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Lords Chamber

Volume 693: debated on Monday 2 July 2007

House of Lords

Monday, 2 July 2007.

The House met at half-past two: the LORD SPEAKER on the Woolsack.

Prayers—Read by the Lord Bishop of Southwell and Nottingham.

House of Lords: New Leader

My Lords, before Questions are called—it is an unusual procedure—perhaps I may be the first to welcome to this House as Leader the noble Baroness, Lady Ashton of Upholland. She has been in this House long enough to have built up a very substantial reputation, not just for hard work and thoroughness but for the very great decency with which she treats all Members of this House. She has set herself as one of her over-riding ambitions to work in the interests of the whole House. On behalf of the Opposition we very much welcome that view.

I take this small opportunity to pay tribute to her predecessor, the noble Baroness, Lady Amos, who earned her place in history as the first black woman to be Leader of the House of Lords and in the Cabinet. She was a very remarkable feature of this House, particularly as Secretary of State for International Development. She goes on to different things, perhaps not better—perhaps they will be—but certainly different. We wish her well for the future as she works with the European Union.

I cannot resist remarking on the absence from the Front Bench of the noble and learned Lord, Lord Falconer of Thoroton—the last Lord Chancellor in the House of Lords. I very much hope that we shall see his like again some time in the future, but for now it is a loss to this House, both in body and spirit. We wish him well. However, the purpose of my speech is to welcome the noble Baroness as Leader of the House and Lord President of the Council. We all look forward to working with her.

My Lords, first, I echo the tributes paid to the noble and learned Lord, Lord Falconer—surely the Labour Lord Chancellor most beloved by the Conservative Benches—whose passing was noted with sincerity by the noble Lord, Lord Strathclyde. I also pay tribute to the noble Baroness, Lady Amos. I sincerely hope that she gets the job in Europe for which she is applying as it would be a very happy coalition of her passions and experience, and Europe would do well to make use of them.

The noble Baroness, Lady Ashton, knows that if she wants advice, she only has to come to the Liberal Democrats; indeed, these days I do a quick count every time I come in. As the noble Lord, Lord Strathclyde, said, she has a very seductive manner. Indeed, in my daydreams I sometimes think that—

My Lords, I was thinking more of “Antony and Cleopatra”, with me as Antony—but she already has an Antony. My other problem is thinking of the noble Lord, Lord Strathclyde, as the young Octavius, but that is another matter. As he hinted, if there is such a thing as a good House of Commons man, she is certainly a good House of Lords woman. We shall all be well protected by her skills in the weeks, months and years ahead. These Benches wish her well.

My Lords, on behalf of the Cross-Benchers, I thank the noble Baroness, Lady Amos, very warmly for her work as Leader of the House. We are very conscious that she has always acted in the interests of the House, and that is particularly important for the Cross-Benchers. On a personal note, I have greatly enjoyed working with her, and we have never had a cross word. From her past work in international development and from the smile on her face in the past week, I know that she is very happy in her new job. It will be good for her, and I am sure that it will be good for Africa, and we wish her well. We shall also miss greatly the presence of a Lord Chancellor in this House, particularly because it is the noble and learned Lord, Lord Falconer, who is leaving us after his very distinguished career here. We wish him well outside the House.

Finally, and substantially, I welcome the noble Baroness, Lady Ashton, to the high responsibility of leading the House. We know her well, and we have often voted in favour of her proposals on the Floor of the House, as she knows. We shall enjoy working with her for years ahead.

My Lords, I echo the sentiments that have been expressed about my noble friend Lady Amos. She cannot be with us today as she is on government business, but she will be delighted by the tributes that have been paid to her, and I share them. It is a sadness that we no longer have my noble and learned friend Lord Falconer of Thoroton with us, although I am sure that he will be with us on the Back Benches entertaining us and helping us in our debates for a long time to come. I look forward to that very much.

I stand here deeply privileged to be part of the talented Front-Bench team that noble Lords see before them. We will endeavour to work as hard as we can for our new Prime Minister and for the Government. I stand here also as part of a Labour group with whom I share the same values and beliefs, and I look forward to working closely with all of them in the future. More than anything, the honour that was bestowed on me was this: my right honourable friend the Prime Minister said, “I want you to lead the House of Lords”. I will lead the whole House.

Energy: Fossil Fuels

asked Her Majesty’s Government:

In view of the increase in fossil fuel usage worldwide, why they are not proceeding faster with the application of carbon capture and storage technology.

My Lords, the Government announced in the Budget in March 2007 that a competition for commercial-scale demonstration of carbon capture and storage is expected to be launched in November this year. As indicated in the recent energy White Paper, we intend the UK’s first CCS demonstration plant to be up and running some time between 2011 and 2014. Current indications are that we will be among the first, if not the first, in the world to do so.

My Lords, while it is satisfactory to note the Government’s support for this important technology, is not the competitive route a somewhat leisurely approach to it, in view of the fact that no less than 87 per cent of all the energy presently consumed in the world is in the form of fossil fuel and that in China alone two new large coal-fired power stations are being commissioned every week? Is it not regrettable that the BP plant for carbon capture at Peterhead in Scotland has been scrapped because of the delay in the formulation of government policy when it was one of the most advanced of its kind in the world? Are there not half a dozen other projects at various stages of development? Why cannot the Government adopt an incentive scheme similar to that provided for renewables to get these projects going and thus generate substantial commercial prospects, both in Britain and abroad?

My Lords, the noble Lord is right that this technology has the prospect of reducing carbon emissions by 28 per cent by 2050 for the whole of the world’s emissions and therefore it is a very important technology indeed. The Government have opted for a competition because accepting the BP project would have obliged us to put all our eggs in one basket. It is important to get the technology right, given its significance for future progress, in not just the United Kingdom but the world.

My Lords, is not the situation even worse than that described by the noble Lord, Lord Ezra? Is the Minister aware that last week I received a letter from his colleague, the noble Lord, Lord Rooker? Because this project is no longer viable, it cannot be put on permanent hold due to the geology of the Miller field. The noble Lord, Lord Rooker, told me that the project was not even being considered as a possible opt-in for the European emissions trading system and would never be able to benefit from the carbon credits available under that system. Is that not a hugely damaging missed opportunity by the Government?

My Lords, as I indicated in my Answer to the noble Lord, Lord Ezra, the Government were faced with two choices. One was to support the BP project as it stood and accept that as a decision indicating the Government’s very significant support. The support that the Government will give to the winner of any competition will be measured in hundreds of millions of pounds and will be a very important development. The Government had a choice between accepting the BP project or holding an open competition in which, as the noble Lord indicated, there are several significant competing technologies and bids. The Government have opted for the latter, due to the need for the security of getting the technology right for the next 40 to 50 years.

My Lords, is the real reason for not proceeding with carbon containment that the Greenland ice core evidence now proves that atmospheric carbon increases are the effects of global warming, not the cause of it, or is it that, just as firemen cannot subdue the heat of a blaze by catching the smoke, Kyoto-inspired Governments now realise that they are unlikely to reduce global warming by containing atmospheric carbon, particularly if solar radiation, not terrestrial industrialisation, is found to be the prime cause of global warming?

My Lords, the noble Lord recognises that the science of climate change is complex, but there is no doubt at all that there is significant scientific proof of the advantage to the world of dealing with carbon storage capture and the development of clean coal. That is against a background of China in particular, and India, having enormous numbers of coal-burning power stations. That is why this technological breakthrough is so important but, as the noble Lord indicated, other issues are at stake. We are discussing this technology in relation to one very important dimension of the problem.

My Lords, I get a bit fed up with a lot of the cribbing at our energy industry. Does my noble friend agree that we are one of the world leaders in energy? As a former director of Drax power station, one of the largest coal-fired stations, I can say that we are now completely up to date with many things. Should there not be more co-operation between government departments, especially the Department for Environment, Food and Rural Affairs?

My Lords, my noble friend is typical of those on the Labour Benches who speak up for Britain and its achievements. He is right in saying that we should recognise that, even with the timetable for this competition, Britain will be in the lead in developing this technology when it comes on stream between 2011 and 2014. I recognise that my noble friend emphasises the need for co-operation between departments and across technologies and across nations in order to deal with this massive problem of climate change.

My Lords, considering that new power stations are being designed, should there not be a regulatory requirement for any new power station to be carbon capture and storage ready, given that many of them being designed at the moment are not? I congratulate the noble Lord on taking up the Liberal Democrat policy on the DTI, but will implementing that policy cause any hold-up in the bid for carbon storage and capture?

My Lords, the Government move seamlessly on their productive way and there is therefore not the slightest problem of any hiatus in their achievements in energy policy over the change of government effected over the past few days. As for the new power stations, of course it will be recognised that we have to reach the stage when we can utilise the technology of carbon storage. It is right, however, to look ahead in the development of new power stations in order that as far as possible they are consistent with it.

My Lords, we agree with the words of the noble Lord, Lord Taylor of Blackburn. It is a terrible thing when we see our own great companies foundering because of the lack of co-operation between departments. How badly does the Minister feel, as I do right now, that we will not give permission by the end of the year in order that the Miller oilfield will be viable? It will not be viable for BP if the Government hesitate any longer.

My Lords, great companies are not foundering, they are part of consortia bidding in this competition to provide the most successful technology we can employ. Anyone who thinks that BP is foundering has a very odd perspective on the success of that company.

Roads: Speed Cameras

My Lords, with deepest shame, I confess that I have an interest in this matter. I have been caught by these cameras on a couple of occasions and have several points upon my licence.

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

The Question was as follows:

How much revenue was raised by speed cameras on major roads in the United Kingdom during the last convenient 12-month period; and for what purpose those funds were used.

My Lords, fine receipts in the financial year 2005-06 for the 38 safety camera partnerships operating in the national safety camera programme for England and Wales apparently totalled £114,625,360. Under the then netting-off funding arrangements, safety camera partnerships reclaimed £99,542,900 in expenditure, which was directly attributed to the prevention, detection and enforcement of offences. The surplus of £15,082,460 was returned to the Consolidated Fund.

My Lords, I am greatly obliged to the noble Lord for that reply. What contribution does that have to the maintenance of road safety? Is this money usefully spent in that regard, or is it better going back to the Consolidated Fund as he described?

My Lords, the sole purpose of speed cameras is casualty reduction. Cameras are not cash-driven. The impact of cameras is clear. The national safety camera programme evaluation report, based on four years’ experience and published in December 2005, found a 42 per cent reduction in people killed or seriously injured at camera sites across the 38 partnership areas. That means about 1,745 fewer people killed or seriously injured per annum, including 100 fewer deaths. The value of the cameras is self-evident from those data.

My Lords, does the Minister agree that the main concern lies not with the use of speed cameras, with which I agree, but in the reduction in recent years in the number of officers in traffic divisions across the United Kingdom, as recently reported in the press? This results not only in a diminution of the discretion available in the prosecution of speeding offences, but in the fact that rank bad drivers, who daily do things like tailgating, dangerous overtaking and driving while holding a mobile phone, are not dealt with. Would he pass on to the chief officers of police the anxiety in this country on the matter? As the noble Lord, Lord Trefgarne, did, I declare an interest in this matter—on the other side of the fence, being a retired magistrate.

