I think that in particular Lord Tordoff's contribution was realistic as well as sympathetic. He said what I was trying to say; I cannot prove beyond all peradventure that this is a perfect scheme but at least it is worthy of some experiment. My noble friend Lord Underhill quite rightly pointed out that all the unemployed are not on supplementary benefit. I am grateful to him for his contribution and for so realistically supporting me as to the distances that people have got to travel and, as I said in opening, as to what it costs for people simply to go and look for a job.

There are some people who say that among the unemployed are folk who will not even travel to look for work. But all that this Bill says is that they must do the travelling first and they must have the interview. If they are successful, they will not want to claim anything. If they are unsuccessful, they will be able to ask for something to help them in trying to get a job. If they fail, they cannot afford to lose what it has cost them to try to get off the unemployment register. Will this House say tonight, "We are not prepared to say that you should try to get yourself employed"?—because a vote against the Bill is as good as saying that, and I shall take it to the country. That is fair warning.

I say to the noble Lord, Lord Lucas, that there is nothing that brings more merriment to the Government Front Bench than saying that you are going to do something dramatic on behalf of Great Britain's unemployed. I say this again to the Front Bench opposite. If any noble Lords want, at any time or at any place outside, to debate this with me, just let me know. All I ask them to do is to supply the chairman. They need to give themselves a boost. That is fair enough.

Let that go on the record loud and clear and I hope that we shall get some response, because I am getting a little tired of hearing how concerned everybody is. We are all concerned. The Chamber is full of the blood of people who are cut to ribbons, because of what is happening to the unemployed. But if I want to give them a hand over the stile, I am told, "Nothing doing: it is too expensive".

I say to Members on the Benches opposite, as well as on the Cross-Benches and elsewhere, that if what I am proposing is a failure it will be demonstrated as a failure within months and it can be stopped. I am asking noble Lords for support not for myself, but on behalf of the unemployed. If we can get the Bill to Committee, we can then see the real nitty gritty of the objections and how they may be overcome. That might take some time, but at least the unemployed would know that so far as this Chamber was concerned they were not forgotten. The very fact that the Bill has gone into Committee and can be changed radically will tell them that they are not forgotten. It may well have economic advantages for the nation. I believe that this attempt to do something and sending the Bill into Committee will give encouragement, and will lift up the hearts of those of our fellow countrymen who are unemployed and improve their morale. That is the least we can do, and we ought to do it tonight.

rose to move, That this House takes note of the report of the European Communities Committee on The Polluter Pays Principle (10th Report, 1982–83, H.L. 131).

My Lords, I should first like to thank the noble Lord, Lord Ashby, for initiating this debate on the report of the European Communities Committee on The Polluter Pays Principle, and for his lucid explanation. It is an excellent report—something the noble Lord was too modest to say, being himself a member of the committee. The committee obviously encountered a great many difficulties, to which the noble Lord has pointed, in getting answers to some very difficult questions. One of the great values of this report is that it is the only report, and the first report in the Community, to study the subject so thoroughly. I am quite sure that the report will be considered as a source of guidance to the Community and will be very much welcomed by the Commission in Brussels.

The report draws our attention to some very important issues, as the noble Lord has pointed out, which concern not only our present quality of life but also that of future generations. We have a collective responsibility to ensure that the environment in which we live is both preserved and improved for those who will have to bear the consequences of our present decisions on environmental policy. That is an integral part of our own quality of life. We can no longer treat the environment as though it were capable of infinitely absorbing waste materials and other unwanted substances. The report concludes:

"It should no longer be assumed by industry that free use of the environment as a sink should be permitted as a right".

I was delighted that the noble Lord, Lord Ashby, underlined that point in his own speech. It is to the problem of how to encourage industry to "internalise" the social costs of production that we are addressing ourselves today.

There is a choice between what Professor Dasgupta describes in the report as "two polar modes of regulating industry": on the one hand,

"regulations limiting the amount that firms can emit into the environment'",

and, on the other,

"a taxation system per unit emitted".

In fact, I do not see the choice as being a stark one but one of carefully selecting the optimum balance between regulations, on the one hand, and charging, on the other. According to the report,

"The evidence indicated that, in practical application, a charging system must be accompanied by controls establishing levels of discharge, irrespective of payment"—

so what sorts of measures should we be seeking to implement?

Almost exactly two years ago the House debated a report produced by the Select Committee on Science and Technology on Hazardous Waste Disposal. I intervened from this Front Bench in the debate on that report. A recommendation of that report, which was reiterated during the course of the debate, was that the burden for ensuring against damage to the environment should be firmly shouldered by waste disposal site operators and not by local authorities. Your Lordships will not be surprised to hear that nothing has been done about that; no action whatsoever has been taken. We find ourselves in the same position in respect of the subject we are discussing today, where local authorities again find themselves responsible for so much of the clearing up of pollution, as was so in the case of hazardous waste disposal. Today, local authorities are even harder pressed to find funds to provide essential services due to the severe financial cuts which have been imposed upon them. So it seems to me valid to ask the question: how on earth are they going to find the money to deal with pollution in a way that is satisfactory and which serves the community?

It is totally unjustifiable that the ratepayer should be expected to meet the cost of neutralising environmental harm if it has been caused by another agent. The polluter pays principle is one which seeks, first, to control the level of pollution; and, second, to distribute more fairly the burden of payment for repairing environmental damage. I am not suggesting that this is an easy subject with which to deal.

The Department of the Environment argues in favour of the principle on two distinct grounds, political and economic: first, that it promotes a form of justice within the economy; secondly, that it promotes a more efficient pattern of trade by the harmonisation of costs being borne by producers. It is a principle that appears to be self-evidently right. It is widely supported, and I am pleased that in its perception of the principle the Department of the Environment, which was my old department when I was a Minister, sees it primarily as a means not of raising money or of ensuring a just distribution of the burden of costs, but of ensuring the health and safety of our community. It is right that our social well-being should take precedence over everything else.

I welcome the report's conclusion, which was mentioned and stressed by the noble Lord, Lord Ashby, that the department should undertake a careful study of the polluter pays principle and of subsidies for pollution control equipment and for cleaner technology as they operate in European countries. I would only say that, if a study is going to be undertaken, for goodness sake let the department see that the study is undertaken quickly and action is then taken on it. So many of the facts are there, and it is a case of gathering them together and coming forward with some hard recommendations. Also, it should investigate the possibility of incorporating these policies into the United Kingdom's overall approach to environmental issues. However, I believe that the polluter pays principle, while right in principle in itself, is highly complex in practice. Therefore, while it is part of environmental policy, it must also be viewed as an important element in the Government's entire social and economic, as well as environmental, policy.

I am concerned that if we adopt a radical policy of forcing all manufacturers to bear the costs of pollution abatement without state aid—that is, applying the PPP with rigid inflexibility—then in the climate of economic recession many firms will suffer: they will reduce the size of their workforce and some may close down altogether. The industries most vulnerable are those which have the greater propensity to pollute, and will tend to be the older industries, such as those cited by the CBI in their evidence to the committee—leather manufacturers, the textile industry, including wool scouring and carpet industries. Unemployment is already dangerously high in areas dominated by the traditional industries. I say "dangerously" because these areas are not blighted solely by unemployment, which is bad enough, but also by the the social disintegration and the social consequences which are a result of that unemployment.

I am not arguing in favour of accepting the social cost of pollution for the sake of preventing unemployment. What I am advocating is that the Government should show flexibility in their application of what is an essentially sound concept and take the responsibility which a Government should take in this area. The costs of pollution abatement will not necessarily be borne by the producers; they will surely be passed on to the consumer by way of higher prices. So, again, the individual will suffer, unless the free operation of the market ensures there is sufficient competition to allow consumers to buy from producers who incur less pollution abatement costs. But this is not likely to be widespread; in fact, it will be only patchy, and is not something on which one can base a long-term and viable policy. Therefore, inflexible adoption of the polluter pays principle may generate unacceptable levels of hardship in terms of unemployment or of price rises.

I believe, therefore, that we cannot advocate pollution control through market forces alone. The market is a cold and uncaring system, blind to special cases and the hardships incurred by those less able to cope with its rigorous demands. The policy of the present Government is supposedly one of a "free market economy", but in fact it is highly interventionist. This is probably one of the most interventionist Governments we have ever had. Although the EEC Commission permits state aids of up to 15 per cent., this Government have not taken advantage of the allowance, unlike what is happening in other European countries. According to the Department of the Environment, there has been sufficient co-operation in securing compliance with standards set to make it reasonable to expect industry to meet the costs. I agree with the noble Lord, Lord Ashby, when he says that the committee was not impressed by this argument put forward by the department, and neither am I. The report rightly criticises the Government for this approach, which is too insensitive and too short-sighted to special needs.

It seems to me that the complexity of the polluter pays principle can be regarded in two ways: the complexity arising from the practical difficulties which I have tried to illustrate, and the complexity arising from the elusiveness of the definition of the polluter pays principle, which was expressed by the noble Lord, Lord Ashby. In the submission of the Chemical Industries Association, it is asserted that:

"every industrial (indeed human) activity in some way contaminates the environment."

This is, unfortunately, probably true. Also unfortunately, it would be impossible to seek compensation for all pollution, and for this reason the definition of PPP involves the concept of a "socially acceptable" level. This is a dangerously subjective element, open to abuse and misconstruction. Indeed, as the report points out in paragraph 14, it is a "moving target". Who is to decide what is "socially acceptable"? Who is to decide what sorts of pollution should be included in the category to which the polluter pays principle should be applied?

I am sorry that the committee did not consider the question of noise, which is a tremendous polluter of our environment. Noise is a growing source of complaint and of real human damage, both physical and mental, to many people, both working and travelling. Yet it is an area where solutions are readily available, given the will and the financial means. It would seem an ideal target for consideration under PPP controls. Already the cost of maintaining, monitoring and enforcing are almost entirely carried by the local authorities, and are therefore met by the ratepayers. This is something I should like the Minister to comment on. Perhaps, also, Lord Ashby may say a few words at the end, or perhaps one of the other members of the committee, who I am delighted to see are speaking, might comment on why noise was not considered.

Another problem is that of "residual pollution" and who is to pay for it. The question is the central theme of the submission by the CBI, which argue that the "residual pollution"—that is, the pollution that falls below the maximum level that is "socially acceptable" in a regulatory system of pollution control—should not be the subject of charges. But it is absolutely true (the noble Lord, Lord Ashby, has already mentioned it) that certainly in 10 years' time the "residual pollution" of today which is considered acceptable will be quite rightly unacceptable. So we must have a built-in mechanism to improve standards all the time, in the same way as the alkaline inspectors are continuously doing now. It shows it can be done, and if it can be done in one area there is no reason why it should not be done in other areas.

The use of a financial mechanism as the only instrument of pollution control is not adequate, although the report asserts that it is the most cost-effective means of reducing pollution. The European Commission has concluded in favour of a balanced system operating both a financial incentive scheme and regulations. If there were only a financial incentive scheme, there is the fear that firms would prefer to pay the charges instead of investing in pollution abatement equipment, and I would agree that charging alone has the intrinsic philosophy of the "right to pollute". This is why we need a combination of charges and regulations. Charges can provide money to use as subsidies for getting industries to do more by way of moving towards a "clean technology".

This action programme will try to get environment policy concentrating less on the cleaning up of pollution after it has occurred and more on preventing it in the first place. But as the report points out, such subsidies are being allowed by the Commission only until 1986; so the importance of this report is, I hope, that it will encourage the Commission to make up its mind that such subsidies towards getting a "clean technology" should become a permanent and regulated feature of environmental policy, and not cease in 1986.

Society has a crucial responsibility to treat our environment with great care. I repeat, the environment is not the property of the present generation, but of all generations. Therefore, I ask the Government: how are they to ensure that that duty is fulfilled, and how will they improve on the present inadequate pollution abatement? There is one specific question that I put to the Minister for an answer. In future, who will take the place of the National Water Council on inquiries such as this? What immediate plans do the Government have for acting on this valuable and vital report? We do not want to see a series of studies, sub-studies, multicoloured papers, of green or white, and consultation. The committee has studied and consulted, and it has issued a first-class report. The time has now come for the Government to act.

My Lords, I have listened with great interest to the wide-ranging and thoughtful speech of the noble Baroness, Lady Birk. She raised many points which, if time allowed—and it would take a long time—I would dearly love to follow to their conclusion. In particular, she asked members of the committee who were present why they ignored noise. I think I can quickly reply that the committee has not ignored noise as a pollutant. In fact, not long ago it investigated the whole issue of noise pollution control within the Community and issued a report. I am absolutely certain that I can speak for other members of the committee in saying that we regard noise as a serious pollutant which must be subjected to the same general rules as other forms of pollution.

I also listened with great interest to the introductory speech of the noble Lord, Lord Ashby. I join in the thanks he expressed to our specialist adviser and to the witnesses who appeared before us. I also thank him personally for taking on a chore that was, in fact, mine in taking the chair on a couple of occasions when I was unable to be present and then himself doing a very great deal with the draft and to form the structure of the report which is now before your Lordships. On both those counts I am extremely grateful to him. I am also grateful to the noble Lord for taking on the duty of introducing this report to your Lordships which frees me from the chairmanly role, as it were, and allows me to concentrate on a couple of issues on which I feel free to give vent to my personal views.

As your Lordships will see, on page ix of the report the committee reviews alternative definitions of "pollution". I do not think there was any dispute over these; nor that any witnesses would have had difficulty in accepting the version given in paragraph 8 of the report, which is a very widely accepted definition. In this it is important to take note of the phrase "liable to". Pollutants as a class are characterised by their harmful effects. In practice, the control of pollution can either be remedial, if damage is currently being caused, orpreventative if it seems that damage is liable to be caused. As was drawn to our attention by the noble Baroness, Lady Birk, many of the most severe problems faced by the United Kingdom and by other member states of the European Community fall into the first class.