My Lords, one has to look at this conundrum in the round: enforcement cameras are only one of the tools available for enforcement. We—the Government—are clear that dedicated traffic officers and technology both have a vital part to play in reducing excessive speeds. There can be no doubt—the noble Lord, Lord Trefgarne, gave full voice to this—that speed cameras are effective. They operate as a continuous deterrent, freeing up police time for other duties, including, in particular, dealing with the precise problems that the noble Viscount, Lord Tenby, referred to. I share the noble Viscount’s concerns about tailgating and so on. However, more people are being monitored for speeding. The approach is very effective and is clearly reducing the number of deaths and serious injuries on our roads, particularly among the most vulnerable—young people.

My Lords, I hope that the Minister will allow me to repeat the figures from Thames Valley, which are much more up to date than his. They show that 60 per cent of the money collected goes to the police to run the system, 30 per cent goes to road safety and 10 per cent goes to the courts; virtually nothing is left over for the Consolidated Fund. Does he agree that a lot of the publicity generated in this regard comes from people who do not like speed cameras, to whom the simple answer is, “Don’t speed”?

My Lords, I completely agree with the noble Lord: the cameras are highly effective—they are doing their job—and that is why people do not like them.

My Lords, my noble friend said that there had been a 42 per cent reduction in the number of people killed or seriously injured over four years. Is that not an argument for having many more speed cameras so that that reduction continues?

My Lords, it is obviously up to the partnership areas to determine whether they feel that it is appropriate to have additional speed cameras, which are a very effective tool. Partnership areas simply make the case; if they put the cameras in place and they are effective where there are particular problems, we should all be pleased.

My Lords, why is it that the Minister has a national figure and the noble Lord, Lord Bradshaw, has a figure for the Thames partnership, but when the then Road Safety Bill was debated we were told that no local cameras could be identified individually? The local press in High Wycombe in Buckinghamshire—I have never had a ticket there, so I am not declaring an interest—was told that, under the Freedom of Information Act, it is not entitled to information about the income generated from a camera. That camera does not satisfy local people—they consider that its positioning is not to do with road safety.

My Lords, my guess is—I do not know for sure—that the noble Lord, Lord Bradshaw, gets his information via his local authority and police authority. I see locally produced data; it is beneficial to have them published locally because they help to crank up the deterrent effect.

Palace of Westminster: Exterior Cleaning

asked the Chairman of Committees:

What progress has been made in the cleaning of the exterior of the Palace of Westminster; and when this work will be completed.

My Lords, the programme to clean the exterior of the palace, which began in 1981, entered its final phase in 1995 with the commencement of work to the internal courtyards. Work has been completed on four courtyards, including Speaker’s Court and Royal Court, which are the two largest courtyards. The next phase of work is planned to include Cloister Court, Star Chamber Court, Chancellor’s Court and State Officers’ Court. Commencement of this phase of work will be subject to the prioritisation requirements of the parliamentary works programme.

My Lords, I thank the noble Lord for that Answer. What he really means is that he does not know when the work will start on the inner courtyard, so the situation on that matter is normal. Does he agree that parts of the walls of those courtyards are in a filthy, disgraceful condition and should be dealt with as soon as possible? Surely he can give us at least some date.

Even more important in the light of the awful happenings during the past weekend and the security issues, security renovations to the exterior by St Stephen’s entrance, which are a key priority, were meant to have been completed by October last year. I was told today that the department does not have the slightest idea when they will be completed. When does the noble Lord expect the work to be done, and when will the building be made as safe as possible, especially in the light of recent events?

My Lords, I am afraid that I cannot give a starting date for the cleaning of the remaining courtyards. As I said in my Answer, there are other priorities for maintenance of the building. The cast-iron roofs and the modernisation of the palace’s mechanical and electrical services are two of the major things that need to be done to this ancient building. The problem with cleaning the courtyards is, to some extent, that normally that can only be done in recesses because it involves not just cleaning but repairs to the stonework, windows and the drainage, which is noisy and disruptive. Also, it is not possible to do this work when another project is under way. For example, the refurbishment of the Refreshment Department, which finished last year, meant that the courtyard there had to be used for that rather than be cleaned.

I agree with the noble Lord that there has been a most undesirable delay to the opening of the visitor reception building. It was intended to be opened, as the noble Lord said, last year. There have been all kinds of problems, with the contractors, the architects and so on. I can only say that I hope the building will be open by the time we return after the Summer Recess.

My Lords, which are the priorities: for example, cleaning the place, opening the visitor centre or the world squares project and closing the road? Which does the noble Lord think will come first?

My Lords, they are separate projects. The opening of the visitor reception building is going on at the moment; it is subject to bad delays, but that has no impact on the remaining areas of the building which need to be cleaned. I answered a question about the world squares project not very long ago and I had little news to report on it.

My Lords, is the dirt on the building, which I assume was caused by the smog before the Clean Air Acts, causing additional damage to it; and, therefore, is the delay in cleaning it increasing the costs substantially?

My Lords, there is a project looking at the best way of doing the next phases of cleaning. A review has begun to ensure that the methodology, scope and sequencing employed so far remain the most effective and efficient way. The noble Lord is quite right that the dirt was as a result of smog before the Clean Air Act came in. Noble Lords will be well aware that the whole of the outside of the building and the major courtyards have been done, so what is visible to most of the public is clean and will remain so.

Madagascar: UK Embassy

asked Her Majesty’s Government:

Whether, in view of recent developments in Madagascar, they will now consider reopening the United Kingdom embassy in that country.

My Lords, there are no plans to revisit the decision taken to close the embassy in Antananarivo. We now have agreement for our non-resident ambassador, and we look forward to his first official visit within the next two months.

My Lords, I am most grateful to the noble Baroness for that reply. However, does she not agree with me that, given recent developments—I point to just three: the constitution of Madagascar was changed a few months ago to make English an official language of the island; secondly, the president and Government have indicated their interest in eventually becoming members of the Commonwealth; and, thirdly, the levels of industrial investment from this country into Madagascar are steadily increasing—it is not absurd that the diplomatic representation should simply be an honorary consul with only powers suitable to that, and that the nearest ambassador is 1,000 miles away, in Mauritius?

My Lords, we very much welcome the fact that English is now the third language in Madagascar; it is good for the Madagascans and for British industry. We would be delighted if Madagascar wanted to become a Commonwealth member and look forward to its continued development. However, we are confident that the new non-resident ambassador will take these issues very seriously, work well with the Government of Madagascar and pursue their interests.

My Lords, as we are discussing the Foreign Office’s work, perhaps I may say in parenthesis that, although the noble Baroness answers Foreign Office questions superbly, we will greatly miss her noble friend Lord Triesman, who has moved to other pastures and has been an outstanding master of the brief, both as a Minister and in answering questions in this House. We wish him well but also that he had not gone.

My Lords, is not the question raised by the noble Lord, Lord Watson, part of an overall squeeze on the diplomatic budget, which is, by Whitehall standards, minuscule at £1 billion? Some departments regard that as small change; yet our diplomacy has been squeezed and squeezed and embassies have had to be closed.

Would the noble Baroness urge her colleagues under the new dispensation to consider whether a better, more balanced approach might be adopted? More should be spent on effective diplomacy and soft-power development, and we should stop going round the world closing embassies in places where there is a demand for effective British representation, which has now been taken away.

My Lords, I am grateful for the fulsome tribute to my noble friend Lord Triesman, who is indeed deserving of it. It has been a delight to work with him.

The resources available to the Foreign Office, as in any other government department, are finite. The Foreign Office is battling with the CSR. However, the decision to close the embassy in Madagascar was not simply about costs. The Government have to ensure that their Foreign Office is following 21st-century priorities. Those are to do with fighting terrorism and international crime. As global priorities change, so must those of the Foreign Office. I respectfully point out that, whereas some missions are closing, others have been opened and additional diplomatic staff have been deployed in other embassies.

My Lords, from these Benches, I echo the tribute to the noble Lord, Lord Triesman. We greatly appreciate and are grateful for his enormous contribution, not only to your Lordships, but also to the cause of Africa in the Foreign Office.

My Lords, bearing in mind not only the three factors mentioned by my noble friend but also that Madagascar is larger than the next two countries put together in which British embassies were closed in 2005-06, and that oil has now been discovered there, would the noble Baroness say how many times our high commissioner has visited Antananarivo in the past two years?

Secondly, why is Madagascar not in the list of countries receiving help from DfID, bearing in mind that 61 per cent of its population has to live on less than a dollar a day? Is that not inconsistent with our policy of helping the poorest of the poor?

Since my noble friend Lady Symons of Vernham Dean announced our embassy’s closure in 2005, we have been pressing for our new non-resident ambassador to be accredited. That is now happening and is warmly welcomed. He will make his first visit within the next two months.

Although DfID does not give money directly to Madagascar, we should not forget that a substantial contribution is made through core contributions to the EU, the UN, the World Bank and others.

My Lords, I declarean interest as a patron of a charity, Money for Madagascar. Clearly, no non-resident ambassador and, no honorary consul can have the weight of a resident professional diplomat. There has been damage to British interests during the past two years. In consular matters, I cite the Wilkinson case; in business, there have been major developments in minerals, oil and gas sectors. Why cannot the Government at least be creative and have one professional resident British diplomat housed in the embassy of a friendly country, as has happened in Togo, which would at least ensure that there is a professional on the scene to safeguard British interests?

My Lords, as I stated earlier, we are confident that our non-resident ambassador will be able to protect British interests in Madagascar. However, the idea put forward by my noble friend is interesting. It may well have already been discussed by the Foreign Office; if it has not, I will certainly ensure that it is drawn to its attention.

My Lords, in fully associating myself with the remarks made about the noble Lord, Lord Triesman, I remind the House—I do not want to embarrass the noble Lord—that he has given us several assurances during the past few months that the Government would continue to pursue a global foreign policy. Can the Minister assure us that that will be borne in mind when the Comprehensive Spending Review is conducted and the Foreign Office’s minute budget is reviewed?

My Lords, I am happy to give that assurance and am sure that my right honourable friend the new Secretary of State will indeed do everything that he can to ensure that there is a proper global foreign policy in the British Government.

My Lords, can the noble Baroness say whether there is or is shortly to be European Union representation in Madagascar?

My Lords, I do not have that information to hand, but I will certainly inform the noble Lord in due course.

My Lords, has the Minister been to Madagascar? When I was there, there was a very small embassy consisting of one and a half men. If she has not been, she will not realise how impossible it is for one man to go from one country a long way away, Tanzania, to a still French-speaking country that is incredibly friendly to Britain. Can she confirm that recently Japan and America have opened embassies in Madagascar?

My Lords, sadly, I have not yet been to Madagascar. I note what the noble Baroness says. I do not know about America and Japan, but I will certainly ensure that that information is brought to the attention of the House.

House of Lords: Divisions

My Lords, it has been agreed that while the current security level is at critical, the time allowed for Divisions should be extended by three minutes to a total of 11 minutes. This is to allow for the extra time for Members’ cars entering the Palace of Westminster during Divisions to have any necessary security checks. This will apply for the remainder of this week. If the security level remains at critical, a further announcement will be made next week. The Lord on the Woolsack has the discretion under Standing Order 54(4) to delay the locking of the doors at the end of the Division and will exercise that discretion.

Business

My Lords, with the leave of the House, we will have a Statement on counter terrorism repeated later this afternoon by my noble friend Lady Scotland, immediately after the Mental Health Bill.

Local Government and Public Involvement in Health Bill

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

Moved, That it be an instruction to the Committee of the Whole House to which the Local Government and Public Involvement in Health Bill has been committed that it considers the Bill in the following order:

Clauses 1 to 137,

Schedule 8,

Clauses 138 to 145,

Schedule 9,

Clauses 146 to 149,

Schedule 11,

Clause 150,

Schedule 12,

Clauses 151 to 217,

Schedule 14,

Clauses 218 to 220,

Schedule 15,

Clauses 221 to 234,

Schedule 17,

Clauses 235 to 245,

Schedules 1 to 7,

Schedule 10,

Schedule 13,

Schedule 16,

Schedule 18.—(Baroness Andrews.)

On Question, Motion agreed to.

Trade Marks (Relative Grounds) Order 2007

National Minimum Wage Act 1998 (Amendment) Regulations 2007

National Minimum Wage Regulations 1999 (Amendment) Regulations 2007

Limited Liability Partnerships (Amendment) Regulations 2007

Local Authorities (Conduct of Referendums) (England) Regulations 2007

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

Moved, That the draft order and regulations laid before the House on 8 May, 7 June, 4 June, 6 June and 23 May be approved. 17th and 19th Reports from the Statutory Instruments Committee, Considered in Grand Committee on 26 June.—(Lord Evans of Temple Guiting.)

On Question, Motions agreed to.

Vaccine Damage Payments Act 1979 Statutory Sum Order 2007

Child Support (Miscellaneous Amendments) Regulations 2007

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

Moved, That the draft order and regulations laid before the House on 16 May and 6 June be approved. 18th and 19th Reports from the Statutory Instruments Committee, Considered in Grand Committee on 26 June.—(Lord McKenzie of Luton.)

On Question, Motions agreed to.

Mental Health Bill [HL]

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

Moved accordingly, and, on Question, Motion agreed to.

commons amendments

[The page and line references are to Bill 76 as first printed for the Lords.]

1: Clause 3, page 2, leave out lines 22 to 30 and insert-

“(3) Dependence on alcohol or drugs is not considered to be a disorder or disability of the mind for the purposes of subsection (2) above.”

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 1. There is no doubt that, as befitting a Bill which deals with such important subjects, it has been the subject of vigorous debate, both in this House and in the other place. In this House we have had debates which have been informed by the special experience and expertise that noble Lords can bring to bear on this and on many other subjects.

There is no doubt in my mind that the Bill has benefited from those debates. The Bill that has been sent back to us by the other place is stronger than it would have been without the contribution of this House in identifying and getting to the heart of the issues which are of the most importance. The other place may not have agreed with this House on all those issues, but it is plain that the debate in your Lordships’ House has provided a very important context for the other place’s consideration. I have no doubt that the Bill is the better for it.

As one would expect, the meaning of mental disorder was one of those critical issues identified by your Lordships’ House. The simplified definition itself met with considerable support. Debate concentrated instead on what, if anything, should be excluded from that definition. As noble Lords will recall, there are three exclusions from the definition of mental disorder in Section 1 of the Mental Health Act as it stands: “promiscuity or other immoral conduct”, “sexual deviancy” and “dependence on alcohol or drugs”. The Bill, as first introduced, removed the first two and reworded the third.

On Report, this House replaced that single exclusion with four new exclusions for: substance misuse; sexual identity or orientation; commission, or likely commission, of illegal or disorderly acts; and cultural, religious or political beliefs. This amendment was reversed by the House of Commons.

In introducing his amendment on Report, the noble Earl, Lord Howe, said:

“There needs to be some limit to guard against the inappropriate use of the clinician’s power of detention. Without such limits, the powers are capable of being used, even in a well-intentioned way, as a form of social control”.—[Official Report, 19/2/07; col. 906.]

The Government could not agree more. We believe that those limits are to be found in the Act—in the criteria for detention and in the safeguards which are themselves strengthened by the Bill. But I fully accept that the noble Earl, Lord Howe, spoke for all Members of the House when he went on to say:

“The law should make the position clear. It is not enough for a person to be odd, eccentric or a social misfit; the only legal grounds for compulsory detention are an underlying mental health diagnosis”.—[Official Report, 19/2/07; col. 907.]

Again, we agree. The law should make the position clear; in our view it does. The Bill does not permit any compulsory intervention except where the relevant criteria are met. Those criteria cannot be met except on the basis of a disability or disorder of the mind.

Although not drafted in that way, the amendment which the other place rejected contained two types of exclusions—substantive exclusions for conditions which are recognised mental disorders and others whose effect is declaratory. The proposal to exclude substance misuse was at least in part an example of the former. It has become clear in the course of debate here and in the other place that “substance misuse” was intended, in the words of the honourable Member for East Worthing and Shoreham, Mr Tim Loughton, to ensure that,

“neither the binge drinker nor the casual consumer of drugs is considered a case for compulsion”.—[Official Report, Commons, 19/6/07; col. 1326.]

But there is no such exclusion now, and no reason to believe that such people are being detained. On the other hand, if we did have an exclusion there is a risk that we might prevent the use of the Act in those rare cases where acute intoxication is so severe that detention is a legitimate clinical response.

The noble Earl’s amendment, which the other place rejected, dealt more with things that are simply not recognised mental disorders. Sexual orientation is not a mental disorder; being homosexual or bisexual does not make one mentally disordered, any more than being heterosexual does. Holding religious, political or cultural beliefs does not, of itself, make one mentally disordered; nor does committing a crime. It follows that none of these matters falls within the definition of mental disorder in the Act; indeed, to say so in the Act would be legally otiose.

Strong arguments have been advanced for exclusions. Perhaps I should test the patience of the House by going through them. The first is that, by not changing the Act, we will encourage clinicians to change their practice for the worse. I do not see the logic of that, or any evidence for it; nor is it consistent with the ethical and professional responsibilities of those who will have the responsibility for this under the law. Secondly, it has been argued that the list of exclusions will make psychiatrists reflect more closely on how their own values and experience influence their decisions. That is, of course, a good thing to encourage; it should be central to clinical practice in mental health services. However, the idea that this kind of careful practice will not happen without a few strictly unnecessary words in an Act, or that those words will create a sea change in attitudes, stretches credulity.

The same is true of the third argument—I recognise that this is a very important matter—that those words will reassure particularly those in black and minority ethnic communities, who fear that the Act may be misused to their detriment or to that of their families. I have met representatives of black communities and the black churches several times, and I know just how strongly they feel about this matter. We do not know why there are such markedly higher rates of diagnosis of certain conditions in people from many black and minority ethnic communities, or why they are much more likely to be admitted to hospital or detained under the Act. None of us has seen convincing research. Research to date has been far better at describing than explaining the situation. However, although we may not know why it happens, we do know that it does. Nor are we in any doubt that steps can and should be taken to change it. That is why this Government established their Delivering Race Equality programme, announced in December 2005 alongside their response to the inquiry into the death of David “Rocky” Bennett.

A fourth argument made in favour of the exclusions is that they would protect against individual psychiatrists extending the boundaries of mental disorder, encouraged by the fact that the Bill relies more on their subjective opinions. The Bill does nothing of the sort, but, even if it did, exclusions would not help. If some psychiatrists were tempted to act in that way, they would be arguing not for new mental disorders but about whether or not certain things were manifestations of established mental disorders. A fifth argument is that the exclusions are needed as a protection against Governments yet to come. The noble Earl, Lord Howe, was good enough to say on Report that this country is not Soviet Russia and is in no danger of being like it. However, once we get to the point where the rule of law has broken down, the wording of the law is not likely to save us. Another argument simply questioned the harm of the exclusions. It is not disputed that mental disorders can manifest themselves in the form of religious or political views, or in actions that break the criminal law. As the noble Earl, Lord Howe, said on Report, the key test is whether there is an underlying mental disorder, which may exhibit itself in any of the behaviours listed in the amendment.

There is therefore a risk that the exclusions would have no legal effect. They might, however, create room for doubt about what is and is not meant. That is not meant as a criticism of those who drafted or supported the noble Earl’s amendment. I hope that noble Lords will understand from my response that I quite understand the importance of the principles that inform the debate on exclusions, but we have concerns about the practical impact that those will have.

The noble Baroness, Lady Barker, has tabled an amendment dealing with discrimination, which from my experience of debating the Bill with noble Lords is a critical area of concern. The Government will support it. It deals with an important matter. The noble Baroness has drafted it in a way that allows us to make it clear to practitioners that this is an important principle but does not cause a problem in terms of the original drafting of the exclusions. I thank noble Lords for the constructive way in which we have debated the matter.

Moved, That the House do agree with the Commons in their Amendment No. 1.—(Lord Hunt of Kings Heath.)

moved, as an amendment to the Motion that this House do agree with the Commons in their Amendment No. 1, at end insert “and do propose the following consequential amendment to the Bill:

1A: Page 5, line 8, at end insert-

“(aa) respect for diversity generally including, in particular, diversity of religion, culture and sexual orientation (within the meaning of section 35 of the Equality Act 2006),”

The noble Baroness said: My Lords, the Minister began by talking about how the debates in this House had had a great influence on the debates that subsequently followed in another place. That is true. However, this amendment and several of those that will follow this afternoon reflect the fact that there remains between the two Houses and between the Government and the whole of the Opposition some fundamental disagreement about the legislation’s purpose and application.

To go back to arguments held in this House and another place recently about principles in mental health legislation and about exclusions, we still believe that overall the Bill significantly changes the balance of the Mental Health Act 1983 away from the rights and protection of patients, which we believe are in the interests of public safety, towards giving greater power towards clinicians. The amendment moved at an earlier stage by the noble Earl, Lord Howe, was an attempt to clarify again the purpose of mental health legislation. With that amendment and with this one we were following statements made by Professor Genevra Richardson’s expert committee and by the Mental Health Act Commission 2004, which said that,

“for the law to be of value—to patients, State administrators, mental health professionals, the police, the courts or the Tribunal—its meaning cannot rest upon the discretion of those working within its framework. We do not find it difficult to envisage the inappropriate use, however well meant, of mental health legislation for non-medical purposes of social control”.

That has been the concern at the heart of the debates.

The debates in this House were more to the point than those in another place. I must confess that I found the debates on these matters in another place at times almost distressing. The flippancy with which some Members of another place addressed the underlying issues was not edifying. The Minister was right to pay tribute to those of us in this House who, albeit sometimes in inelegant ways, have attempted to find a way to give expression to the principles to which we subscribe not only in this House and in legislation, but which are commonly held throughout society. It remains a concern to me that there has been so much resistance from a very small section of the mental health profession who feel unable to subscribe to a set of standards that are now common in practically every area of life. Commercial companies now have long lists of equality statements. Every public authority has a list of duties. I do not understand why this should cause such turmoil to some members of the psychiatric profession.

We have had some rather spurious arguments during our debates. Why it should prove to be impossible—the word that has been used—for parliamentary counsel to draft a list of exclusions for this Parliament is difficult to understand. We have quoted exemplary legislation from around the world—from Scotland, New South Wales, Victoria and New Zealand—in which there are lists of exclusions that go with definitions of mental health. They are clearly understood and have not posed the major problems that might enable a legal challenge by people who wish to evade compulsory detention, as the Government suggested might happen.