We all have serious cases of pollution which have been inherited from the past. But, again as stressed by the noble Baroness, Lady Birk, anti-pollution measures must also look to the future if we are to avoid handing on to subsequent generations a worse legacy than we ourselves receive. My noble friend on the Front Bench will recall that it is the declared policy of European Community legislation on pollution to take a preventative role. The preventative approach was stressed in the Third Environmental Action Programme. This has been accepted by Council and I therefore assume it is fully agreed by the United Kingdom Government.

In taking evidence we found, as the noble Lord, Lord Ashby, pointed out, that all witnesses declared support for the polluter pays principle. Indeed, who could not? But there were differences in interpretation. In particular, as has already been said, witnesses representing industry accepted that the costs of pollution control should be internalised, but only to the extent that emissions are reduced to levels prescribed by the relevant authorities. The balance of the contaminant load is called residual pollution. Contrasting views on the problems of residual pollution are discussed in the report in paragraphs 36 to 38 and 56.I intend to confine my remarks mainly to this issue. However, I also want to take this opportunity to draw attention to a difference in approach to the problem of black list substances in residual pollution that is creating serious divisions between the United Kingdom and our partners in the Community.

In discussions on residual pollution Dr. Konrad von Moltke (whose answer is No. 146 on page 78) viewed all effluent discharges to water as a demand on a common resource for which no individual or organisationcan claim exclusive use. Professor Partha Dasgupta (Answer No. 162 on page 82) refined this notion in terms of property rights. Whatever is the most appropriate analogy, no one in my hearing has disputed the fact that a discharge to the environment of substances liable to cause harm at the very least restricts the options available to other members of society and to this extent does them an injury. The Select Committee accepted these arguments in paragraph 56.

As the noble Lord, Lord Ashby, pointed out, at present in the United Kingdom, after any treatment that may be required, the free use of the environment is permitted for final discharges. It is therefore important to ask, first, who pays for the residual pollution and, secondly, what monetary value should be attached to it? I shall deal rather quickly with the second of those questions and return to the first, linking it with my discussion on inter-Community relations. As can be seen in the report, witnesses from industry emphasised to the Select Committee the high marginal costs of removing pollutants from discharges when they occur at low dilutions. But it can be even more expensive to restore or to retain environmental quality.

As a quick example, of late around the country a number of calculations have been made of the conservation-related compensations that are liable to be paid under the terms of the Wildlife and Countryside Act. These calculations, in my experience, are bringing home to local authorities and, I hope, to Government, some idea of the very high cost involved in environmental protection at the level of marginal effect. I am not convinced that the financial aspects of residual pollution loads are adequately taken into account under our existing system of granting discharge consents or in development control. If it is accepted that all economic penalties should be clearly evaluated, I believe that more strictly formalised procedures for the assessment of environmental impact are needed in these instances. Until this is done there can be no firm basis for the financial costing of effects.

My main point concerns relations with our fellow members of the Community as much as with the commission. The situation is serious because it has led to mistrust and mutual reproaches. I believe that the issue has to be resolved. I am also of the opinion that the way forward is through a reappraisal of the United Kingdom position. It is clear enough that pollution of the air or of the water is not limited by national boundaries. In these cases those who are forced to pay for residual pollution can be geographically far removed from the source. What is worse, if the pollution is persistent and accumulates. those who ultimately pay may also be removed in time. The preventive policy of the European Community emphasises that the responsibility for safeguarding the environment of future generations rests in our hands today. This responsibility must be kept in mind when we review the dispute between the United Kingdom and the commission over discharges of residual pollution to the marine environment.

For the United Kingdom the seas around our islands form our national boundaries. At the same time these seas are a resource shared with neighbouring states. While respecting legitimate United Kingdom territorial and economic rights, other states of the Community have an undeniable interest in these waters. It is in this area of sensitivity that there are divergent views on the matter of residual discharges.

In evidence submitted to Sub-Committee G in the course of this inquiry, and in other contexts, representatives of British industry have presented the dispute in terms of conflict between a commission approach involving fixed emission standards and a particularly British policy based on environmental quality objectives. In truth, as Mr Grainger noted quite correctly (answer 6 on page 19), the disagreement arises only over the black list substances. British industry wishes to apply variable emission levels, reflecting the nature of the receiving waters, to black list substances as is done in the case of other pollutants. In particular it is argued that limit levels on emissions to the marine environment should be less stringent than those to fresh waters. Industry's arguments in support of this position are mainly economic. The opposing view is based on the conviction that the potential hazards to man and the environment posed by black list substances are so serious that the best available technology must be applied to minimise discharges in all circumstances.

I remind my noble friend the Minister that the black list substances are defined on the basis of, first, their high toxicity; secondly, their indestructibility; and, thirdly, their capacity to accumulate in living organisms. In simple words these are the real nasties among pollutants. All parties in all the member states agree that pollutants with these characteristics must be removed as far as is technically possible from discharges to fresh water. Can more concentrated discharges to the sea be justified?

In the past decade much scientific work has been done to elucidate the patterns of circulation of water and the loading and distribution of pollutants within the seas of the north east Atlantic area. For the North Sea itself a particularly comprehensive and authoritative study was made by the Council of Environmental Advisers of the Federal Republic of Germany. That corresponds to our Royal Commission on Environmental Pollution, with some differences. I shall call it the RSU after the initials of its German name. This report was published in 1980. The RSU found no serious present disfunction in the environment of the open sea, but in its report nonetheless strongly urged the adoption of policies that would preclude future environmental deterioration. In this same report it severely criticised the British for refusing to accept minimum emission standards for black list substances.

The strength of feeling on this issue was brought home to me a few weeks ago when I took part in the International Water Tribunal at Rotterdam. This body chose to take a quasi-judicial stance, deliberately evoking the Russell tribunals, but of course it had no official standing. In evaluating its conclusions I invite my noble friend the Minister to take note of the status and qualifications of the professionals, politicians and administrators who consented to take part, in all cases for no fee or other personal reward. I consider that the tribunal's decision in the case of British Nuclear Fuels Limited is illuminating. The words used exactly reflected the views of the combined group of self-styled jurors and expert advisers. They were these:

"The jury is perplexed at the long enduring discharge …and condemns its continuation".

I believe that there are many other professionals, academics and politicians in Germany, Belgium, the Netherlands and Denmark who are thoroughly perplexed at the apparently entrenched and, in their opinion, narrowly shortsighted attitude of the United Kingdom in negotiations over the emission of black list substances to the marine environment.

I think that it can be argued that there is room for review of the composition of the black list. Many substances have been proposed for inclusion. It may be the case that in fact not all share the characteristics that I have mentioned: being poisonous, persistent and accumulating. This possible change can be the subject of further investigation and negotiation based on scientific facts. But if any substance definitely meets the horrific criteria for inclusion in the black list, I strongly question how there can be justification for local relaxation at any European coastal site in the most stringent emission limits that are technically possible.

The issue is not confined to our care for the quality of the present environment but extends to a justifiable fear of irreversible deterioration in the future. I believe that United Kingdom industry and the Department of the Environment must look at the matter again and reappraise their attitudes. The importance of an anticipatory, preventive environmental policy must be emphasised, especially where black list substances are involved. The justifiable concern of other North Sea states deserves to be recognised. The reputation of the British as a nation caring for the environmentis in jeopardy. I accept that it is likely that some industrial plants in coastal sites in the United Kingdom may be forced to incur substantial costs in eliminating black list pollutants from discharges. Here the approach advocated by your Lordships' Select Committee offers a partial solution.

I do not expect my noble friend to make any specific responses here and now, but I wish to join both previous speakers in re-emphasising the recommendation of the Select Committee in paragraph 57 that:

"the Department of the Environment should undertake a careful study of the operation of … subsidies"—

in this case I am concerned only with subsidies—

"for pollution control equipment and for clean technology in other Member States, and evaluate the extent to which such systems should be incorporated in present United Kingdom environmental policy."

My Lords, it has been a rare privilege to sit in the committee under the noble Earl, Lord Cranbrook, and the noble Lord, Lord Ashby, who are two of the most distinguished scientists and specialists in this field that we have in this county. I thought that in speaking this afternoon I should not trespass upon the ground which they have so admirably covered (together with the ground which the noble Baroness, Lady Birk, has also covered) but confine myself to a rather different field. I thought that I would confine myself to the title of the debate, and indeed of the report; that is, The Polluter Pays Principle.

One of the reasons for my concern to do so is that we have heard much—and rightly so—about internalising costs of pollution. This is in fact technical jargon of an economic kind. I think that those of us who are concerned in the environmental field are very inclined to internalise our discussions and to use technical terms between ourselves in the belief that they have some clear meaning to the public at large, who are so greatly concerned with matters concerning the environment and pollution in particular. Those who are active in environmental matters are a small proportion of those in the country who are concerned. Evidence indicates that the vast majority of the people in this country are greatly concerned, and therefore it is with those in mind that I thought that I would speak on this subject.

I believe that it is timely to consider whether there is such a principle, and, if so, what it is. Words which have become so hallowed generate modes of thought and courses of action; they do not just reflect ideas and policies which have been adopted. The fact that a slogan or catch phrase of this kind has this character results in its being important in itself, for if it is treated as the basis of policy or action but is interpreted differently by different people, it will lead to confusion rather than conformity and certainty. This is what has happened.

I am myself suspicious of a slogan or catch phrase with moral overtones. The findings of the committee in this report reinforce my concern. To the ordinary man in the street, if indeed he has heard of the slogan, it must surely imply that he who pollutes must pay the penalty; and this point has frequently been made to me by those on the periphery of environmental matters. The slogan has moral overtones which make the polluter analogous to a criminal. That may indeed have been the thought behind those who first evolved the slogan, but those days are long past. Now the object is to integrate environmental policy into industrial policy; not to oppose one against the other.

An alternative interpretation is that the polluter must pay for the privilege of polluting—payment for a licence to pollute. But the object of environmental policy is to eliminate or reduce pollution, not to make money.

Neither of those interpretations is adopted among those who are daily concerned with the prevention or abatement of pollution, and yet, as I have said, they are a very small minority of those who are concerned about pollution. The first point I would make, therefore, is that the polluter pays principle is a bad foundation on which to base policy. A phrase which has contradictory overtones of retribution and permissiveness—he who pollutes shall pay the penalty, and he who pays may pollute—cannot be a good starting point. I emphasise this because it has been a foundation of environmental policy, a cornerstone of the environmental action programmes promulgated by the Commission. I believe that we are on false ground there.

One is left then with the interpretation of these words as denoting a principle upon which economic policy should be formulated with a view to controlling pollution. It is this which is adopted by those who are day-to-day concerned and is the basis of the report under debate. Even here, as the report shows, there are many different ways in which the so-called principle is thought to be applicable. There is the idea that the elimination or abatement of pollution, for instance, caused by discharges shall be effected by appropriate equipment in the production plant and that the cost of this equipment and its operation shall be to the charge of the producer, the polluter. There is nothing exceptionable about such a proposition, and in fact it has been in force for many years.

For instance, long before public sewerage became as commonplace as it now is, a household was not permitted to discharge raw sewage and was bound to install, at its own expense, appropriate sewage treatment such as cesspits or septic tanks. Regulations of certain gaseous emissions has long been the subject of control. The cost of compliance lies with the polluter; it always has. So there is nothing novel in this idea. What is novel is the increasing extent and stringency of the controls and their enforcement, made necessary by the ever-increasing damage caused by pollution and public recognition of the need to eliminate or control it.

An extension of this idea is that under which the polluter pays somebody else to eliminate or abate the pollution created by him. This is really a form of sub-contracting, and is not different in principle from the first category. Instances of this are of course sewage works where a notional cost is applied to each household in the collection of water rates or charges, and the specific charges made by water authorities to industries whose effluent flows into the sewers.

There are, however, two further interpretations which have been advocated. First, it is thought that in the operation of market forces the imposition of charges on an escalating scale will result in industry finding it more economic to install appropriate abatement processes than to play these charges. This proposition has been much debated and, as the conclusions of the report indicate, there is not sufficient experience upon which a judgment can be based.

It would seem to me, however, that while market forces may have some part to play, in particular where the conditions of free and equal competition really exist and where the goods produced are price-sensitive, they are unlikely to have any major impact such as those who advocate this idea envisage. This interpretation implies acceptance that an option should be given to pollute at a price, if it pays to do so. I do not find that at all attractive.

There is a further view that it is wrong, as has been said, that the environment shall be defiled by pollution even if any regulations have been complied with. This "residual" pollution may vary in importance from that which causes no identifiable harm to the case where even though the regulations have been fully complied with, there is still pollution which creates harm, but which it is thought it would be too expensive to reduce further by more stringent regulations with regard to emission. Some have suggested that a charge or tax should be imposed in relation to this residual pollution to compensate the community for damage to its right to a clean environment; and that has already been referred to in particular by the noble Earl, Lord Cranbrook.

To take a specific example, there is no doubt that generation of electricity by use of fossil fuels in compliance with all regulations produces pollution by gaseous emissions. The effect of this interpretation would be to impose a charge for doing so, and thus increase the cost to the consumer. Increased cost accruing from additional abatement might be sensible and acceptable. Increased cost arising from paying a sub-contracting charge to clean up rivers suffering residual pollution may be acceptable. A supplementary charge relating to monitoring pollution might indeed be acceptable. What I should find unacceptable is a charge for emissions which is purely a penalty or tax going to the general revenue fund. This is not I believe the way to go forward.