Inevitably, at this stage of a Bill, we arrive at a point where principle goes against the tough daylight of pragmatism. I say that in order to explain to the many people outside, who have followed our debates with great intensity and great care, why those of us who believe this to be a matter of such importance will now sign up to something which we acknowledge is less than satisfactory, which it is. We believe that we will be making a statement, which, as the Minister said, may be declaratory, about what mental health legislation should be in our society now and that society should treat with decency and dignity people whose behaviour is different and, sometimes, difficult and challenging.

The amendment standing in my name, which I understand has support from around the House, is important, but it is not perfect. For example, it does not deal with the matters raised by the Government at the beginning of the passage of the Bill about paraphilia; nor does it deal with the important issue of belief. In this day and age, how people choose to express their beliefs is becoming increasingly important for society and for mental health professionals. We already have people detained under mental health legislation, at least in part because of their beliefs.

I believe that it is important for us to state that there will be exclusions for people on the basis of their religious beliefs and sexual orientation. Why? This country remains part of the tradition of modernisation of mental health legislation. We led the way and we continue to have a part to play in setting standards for ourselves. These are recognised around the world and, for the past 100 years or so, have changed how people with mental health problems have been viewed and how their rights have been extended.

Some of the debates in another place were disappointing in that they were conducted by people who had clearly forgotten some of the many abuses in the mental health services in this country, where there are still people who were subjected in the past to wrongful application of compulsory mental health treatment. I meet some of them in the course of my work and, although they are now very old, one does not have to be a professional to see the long and lingering damage that a misapplication of mental health treatment can do to people just because they happen to be different.

Imperfect though this amendment is, I believe that it is important not only as a declaratory statement but in practice, if only to serve to say to mental health professionals that their judgment will continue to be subject to scrutiny. I say to the noble Lord, Lord Rix, as he disappears, that it was in part his early speeches in our debate about the lack of exclusion for people with learning disabilities that fired up those of us who kept going in the face of opposition from the Government.

This is an imperfect amendment to a Bill that is certainly better than it was when it came to this House initially. The Bill is not the step forward for people with mental health problems that we all wanted, it is not the Bill that we needed and it will not be the legislation that we need, but I hope that by the end of today, with the addition of amendments like this, we will have clarified the situation for practitioners who in the future under this legislation are going to be far more accountable for their actions and decision-making than ever before. I hope that this House will yet again have proved that it serves a very important purpose in sticking up for those people who do not have a voice—in this case mental health patients. I beg to move.

Moved, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 1, Amendment No. 1A.—(Baroness Barker.)

My Lords, perhaps I could begin by posing two detailed questions about Amendment No. 1A and its precise effects. My concern, which perhaps the Minister, as well as the noble Baroness, would like to comment on, is whether in deciding if someone should be detained or not, the responsible clinician needs to consider whether, let us say, an expression of religious belief is a sign of an underlying mental disorder. Does the amendment mean that the patient could appeal against an order on the grounds that he was being detained because of his religious belief rather than a mental disorder? That was one of the key points that the earlier amendment was trying to get at and I would like some reassurance that this amendment, limited as it is, would get us into the same kind of territory.

This amendment is certainly to be supported although it is, as we know, a pale shadow of the amendment that was passed by your Lordships at an earlier stage. The Government said that the previous amendment was absolutely unacceptable to them. However, the point of it can be expressed very simply. It was to signal in statute a clear warning to clinicians about making wrong assumptions about the presence of a mental disorder in a patient where no such disorder actually exists.

Contrary to the frequently expressed views of Ministers, this was not an outlandish proposal. The Bill itself contains an exclusion relating to drug and alcohol dependency. What is the point of that exclusion? It is to ensure that, before detaining somebody under the Mental Health Act, the clinician asks himself whether the behaviour of the person before him is attributable to something other than a mental illness. These concerns matter a great deal, and not just in the context of drug and alcohol dependency; they matter in particular to black and ethnic minority patients who, as the noble Lord, Lord Hunt, said, have a deep-seated and, many would say, justified fear of what the mental health system may do to them. They fear that the system is loaded against them and that clinicians who do not understand black culture and some of the religious practices that black people engage in may misinterpret the behaviour that is often integral to those practices and cultures. Influential and highly respected doctors assert that there is no institutional racism in mental health services. I do not know whether that view is right or wrong. I hope that it is right but, even if it is, the reality that we have to deal with—the one that matters—is the perception among black people that institutional racism does exist.

We need to do something that is more than just a gesture if we are to have any hope of assuaging those concerns. That is why this limited amendment, welcome as it is, needs to be accompanied by full and appropriate explanatory guidance in the code of practice. It is not just a case of saying in the guidance, “Do not discriminate unfairly against black people”. It is necessary to set out what actually goes on in clinical practice in order to explain why this provision exists and why it is thought to be important. Some of the disparities between the treatment of black patients and that of white patients cannot be explained merely by genetic differences. Rates of detention for defined groups of black people have been recorded as being up to 18 times the national average. Rates of prescribing of old-fashioned anti-psychotics are greater for black people than for whites, and at higher doses than they should have in relation to their different metabolism. The rates of referral for psychotherapy are much lower for blacks than for whites. Why is that? Clinicians need to understand what some of their number are doing in the name of medical treatment and ask themselves the right questions before they detain someone under compulsion.

These are the reasons why I and other noble Lords were so exercised about the amendment that we passed on Report, and they are why I hope that the Minister will agree to include within the code of practice a section that clearly sets out Parliament’s concern on these matters and how doctors should respond to that concern when exercising their clinical judgment.

My Lords, I support the amendment moved by the noble Baroness, Lady Barker. Many in this House and the other place have spoken passionately and at great length about the inequalities that exist for certain minority ethnic groups in our mental health system; the Minister and the noble Earl, Lord Howe, have said the same. Regrettably, I cannot see what we have done in all our discussions and amendments to the Bill that will even begin to rectify or alleviate the situation. Despite our best efforts, there are no principles set out in the Bill, something that I and many others would have liked to see. That would have been one small step towards reassuring those in the black and minority ethnic communities, along with all those delivering mental health services, that we are serious about addressing these failings. Although the amendment before us falls far short of that, it is essential, as it will go some way towards ensuring that the Act is applied with due concern for non-discriminatory principles regarding religion, culture and sexual orientation, although the issue about belief is missing.

I want to raise one specific issue to follow on from the noble Earl, Lord Howe. We are all aware that, under the Race Relations (Amendment) Act 2000, all proposed legislation on equality has to undergo a race equality impact assessment—an REIA—to pre-empt the possibility that the proposed policy could affect some racial groups unfavourably. While it is true that the Government have published an REIA on the Bill, we know from the published letter from the Commission for Racial Equality to the Department of Health that the CRE has consistently raised grave reservations about the adequacy of this assessment. The letter says:

“At each stage of the process of discussion between the Commission and the Department, the Commission has made the Department of Health aware of its concerns regarding the REIA and its potential impact upon the provisions of the Bill”.

The commission identifies a number of these concerns, not least the wholesale absence of specific service data, the distinct lack of monitoring and the failure to address potential adverse impacts arising from changes to the Mental Health Act. The commission’s letter also says:

“The Commission’s considered view is that the Department has not adequately considered the impact of the proposals in line with the duty to have due regard to eliminate unlawful discrimination, promote equality of opportunity and good race relations”.

It is true that Department of Health officials began a process of consultation on the REIA. However, due to a lack of time and, I believe, poor planning, this resulted in a number of major disagreements, not least about the process of consultation and engagement with black and minority ethnic communities and key agencies. In an attempt to resolve the situation and to move matters forward, the Department of Health established an advisory group, consisting of a number of eminent professionals, to advise on the final REIA. I was asked to chair that group, and I must declare that interest.

Despite the lack of time, the group produced a series of important recommendations that, if taken into proper account in the final published REIA, would have gone a long way towards reassuring communities and services that the department was serious about addressing these issues. Suffice it to say that many of our views and recommendations—one of which was to establish a royal commission—were not taken into account when the final REIA was published.

These matters are well known to many noble Lords, but it has only recently come to light that the Commission for Racial Equality had also expressed serious concerns. I have to wonder whether, had we known of the CRE letter earlier, this would have affected our deliberations or, indeed, those in the other place.

However, we are where we are. It would be helpful if the Minister reaffirmed for the record that, notwithstanding the criticisms of the CRE, it is the intention of the Government that this Act should not have discriminatory effects on racial—or, for that matter, any other—grounds. It is for these reasons that I support this amendment, although the matter is unlikely to end here. There is a great deal of concern about these matters among communities and professionals. I am well aware that the National BME Mental Health Network, which consists of carers, service users, communities and eminent mental health professionals, will be actively campaigning for a judicial review on these very issues.

I believe that we need a national committee of inquiry, if not a royal commission, in order to determine once and for all what lies behind the significant and worrying disproportion and differing treatment of black and minority ethnic patients, and to put to an end the mischief making of some academics in the field, who are attempting to discredit the whole concept of institutional racism.

I am conscious of the time, but I am also aware that this may be our last opportunity to raise these important issues in relation to the Bill. In supporting the amendment, I hope that I make my view clear that much more action is needed. We need to know that something will finally be done to address the scandalous situation of black and minority ethnic patients, their carers and families.

My Lords, I am grateful to those noble Lords who have spoken in this important debate. I say to the noble Baroness, Lady Barker, that from the start of our debate there have clearly been some fundamental disagreements. The purpose of our deliberations has been, in a sense, to try to find a way through in order to ensure that those issues are fully debated. In a considerable number of cases, changes have been made to the legislation to reflect some of those concerns. I do not agree with the noble Baroness about the shift of balance from the individual patient to the clinician. The safeguards contained within the legislation are strong and will ensure that that does not happen.

I accept that, in the context of the law, the practice of practitioners and clinicians will be critical. It is incumbent on the Department of Health to ensure as effective a programme as possible, so that clinicians understand the law as it has been amended and the practice that is required.

The Bill is well intentioned and has been improved. The agreement that we reached in your Lordships’ House on how to ensure that principles appeared on the face of the Bill, albeit linked to the code of practice, was an acceptable way of ensuring that the legislation was as practicable as possible and reflected the clear desire of many stakeholders to see principles on the face of the Bill. That is why I very much welcome the noble Baroness’s amendment, which seeks to improve and enhance that statement of principles.

There has been some debate about why in some jurisdictions it is possible to put exclusions on the face of legislation and why in others it is not. That is rather like our debates on House of Lords reform, where it is possible to find legislatures that have different experiences. It is possible to trawl the world to find examples that support one’s own case—for instance, in a province of Canada it is not the norm to have such exclusions—but, frankly, that is not a helpful exercise, particularly at this very late stage of debate. Jurisdictions are different. The strong advice that we have received is that what is proposed would not be considered good law in the tradition of this Parliament and its jurisdiction because of the risk, to which I have referred, of confusion and misinterpretation by professionals. One of the key points in our debates has been to ensure that professionals in the field, who deal with incredibly difficult challenges on a daily basis, are as clear as possible as to what the law is.

The noble Earl, Lord Howe, and the noble Baroness, Lady Barker, referred to the advice and guidance that would be given to practitioners in this area. This is already touched on in the illustrative code for England. Paragraph 1B.5 states:

“Disordered beliefs are sometimes symptoms of clinically recognised mental disorders, but in the absence of such a disorder no-one may be considered to be mentally disordered solely because of their political or cultural beliefs, values or opinions … A person’s sexual orientation does not, by itself, indicate the presence or absence of mental disorder; nor does involvement, or likely involvement, in illegal, anti-social or ‘immoral’ behaviour. Beliefs, behaviours or actions which do not result from a disorder or disability of the mind are not a basis for determining that any of the conditions is met, even if they appear unusual or cause other people alarm or distress”.

I realise that there is much more to be said. We will be looking seriously at the drafting and seeking ideas on how it can be improved. The codes, of course, will be subject to formal consultation, both in England and in Wales. I have no doubt that the amendment of the noble Baroness, Lady Barker, will help to set an appropriate context for the implementation of the Act as informed by the code. I shall invite my successor to commit to a willingness to engage with individual noble Lords on the code because clearly, from the quality of our debates, they have a great deal to offer.

The answer to the question of the noble Earl, Lord Howe, about an appeal is implied in what I read out of what is already in the draft code. Clearly a patient can appeal—he will still be able to—and argue before a tribunal that they do not have a mental disorder and that their religious beliefs have been mistaken for disorder. There is no doubt about that.

I well understand the passion with which noble Lords referred to their concerns about the disproportionate detention rates of people from black and minority ethnic communities, although the reasons for that are not established. I note the comments of the noble Lord, Lord Patel, on that matter. It is entirely understandable that many people in these communities believe, from their own experience or that of others, that at least part of the explanation lies in the legislation being at best applied carelessly and at worst actually being abused. Of course, I understand the question about institutionalised racism that the noble Lord, Lord Patel, raised. However, I take issue with his reference to mischief making by officials. Since 5 January, I have had the great joy of working with a considerable number of people concerned with mental health in the department and I have been enormously impressed by their commitment, experience, skill and integrity. I pay tribute to them.

I do not think that, in reality, the issue concerns the words in an Act. We come back to a point that I have made consistently—that while the Act sets the context, the real question is how we ensure that practice is acceptable and non-discriminatory. I very much echo the words of all noble Lords who have spoken on that. I have no doubt that we shall respond in the affirmative to the request of the noble Earl, Lord Howe, for the code’s advice on discrimination to clinicians in the field to be very clear and deliberate.

There has been considerable debate and correspondence between the Department of Health and the CRE, as the noble Lord, Lord Patel, said. I do not think that he wishes me to go through the ifs and buts and the backwards and forwards. The Department of Health and the Government wish to ensure as strong and close a relationship as possible with the CRE. Whatever has gone before, we want to ensure that the expertise and experience of the CRE is brought to bear in the development of future health policy and practice.

On Thursday, there was a great deal of discussion about the Mental Health Bill and I had the privilege of meeting representatives of black churches. They are represented here in the Gallery. It was a very lively and moving meeting. In accepting the amendment of the noble Baroness, Lady Barker, I assure her that I fully understand the concerns of the black and minority ethnic communities and that we shall do everything that we can to ensure that services meet the needs of all our communities, are fair and impartial and are implemented in the best possible way in the interests of the public and individual patients.

My Lords, Mencap and learning disabled people consider that the wording of the code of practice to which the noble Lord just referred, and to which he referred in his letter of 26 June, is splendid. We have, indeed, had meetings with the officials concerned. We have added the things that we wished to add to the code of practice and are delighted with the result.

Before I sit down, I should also say how sad it is to note that this is probably the last time that we shall see the noble Lord, Lord Hunt, here as a Health Minister. He has given us the greatest possible support and understanding, as well as his knowledge in the world of disability, over the past few months and, indeed, before that. We shall miss him greatly, as we shall miss the noble Baroness who is now the Leader of the House in responses to us on the Mental Health Bill and on other Bills concerning people with disability. I wish them both the greatest possible success in their new jobs, and I thank all concerned in the Government for taking such a keen interest in and having such an understanding of the amendments that came from your Lordships’ House.

My Lords, it is very rare for me to get to speak after the Minister and, when I do, the noble Lord, Lord Rix, steals my lines. That is my luck. I have three points. First, I thank the Minister for his explanations, but we on this side of the House believe that the words in legislation are critical in determining culture and practice. That is why we have returned time and again to these matters, and that is why we are where we are today.

Secondly, I thank him for his suggestion that noble Lords should be invited to comment on the code of practice. Throughout our debates, all of us have realised the importance of that. Given the considerable experience in this House, which has brought much to our debates, will it be possible to engage noble Lords in discussion of the regulations that will undoubtedly follow the Bill? That will be an important part of the process.

Finally, there is review. The points forcefully made by the noble Lord, Lord Patel of Bradford, were important. What will matter above all else is that in future there should be a body of independent research on which legislators can build. This legislation has suffered in many ways from the lack of a reliable evidence base on which to found legislation. I hope that that will happen, given all that we have learnt—we have learnt much in the passage of this Bill. If at some stage the department can give an assurance that independent research will be made available, in years to come we will receive what we have not yet managed in this Bill: mental health legislation that is fit for this century. I thank all noble Lords for their support on these matters.

On Question, amendment agreed to.

Motion, as amended, agreed to.

2: Leave out Clause 4

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 2. This takes us back to another matter that has already been debated extensively in your Lordships’ House and in the other place. As your Lordships will recall, the House inserted a clause on impaired decision-making into the Bill, which was passed to the other place on 7 March. The proposal to include an impaired decision-making test in the criteria for detention has now been debated in the other place, which removed it from the Bill.

The new clauses that were removed from the Bill in the other place would have introduced a fundamental change not only to the Bill but also to the approach taken in mental health legislation. They would have required the needs of patients and the risks posed by their mental disorder to be subordinated to their decision-making ability. The primary purpose of the Mental Health Act is to provide an effective, properly safeguarded mechanism by which clinicians can intervene to protect people from the risks that arise from mental disorder, not because they have made a judgment about the person’s ability to make informed decisions but because it is necessary to protect them or others from harm. Accepting those amendments would have meant abandoning one of the most fundamental objectives of the Act, namely that compulsory intervention should be based on need and risk. As my honourable friend the Member for Stafford pointed out in Committee in the other place, there has been no obvious change since previous Mental Health Acts in 1959 and 1983 that would require this long-standing principle to be changed. We cannot accept that it should be changed, yet that would have been the effect of this proposed new test.

I know that some proponents of an impaired decision-making clause have said that the law and the state have no business interfering in the lives of patients who retain decision-making capacity, despite being seriously ill, if the risk they pose is only to themselves. Yet others have said, quite definitely, that if a person is at a serious risk of suicide their decision-making is necessarily impaired. I appreciate that some noble Lords and the British Psychological Society have said openly that what they see as the greater autonomy for patients that the test would have brought would have been right, even if it meant that some people killed themselves as a result.

I respect the honesty and sincerity of those views, but do not agree. We are not alone. The Royal College of Nursing, for example, has said it could not support any legislation that could impede its members in their primary aim of preventing foreseeable harm. A number of leading clinicians have written to us expressing their concerns. The honourable Member for Southport, in Committee in the other place, was so concerned to establish the true intention of the impaired decision-making test that he asked a number of leading organisations whether someone could be judged a serious danger to themselves and others because they are mentally ill, yet still be possessed of unimpaired judgment. He reported that the answers he received flatly contradicted each other. For example, the Law Society and British Association of Social Workers said that it could not happen, while the British Medical Association and the British Psychological Society said it was entirely possible. On the basis of those and other answers that he received, he worried that, as legislators, he and his colleagues were not able to be clear about the effect that an impaired decision-making test would have.

This is an important point that the proponents of the new test have to resolve before any responsible Government could accept it. The fact that there were so many different views about the effects of this test lends weight to the argument that it would have been a shot in the dark, fraught with the risk of unexpected and unintended consequences.

We should remember that this proposal was not just about the risk of self-harm. Of course most people’s mental disorders, even when severe, pose no danger to anyone except themselves, but sometimes there is a risk to other people, unfortunately. No one has convinced us that because a person has a mental disorder which makes them prone to violence against other people it necessarily follows that they have impaired decision-making. A point made to my ministerial colleague, the then Minster of State for Health Services, Rosie Winterton, in a recent letter from a number of senior psychiatrists was that,

“while impaired thinking is a common feature of mental disorder, impairment of the ability to make treatment decisions specifically is not, of itself, a criterion for diagnosing mental disorder, or any particular mental disorder”.

One of the signatories to that letter was Dr Kevin Murray, associate medical director of Broadmoor. If there were such a test in the relevant criteria and the clinicians could not be sure that the patient’s decision-making was significantly impaired, that would be that. The history of violence and assessment of future risk would have been irrelevant. If the patient could not have been persuaded to accept treatment voluntarily, the clinicians could have done nothing.

Again, I acknowledge that not everyone sees that as a problem. The view has been expressed in debate that if a patient’s decision-making is unimpaired, any risk that they pose to other people should be a matter for the criminal justice system. The problem with that view is that if there is no possibility of compulsory clinical intervention to prevent the violence, with all its implications, an action would have to wait until after an offence had been committed. That does not seem to me to be a very preventive approach.

I know that this matter has exercised noble Lords considerably. The Government have given it considerable attention and it has been fully debated in the other place, but I have to say that we are not persuaded to move on it.

Moved, That the House do agree with the Commons in their Amendment No. 2.—(Lord Hunt of Kings Heath.)

My Lords, I should like to say a few words on this amendment in the context of the Bill as a whole. It would be wrong to let this occasion pass without, from these Benches, a short word of appreciation to the Minister, whose last appearance at the Dispatch Box as a Health Minister this may be.

I thank the noble Lord for his personal contribution to the way this Bill has been successfully amended during its passage through both Houses. The amendments passed in another place, which I hope will be approved by your Lordships today, represent individually and collectively a vast improvement on the Bill that we were first presented with. The changes made in such areas as general principles, age-appropriate services for children and young people, advocacy, renewal of detention, ECT, and of course the definition of appropriate medical treatment—to name only the most salient issues—are most welcome. I firmly believe that we have a much better Bill as a result of these changes. It is right to acknowledge that the Government have listened and responded constructively to the concerns raised from many quarters. I thank them for that. I also thank the members of the Mental Health Alliance, in particular Professor Zigmond and Dr Daw, whose professional advice I have drawn upon throughout the Bill.

At the same time, however, there is a sense of regret. The sadness is that Ministers and we on this side of the House should have approached the task of amending the Mental Health Act from two different perspectives, which in the final analysis have not been reconciled. I say very readily that this is a better Bill, but it is also a lost opportunity. The Millan Committee said:

“It should not be the function of mental health law to impose treatment on those who are clearly able to make decisions for themselves”.

That principle has been the subject of much high-level support over the years. It is the reason why we sought, unsuccessfully, to persuade the Government that a test of impaired decision-making would do more to bring mental health services into the modern world than just about any other change. As it is we are, in a real sense, back in the world of Enoch Powell and 1959. Patient empowerment and respect for the wishes of the patient are acknowledged features of good clinical practice in all other areas of healthcare—but not, it seems, in mental health. It is true that some amendments passed in another place, such as those on advocacy and ECT, tip their cap to the principle of patient empowerment. Finding a way through this issue would have been the way to show that we wanted to banish the stigma and discrimination associated with mental illness. The Government were not willing to engage in that discussion—I, for one, am very saddened by that.