There is no doubt that one of the means to achieve environmental improvement is economic pressure. This can undoubtedly play a part, but how that pressure should be applied is not resolved by the adoption of the slogan, the polluter pays principle, which is capable of so many interpretations and which, as the report says, is interpreted in so many different ways in the Community. The best course, therefore, I suggest, is for us to recognise the importance of economic pressures and to utilise them where appropriate, but to dispense with the slogan, the polluter pays principle, which has promoted such a prodigious literature on its interpretation. This itself must surely demonstrate that it is defective, or indeed that it does not exist.

My Lords, I, too, should like to congratulate Sub-Committee G on producing a splendid report on a difficult subject. I should like also to congratulate my noble friend Lord Cranbrook, as chairman, for having taken on this task; and also the noble Lord, Lord Ashby, for taking it on at a later stage and for his own clear introductory speech. I am advised by the CBI in what I have to say to your Lordships. The CBI is concerned about the overall balance of opinions in Section IV of the report. Some of the points that I shall want to make try to bring out where there is a difference of opinion. I was particularly impressed by the speech of the noble Lord, Lord Nathan, which I considered most thoughtful. I strongly support his objection to the rather flamboyant title, the polluter pays principle, as not being a good guideline for studying what is a very difficult subject. It is a subject, as many noble Lords have said, that is confused by a plethora of differing definitions, interpretations and policy lines. I shall have something to say on each of these points.

On definition, British industry would not concede that pollution exists when a concentration of a substance in the environment causes no harm or cannot reasonably be expected, from scientific information, to cause harm. It is not a case of wishing to use the environment as a sink, as I think was suggested by the noble Baroness, Lady Birk. It is a case of using a valuable resource properly. The environment has a natural capacity for absorbing the inevitable by-products of human activity and rendering them innocuous. Pollution only occurs——

My Lords, will the noble Lord allow me?

One moment, please. I should like to finish this sentence. Pollution only occurs when this natural physical capacity is abused.

My Lords, I wish to put the noble Lord right on a point of fact. My notes have been whipped away to Hansard but if I used that phrase I was quoting something in the Committee report. It was not something that I stated.

My Lords, I think that the Baroness said it. She may have been quoting from the report. But that does not mean to say that she did not say it. I take issue with the report on that point, if that is what it intended. However, it is not clear from the report whether it is accusing all industry of treating the environment as a sink. It is not clear, but it is a sort of emotive thought, rather like the title of the subject we are discussing. It makes a matter emotive when it is perhaps rather too serious for that purpose.

Turning to interpretation, I must point out that in England and Wales industry dischargers already pay the full cost of reducing discharge levels and quantities to the standards set by the control authorities. Sometimes, the discharger pays an authority for carrying out purification at a sewage works. Alternatively, a discharger may install his own treatment facilities in which case he bears the cost himself. It is a system geared to ensure that individual companies meet individual control authority demands and that the environment is properly safeguarded. The system is fair, avoiding cross-subsidisation of one industry by another. It is certain, avoiding elements of speculation, aid and taxation. It is uniformly enforced, avoiding hidden subsidies from different enforcement practices. In short, the United Kingdom interpretation is a very reasonable way of interpreting the polluter pays principle and one that we should preserve.

Turning now to policy, our Government do not give aid specifically for pollution prevention purposes. Pollution abatement is an integral part of the production cycle and is rightly costed as such. There are a multitude of reasons which can be put forward in support of the Government providing aid. However, the inevitable effect is to cause something different to happen than would occur if normal commercial factors were paramount. Individually and cumulatively, the general direction of aid is towards distortion of treating conditions. It is therefore sensible, and industry fully supports the United Kingdom policy of avoiding aid for environmental purposes rather than encouraging a greater proliferation of such financial encouragements.

It is important also to point out that industry is not the only discharger. In listening to various speeches by noble Lords, I was perhaps being extremely sensitive on the part of industry, but it came through to me, although it does not come through nearly so clearly in the report—which is in favour of the report—that most noble Lords took it for granted that industry was the main polluter. It will be found, I think, on the one hand, that industry, if it is thought of as manufacturing industry, is no more a polluter than the general public. It is no more a polluter than agriculture. Looked at another way, industry under Government control, that is nationalised industry and the Government themselves, is probably a greater polluter than private industry. So those noble Lords who feel, "Aha, we have a stick to beat industry with" are perhaps treating this subject a little emotively. Here again, I thank the noble Lord, Lord Nathan, for his wise remarks.

Industry sees no need for significant changes in United Kingdom policy in this area nor for further detailed studies into particular aspects. We should instead seek a greater commitment in Europe and elsewhere towards the line that we already practice.

My Lords, I am well aware that what I am about to say might sound patronising. It is not intended to be, but taking risks is, by virtue of it, part of my job. To say that the report that we are discussing is the most thorough and understandable report to come from your Lordships' Select Committee for a long time is no overstatement. I am encouraged in this belief by the remarks of noble Lords during the debate.

At the beginning, I should like to associate myself with the introductory remarks of the noble Baroness, Lady Birk. I am sure that we can all agree that this has been a most informative debate. In no small measure this is due to the admirable way in which your Lordships, whether members of the Select Committee or not, have set out the issues. They are clear even to me. I am particularly grateful to the noble Lord, Lord Ashby, for initiating the debate and, like another noble Lord, allowing me sight of the guidelines for his speech. This has of course provided a quality objective for my own. I am confident that my noble friend Lord Cranbrook, who chaired the sub-committee which produced this report, will be as gratified as the Government are that the debate has been both constructive and useful.

The noble Lord, Lord Nathan, spoke interestingly I thought of the problems of definition and the logical corollaries of the theory of the polluter pays principle. I agree with him that at first sight the concept of polluters paying for their pollution is an extremely dangerous one. Fortunately, the principle is designed to operate along with regulations. There is no question either of the polluter polluting as he wishes, and then simply paying, rather like the all too familiar story of the motorist getting parking tickets and continuing to park illegally while not paying until summonsed or, perhaps worse, regarding fines as a part of the general cost of keeping a car on the road. It is not like that at all. In this country the system of pollution control acts to prevent dischargers from polluting whether or not any charges are involved. The polluter pays principle comes in mainly by requiring that the polluter should meet the costs of complying with the standards laid down. In other words, that those who cause pollution should pay the costs of averting it or, in the last resort, of cleaning it up. This does not give them the absolute right to pollute.

As the Committee made clear, pollution can be defined in various ways; but the accepted working definition in this country, which is accepted in the OECD and by the European Community, is that pollution results where discharges cause hazards to health or damage to the environment. The essential point is that there have to be harmful effects—discharges in themselves are not pollution.

It needs to be understood that the PPP is a guide to be applied in dealing with the control of pollution and legislation in this field. It is one of a large number of similar principles, for example, that an Englishman's home is his castle: or that barriers to trade should be dismantled. Such principles cannot be absolute; and there can be good or even necessary reasons for making exceptions to them.

I should also like to draw a distinction between the setting of standards and paying the costs of meeting them. Although the two are related. PPP is mainly about the second. Thus views on existing rules and regulations ought to be separated from the question of who pays the cost of meeting such rules and regulations. I am afraid that this difference was not always made clear by witnesses in their evidence to the Committee.

This debate is about the way in which we should consider and implement PPP in the face of practical and economic considerations, and in an international setting in which other countries may do differently from us.

I should now like to turn to the report itself. There can be no doubt that the subject is a complicated one. I noticed with interest that paragraph 1 began:

"The evolution of the Pollution Pays Principle".

I am sure that your Lordships would all agree that this is just the principle that should not be adopted! Despite this unfortunate misprint, the Government welcome the report and agree that the principle is a useful guideline limiting the exploitation of the environment by polluters.

Although the recommendations are not listed separately by the Committee—perhaps to encourage the reader to take account of the detailed argument and not merely to cheat by turning to the end of the book to the solution—the main recommendation is that the Department of the Environment should undertake:

"a careful study of the operation of charging systems and of subsidies for pollution control and for clean technology in other Member States".

I should say straightaway that the department agrees that more work should be done in this area. It must be accepted that an improved understanding of the situation is not possible on the basis of presently available information. I am therefore pleased to announce that my department has already put in hand a small scale research study on the subsidies question and intends to follow this up next year with a further look at evidence on charging in other member states.

Paragraph 46 of the report suggested—and this was emphasised by the noble Lord, Lord Ashby—that the United Kingdom should adopt a less rigorous approach to the question of subsidies. It will not surprise the House to learn that I disagree with the noble Baroness, Lady Birk, on this subject. The Government have not seen the need in the past to subsidise industry directly for pollution control purposes from public sector funds. In certain circumstances, as was mentioned by the noble Baroness, this can be done without breaching the Community rules and a capital grant of up to 15 per cent. can be paid by the national authority. The point is that we must distinguish between direct subsidies and help given as part of other aid where grants, for example, are made for industrial developments. Pollution control expenditure would of course in this case not be excluded. Thus some help is given in this country indirectly. However, neither the Government nor the CBI have seen the need for direct subsidy.

Some witnesses have suggested that financial aid should be given to plant in declining industry in order to help meet pollution control costs. However, for most firms the cost of complying with environmental standards is not a major proportion of total costs although there will of course be exceptions. If a particular plant cannot raise the necessary funds for pollution control through the normal channels, its viability must be very much in doubt. The granting of direct aid for pollution control in circumstances of this kind usually makes little commercial sense and is certainly against the spirit of the polluter pays principle. Once we started to give subsidies, polluters could begin to think that the Government would always be there to hale them out. Comparisions between other member states on this issue are hampered by the lack of relevant data—as the Committee found—but we hope that our study on subsidies will reduce this.

Reference has been made by several noble Lords to the agricultural sector and specificially to intensive livestock operation. The Government do, of course, recognise that the PPP should apply to agriculture as it does to the rest of British industry. Like all sectors, it has its special problems which call for careful consideration. The departments concerned—that is, the Department of the Environment and the Department of Agriculture, Fisheries and Food—are willing to undertake an examination of any specific claim of non-compliance with the principle, consulting where appropriate with other organisations; but I must make it clear that, if pollution problems occur because of agricultural practice, the pollution control authorities concerned (especially the Ministry of Agriculture) would take action without delay.

The evidence presented to the Committee was again more concerned with standards rather than just the PPP, and many of the points raised were in fact considered in the seventh report of the Royal Commission on Environmental Pollution, and we expect to respond to that report shortly.

In any event, we will he debating the Motion of my noble friend Lord Cranbrook on the report of the European Communities Committee on Sewage Sludge in Agriculture quite soon, and perhaps I may be allowed to respond more fully then.

The question of trans-boundary pollution has of course been mentioned this afternoon. It is worth noting that the Community recommendation of the polluter pays principle does enjoin countries to take account of the effect of discharges of pollution on other countries. This is particularly important where industry is located on or near the common boundary of two countries. Until recently, this has not affected the United Kingdom in its island position, but concern over trans-boundary air pollution is now drawing us into this area, although I must say that the scientific evidence is as yet somewhat equivocal.

Before I leave the question of air, I should like to tell the noble Baroness, Lady Birk, that, so far as noise —which is an air transmitted pollutant—is concerned, it is very difficult to allocate the costs at the local level. But I would agree with the noble Baroness that it is a problem and an increasingly disturbing one. Much work has been done to reduce noise on, for example, aeroplane engines and, as I am sure she knows, mowing machines. Incidentally, that has been done at the Commission's instigation.

The noble Baroness, Lady Birk, also highlighted the fact that witnesses to the committee raised the question of polluters paying the costs of administering site licences for waste disposal and of monitoring during the operational life of land fill sites, together with post-closure monitoring remedial work. It is worth noting here that, in response to the report of the Select Committee on the Disposal of Hazardous Wastes, under the chairmanship of the noble Lord, Lord Gregson, the Government gave a commitment to introduce charges for applications for site licences. This would be in line with the Government's general philosophy of charging for planning applications. The timetable for implementing the necessary legislation has not yet been agreed upon. Although the charges proposed might include a charge to cover monitoring costs, no decision on this aspect has been taken.

On monitoring costs themselves, the committee suggested—and this was highlighted by the noble Lord, Lord Ashby—that all pollution monitoring costs should he borne by the polluter. This, of course, is dealt with in paragraph 55 of the report. However, that is not required by the EC recommendation on the PPP, which says that:

"the cost to the public authorities of construction, buying and operating pollution monitoring and supervision installations may be borne by those authorities".

In this country, some monitoring costs are borne by public authorities and some by dischargers; the monitoring done in connection with water authority consents is often a combined effort. It is clear that, given the line taken in the Commission recommendation, this question should take account of what goes on in other countries and might usefully be included in the studies recommended by the committee.

However, underlying the committee's suggestion is the thought that the free use of the environment as a sink should no longer be permitted as a right. They bracket these two thoughts together in paragraph 56 of the report. Like my noble friend Lord Mottistone, I find this latter point to be much more difficult. Taken to its logical conclusion, it implies that there should be a general charge on the use of the environment, and this raises fundamental, practical and conceptual questions that are not answered in other parts of the report.

Industry in this country, in particular, has always opposed the concept of a general charging system whereby charges are imposed both on polluting and non-polluting discharges. Wastes discharged into the environment which do not have any harmful effects are by definition not polluting it. Therefore, it would he difficult to justify making dischargers pay in every case. No other country operates an overall charging system on the use of the environment, and, where such systems exist for discharges to one environmental sector, they cannot be said to he completely satisfactory. The administrative costs involved in introducing a generalised charging scheme are likely to be very high and might well outweigh any possible gains in economic efficiency that might accrue.

The Government endorse the committee's suggestion that greater harmonisation of implementation of PPP in the Community is desirable. But, first, we must have our EC partners on our side—a point made by the noble Lord, Lord Nathan, and my noble friend Lord Mottistone. We have taken a strong line internationally on the question of applying PPP, and have urged and will continue to urge others to do the same.

We need to distinguish, however, between harmonisation of implementation of PPP in the Community and harmonisation of actual regulations across the Community, which is rather a different point. There is little support for the latter. As is well known, the Government's pollution control policy is firmly based on the idea of environmental quality objectives and the belief that the measures taken to achieve such objectives should be in general, tailored to meet the needs of particular environmental conditions. There is no comparison between the North Sea and the Mediterranean—a point made regularly and quite fairly by the Select Committee.

My noble friend Lord Cranbrook has mentioned the activities of the International Water Tribunal. The Government are very much aware of the useful contribution to the environmental debate made by responsible non-governmental organisations pulling together. However, where they do not, it is rather a different story and chaos very often ensues. In this case it is for industry to decide on the extent to which they wish to co-operate. I will be interested to see how this relatively new project develops. Of course, the United Kingdom system of water pollution control is well established. It is based on an environmental quality objective approach operated by the regional water authorities, and we believe that this is the best practical way to deal with the question of water quality.

While I am on the subject of water. in answer to a question by the noble Baroness, Lady Birk, perhaps I should remind the House that, with the demise of the National Water Council, it will be the Water Authorities Association which will take over some of its functions and it will be that association which, of course, will be giving evidence to a committee of inquiry such as the committee which produced the report we are debating today.

I cannot pretend to have been able to do full justice to the committee's report in my reply. Many points have been raised in the debate which I am sure we shall want to ponder over, and I am certain that we shall find that what has been said here today has been of great value, and will be of great value, in pursuing studies that your committee recommended.

However, before I conclude, I should like to add a thought of my own. It is useful in a debate such as this to remind ourselves of the rationale behind our policy on pollution control. It is based on a three-part premise of practicability, confirmed expert advice, and pragmatism. We must make absolutely certain that we do not compromise on these objectives by favouring the next popular theory that comes along. Such horror stories—whether or not, to use the phrase mentioned by the noble Lord, Lord Ashby, they are compounded of expediency and hunch—might sell newspapers but do not make sustainable Government policy.

It is encouraging to note that the committee has endorsed PPP, as do the Government and, as we have heard, industry. There is a paucity of information on certain aspects of PPP, and the committee was right to draw attention to this and suggest ways to improve the situation. The Government are grateful to the committee for its suggestions, which will be followed up in due course. It only remains for me to thank the committee for its work and the noble Lord, Lord Ashby, for initiating this debate.

My Lords, noble Lords have a long and important debate to follow. I simply wish, first, to thank the noble Lord, Lord Skelmersdale, for his careful and encouraging reply to this debate and to thank other noble Lords who took part in it. In particular, I should like to thank the noble Baroness, Lady Birk, who drew attention to the importance of noise and the noble Earl, Lord Cranbrook, who put it more securely into its European perspective than I did in my introduction.

I should also like to thank the noble Lord, Lord Nathan, who drew attention to its jurisprudence and its historical elements in a way that will be an enormous help to the committee in the future. I should like, too, to thank the noble Lord, Lord Mottistone, although I assure him that there is nothing pejorative about the word "sink". It has two meanings. One is a technical, scientific one meaning that it is where chemicals go at the end of a reaction; the other is an implement that I frequently have to use to wash dishes, and I regard it with very great respect.

rose to move, That this House takes note of the report of the European Communities Committee on The European Monetary System (5th Report, 1983–84, H.L. 39.).

My Lords, I am most grateful for the kind reception that I have had since my introduction last week. I am grateful to the noble Lord, Lord O'Brien of Lothbury, who has just said such kind things about me. I am very grateful for the early opportunity of making my maiden speech in what is an important debate. I understand that I am supposed to be non-controversial. That is difficult at any time, but in a debate like this one either comes down in favour of full membership of the European Monetary System, against it or does not bother coming down at all. Either way is bound to be controversial to some extent. I will promise your Lordships that I will try to make this brief controversial contribution as non-controversial as possible.

I said that this is an important debate for although the European Monetary System sounds complex to some—not, I hasten to say, to your Lordships—it is comparatively simple. It is about whether we in Britain can improve the living standards of our people by this form of international co-operation or whether full membership would be damaging to our interests.

Although exchange rate mechanisms can be complex, I do not believe the issue is complex. Strong supporters of the EEC have in the past—and indeed now—tended to be equally strong supporters of our full membership of the EMS. As one of those who voted for entry to the EEC, with some problems in various places for so doing, I have always wanted the EEC to succeed and I have every sympathy with the view that it can better succeed by our full co-operation within it. But the arguments are often massively overstated, although not by the noble Lord, Lord O'Brien, in opening this debate. But sadly at the moment one is bound to say that there is little or no political or economic will to move towards the essential economic convergence.

I congratulate the committee generally on the way it presented its report; but I am bound to say—I will try not to be too controversial—that it will not be surprised if I do not agree with every dot and comma in it. In paragraph 58, it said on the subject of convergence,

"Convergence has been less than complete."

I hope the committee will not mind my saying that that must be one of the understatements of the century. But if strong supporters of the EEC have tended to favour our full membership of the EMS, opponents have tended to oppose as they see it as one more step towards a single currency and a full economic and monetary union. They also occasionally try to have it both ways saying that, as there is no economic convergence and no transfer of resources, we should not join.

But the main political and economic argument against is usually that it is an absolute limit on our freedom of action. Whether noble Lords or anyone else are either monetarists of Keynesians, they would no doubt call in aid a speech in this House by Lord Keynes on 23rd May 1944 when he was referring to his pre-war experiences. He concluded:

"We are determined that in future the external value of sterling shall conform to its internal value, as set by our own domestic policies."

That was in 1944, and I find it hard to believe that a man of such powerful intellect would have stuck with so rigid a view nearly 40 years later when there is so obvious a need for greater international economic co-operation. As it happens even if he had not changed, he would have had no problem with EMS because, as paragraph 40 of the committee's report points out, we do not have a quick exchange rate. Indeed, in the four years between 1979 and 1983 that paragraph tells us that there were 21 changes as the member states felt it necessary, as Keynes might have said, to adjust the external values of their currencies to conform to the internal values as set by their own domestic policies. So we have little economic convergence. The committee clearly tried hard to find evidence that there had been some. The best they could do was perhaps summed up in paragraph 59 where we are told:

"It is not easy to assess whether, or how far, the EMS has encouraged policy convergence. However, the Committee accepted the evidence by Professor Thygesen on the effects of EMS on such convergence. He argued that the most positive thing that can be said about convergence within the EMS is that:

(i) without the system it would clearly have been weaker still and

(ii) governments, at least outside Germany and the Netherlands, continue to consider adherence to the EMS and hence better convergence a high priority and hence an important constraint on their domestic policies. The Commission witness offered a somewhat similar view".

That is the view of the committee. I must say I remain rather more sceptical than the committee. My own ministerial experience at EEC Council meetings taught me that one needed to hold tight to one's own pro-EEC views in face of strong nationalistic positions invariably taken up—and certainly by the major members.

However limited the progress, whether pro- or anti-EEC, there must surely be agreement on the vital need for greater economic co-operation in the world, and the vital need for a zone of monetary stability, if this can be achieved. Such co-operation and such stability would, as I am sure your Lordships will appreciate, be enormously helpful to trade and with it industrial expansion and also the hope that it will have some impact on the appallingly high level of unemployment throughout the whole EEC.

Pro- and anti-EEC members can surely agree on that. Indeed I see that my good friend, the noble Lord, Lord Kaldor, said in a debate in this place on 28th November 1978 that what the world needs is greater economic co-operation and greater monetary stability to deal with the problem of worldwide inflation. I am sure that my noble friend and no doubt others who would agree with that statement would not accept the EMS would provide that co-operation.

I confess to not being madly optimistic. The nationalistic pressures to which I have referred will, in the short term, I fear prevail. EMS will move slowly, if at all, towards the co-operation and stability which I certainly want to see.

I am not confident that inside we will do a great deal to achieve that essential economic co-operation. I am only sure that outside we can play no part. I therefore hope that we can join fully, including the exchange rate mechanism, and join as soon as possible—and do so, genuinely determined to work towards achieving the greater co-operation that is so vital if we are to provide a real and lasting improvement in living standards in this country and in the EEC generally. I am grateful to your Lordships for listening to me in my brief maiden speech.

My Lords, this House is fortunate to be able to welcome the noble Lord, Lord Barnett, and for me it is an honour to be the first speaker to congratulate him on a splendid maiden speech. Over the years I am sure all of us have admired his contributions in another place, particularly in the field of financial strategy and fiscal policy. He brings to this House an immense knowledge and experience as a Treasury Minister. He confessed in his excellent book, Inside the Treasury, that he had two regrets. He said:

"After five years in the Treasury, I finished a pessimist".

He also regretted that his responsibilities prevented him from speaking freely. I hope the noble Lord, Lord Barnett, will be encouraged by tonight's proceedings to be more of an optimist and to recognise that, if this House has one virtue, it is that it encourages people to speak freely. I hope he will do so frequently and give us all the benefit of his great wisdom and experience.

My second duty is to congratulate the noble Lord, Lord O'Brien, not simply for his balanced and excellent speech this evening but also for his considerable contribution as chairman of our committee. He led us quietly but efficiently through the great maze of argument and he was supported by an excellent staff and, if I may say so, a good committee. We weighed up the evidence after questioning the expert witnesses and I hope that we arrived at reasonable conclusions.

This report may not be a best seller but we on these Benches, together with our Liberal allies, welcome its publication, since I think we were the only party in the last election which included reference to the EMS and supported British membership. I am glad, therefore, that our distinguished all-party committee unanimously endorsed that view. This report, in my opinion, is the best and most objective presentation of the complex issues involved and it should help to secure a greater understanding of these issues. As the committee has stated,

"We hope to provide the information on which Parliament and the public can reach an informed conclusion".

Nowhere is that more important than in British industry. Fourteen days ago I attended the CBI conference in my favourite city, where there was a debate on the subject of trade and the effects on trade of currency fluctuation. Mr. Kenneth Dunham of Unilever, speaking on behalf of the General Council, stated:

"There was no evidence that the EMS had brought about any long-term financial stability and joining now could have a very great cost to us."

He was followed by Mr. Jeremy Leigh-Pemberton—incidentally, this is not the Governor of the Bank—who asked indignantly:

"How can we ask the British Government to join the EMS? It is a closely-knit club which relies on intervention."

There is a certain obsession on the part of the CBI these days regarding Government intervention, but how they will ever be able to achieve the desirable object of currency exchange stability without intervention of Governments or central banks I fail to understand.

Both those speakers and many members of the general public are apparently unaware that we are already members of the EMS, having deposited 20 per cent. of our gold and foreign currency reserves into the European Monetary Co-operation Fund, as the noble Lord, Lord O'Brien, has reminded us. We take part in all discussions on the realignment of currencies. The CBI, in my view, would do well to read the wise words of our chairman, the noble Lord, Lord O'Brien, when he says:

"Any success of the EMS has been modest, but some success it has already had".

Significantly, he goes on to say this:

"Greater currency stability has been achieved by the participants than has been evidenced in the rest of the world."

In a world which must surely seek some system to replace Bretton Woods, the experience of this European nucleus could be important.

Other speakers will no doubt enlarge on the history of the EMS and the Snake which preceded it. It is sufficient to say that the Snake had no mechanism for indicating which currency was moving out of line and which central bank had an obligation to intervene. Secondly, there was a lack of provision for reserves for the purposes of intervention. The EMS sought to remedy some of those deficiencies and indeed it has four advantages over its predecessor. First, central rates are expressed in terms of the European currency unit, so that a member currency's position is determined in relation to the average of all participant countries; secondly, when a member currency approaches one of the limits to its divergence from the central rate, all participant countries are obliged to intervene to keep that currency within its prescribed limits. Thirdly, divergence indicators set at 75 per cent. of maximum permitted limits of divergence mean that intervention is triggered before the limit is reached, and it is hoped that fluctuations are thereby diminished. Fourthly, member states are permitted to intervene before the trigger levels are reached, which helps to avoid an air of crisis management and reduces fluctuations induced by speculation. I suggest that these four reasons are basic, fundamental and desirable in order to avoid the violent fluctuations which seriously affect smooth trading relationships.

There is one concern which will be expressed in this debate tonight—indeed it has already been raised by the noble Lord, Lord Barnett—and that is the fear that membership implies a loss of sovereignty and is a constraint upon our ability to pursue our own domestic economy strategy. It is true that membership would encourage convergence in economic policies, but since we are members of a community this could be a good thing. The EMS is not a regional bloc: it is an EEC institution and it has shown a flexibility which has not inhibited the French or Italian socialist governments. The effect of the ERM on the exchange rate targeting is well argued on page xx, paragraphs 67 and 68.

The other major concern is that the EMS has no policy in relation to the US dollar, and, while our trade with the EEC is growing, the relationship of sterling to the US dollar is of greater significance in our trading pattern. The report expresses the hope (which I share) that United Kingdom entry, together with the importance of the deutschmark in relation to the dollar, could help the ERM to develop a common policy in relation to the US dollar.

It is a complex subject, and there are many speakers. Short speeches will not do justice to its importance, but the report itself deserves to be widely studied. I commend its contents and its conclusions.

My Lords, may I join the noble Lord, Lord Taylor, in congratulating the noble Lord, Lord Barnett, on his very wise and notable maiden speech. I remember him very well from when I had the honour to lead the European Parliament delegation to a Council of Ministers, when he was the United Kingdom Minister concerned in respect of the budgetary conciliation procedures between the Council and the Parliament. That was in the early days, before, I think, the noble Lord, Lord Bruce, and the noble Lord, Lord Brimelow, became Members of the Parliament. I have a great admiration for him; and I was always so pleased because although we did not exactly agree he always smiled back at me, and I hope that I smiled back at him.