In this, as in other ways, the whole approach of the Bill views mentally ill people as patients who need compulsory treatment for their own good, whether they like it or not. Compulsion is, of course, necessary for many patients. But we need to remember—I do not think that some doctors always do—that it should always be a last resort. The Government say that every limitation on the ability of doctors to detain patients against their will has the effect of preventing those patients receiving the treatment that they need. To put the matter in those terms, however, presupposes that compulsion is the only means by which effective treatment can be delivered. Of course, it is not: good treatment is available without compulsion, and the fear of some of us is that the wider the gateway to compulsion and the easier the law makes it to get people through it, the less likely it is that those who need help will come forward to ask for it. To have acknowledged in law that there is a place for the wishes and feelings of patients who are capable of making their own choices would have been a profoundly far-sighted and beneficial change. Never let us forget the anguish, trauma and humiliation involved in subjecting a patient to compulsion—and never let us forget, as the RCN has emphasised, that compulsion should never be seen as a substitute for good healthcare.

So we bid farewell to this Bill with mixed emotions—a mixture of apprehension, disappointment, gratitude and relief. It is to be hoped that the revision of the draft code of practice and the professionalism of the generality of mental health practitioners, which we are firmly told can be relied on, will make the practical implementation of the Bill something that we can all be proud of.

My Lords, I thank the noble Earl, Lord Howe, for his kind remarks, which I very much appreciate. Having debated—I am not sure whether “shadowed” is the word—with him for four years, and now a further five months, I must say that he has made a really fine contribution to your Lordships’ House. He certainly kept me on my mettle as a Health Minister with the intellectual robustness with which he brings arguments to your Lordships’ House. I pay tribute to him for that and for the service that he gives to the whole House.

The noble Earl commented on the Bill as a whole and talked about two different perspectives; I want to respond. Coming late to this, noble Lords will remember that I made a Statement in, I think, 2001 announcing that the Government were to bring forward legislation. Since then, there has been considerable argument and debate. Some of the concerns that have been expressed about the Bill very much reflect the debate around the original discussions, going back to the beginning of this decade.

I do not disagree with the noble Earl, Lord Howe, one iota about the importance of respect for patients or that compulsion is very much a last resort. The argument that we still have is that he implies that compulsion has become easier under this legislation, but I do not agree. I believe that the Act contains very strong safeguards. I accept that within the context of the Act, the question is: how well do professionals operate in dealing with individual patients? That surely brings us together in terms of work on the code. I fully accept the challenge of the noble Baroness, Lady Barker, of wishing to ensure that Members of your Lordships’ House are able to contribute to draft regulations in future. We must come together again and ensure that the legislation works to the best interests of patients and the public. I assure noble Lords that the Government wish to work very warmly with all stakeholders to, in a sense, put aside some of the disagreements to ensure that the legislation is good and, above all, that there are good services for people with mental illness in this country; we all want that.

On Question, Motion agreed to.

3: Page 3, line 13, leave out from “is” to end of line 14 and insert “appropriate in his case, taking into account the nature and degree of the mental disorder and all other circumstances of his case.”

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 3. I shall speak also to Amendments Nos. 5 to 9, 15 to 18, 20, 22 to 30, 43 to 52, 54, 55, 57, 59 to 61, 63, 64, 67, 69, 70 to 72, 74, 77 to 100, 107 and 108. Some of them address amendments that were discussed, often passionately, in this House when the Bill was first before us; others make a series of technical improvements.

Amendments Nos. 3, 5 and 6 restore the original wording of the Bill’s references to “appropriate medical treatment”. Amendment No. 3 refers to the criteria for detention for treatment under Section 3 of the 1983 Act. Amendments Nos. 5 and 6 make similar changes in relation to the role of second opinion advisory doctors (SOADs) in confirming that it is appropriate for certain medical treatments to be given.

These amendments reverse the amendment, agreed to by your Lordships, effectively reinserting the so-called treatability test, which the Government believe has done more harm than good. Restoring the references to “appropriate medical treatment” puts us in a position to respond positively to the concerns, expressed by many noble Lords and Members of all parties in the other place, that the Bill should spell out in more detail what “appropriate medical treatment” would mean in practice.

Amendments Nos. 7, 8 and 9 do that by making explicit the purpose of medical treatment for mental disorder and so providing further clarification on the effect of the “appropriate medical treatment” test.

I am pleased that there was all-party agreement in the other place to these amendments, tabled by my honourable friend Chris Bryant. The word “purpose” was felt to be better than “intention”, and the word “manifestations” did not have the same risk of misinterpretation that noble Lords identified with the term “effects”. The Government have listened carefully, and I have no hesitation in commending the result to your Lordships.

Important improvements have been made to the safeguards afforded to children. Clause 24, inserted by this House, was removed by Amendment No. 15 as it did not provide sufficient flexibility. However, we have considered further the issue of age-appropriate services for children and young people following the debates in this House and the other place. Amendment No. 30 is the result. We are most grateful to the noble Lord, Lord Williamson of Horton, for laying the initial amendment on this subject and for his help in thinking through the important issues. His positive attitude and his customary determination have carried us a long way.

Amendment No. 30 has cross-party support and will ensure that patients aged under 18 are detained in a hospital environment that is suitable for their age, subject to their needs. The word “environment” ensures that children and young people should have separate and appropriate physical facilities, staff with the right training to understand and address their specific needs as children, and a hospital routine that will allow their personal, social and educational development to continue as normally as possible.

We have not set out a commencement date in the Bill. We believe that it would not be productive because we would have to veer on the side of caution and thus send a mixed message to the NHS. However, our aim is to implement the provision fully in England by around April 2010. Amendment No. 74 provides the necessary flexibility to allow, for example, that new Section 131A be commenced in relation to Part 2 and informal patients in England as soon as resources allow, rather than having to wait until it can be commenced for Part 2, informal, and Part 3 patients in England.

Amendment No. 69 was tabled by my honourable friend Madeleine Moon in the other place, and we thank her for doing so. The amendment increases safeguards for 16 and 17 year-olds by ensuring that their cases are referred to a tribunal by the hospital managers after one year, rather than the current three years, where the patient has not used their right to apply or if their case has not otherwise come before the tribunal.

This House amended the Bill to include provision for detained patients to refuse ECT, except in emergencies, where they have the capacity to do so. At that time the noble Earl, Lord Howe, and the noble Baroness, Lady Murphy, argued that urgent treatment provisions needed further restriction. Many noble Lords wished to see stronger safeguards on those few occasions when children are treated with ECT. We promised that we would consider the issues further. We did so and brought forward a number of amendments in the other place. As a result, the Bill has been further amended so that no child or young person under 18, whether detained or an informal patient, may be given ECT for their mental disorder without it being approved as appropriate for them by a second opinion appointed doctor. Amendments Nos. 47 to 52, 57, 61, 64 and 67 achieve that.

In addition, Amendments Nos. 16 to 18, 22 to 24, 26, 27, 43 and 45 provide that, where the treatment is to be given on the basis of the young person’s own consent, a SOAD must also certify that the patient can, and does, consent to it.

We listened carefully to concerns and agreed that ECT is not a treatment that should be given urgently in order to control a patient’s behaviour or relieve suffering. Amendments Nos. 25, 54, 55, 59 and 60 provide that the circumstances in which urgent treatment with ECT can be given in the absence of a SOAD certificate are now restricted to when the patient needs the treatment in order to save their life or to prevent a serious deterioration in their condition.

Members of this House spoke passionately in earlier debates about the need for patients to have access to advocates. Your Lordships will recall debating amendments from the noble Lord, Lord Williamson of Horton, and my noble friend Lady Howells’s amendment in Committee about advocacy for all child patients.

We considered this issue carefully and believe that the Government’s Amendments Nos. 29 and 100 are the right vehicles for establishing independent mental health advocates to be available to qualifying patients. These advocates, in the process of providing help and support to patients, will be able to meet them in private and meet those professionally concerned with the patient’s medical treatment.

Many noble Lords and Members in the other place spoke of the need for specialist advocacy provision for particular groups of patients. A regulation-making power will ensure that specialist skills in addition to core competencies in advocacy can be provided for.

With the exception of a small number of technical amendments, all the amendments to the new deprivation of liberty safeguards to be inserted in the Mental Capacity Act have been brought forward to fulfil commitments made by the Government in response to debates in this House. The new deprivation of liberty safeguards are needed for people who lack capacity to consent to arrangements made for their care. The cornerstone of the new arrangements is that deprivation of liberty will be lawful only if it is permitted by a formal authorisation or by a Court of Protection order.

If an authorisation to deprive a person of liberty is granted, the period is set on the basis of the best-interests assessor’s recommendation on how long it should last but cannot be longer than 12 months. We are making it clear in the Mental Capacity Act code of practice and in training materials that the period set must be the shortest possible.

To allay concerns that 12 months would become the default period for authorisation, my noble friend the Leader of the House committed to take a power to reduce the maximum authorisation period at a future date if monitoring of the operation of the safeguards provides convincing evidence that it is necessary to do so. Amendments Nos. 72, 79 and 98 achieve this. We will keep the length of authorisations granted under review.

My noble friend Lady Ashton also committed the Government to consider whether more advocacy support was needed for people who are deprived of their liberty. We have considered the matter, and Amendments Nos. 80, 82, 83, 86 to 90, 93, 94 and 99 give the person deprived of liberty, or their representative, the statutory right of access to an independent mental capacity advocate (IMCA), who will explain to them the authorisation for the deprivation of liberty and provide support with a review or with an application to the Court of Protection.

Section 40 of the Mental Capacity Act provides that an IMCA is not required to be appointed in specified situations. Amendments Nos. 71 and 95 to 97 provide for IMCAs in additional circumstances and limit the exceptions under Section 40. Amendments Nos. 81, 85 and 91 were introduced by the Government to make technical changes to the wording used to refer to applications to the Court of Protection and do not alter in any way the rights of the person concerned.

Amendment No. 84 relates to one made on Report in this House and would further require the person concerned to be informed by the supervisory body that a request has been made to assess whether they are being deprived of liberty, whether an assessor has been appointed, the name of the assessor and the outcome of the assessment.

Amendment No. 91 provides an easy reference point for definitions of terms used in connection with the deprivation of liberty safeguards. It does not alter the safeguards in any way but is purely technical. However, it will make the legislation easier to use.

In the other place, the Government introduced Amendments Nos. 70 and 78 to the Domestic Violence, Crime and Victims Act 2004. They extended the rights of victims to receive information and make representations about offenders who receive unrestricted hospital orders. Currently, these rights are only available to victims of convicted offenders who receive a hospital disposal subject to special restrictions.

My right honourable friend in another place paid tribute to the work of the Zito Trust and Victims’ Voice, and I would like to do so also. Their advice has been invaluable to us in understanding and addressing victims’ concerns. These amendments are the result. They show the importance that the Government attach to involving victims, and their proper concerns, in the process of managing mental disorder.