May I also congratulate the noble Lord, Lord O'Brien, on his admirable report and on his able chairmanship of the sub-committee, of which I was not actually a member but whose meetings he very kindly allowed me to attend from time to time. His report is very able and wise, and, from the European point of view, encouraging. I enjoyed attending the few meetings to which I went, and, of course, I followed as closely as possible the transcripts of other meetings.

I agree very much with the report's conclusions and, in particular, that the balance of advantage lies in early entry to the system. Personally, I could go a little further than this in advocating that, with present sterling exchange rates, now may well be a good time. As your Lordships know, as a former member of the Budgets Committee of the old European Parliament I have always been one of those who, like, I think, a majority of members of the present European Democratic (that is, Conservative) group in the Parliament, believe that full entry into the system should be thought of as a step towards European monetary union.

I know that this is a controversial subject, but I do not hesitate to state what has always been my view. I know that not all will agree with me, and I speak personally. But there is a great deal to be said for the original, if very ambitious, Werner Report of 1970, to which the noble Lord, Lord O'Brien, referred. Personally, I stand by virtually all I said in the debate on my Unstarred Question on 26th June 1978, over five years ago, on the need for monetary union within the Community. Indeed, I could almost repeat that speech verbatim today—which your Lordships will be relieved to know I shall not do—with the addendum, that I think the time for our entry into the exchange rate mechanism, followed by further study of the feasibility of full monetary union and the creation of a common reserve fund and a European Central Bank, would be even more appropriate now than it was then.

I have gained the impression that that view is also held not only by those Members of the European Parliament who gave evidence to the sub-committee—that is, Sir Fred Catherwood and Sir Fred Warner (the two Freds, as they are well known), and Mr. John Purvis, whose admirable memorandum can be read at pages 33 to 38—but also, I think, by Mr. Robert Jackson and Lord Douro, who appeared before the sub-committee last week on the future financing of the Community, which, in my view, is not an unrelated subject.

Already, five years ago I strongly supported Mr. Roy Jenkins, the then president of the Commission, in his argument that monetary union, as a successor to entry into the EMS, would favour, as I think the noble Lord, Lord Taylor, has said, a more efficient expansion of industry and commerce in Europe. It was clear then, as I think it is now, that many businessmen believe that the removal of exchange risks and inflation uncertainties between member states would have a major confidence effect, and that trade can be fostered with greater confidence if British firms can make quotations for business in other member states, so that the currency risk is removed from any given transaction.

Ultimately, monetary union would also bring all the advantages to Europe of a major international currency, and I found five years ago, as I now know from personal discussions with members of OPEC, that that organisation might well welcome an alternative currency for quoting oil prices, even if they would continue using the dollar as well.

I regret that the Bremen summit in 1978 did not make greater progress and that the subsequent discussions between Mr. Pompidou and Mr. Heath did not produce the hoped-for results. However, as the noble Lord, Lord O'Brien, has said, and as the noble Lord, Lord Taylor, has repeated, the system has had some modest success in recent years, and I was glad to hear the noble Lord, Lord O'Brien, say that greater currency stability has been maintained among the participants than has been evident in the rest of the world, the behaviour of sterling not excluded.

As the noble Lord has said, the committee were clearly persuaded that the EMS is likely to endure and modestly progress (I liked his words) adding, as he did, with the European currency unit coming into wider use as a unit of account, and I was glad to hear him say even as a currency. In the banking sector, as we know, there has already been an expansion of the use of the ECU in private markets, and I understand that even the City of Quebec has been borrowing in these units, as well as others. Therefore, do let the United Kingdom get within the exchange rate mechanism itself.

It does not seem to me to be enough merely to deposit 20 per cent, of our gold and dollar reserves with the European Monetary Co-operation Fund. That has undoubtedly been a step in the right direction, I agree. But should we not also peg our currency to others in the Community? I am glad that the committee are of the opinion that further delay in taking this step is no longer justified.

It is very good to hear this from the noble Lord, Lord O'Brien, so distinguished a Governor of the Bank of England; and also, I imagine, his other colleagues on the committee, another Governor of the Bank of England and the noble Lord, Lord Bancroft, who I think is to speak tonight, probably agree with this. I was glad to hear the noble Lord, Lord O'Brien, ask how Her Majesty's Government can retain credibility if even more years are allowed to pass while we shiver on the brink. Do let us now take the plunge. This would not only add weight to British influence in the Community, but, above all, would demonstrate to other member states that we are true Europeans and determined to help make the EEC work. I am sure that our entry into the system would create a much more favourable climate in our difficult discussions over the British budget contribution and on the future financing of the Community. It would assure our partners that we were in fact full members of the club.

I know that we are not the only member state that has caused difficulties. I should like to make that clear. Other members should be persuaded—one other member, certainly—to free up exchange controls; and another should allow the ECU to circulate freely, which it does not do at present in that particular member state.

With the coming next June of the European Elections, I have been interested to find that all the MEPs to whom I have spoken—and they are quite numerous—say that their supporters in their constituencies are very much in favour of our joining. Therefore, whatever qualms the CBI may have about full EMS membership imposing constraints on the United Kingdom following the best fiscal and monetary policies for domestic management, I believe that now there is an overwhelming political, diplomatic and economic case for full membership. Therefore, I look forward to my noble friend Lord Cockfield, the Chancellor of the Duchy of Lancaster, giving us some encouragement that we shall in due course join the system. Again I congratulate the noble Lord, Lord O'Brien of Lothbury, and the members of his sub-committee on their encouraging conclusions.

My Lords, I believe that all the members of the Select Committee should consider themselves extremely lucky that the noble Lord, Lord Barnett, was introduced into your Lordships' House in time to join this debate. We are most grateful for his wise remarks and we shall look forward to hearing him on many occasions in the future.

I should also like to offer my thanks to the noble Lord, Lord O'Brien of Lothbury, who steered us quite brilliantly through the straits of Scylla and Charybdis. Although he came through satisfactorily, it was not into entirely still waters on the other side, but it was not only his tact but his experience and wisdom that got us through so satisfactorily. From the start, it was absolutely clear to me and to most members of the committee that we should hear two contrary views about the rights and wrongs of entry into the European Monetary System. First, there were the politicians, who were entirely in favour of us going in, for reasons which I shall mention in a minute. Then there were the bankers, who took the contrary view. I agee with the noble Lord, Lord Barnett, who said that both sides probably overstated their case. I found the whole exercise one of the most interesting experiences I have had since joining the Select Committe.

To take first the arguments of the politicians, they said—I believe the noble Earl, Lord Bessborough, also mentioned it—that we give the impression that we are not wholeheartedly members of the Community. This not only damages our own image but reduces our influence in the Community, which is detrimental not only to ourselves but to the development of the EEC as a whole. They further argue that the EMS, unlike its predecessor, the Snake, has shown that it has sufficient flexibility to meet quite serious strains and has succeeded in preventing exaggerated short-term movements in rates and, furthermore, has had an appreciable influence on individual members' convergence of monetary policy towards the control of inflation and sound monetary policies. Finally, they argue that it has helped to bring about a welcome use of the ECU not only as a unit of reference but as a unit of account, with a secondary market which is not only of benefit to traders but is a move towards the long-term objective of European currency union. That is an objective to which I still adhere, although it may well be a long way ahead.

The bankers, on the other hand, while not disregarding these arguments, put strong emphasis on the special nature of sterling. It is a petro-currency and still to a considerable extent, whether we like it or not, a reserve currency. It is therefore a home for public and private liquid funds which are extremely volatile and could amount at any one time, I am told, to a figure of about £50 billion.

This situation, the bankers say, is likely to persist because of the sophisticated capital market and forward exchange facilities in London, particularly in relation to the dollar, and the fact that the large national debt offers a form of investment in readily marketable secondary securities which does not exist in any other member state, since most of their public debt was wiped out in the war. They argue further that by going fully into the EMS and the ERM we could actually be an embarrassment and not a help or, as one banker put it:

"I suspect it is quite possible if we join we would be regarded as a cuckoo in the nest".

My own views are that on balance the advantages of being a full-time member of the system outweigh the disadvantages, with the following provisos. First, that we are satisfied that we are going in at the right rate (I shall say something about that in a minute)—that is, one that can be sustained for a reasonable length of time and has a reasonable relationship to the real as opposed to the nominal rate of exchange. I should explain that the nominal rate of exchange is the actual rate of exchange at any one moment of time, and that the real rate of exchange is a notional figure based on a common level of prices and an equal rate of inflation. At the moment I believe, as is shown by the "Macdonald index", sterling is overvalued in European terms, but not so much as the dollar.

Perhaps I should explain, to those who have not had the advantage of being educated in America, what the Macdonald index is. The Macdonald Corporation is an international corporation of food shops and hamburger shops around the world. The Macdonald index is quite simple. It takes the cost of a delicious meal of a bottle of Coca-Cola, a hamburger and a plate of chips in one country, A, and compares it with what it costs in another country, B. The difference between the two shows what should be the real rate of exchange. For example, if you go into Macdonald's in the Brompton Road and have that delicious meal, it will cost you about £3. If, on the other hand, you go to Macdonald's on the corner of 96th Street and Third Avenue in New York, it would probably cost you over five dollars. This shows that the real rate of exchange according to the Macdonald index is something like 170, not 150. This sounds rather a fatuous statement. On the other hand, it is quoted in the financial press in America and is not far off the real truth. If we take the Macdonald index, it shows that at the moment the dollar is heavily overvalued, that the yen is heavily undervalued and that sterling is slightly overvalued.

Secondly, we must accept the fact that, by opting for a stable exchange rate policy, we are to some extent sacrificing our ability to have an interest rate policy. You cannot have both strictly under control at the same time. With our very high—I believe damagingly high—rates, this must be a serious consideration. With fluctuating exchange rates, it is easier to compromise between the two requirements. In oral evidence we asked representatives of Her Majesty's Treasury whether they were now in favour of joining the ERM. Their reply was, predictably:

"When the circumstances are right, that is the right time to join".

With that I heartily agree, but it was not really helpful.

My final proviso is this. If we join, owing to the special nature of sterling, both we and our fellow members must be prepared to use massive support for sterling if large, short-term fluctuations are to be avoided. If these factors are taken fully into account and all are acceptable to the Government, then I am of the opinion that this could be the right moment to join. In my view, it is better to join when sterling is somewhat overvalued than the other way round.

My Lords, I would very happily spend the brief minutes of my comments upon expressing my pleasure, in the first instance, at the chairmanship of the noble Lord, Lord O'Brien, of the committee of which I was a member but from which I was continuously absent, though following closely and admiringly the labours of my colleagues which have been brought to fruition to some extent this evening. The noble Lord, Lord O'Brien, and I have had dealings with each other over a long period of years. I know him as a calm minded man of great experience, of world reputation and of good judgment and good temper—good temper strained with his colleagues in the central banking world only, I believe, on those occasions when he played tennis with the chairman of the Federal Reserve Bank in Washington.

I could spend the rest of the few minutes I have expressing deep pleasure at an old colleague in Government and in the House—my noble friend Lord Barnett—having joined us, especially in the light of the very valuable contribution he has made to our debate from his own vast experience from his years at the Treasury—vast experience which must be enormously valuable to him but which should be overcome at the earliest possible moment if we are to have the advantage of his keen and logical brain in the years ahead.

I will however offer a few observations on the substance of the debate tonight. I was strongly in favour of entering the EMS when I was in the Labour Cabinet when this matter came up. I do not wish to engage in the delicious improprieties of betraying other people's reasons for opposing it. I will merely say that my reasons for strongly wishing to enter the EMS remain my reasons today. The central reason when I then wished it, and why I now wish it, is that in my opinion, world prosperity at a reasonable level will only be maintained, and grave and damaging crises in our affairs only avoided, if we achieve a certain level of minimum international co-operative discipline which will make the interdependence that we have achieved work.

It was because we achieved those minimum levels of international co-operation that we prospered in the dangerous years following the war. And it is because we have abdicated from those levels of co-operation that we are now suffering the dangerous world crises which beset us. It becomes urgent that we restore in the world at any rate the minimum levels of co-operation in economic matters.

One of the many institutions which I regard as being involved in that minimum level of co-operation is the institution of the international management of money for the achievement of fixed but adjustable rates instead of the floating rates from which we have suffered in recent years. Those of your Lordships who recall the debates which led us away from the management principles of Bretton woods, which could well have done with adjustment, will recall that we were told that fixed rates were restricting freedom of economic policy. In fact, fixed but adjustable rates do not restrict freedom of economic policy. They do however place some restrictions on the delusions or mirages of economic New Jerusalems which one is entitled to peddle to one's fellow citizens. I personally find that restriction rather welcome, and the release from that restriction which was brought by floating rates has not been advantageous to us.

I do not wish to recall the promises which were made in the floating rate prospectus. Distinguished and learned friends of mine whom I am apt to name in moments of impatience—but will not tonight—told us that balance of payments was an old-fashioned notion that need not trouble any Government any longer; that a simple floating rate—and leaning back and adjusting to it—would enable us to abandon any of those absurd restrictions and restraints of monetary disciplines which we were inflicting upon ourselves for no good reason.

We have had some practical experience in the past few years of that prospectus and its fraudulent character. Our currency is floating downwards. Have we really emancipated ourselves from our problems by still further perhaps halving the rate of our parity against the dollar or other currencies? Have we in fact dealt with any of the fundamental economic problems by that attempt to reach a short-cut solution of devaluation? I hope that the noble Lord, Lord Cockfield, will not this time have the misunderstanding he once did of supposing me to be a champion of the solution of strength through devaluation. I am not, as your Lordships will gather.

Incidentally, I was interested to hear the noble Lord, Lord Seebohm, offer the House the argument that of course if one has some responsibility in the management of one's rates, this restricts one's interest rate freedom. Again, I have to point to the triumphs of the floating rate merchants in the way of interest rates. Are the American people spared the rigours of fantastically high real and nominal rates because they have a stricter policy of non-intervention than anything in Europe? Of course not. They have higher rates than any among the leading currencies. Our own interest rate experience under floating rates does not encourage me to believe that my noble friend Lord Bruce of Donington's hearty endorsement of the dangerous risk of high interest rates that will come from entry is not in fact justified by our experience.

I go along very strongly with my noble friend Lord Barnett and with the quotation he gave of my noble friend Lord Kaldor, who is not a friend of the European community principle, in recognising that world co-operation must be enhanced if the world is to deal effectively with the kind of crises we now have. I find it difficult to believe that those who passionately demand world co-operation can be serious if they demand large co-operation on the one hand but refuse to co-operate with their next door neighbours on the other. I find it unconvincing as a posture.

I must say, however, that when the EMS was formed there was clear evidence from the private discussions and some of the public pronouncements of somewhat naïve delusion from which both Giscard d'Estaing and Helmut Schmidt were suffering; namely, that in some way the EMS could achieve stability and success for the monetary situation of the Europeans without really recognising the need for that co-operation in Europe to be linked to world co-operation with the United States and Japan. I myself regard that view as an illusion. I believe that the EMS is just like the Community itself in its proper understanding. It is a regional piece of monetary co-operation which enables us to link arms with our trade partners in the United States and in Asia to achieve that minimum level of co-operation required for common prosperity.

It is because of our special interests and our special experiences that I press strongly upon my colleagues—but in vain—that we should enter the EMS precisely so that all our weight can be thrown on the need for the EMS to recognise itself as being fundamentally part of a world system; a regional piece in a triangle of crucial world co-operation.

I must confess that the argument that our special needs should keep us out of the EMS is a very flimsy one. Every country has special needs, and to plead special needs as a reason for not joining in a vital piece of international co-operation—which one has recognised as a valuable piece of co-operation—is really a simple plea of unilateralism. It is not compatible with the spirit of co-operative disciplines to say, "It is a splendid idea but my needs are rather special. My feet are bigger than yours. My problems are different from yours".

Of course the problems are different. Belgium's problems are different from those of the French; and Dutch problems are different from those of the Germans, and so on. But that is not a reason for staying out. The whole point of international cooperation is that a number of people with special needs co-operate so that those needs should be met in a co-operative manner without damaging each other.

I will say two words in conclusion upon two points. I know that the Government will be inclined to say, "It is all very well talking of world co-operation. Are the Americans prepared to co-operate?". Of course it will not be difficult to quote statements from the Americans that they do not believe in it, that it is against some fundamental religious or economic convictions of their leaders. But I have to say that underneath those statements is a deep uncertainty inside the American leadership, and that goes for the Federal Reserve, the American Treasury, the American State Department. I can speak from personal knowledge, but also from public statements, from all those sources of American policy-making to show that there is no unanimous hardline opinion that prevents them moving towards that world cooperation for which I have argued. Indeed, there is deep disquiet in the United States, and while they preach this laissez-faire they are practising every day a greater co-operation in the face of the immense world dangers which face us all.

My Lords, I should like to add my congratulations to the noble Lord, Lord Barnett, for his contribution to this debate. The report before the House proposes that we should join the European Monetary System as full members. At the moment, we do not share in the mechanism. Apart from the smaller companies, which are not greatly affected, the almost unanimous view of industry is that one of the factors which is inhibiting growth and recovery is widely fluctuating exchange rates. So long as that persists, it is impossible for industry to plan investment appropriately or to settle buying and selling policies. Anything, therefore, that we can do which will smooth those fluctuations should be done for the benefit of the industry in this country.

There is another reason which proposes very strongly that we should join the system and which is political: so long as we are members of the Common Market, we should observe its main policies. We cannot allow ourselves to be put in the position of appearing to pick and choose only those policies which happen to be agreeable to us. In respect of both those factors, I think we should bear in mind that 45 per cent. of our visible exports and 45 per cent. of our visible imports are now effected with Common Market countries.

Those two reasons are compelling, but they are not conclusive. The joining of the EMS will not ensure that there will not be exchange rate fluctuations. There have been various realignments in recent years, some of them quite large. What ultimately determines the rate of exchange is not adherence to a system; it depends on the strength and the weakness of a country's economic policies. Exchange rates, like water, must eventually find their own level. If a participant country strays from economic probity, it has three courses open to it. The first is to spend its reserves in supporting a weak currency. This is a costly and expensive process, as France found to her cost a year or two back. Belgium is suffering from exactly that problem at this time. The second course open is to ask for frequent realignments of the currencies, but that destroys credibility and may in fact destroy the system altogether. The third is to leave the system altogether.

It follows from this that the EMS is not a panacea which will ensure stability of exchange rates. The system has survived but not without difficulty. Nevertheless, we had evidence before us which was spoken with conviction that fluctuations in exchange rates were materially less in the last few years since the system has been in operation than would have been the case if there had been no system at all. Moreover, the system imposes a physical obligation and a very strong moral obligation on its members to adhere to sound economic policies.

There are two factors which affect this country particularly. Partly because we are a producer of oil, the price of which fluctuates considerably, and partly because by tradition we are one of the bankers to the world, we engage in very large capital flows which take place quickly and without notice. These big capital movements place a great strain upon our exchange rate when they occur. It is one of the factors which may make it difficult for us at times in the future, if we join the system, to adhere to the limitations which will be imposed upon us.

The other factor which affects this country is that in 1981 and 1982 the pound sterling was grossly over valued. If we had joined at that time it would have been disastrous. We should have had to adopt one of the three courses I described just now. At the present time—whether we can rely upon the revolting evidence of Coca Cola and hamburgers I do not know—it seems possible that the exchange rate has reached a more realistic level, and, if that be so, that particular barrier to our joining has been removed.

After weighing all these factors, the committee came to the conclusion that the balance of advantages lay in joining the system and that we should do so earlier and not later. I hope the report will commend itself to this House.

My Lords, while not being a member of Sub-Committee A, I have had the privilege of sitting in on its meetings and, in particular, the opportunity of listening to the witnesses and reading the evidence submitted. It has been an especial privilege to watch Lord O'Brien's chairmanship. I regret that 30–odd years ago, when I was offered a job with the Bank of England—I chiefly knew of him because he was signing the bank notes at that time—they offered only £350 a year, so I took my services elsewhere, to my Cambridge college. I only hope they have improved the pay since then; perhaps the noble Lord will tell us.

My Lords, the period of exchange instability we have been living through in the last 15 years really dates, I think, from the British devaluation of 1967, and the subsequent movement of the dollar led pretty directly to the first major oil price rise, as the Arabs thought, plausibly enough, that their oil was being paid for in cash that was losing its value. As the turmoil led to the depression, and as further depression led to more turmoil, so the world entered its present period of floating exchange rates—a direct antithesis to Bretton Woods and something from which we all now wish to escape.

I agree strongly with the noble Lord, Lord Lever, that Bretton Woods played a major part in the great boom of the postwar years. Underlying its effective working were two major considerations. Most economies kept their working pretty much in line with international standards; and, of course, behind those international standards was the strength of the leading economy, the United States, the dollar. The basic cause of exchange rate instability was, of course, the wildly different economic experience of the different economies during the turbulent 1970s. In this context I see the EMS as some attempt to achieve, at least in this corner of the world, some exchange rate stability.

Things are now calming down. In particular, the era of major inflation is almost over. Germany. Japan and America are down to 1 per cent. or 2 per cent., and the United Kingdom is within sight of 4 per cent. in the next year or 18 months. The OECD weighted average, therefore, is now low and falling. I speak of inflation rates. That means that ultimately the ratio of exchange values will be related to purchasing power parity—the Macdonald index, as the noble Lord, Lord Seebohm, so vividly and perhaps nauseatingly, described it to us.

In this context I have three or four things to say which I hope will not take very long. I think I am right in saying that the EMS was more a reaction to turmoil than a step along the road to the Werner system of European monetary union. This was rather reminiscent of the 1930s, when the free world economic system collapsed into a series of monetary blocs—the sterling zone, the franc zone and, of course, the Schachtian zone. Fortunately, of course, the reaction of the world to the current depression has not been as autarchic as the reaction 50 years ago. In fact, the EMS is relatively outward looking, and I agree very strongly with the noble Lord, Lord Lever of Manchester—I always agree with practically everything that he says—that the purpose of currency stability is to promote trade and not to limit it, as it was in the 1930s.

Next, the search for exchange rate stability seems, however, to have become of diminishing significance because the period of major currency turmoil, if I am right, is now virtually over, if only because the great world inflation is over. Of course, one speaks subject as always to the proviso that there might be an explosion in one of the oil countries or the closing of the Straits of Hormuz. Given those exceptions there are reasonable expectations of world inflation being over. This means that the period of tremendous exchange rate volatility through which we have been living is also over, except as a result of adjustments to long-term changes in productive relationships. I agree, for example, with the noble Lord, Lord Seebohm, that the dollar is in that context over-valued and the yen is under-valued. I doubt myself whether the EMS exchange rate mechanism has contributed greatly to currency stability during this period in which it has, generally speaking, come about.

I therefore find myself slightly more cautious than Sub-Committee A in its conclusions. It said in the evidence and in the report that currencies within the EMS have fluctuated less than they would have had the EMS not existed. I do not think that the statistical evidence fully supports that. So much depends on the measuring rod that is adopted. Of course, Ireland apart, the economies have tended to harmonise around the dominant European currency—the deutschmark. I speak now of members of the exchange rate mechanism rather than of the EMS itself, which includes the United Kingdom.

I am not sure, either, how sterling will move in the world context. So much depends on the oil price, which I expect to fall, possibly significantly. But if that is at all the case it might be a little premature to join the exchange rate mechanism as a full member yet because (although I say this in fear and trembling of bringing down upon me the wrath of the noble Lord, Lord Lever of Manchester) to some extent it might limit our freedom of action and substitute a series of step-jumps instead of day-by-day fluctuations. Speculation about step-jumps is far more dangerous than speculation about day-by-day fluctuations.

On the whole, the report is an absolutely first-class piece of work, and very compelling reading. But I am not yet fully convinced that the time is quite right, although I must say that when the next step towards fuller political union comes then obviously this will be part of it. But looking realistically at what is about to take place in Athens and elsewhere at the moment, I think that is a little further off than optimistic colleagues might think.

My Lords, under the guidance of the noble Lord, Lord O'Brien of Lothbury, the sub-committee chose its words with consummate care. The recommendation for early, though not necessarily immediate, entry into full membership has a resonance about it which will live.

Others have commented, and others will comment, on the technical arguments raised by the report. I have only two very brief points to make. The first relates to time. Even the opponents or the sceptics about our joining agree that the arguments are very finely balanced and that it is really a question of the time not being quite right. The noble Lord, Lord O'Brien of Lothbury, and others have pointed this out. We are in danger of becoming the high priests of the doctrine of unripe time. We are just not as good as we used to be at reaching decisions and carrying them out. Over the past 25 years and more it is within our recollection that our attitude towards the European Community and its policies has provided several examples. We have hesitated. When at last we have jumped in, we have sometimes found that the tide has been on the ebb and that the level of the water has been too low for comfortable, let alone elegant, swimming. Super-powers have time to spend, but for smaller powers time is a currency that they do not have. I do not believe that we can afford to hang hack any longer, however finely balanced the arguments. Time takes more spin than some spectators realise.

My second point is about decisions. As a country, we have been tending to dodge hard policy issues. This applies to most, although not all, Governments of all colours. We have tended to go for the infinitely softer option of organisational or structural change. Consider local government, consider central Government and consider the National Health Service. But now we have to decide whether to stay out or to join in. This time there is no easy organisational substitute. It is a policy decision which we must make and if we do not we are left, as has been pointed out by the noble Lord, Lord Barnett, and others, in an ecstasy of indecision. This, too, is neither comfortable nor elegant.

Those who agree with the analysis of the sub-committee will want this country to join early. There are those who feel that the issues are very finely balanced indeed. I believe that history and the future point in the direction of a rejection of the doctrine of unripe time and to a decision to join earlier. How splendid indeed that the noble Lord, Lord Barnett, shows himself to be a joiner, even though a sceptical one. It would be a pity if we showed ourselves to be more afraid of failure than we are fond of success.

My Lords, I rise to support the Motion moved by the noble Lord, Lord O'Brien of Lothbury, introducing the Select Committee's report on the European monetary system. It is the latest of the reports on this subject which the committee has produced. I also support its recommendations.

I should like to thank the noble Lord, Lord Barnett, for his speech. The noble Lord, Lord Taylor of Gryfe, quoted from his book. He said that five years in the Treasury had left the noble Lord a pessimist. I left the Treasury remaining an optimist after three years, which I suppose shows that I was not there long enough.

The EMS has become to the Select Committee a familiar topic: but this report is nevertheless timely if only since it may help to dispel the widely held misconception among the public that the United Kingdom has still to join the EMS. It is a misconception which kept creeping in even during the drafting of the report. As has now been made abundantly clear, we have of course been members from the outset, though we have so far declined to take the admittedly important step of joining the operating unit—namely, the exchange rate mechanism. The committee has come in this report to a firm recommendation that the United Kingdom should at an early date become a full member of the system. This certainly represents an evolution in its thought.