The Government also tabled further detailed amendments to improve and clarify the safeguards for patients in the Act. Amendment No. 46 makes clear that certificates for child community patients apply when a patient is recalled to hospital or their CTO is revoked, in the same way as the equivalent certificates for adults. Amendment No. 63 provides that the appropriate national authority is able to require that the approved clinician in charge of treatment provide a report on treatment given under the authority of a SOAD certificate issued under Part 4A and on the condition of the patient concerned. It already has this power in relation to certificates issued in respect of detained patients.

Amendment No. 28 clarifies what happens when a patient’s capacity to consent to treatment changes after a statutory certificate has been issued. Amendment No. 44 corrects a small gap in the 1983 Act to ensure that no offender patient detained by a court in a place of safety pending admission to hospital can be treated under compulsion.

Amendments Nos. 77, 107 and 108 are uncontentious and straightforward. Amendment No. 77 refers to the removal of the privilege amendment. Amendments Nos. 107 and 108 make additions to the Long Title to reflect the clauses added to the Bill in the other place which amend the Domestic Violence, Crime and Victims Act 2004 and Section 40 of the Mental Capacity Act 2005.

We listened carefully when the Bill was debated in this House. We have listened to the views of stakeholders and debated at length in the other place. We accepted amendments in the other place and brought forward our own. In doing so, we have addressed the many issues raised in this House. The Bill now makes explicit that medical treatment for mental disorder must be for the purpose of alleviating or preventing a deterioration of the disorder, its symptoms or manifestations. We have provided that children will be treated in appropriate environments, and have extended strengthened ECT safeguards to informal child patients. We have provided that advocacy services will be available to all patients subject to compulsion under the Mental Health Act, and extended advocacy to persons subject to a deprivation of liberty under the Mental Capacity Act.

Moved, That the House do agree with the Commons in their Amendment No. 3.—(Baroness Royall of Blaisdon.)

My Lords, in this group of 69 amendments, I wish to comment on only two. I comment on those because they are important amendments. Amendments Nos. 29 and 30 deal with advocacy and age-appropriate accommodation and facilities for children under 18. Let me make it clear that I agree with those amendments and welcome them, but I should like to make one or two comments.

First, on advocacy, the great advantage of the amendment that we have now is that it is a general amendment applicable to all qualifying patients, not just children or others. That means that we have established a system that will run for the future. We fully understand there is no specific timetable, because we have to create an advocacy service capacity. Therefore, we cannot expect to have such a timetable, but we welcome the Government's view that they will look at the working to accelerate the timetable for full implementation as soon as they can. That is important.

I welcome the fact that the amendment makes explicitly clear that help is available to patients. These things can be easily forgotten and there are specific provisions that protect and facilitate effective advocacy, such as interviews in private, access to records, and so on. That is very welcome.

I also welcome new Section 130D in the 1983 Act, which provides the duty to give information to ensure that a qualifying patient knows what help is available and where he can obtain it. It is very explicit; the text is fully comprehensible; it is always welcome to read in legislation something that is fully comprehensible. The Government have responded well to what we proposed earlier—by we, I include that resolute campaigner, the noble Baroness, Lady Howells of St Davids, who is in the House, who has always worked very hard on the issue. I am glad to see her here and glad that we have made progress together.

I turn now to the issue of age-appropriate accommodation facilities for those under 18. Our first requirement for this issue was that it be in the Bill. It is in the Bill; it applies to all those under 18 and there is a provision for consultation by hospital managers with someone who has knowledge of cases involving children. Those three elements were in the original amendment passed in this House and we are glad to see that they have come through unscathed.

I also welcome the fact that there are new provisions about ensuring that the courts and social services should be informed where there is age- appropriate accommodation available. This would avoid people being shunted around or held somewhere because they could not find the age- appropriate accommodation. That is a practical point of considerable importance.

My last point is on timing. Once again, we heard what the Minister said in the other House. We understand that this cannot necessarily be brought in instantly but we are anxious that it should come in quickly because it is a response to something that was previously unsatisfactory and we want to get it into place as soon as possible. We are all campaigners for that.

Finally, I welcome the fact that the Bill started with main provisions, about which there was some dispute, and to which changes were proposed. These two amendments are slightly different; they are amendments which improve the current system, irrespective of other changes in the mental health world. That is what we wanted to achieve and what we have here, so I join others in thanking all the Ministers who have dealt with this. Whether they are still in health or wherever they have gone to—they have moved around quite a bit and I have not quite caught up with them all yet—their legacy is very much welcomed by me and others.

My Lords, I add my thanks for these amendments. They concern issues I raised at Second Reading but I was then debilitated by a virus and prevented from joining my noble friend Lord Williamson in what I think is his triumphant campaign to get this in the Bill. I congratulate him on that.

However, I add some disappointment about the timing. At Second Reading I mentioned that the Minister in the other place had said that efforts were already being made to prevent children being inappropriately placed in adult mental institutions. I therefore hope that I misheard the Minister, although I probably did not, that those are to be brought in by 2010. I hope that we are going to bring it in as soon as possible and that it was the other measure which was to be introduced by 2010 because it is crucial that we move rapidly towards that. However, I congratulate the Front Bench on getting children into this Bill when they were nowhere near it at the beginning.

My Lords, I too welcome this group of amendments and I endorse entirely the remarks made by the noble Lord, Lord Williamson. I congratulate him warmly on the success of his dogged campaign. I have a question on Amendment No. 9 which deals with the definition of medical treatment. It is an extremely important amendment.

The Minister said that the word “manifestations” in the amendment does not provide the same scope for misinterpretation as the House identified with the word “effects”. Can the Minister confirm that “manifestations” amounts to the same thing as “signs”, which is the professional term used to describe evidence elicited by the clinician as a result of observing the patient? What I hope the amendment would not allow is preventive detention for reasons of social control or public order. It would do so only if “manifestations” could be interpreted as including offending behaviour. Detention in hospital to stop offending would therefore amount to treatment. It would be helpful if the Minister could tell me that the amendment could in no circumstances be interpreted in that way.

My Lords, I, too, was unfortunately incapacitated for most of the Bill’s passage through your Lordships’ House, and I am very grateful to those who took my place, particularly my noble friend Lady Murphy, and the noble Baroness, Lady Barker, on the Liberal Democrat Benches. I want to say “thank you” for the fact that the Bournewood case now appears to have been solved. We hope that it has been solved. We are particularly grateful for Amendment No. 79, which introduces a regulation-making power to reduce the maximum authorisation period for a Bournewood detention below one year, following the monitoring of the operation of the Bournewood provisions in practice; and for Amendments Nos. 80 to 99, which give Bournewood patients and their representatives the right to an independent mental capacity advocate and set out the circumstances in which this applies. We have worried about Bournewood for so long now. At long last, the other place has provided the final solutions to this problem.

My Lords, again, I thank all noble Lords who have helped us to find solutions to the difficult issues raised in this House and in the other place. I am very pleased that there has been recognition of all the work that has been done since this House last considered the Bill. As the noble Earl, Lord Howe, said earlier, much has been done, individually and collectively, to improve it. As the noble Lord, Lord Williamson, said, however, current provision for mental health patients has also been improved, which is important. I well understand the disappointment expressed by the noble Baroness, Lady Howarth, about the timescale for age-appropriate treatment. Sadly, she did not mishear me; I did say that the provision would not operate fully—I stress, fully—until about April 2010. We will implement it gradually, so I hope that ultimately she will not be too disappointed.

I hope that I can reassure the noble Earl, Lord Howe, that “manifestations” has no particular clinical meaning. The Oxford English Dictionary defines it as,

“the demonstration, revelation, or display of the existence, presence, qualities, or nature of some person or thing”.

So although the two words could mean the same thing, “signs” has a more limited and specialist meaning, so using it would risk ambiguity in the way that the use of the word “manifestations” would not. I hope that that has reassured the noble Earl. Clearly it has not.

My Lords, it has not entirely reassured me, although I am grateful to the Minister. If the meanings are not synonymous, that gives rise to the question: what else could “manifestations” mean? I am anxious that we should not repeat an amendment that your Lordships decided to reject at an earlier stage of the Bill.

My Lords, I believe that the noble Earl expressed concern that the Act talks only about treating disorders, and then talks about symptoms and manifestations. Is that correct? Is he asking whether this is another attempt to detain people with untreatable personality disorders? I am clearly incorrect. I will have either to respond a little later or to write to him about the definition of “signs” as opposed to “manifestations”. A note has been passed to me—magic. It says that “manifestations” is an ordinary English word that does not have the special meaning that doctors will give to “signs”. It will therefore be easier for everyone to understand in practice. It is merely a matter of people’s understanding. There will be no difference between the word “signs” and “manifestations”. It is ultimately simply a matter of people being able to understand what it means. As the noble Lord, Lord Williamson, said earlier, it is very important for the Bill to contain words that everyone can understand. The word “signs” rather than “manifestations” will therefore be more easily understood by everyone involved.

My Lords, I am grateful to the Minister for that clarification which is in part reassuring, although it leaves open how the word could be interpreted. My concern, shared by many noble Lords, was that if someone was behaving in a certain manner in public—let us say, aggressively—they could be taken into preventive detention and that would amount to treatment under the Bill’s terms. I hope that the Minister can allay that concern.

My Lords, a little further clarification: symptoms and manifestations are intended to cover all the ways that the disorder affects the patient’s functioning, in terms of how the patient thinks, feels or believes. While there is almost certainly some overlap between the two, broadly speaking we think that “symptoms” covers the consequences of which patients themselves complain while “manifestations” more obviously covers the evidence of the disorder as seen by other people. In the end, the important point is not the distinction between the two words but the certainty that between them they cover the whole gamut of what can be addressed by medical treatment. I acknowledge that the noble Earl and other noble Lords are concerned about the definition and I suggest that we should look at it in the code of practice, perhaps more clearly expressing the definition of those two words. If we were to do that and to consult noble Lords as we draw up the code of practice perhaps that would allay their fears.

My Lords, we are obviously at a very late stage of the Bill’s passage. I thank the Minister for that offer, which I am sure noble Lords on this side of the House would wish to accept. The key point, however, is the one that we debated long and hard; that of therapeutic benefit. Treatment must contain some measure of therapeutic benefit if it is to count as medical treatment. Simple detention in a confined space would not amount to medical treatment. That is the concern that we hope the Government will meet.

My Lords, that matter was addressed by the amendment moved by my honourable friend Chris Bryant in another place. I do not have the text of that amendment in front of me, but I understand that that amendment dealt with this issue and allayed the fears of those who are working in this area, mental health patients themselves and all stakeholders involved.

On Question, Motion agreed to.

4: Leave out Clause 6

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 4. I shall deal also with Commons Amendments Nos. 10 to 14, 19, 21, 31, 36, 37, 40, 53, 56, 58, 62, 65 and 66, which concern approved and responsible clinicians. I also welcome Amendment No. 4A, tabled by the noble Baroness, Lady Murphy, which I believe offers an excellent way forward.