The committee had the advantage of hearing, apart from what one might call the official witnesses, evidence from two individuals who were well placed to take a personal and objective view. They were Professor Thygesen and Mr. Padoa-Schioppa. It is true that the latter has been a director in the European Commission, but he was on the point of returning to the Bank of Italy, and his evidence does not give the impression of "adhering somewhat strictly to a full brief"—as I once heard a Minister say that he was doing in your Lordships' House. I found the views of these two individuals of special interest and importance. One of the questions that they were asked was what they thought would have happened had the United Kingdom been a full member of the EMS from 1979. Their answers, with some difference of emphasis, were the same. Using shorthand, they were that the rise in sterling would have been smoothed out, the inflation rate would have come down more slowly and our progress would have been surer and steadier. Both witnesses were sharply cross-examined on this thesis in the committee without, in my view, being seriously shaken. It is a matter of opinion as to whether this would have been better or worse for us than what actually occurred. The point is that it would have been a situation—although different—which we could quite easily have lived with.

The position today has certainly improved over what it was in the years from 1979 to 1981. The concern expressed this evening is that sterling, having some of the attributes of a petro-currency, is sensitive to movements in the price of oil. But I believe that the consensus in the oil industry at the present time is that the price is less likely to fall and more likely to firm up slowly in the next few years. Moreover the sterling rate against those of other countries has not moved much in recent months. But on this subject I can only bow to the expert opinion of the noble Lord, Lord Seebohm.

However, we seem to be in a state of greater stability. Of course there will always be some reason against taking the plunge. All I am underlining is that on the basis of the evidence that the committee received the risk is now less than it was. Incidentally this well-balanced evidence is in some contrast to the views of two economists which were printed in the appendices to our report. One was firmly against full membership by the United Kingdom on the grounds that the EMS is redundant; the other maintained that the United Kingdom had been wrong not to join as a full member on the grounds that the system has been a great success and that full membership would help to stimulate economic recovery. These two economists' views neatly cancel each other out.

It seems that a great many of the reasons which have been advanced in opposition to our joining the ERM have disappeared and lost their force, while the Government have maintained their stance that they are in principle willing to join the ERM when the time is ripe. The Government have been saying this now for some years.

Those of your Lordships—and I am sure that there are many, and certainly the noble Lord, Lord Bancroft, is one—who are familiar with F. M. Cornford's Cambridge classic Microcosmographia Academica will know about the principle of unripe time. As it is being applied by the Treasury in the case of the EMS, I venture to remind your Lordships of the text of this principle. It is that:

"People should not do at the present moment what they think right at that moment because the moment at which they think it right has not yet arrived".

Cornford adds as a wry comment:

"Time by the way is like the medlar: it has a trick of going rotten before it is ripe".

I fancy that this quotation is quite topical in relation to the official attitude to the ERM. In a way it is a pity that this debate comes when it does, because not even the most enthusiastic supporter of a move to become a full member of the EMS would expect an announcement to be made at a time of such turbulence in the Community over the budget and the CAP. Unfortunately, the Minister has too easy a task in saying again this evening that the time is not ripe.

One must assume that the hassle over the budget and the CAP will soon find a solution. Otherwise the Community is unlikely to advance and develop and could tear itself apart. What I would urge is that when the eventual compromise is found and the members of the Community can again think more calmly of the future, the Government should, so to speak, seal the bargain by the United Kingdom becoming a full member of the EMS. In my opinion, this move is now justified in itself, but it would also have the political effect of reassuring our partners that we really do mean to join with them in strengthening and guiding the Community into a more harmonious future. It is my hope that this report and the evidence on which it is based will help the Government to take the fence.

My Lords, it would be presumptuous of me to congratulate such an experienced parliamentarian and distinguished ex-Minister as my noble friend Lord Barnett on his maiden speech, but I can congratulate him on getting exactly the wavelength of this Chamber. It is something which not everybody is capable of doing. I also ask him to note that we gave him a solid Mancunian second row, going back to Lord Rhodes, and including himself, with Lord Diamond beyond, and also my noble friend Lord Lever of Manchester.

I intend to speak on one single aspect of this report: the tenuous relationship between the European monetary system, as it has evolved, and European union which is still a dream of a Utopia which may never be attained and perhaps never even universally desired. The subject is of some importance for one reason. A minority—a small minority—even across the Channel give their support to the European Monetary System because they believe that it is the first stage on the road to the Holy Grail of monetary union, the first stage on the road to the millennium, when the lira will lie down with the deutschmark and the pound sterling with the French franc. These relationships between the currencies will be both fixed and eternal; or, better still, they will acknowledge their irrevocable union by taking the same name: the ECU, the Europa, or some other title as historical and romantic.

We could be indulgent towards this hope, which the noble Earl, Lord Bessborough, shares, but for one reason: its effect on the majority of people in Britain who do not share the dream of monetary union, and who do not wish to set out on that pilgrimage. They say that if the monetary system is intended to serve mainly as a precursor of monetary union, then it is a dangerous instrument, and the less that we have to do with it the better for Britain.

The noble Lord. Lord O'Brien, discussed the objectives of those who created the system, and he pointed out that representatives of the Community institutions and most academic witnesses regarded the monetary system as the first step towards building the edifice of monetary union. That was in contrast to the banking and trade witnesses, who saw it as a means of producing a zone of monetary stability to help to bring the European economies closer together. Indeed, I may add, the EMS has recently been described as the backbone of the Community. And surely it is significant that no mention of monetary union was made in the resolution of the Council of Ministers which set it all up.

As the noble Lord said, the Werner Report of 1970, with its aspiration to achieve monetary union by 1980, was never realistic. And the aspiration was killed in the early 'seventies by the recurrent oil crises and the development of widely different rates of inflation among the member nations. Monetary union, in the eloquent phrase of Mr. Roy Jenkins, became immobilised in scepticism; and there it remains.

These distressing phenomena of the oil crises and high inflation also destroyed the European euphoria created, as it had been, by the economic miracles of the original member nations. When the monetary system was formed in 1978, it was legitimate in Britain to have pragmatic doubts about our full participation. But these doubts were magnified and distorted by the cries of the anti-Marketeers that this was the primrose path to federal Europe and the final abdication of British sovereignty. My answer then was that a journey to Dover could be an end in itself; it was not essential to travel all the way to Paris. What filled many people in Britain with alarm probably made it easier for some Governments in Europe to join the EMS, because a belief had grown that monetary union would mean an economic and political nirvana.

I am dwelling on this point, my Lords, not for historical reasons, but because the federal phobia still exists and may yet create a climate of opinion and deter a British Government from taking what our committee believes to be a useful step. I was not present at the birth of the EMS, but I was in the antechamber and indeed had been a close observer during the period of gestation. I was rapporteur of the subject in the European Parliament and my greatest difficulty was to convince both the monetary unionists and their opponents how far the proposed new system would he from the hopeful dream of one side and the nightmare of the other.

There was an excess of both hope and fear and an absence of realism. M. Robert Marjolin was a former secretary of the OEEC and vice-president of the Commission, and in 1975 he produced a report which pointed out that Europe was no nearer to monetary union than it had been in 1969. I quote:

"National economic and monetary policies have never been more discordant, more divergent, than they are today".

He added that there were other causes of failure, such as,

"lack of political will and of understanding of what monetary union really meant. At Government level there was no analysis of the conditions to be fulfilled…as if it was sufficient to decree the formation of monetary union for this to come about at the end of a few years without great effort or difficult and painful economic and political transformation".

Monetary union demanded that the instruments of economic and monetary policy should no longer be in the hands of national Governments, but should be required to be put at the disposal of Community institutions. These institutions would have to include a European political power, an integrated system of central banks, and a Community budget of some weight. One can see how hopelessly far away from that is the Community today in practice and in concept, as the member states are locked in battle over the principles of their relatively small budget.

M. Marjolin had the perspicacity to say eight years ago that member states working in co-operation with North America and Japan must face the problems of inflation, massive payments deficits, and unemployment without asking too many questions about the future. We arc still contemplating these dangers today. We are still longing for the day when the European Community, Japan, and the United States together create a more stable monetary world.

As the noble Lord, Lord O'Brien, pointed out, there are many calls for a successor to Bretton Woods, but the United States seems to have lost the interest that it once showed. I was very relieved to hear my noble friend the noble Lord, Lord Lever of Manchester, express a slightly different and more optimistic view about the opinions in the United States on this subject.

I believe that we should regard the EMS not as a precursor to monetary union, but as a nucleus of stability in a world context, and thus the precursor of a new Bretton Woods and a return to stability in the exchanges of the world. We must hope that the next stage in the evolution of the Community will be reached shortly at Athens, with a budgetary system acceptable to all and an agricultural policy no bigger and no more costly than it need be.

For five or six years British Governments have been fighting for a fair budget, and sometimes in that struggle rhetoric has had a certain acerbity and there have even been threats and counter-threats. This has been created in Europe an impression that Britain is the reluctant partner in the Community. If all goes well at Athens, then surely the time will have come when we should make a gesture towards our partners by becoming full members of the monetary system and proving that we share the faith of the founder nations of the Community that the further development of that Community is in the interests of each and all of us.

My Lords, I thank the noble Lord, Lord Barnett, for the pleasure he gave me by his maiden speech. I look forward to many more such pleasures. My own remarks this evening will be narrower in scope than those of previous contributions to the debate, and entirely devoid of rhetoric. The Select Committee is of the opinion that membership of the exchange rate mechanism is desirable, and that early, but not necessarily immediate, membership is desirable.

The Government have not yet seen fit to accept the full obligations that would flow from membership of the exchange rate mechanism. It seems to follow that the criteria of the Select Committee for accepting those obligations have been met but the criteria of the Government have not been met. That gives rise to the question: what are the Government criteria? A Treasury witness said:

"It is Government policy that when the circumstances are ripe, that is the right time to join".

That seems to imply that the criteria of substance for joining have been met and that the only criteria that remain to be met are those of timing, of circumstance, of conjuncture and of expediency. But what are those criteria? Are they such that perhaps the acceptance of the full obligations of joining the exchange rate mechanism will be postponed indefinitely?

I should perhaps say why I raise the question of indefinite postponement. In the evidence appended to the report there are scattered references to past events and recent trends that give rise to doubts—doubts that found expression in the reserved attitude of witnesses from the Confederation of British Industry and from the British Bankers' Association. They are doubts which, in my opinion, were not fully reflected in Part 7 of the Select Committee's report. Thus, Professor Thygesen, on page 147, referred to periods of tension in September 1979, in May-June 1981 following the French presidential election, and in the weeks preceding the realignment of March 1983. He thought that:

"The EMS may … be stoking up more severe speculative forces for the future by permitting realignments in the 8–10 per cent. range, as observed since October 1981. Realignments of this order of magnitude make it almost unavoidable that speculators gain at the expense of the authorities, hence encouraging speculation on future occasions … once the adjustments of central rates is allowed to move well beyond the limit of 4½ per cent., the authorities of the devaluing country may be forced to raise short-term rates to very high levels—well into triple figures, as was the case in France in the week prior to the March 1983 realignment".

Given the special vulnerability of sterling to speculative pressures, until this trend has been durably reversed, can the Government deem it prudent to enter the exchange rate mechanism? Then, again, Sir Fred Warner, on page 43, at paragraph 134, spoke of the negotiation of realignment as getting "really nasty". Difficulty and slowness in the negotiation of a realignment can be very expensive. During the brief period of our participation in the so-called Snake, we spent £1 billion in support operations in the foreign exchange markets, as shown on page 10, paragraph 28. Future costs might be greater. I have said enough to indicate that, in my opinion, for the Government a decision to accept the obligations of full participation in the exchange rate mechanism cannot be free of misgivings about the potential costs. It is for that reason that I wish to elicit the Government criteria for joining or not joining the mechanism.

My Lords, the House will be grateful to the noble Lord, Lord O'Brien, for introducing this Motion and for having so successfully presided over the deliberations of the Select Committee formed especially to consider the European Monetary System. I have said it many times before, but the reports from the Select Committee on the European Communities have attained an international reputation because of their comprehensiveness, their thoroughness and their lucidity. We are most grateful to the noble Lord, Lord O'Brien, and his committee members for having lived up to that standard.

The House will also have listened with pleasure to the maiden speech of my noble friend Lord Barnett, who did his best to be non-controversial by departing completely from his party's policy in connection with the European Monetary System. This is completely acceptable. We in the Labour Party are a broad church. We believe that democracy is essentially government by discussion. As is well known, although happily not by personal experience, the only place where there is unanimity is in the graveyard. Your Lordships' House can never be accused, I trust, of suffering from that defect.

I find myself in my customary position of dissenting from most of what your Lordships have said. I find myself in the strange company of the noble Lord, Lord Vaizey, and I anticipate, although I dare not say so with confidence, that I may possibly to be in some significant agreement with the noble Lord, Lord Cockfield—an unusual event for me, and one to which I look forward with eager anticipation. The Treasury, on balance—one has to use the term "on balance"—came out against joining the full European mechanism. I assume that the noble Lord, Lord Cockfield, will in all probability, although one is never certain, follow the same lines as the Treasury, the National Institute of Economic and Social Research, the CBI, the British Bankers' Association, the Ford Motor Company and myself, whereas we have for joining the European Monetary System, in its full sense, through, the acceptance of the automatic mechanism, the representative of the European Commission, Mr. John Purvis MEP, and his two associates, and the Deutsche Bundesbank. I am a little baffled because, despite the eloquent words of the noble Lord, Lord O'Brien, the Bank of England, so far as I can read its evidence, remains profoundly neutral. It is difficult to interpret the evidence of the Bank of England in any other sense.

I am not a banker; I am not skilled in matters of banking. I hold the rather plebeian standpoint which may or may not find itself acceptable to your Lordships—namely, experts should be on tap, never on top. Therefore, I tend to take a view in regard to this report based on rather broader lines.

We in the free world live in a world in which there are vast unused resources and plenty of people willing to work in order to obtain benefit from the use of those resources. This of course is so commonplace that it may perhaps be accepted as part of the scenery. But to people like myself it remains still profoundly illogical. At the same time it is reflected in our own country. We have vast need of people being satisfied and yet we have an army of unemployed people that would be quite prepared to work in order to satisfy those requirements. That may be trite, but it is inescapable. That sometimes means that I look a little askance at the most distinguished individuals, including many of your Lordships, who move in these very high monetary and banking circles and who seem to be completely oblivious of this fact, which must remain a reproach to civilised society.

I am not at all reassured by the statement, amounting to conviction, by the noble Lord, Lord O'Brien, that the world banking system is still in imminent danger of crisis. That hardly adds up to complete self-confidence among that band of experts—most reputable people and, indeed, most charming people—who presume to know how the affairs of the world should be conducted. Indeed, we know full well that the whole of the banking system—in so far as its policy of unrestricted advances, particularly in South America, was concerned—pursued a most asinine policy which is still due to haunt it for many years and will give rise, I suspect, to the anxieties voiced by the noble Lord, Lord O'Brien, about the stability of the system.

I have read through the report carefully and I have come to the conclusion that, although the members of the committee come down all fair and square in favour of its conclusions, by and large the conclusions run contrary to most of the logically argued evidence that was put before the committee. I ask myself the reason why. Indeed, it is revealed in the report itself. There seems to be the impression that it is a political necessity. The most compelling part of the report and the report's recommendations lies in the political desirability of joining the system. That bothers me a little because it is based on the assumption that the European Economic Community is all that it is advertised to be.

I was amused to listen—and I say this not in any terms of disrespect—to the noble Lord, Lord Bancroft, who said that we cannot afford to hold back; and then to the noble Lord, Lord Seebohm, who said that we present an unforunate impression in the Community; and then to the noble Lord, Lord Sherfield, who said that he thought it was necessary that we should reassure our partners. Why, my Lords? Have we in this country reached the stage when we find it necessary in our expressions of national policy and the determination of national resolve to pursue decisions which are made purely with the aim of reassuring people that are associated with us? Those comments do not echo the Churchillian terms in which the Prime Minister herself has become accustomed to addressing the United States.

It seems to become an end in itself that somehow, for some reason, this nation has to make itself agreeable to people. I am certainly not in favour of our being disagreeable; I am certainly not in favour of our declining or pursuing objectives that are disruptive to other people. But when the chips are down the ordinary people of our country—who cannot travel out of the country at the speed at which capital is transported from one corner of the earth to another by key-tested telex from bank to bank—are invited to be patriotic. It seems a little odd that one of the prime purposes of our joining the EMS should be to ingratiate ourselves with other people, as distinct from co-operating with them on a friendly and, I trust, co-operative basis.

By now we know in our hearts—even the most perfervid supporters of the European Economic Community—that the European Economic Community is the common agricultural policy with a few peripherals, and that as a community it is desperately trying to furbish that image by taking on extra political objectives of co-operation that were not envisaged originally in the Treaty of Rome. I am all for co-operation. I believe that we should co-operate everywhere in the world with our European colleagues. But let us talk straightforwardly, let us talk with a degree of confidence and resolve, rather than doing things because we have to reassure people.

The evidence in the report suggests to most people—including, if I may say so, the Institute of Bankers, with whom I must say I rarely disagree—that it would not be in the interests of the United Kingdom to join the mechanism at this stage at all. They give a variety of reasons with which I shall not weary the House. However, it is quite certain that the existing system is under strain and according to most distinguished economists who have had an opportunity of looking at the situation since the report was published, the existing system and the existing currency alignments are already under strain and will probably have to be altered in the spring anyway. Perhaps the noble Lord, Lord Cockfield, will confirm that.

I admire the thoroughness of the report. I admire the sincerity and the wisdom of the people who have spoken in this debate, including not least my noble friend Lord Barnett. I am sorry to have to dissent but, along with the noble Lord, Lord Vaizey, oddly enough—with whom I very rarely agree—I find that the case is not proven. In my opinion, we should not at this stage subject ourselves to this mechanism; rather, we should pursue our own objectives as cogently and as courageously as we can. We have never been found failing in the past when we have been a little more self-reliant, and perhaps a little less supine.

My Lords, may I, first of all, congratulate the noble Lord, Lord Barnett, on a distinguished and elegant maiden speech. He has of course great experience in these matters. His appointment as Treasury spokesman for the Opposition will add lustre and illumination to the Benches opposite. I do not know whether that means that the speech this evening of the noble Lord, Lord Bruce of Donington, was his swan song on Treasury matters; but if indeed it was, may I be permitted to say that I have greatly appreciated the forthright way in which he has always put the points on matters about which he feels deeply and sincerely.

May I also, very briefly, take up the point made by the noble Lord, Lord Lever of Manchester, who suggested that on one occasion I had misunderstood what he said. In the early days when I crossed swords with the noble Lord I had not realised that his attacks were not directed at me at all but at the record of the Government of which he had been so distinguished a member. Once one realises that, everything drops into place! I am also glad that we have been forewarned about the likely approach of the noble Lord, Lord Barnett.

Since this matter was last debated in your Lordships' House on 27th January last year we have had the benefit of the very detailed analysis of the European Monetary System by the Select Committee of your Lordships' House. The sub-committee was under the distinguished and expert chairmanship of the noble Lord, Lord O'Brien of Lothbury, who also introduced this evening's debate.

Rarely has a debate so short in time been marked by contributions from so long a list of distinguished experts in the field. We have had two former Governors of the Bank of England, two former Chief Secretaries to the Treasury and many other prominent bankers and leading experts in the field. The debate has also transcended party lines, a matter which I think is a great tribute to your Lordships' House, because it means that we can bring our collective wisdom to bear on these matters without necessarily expressing a purely party point of view.

Although the report is guarded in its conclusions—and wisely so—the careful analysis, the wealth of factual information and the opinions elicited from distinguished experts are a valuable contribution to our stock of knowledge and will enable decisions to be taken—when that time should come—on a more informed basis. The conclusion reached in the report that:

"United Kingdom participation in the ERM [Exchange Rate Mechanism] is desirable",

is one which would be endorsed by the Government as an ultimate objective. Indeed, we have said so on many occasions. On the question of timing, I could not be so forthcoming. The committee itself accepts that the:

"exact timing must depend on general Government policy".

But it suggests that:

"the balance of advantage lies in early … entry".

But it qualified this by saying:

"though not necessarily immediate entry".

I felt that perhaps the noble Lord, Lord O'Brien, as well as my noble friend Lord Bessborough, went perhaps somewhat further than the report itself went in advocating immediate entry.

The problem as we see it in Government is that it is not possible to be specific about when conditions for entry will be right, and quite simply the reason for this is that the problems which remain cannot themselves be solved within a specified timescale. Perhaps I might touch briefly on some of these problems.

The Government recognise the concern felt by many in industry on the question of exchange rate volatility, and expression of these concerns was given in the debate this evening. It is not surprising that the ERM should be viewed as a kind of haven in which to shelter from the storms which periodically sweep through the exchange markets of the world. But it is important to recognise the source of the problem. It is to be found in high and variable rates of inflation. This was one of the factors which led to the breakdown of the Bretton Woods system and has been responsible for much of the subsequent instability in exchange rates.

The Williamsburg Summit recognised the critical role that co-ordinated and prudent policies must play in bringing about a lasting reduction in exchange rate volatility. Your Lordships' committee recognises the overriding need for a greater degree of policy convergence. The noble Lord, Lord Barnett, argued that there was little or no political or economic will towards the greater convergence needed. I would not perhaps go quite so far as the noble Lord in saying that there was no political will in this direction. But I agree that the progress made is simply not sufficient. There are indeed encouraging signs that convergence is taking place and at a significantly lower rate of inflation. The Government's own record here has been an exemplary one.

But despite this progress, much more progress needs to be made. Many countries are still going through periods of significant financial adjustment; market expectations still show a frequent lack of confidence. The general climate is still one which falls well short of the stable conditions which we are seeking.

This is the background to the concern recognised in the report that in certain circumstances sterling's membership of the ERM could entail more instability against the dollar. This in turn would impose strains within the ERM itself. True, such strains can be accommodated to some extent by currency realignments. This has happened with some frequency in the past and one cannot rule out further realignments in the future. Indeed one would not want to do so. But these step-changes in exchange rates can be as disruptive to industry as small day-to-day fluctuations.

Broadly therefore, our view remains that greater convergence of policies needs to come first, and it is very much a second best to argue that failures of convergence can be compensated by currency realignments.

It is important also to avoid—or at least to minimise—conflict with domestic policy. If there is a failure of convergence or if more generally conditions for membership are wrong, then the pressures on member states' financial systems are not eliminated. Instead, the pressures are reflected in domestic rather than external factors. Countries cannot rely on exchange market intervention by itself to withstand pressures of anything more than modest and temporary force. This is particularly true of the United Kingdom, whose currency is widely held and traded. In these circumstances domestic policy changes are required. Were sterling to become a member in the wrong circumstances, this would simply substitute interest rate volatility for exchange rate volatility. This could be just as damaging to trade and investment as the CBI in particular have argued.

The noble Lord, Lord Taylor, rather dismissed the reservations expressed by the CBI as ill-founded, but the CBI after all represent the people actually responsible for conducting our trade, and their views are based upon hard, practical experience. They represent, therefore, important evidence which needs to be taken very much into account.

Apart from these general considerations, sterling, as the report itself recognises, has two special characteristics which differentiate it from many other EMS currencies and complicate the decision as to timing. I hope the noble Lord will forgive me if I say that the report perhaps assumes too readily that the difficulties to which these characteristics give rise have eased sufficiently. First, the United Kingdom stands on its own in the European Community by being self-sufficient in oil. Sterling therefore tends to rise and fall with oil prices while other Community currencies do the opposite. Oil markets have been relatively quiet recently. But considerable fluctuations in supply and demand do occur and there are political factors which affect this market. While one would hope that the violent movements which characterised the 1970s will not be repeated, it still remains the case that political tensions in the Middle East tend quickly to be reflected in the exchange rate between sterling and other EMS currencies. The caution suggested by my noble friend Lord Vaizey is very relevant in this connection.

Secondly, both sterling and the deutschmark are widely used in international finance and so are particularly vulnerable to large speculative flows. Experience suggests that any large and sudden movement of the dollar, for example, tends to lead to strains between the existing members of the ERM and often to quite sharp movements between sterling and the deutschmark as well.

Perhaps I may comment briefly on the claim that the EMS has contributed to exchange rate stability. There is some evidence that nominal exchange rates of ERM members have been more stable than those of the United States, the United Kingdom and Japan over periods since 1979. But this is not conclusive evidence that it was the ERM itself which contributed to this greater stability. Sterling and dollar rates have fluctuated over that period for rather special reasons, and the narrowness of Japanese capital markets may well be behind the volatility of the yen. It is also unclear whether real exchange rates have been made any more stable.

I do not propose following the noble Lord, Lord Seebohm, on the question of the Macdonald index. All I can say is that I wonder whether it might leave us with more indigestion than enlightenment. As the noble Lord, Lord O'Brien, has reminded us, Britain is already a member of the EMS as such. We contributed to the European Monetary Co-operation Fund, and 20 per cent. of our gold and dollar reserves are in fact deposited in the fund. We welcome the modest but growing private use of the ECU, with London playing its full role as a centre for the market in ECU denominated assets. My noble friend Lord Bessborough referred with approval to this development.

We participate also in the negotiations on EMS modifications and in realignment conferences. Indeed, when my right honourable friend the Foreign Secretary was Chancellor of the Exchequer, he chaired a number of these conferences. We already play, therefore, a responsible and indeed substantial role in the EMS.

My Lords, the Government have always accepted that sterling's eventual membership of the ERM would be an important step forward. But it would be essential that our membership should be successful and continuing. This means that it needs to be achieved in the right circumstances and when the time is right. Joining in the wrong conditions would neither strengthen the system nor be helpful to British industry. Nor would it be sensible in terms of domestic policy.

While, therefore, we are united on the ultimate objective, we need to be particularly cautious on timing. We have in the circumstances I have described no immediate plans for entry. This is not a matter of indecision as the noble Lord, Lord Bancroft, has suggested, but a conscious decision taken on the facts as they exist at present. But I can assure the House that we will continue to keep the matter under close review and the views expressed by your Lordships will be fully taken into account in that review.

My Lords, my first very pleasant duty is to thank all those noble Lords who have taken part in this debate, which I think it will be agreed has been an interesting one. I am particularly grateful to the noble Lord, Lord Barnett, for having done so. He made what one would expect him to make: a most thoughtful and helpful contribution. Until we came to the end of this debate we had almost reached unanimity. It became almost dull, but one or two rescued us from that unhappy fate. The noble Lord, Lord Vaizey, I was sad to hear, did not think it worthwhile going to the Bank of England at £350 a year. I should tell him that I went in 1927 at £150 a year, and 46 years later, on the whole, I thought that it had not been a bad deal for me.

More important, the noble Lord referred to what happened in the 1930s—something which I lived through as a young man as a central banker. The currency blocs, the clearing systems, the barter, the restriction of trade which went on at that time—they were things which those who went through that period as working people will never forget. That is one of the situations we are now trying to avoid through the co-operation of the world today, and particularly co-operation in Europe.

I believe that, as the noble Lord, Lord Barnett, said, the ultimate aims of the European Community are no doubt far distant and show little sign at the present time of being realised. Nationalistic attitudes have prevailed in many countries of the Community; but we have all joined the Community, and if our hearts are in it we hope that eventually it will achieve those aims. If it takes 50 years it is better than not happening at all. One step forward is better than one step back, and I fear that the attitude of the British Government represents a step back rather than a step forward.

It seems to me that the arguments which have been put forward by the noble Lord the Minister could be put forward as arguments against ever joining the exchange rate mechanism rather than choosing the right time to join. Therefore, they leave me somewhat depressed. However, we have had the debate. We have our report. The Government will no doubt consider it, and we shall be interested to hear how things develop in the future.