Commons Amendments Nos. 4, 31, 36, 37 and 40 reverse amendments made in the House that would have required a patient’s responsible clinician to gain agreement from a doctor before renewing a patient’s detention or initiating, extending or revoking a patient’s community treatment order. To allow a responsible clinician’s decisions to be overridden by a doctor who may not even be involved in the patient’s care is certainly not the best thing for patients or for an efficient workforce. That is why the other place voted to overturn your Lordships’ amendments. However, the Government have always said that the decision to renew a patient’s detention should involve the multidisciplinary team of professionals concerned with the patient’s care. Before furnishing the renewal report, the Act already requires a patient’s responsible clinician to consult at least one other person on a multidisciplinary team.

Amendment No. 4A, laid by the noble Baroness, Lady Murphy, seeks to require also that the responsible clinician secures the agreement of such a person who must be of a different profession from the responsible clinician. The provision would apply to all responsible clinicians of whatever professional background. We have considered this amendment carefully. On balance, we believe that it offers an excellent solution. It avoids the problems associated with your Lordships previous amendments, which harked back to an outdated “doctor knows best” approach. The Mental Health Coalition, representing 85 per cent of the mental health workforce, says that the previous amendments would have introduced,

“outmoded hierarchies between the professions in decision-making situations [and] taken mental health care backwards”.

They also would have undermined the New Ways of Working initiative, which has general support from psychiatrists and others. They would have stood in the way of efforts to ensure that professionals’ skills are recognised and focused where they are needed, to the benefit of patients and an efficient workforce.

By contrast, the amendment proposed by the noble Baroness, Lady Murphy, is compatible with a multidisciplinary assessment and has the renewal decision made by professionals who know the patient. It is for the responsible clinician to decide whether a patient’s detention should be renewed, but it is not unreasonable to expect that they have formal support from at least one other member of the multidisciplinary team. Good practice already dictates that they should negotiate agreement with the team. The noble Baroness’s amendment recognises multidisciplinary working; it is one that we can support.

Commons Amendments Nos. 10 to 14, 19, 21, 53, 56, 58, 62, 65 and 66 are simply technical amendments to address small inconsistencies in Parts 4 and 4A, which otherwise result from the introduction of the approved and responsible clinician roles.

Moved, That the House do agree with the Commons in their Amendment No. 4.—(Baroness Royall of Blaisdon.)

moved, as an amendment to the Motion that this House do agree with the Commons in their Amendment No. 4, at end insert “but do propose the following amendment in lieu of the words so left out of the Bill:

4A: Page 6, line 19, at end insert-

“( ) after subsection (5) insert-“(5A) But the responsible clinician may not furnish a report under subsection (3) above unless a person-

(a) who has been professionally concerned with the patient's medical treatment; but(b) who belongs to a profession other than that to which the responsible clinician belongs,states in writing that he agrees that the conditions set out in subsection (4) above are satisfied.”””

The noble Baroness said: My Lords, we on these Benches appreciate the number of amendments that will be a real improvement to the original Bill and will, as the noble Lord, Lord Williamson, has said, be a serious improvement overall to mental health services, certainly by 2010. However, I cannot help but express my profound disappointment that the change in culture and attitudes of the Government and the professions towards people with mental health problems, which we hoped a new Bill would introduce, has not happened after eight years’ serious hard work.

I would be more depressed if it were not going to be easier for people who are depressed to be sectioned in future. It took from 1828 to 1845 for the seventh Earl of Shaftesbury to bring about the very significant changes in 1845. He had to battle away until 1880 to ensure that those changes were retained. Sometimes they were lost for a few years and then he had to fight again. In another 20 years, I hope that some of us will be back to introduce a Bill which seriously changes attitudes.

On Amendment No. 4A, the renewal of detention is as important for the patient as the initial detention, which we have not taken as seriously as we should have done in the past. This modest amendment would require two clinicians, both of whom have to be concerned with the treatment of the patient. I make no secret of the fact that I would prefer safeguards—for example, in regard to the medical expertise that would be required in the renewal—to be at least as strong as those required under the Mental Capacity Act. It is not a matter of hierarchies but of appropriate training and competences.

In accepting this amendment, what do the Government envisage will be in the regulations and the code of practice to ensure that the second clinician will see and examine the patient? At the moment there is nothing in the provision to determine that the patient will be seen and examined, which is pretty essential. Secondly, which of the professionals do the Government envisage will give the objective medical expertise on mental disorder, which has been determined by the European Court of Human Rights, to satisfy the criteria for detention under the Act? Which of the clinicians would that be? I beg to move.

Moved, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 4, Amendment No. 4A.—(Baroness Murphy.)

My Lords, I strongly endorse this amendment; if accepted, it would meet one of the three or four most serious concerns expressed at earlier stages of the Bill about the legal process required to renew a detention order. The noble Baroness has put the case very well. I believe the case is unanswerable. I am delighted that the Government have signalled their willingness to consider the amendment positively but, like the noble Baroness, I believe that there is a potential problem with the amendment because it does not explicitly require the second person to conduct an examination of the patient. I very much hope that no clinician would be satisfied that the conditions have been met other than by an examination. It would be wrong for this provision to allow the responsible clinician to get someone in the team just to rubber-stamp his or her view. The second opinion needs to be a separate independent decision, and I hope that the code of practice will reflect that.

My Lords, I would like to identify myself with the comments that were made by the noble Earl, Lord Howe, when he welcomed the changes to the Bill. There have been a substantial number of positive changes. I also identify myself with the appreciation that he expressed of the work of Professor Zigmond, Dr Daw and many other colleagues who have devoted a great deal of time and effort to trying to assist us in improving the Bill.

I also have to identify myself with the rather downbeat remarks of my noble friend Lady Barker and my colleague, the noble Baroness, Lady Murphy, because despite all the work that has been done I do not find this a good Bill. It does not address things in the way that it ought to. The whole process has suggested to me, rather than a move forward and an appreciation of the complexity of the problems that we are dealing with, a damping down, indeed a dumbing down, of those problems.

I speak at this point because of the concept of “responsible clinician”, which expresses some of the dilemma that we are in, as pointed to by the Minister in her reference to the changes as doing away with a paternalistic, “doctor knows best” attitude. Frankly, that is part of the problem of not understanding the complexity. Mental illness cannot be dealt with simply at a sociological, psychological or biological level; it is a highly complex group of phenomena with which we are struggling to become familiar. I understand that parliamentarians, lawyers and others who do not immerse themselves in the business of understanding and dealing with these problems want a simple answer. It is always the same when as a professional one finds oneself in court: the lawyers want a yes or no answer and get frustrated when the truth is not a simple yes or no. Parliamentary colleagues, particularly those with constituency responsibilities, want a simple yes or no answer to whether a troublesome person can be locked away in one way or in another way. It is simply not like that, yet we find increasing pressures from the community and from colleagues in other professions to give those simple yes and no answers to get rid of troublesome and difficult problems and indeed people.

Despite the improvements in the Bill, all the work and energy that have gone into it, and the extensive process that we have gone through, it is with a rather heavy heart that I see it go forward, because it represents a lessening of our understanding of the complexity and difficulty of the issues with which we are dealing, and a slipping back into a rigid, simplistic way of viewing things. That is certainly easier to communicate in terms of a slogan, a remark or what may be passed in a court of law, but the complexities of mental disorder in particular are not susceptible to that kind of understanding. Many will suffer more because of this approach.

It is not just a question of the victims being adversely affected, physically or otherwise. The first victims of mental illness are those who suffer from it, but the second group of victims comprises their partners, family and friends, and those with whom they live. The third largest group, in terms of the number of people involved, comprises the healthcare workers who have to work with the victim and frequently find themselves grossly affected by what is happening. The last and much smaller group are those in the rest of society who, on unusual occasions, come across the problem. But frankly, that happens less often with those who are mentally ill than with those who are not. I see a lessening of the understanding of the distinction between frank mental illness, as a falling away from normal function, and personality disorder, a disturbance of a different kind.

I am worried that more will be admitted to and kept in hospitals on a formal basis, and that, because of that, many others who are not admitted on a formal basis will find that there is no bed for them. There will be no possibility of them being attended to because, unless substantially greater resources are invested, what resources there are will be devoted to those who are creating difficulties and causing trouble rather than those able to be treated successfully.

I welcome all the positive things about the management of young people in more age-appropriate circumstances, advocacy and some of the other changes that have taken place. But, as I have said, it is with a heavy heart that I see this Bill pass, as it may be a considerable time before we can return to repair the attitudes that we see represented in the Bill’s provisions.

My Lords, I rise with some trepidation because I am a great admirer of the noble Lord, Lord Alderdice, and my noble friend Lady Murphy. But I take a different view. It is not that I think this is perfect legislation, but it links in with the two previous Acts and enhances them. I also take the view that other clinicians, not necessarily medical clinicians, may be better placed to take some of the decisions about admitting people because they work with the individuals. I say that having worked, as the vice-chair of the Lucy Faithfull Foundation, in a quasi situation with sex offenders, where medics were simply not interested in cognitive programmes that proved that the offenders could change their behaviour, with a very low rate of repeat offences. We will be going backwards if we take the simplistic view that a broader group of people cannot be trained well and helped to develop their skills to work in this field.

I recognise that this issue is extraordinarily complex and that medication is an important part of it. Medics issue prescriptions, but there are plenty of clinicians who are not doctors but who can administer medications on behalf of doctors. There are other ways of moving forward. I hope that we will do so, but I say that with some humility in the face of the two noble Lords who have just spoken.

My Lords, I am grateful for the support of the noble Baroness, Lady Howarth, and the words expressed by the noble Baroness, Lady Murphy. As she said, changing attitudes takes a huge amount of time, but I am sure that in the end we shall arrive at a situation with which we are all content and where we have achieved all we want to for patients with mental health problems. I note the continuing concerns and heavy hearts of noble Lords. The Government understand that this is a highly complex area with a lot of grey; it is not a question of black or white, yes or no. I agree with the noble Lord, Lord Alderdice, that there are different victims as he broadly defines them.

Our policy is to allow the patient’s case to be led by the most appropriate professional to address their main treatment needs. In the majority of cases, a psychiatrist will be the most appropriate professional, but it will not always be so. For example, if the patient requires, exclusively or primarily, psychological interventions, inflexible and outdated legislation, as the noble Baroness, Lady Howarth, said, must not stand in the way of the most appropriate person doing the job. One professional cannot address all of a patient’s needs; that is why there must be a multi-disciplinary team.

If the patient is receiving medication but their main treatment needs demand a responsible clinician who is not qualified to prescribe, the medication will be the responsibility of a professional who can prescribe. I stress that the Bill does not require any professional to act beyond their competence. A responsible clinician who is not qualified to prescribe cannot decide to perpetuate medication decisions. Medication should be kept under review by an appropriately qualified professional, separate from the decision to renew compulsory powers. A patient whose case is being considered for renewal will have their medication authorised by a second opinion appointed doctor.

No responsible clinician will be expected to act beyond their expertise, and statutory competency requirements will ensure that all responsible clinicians, of whatever professional background, will have the expertise to carry out their functions under the Act. This includes providing objective medical expertise about the patient’s need for detention. We have worked closely with stakeholders, including the Royal College of Psychiatrists and the BMA, on drafting the competency requirements for responsible clinicians. Advice from the Queen’s Counsel, sought by the coalition, has confirmed the Government’s opinion that the Bill as originally introduced, in conjunction with the statutory competency requirements, complies with the Human Rights Act.

The noble Baroness, Lady Murphy, asked which professions will be able to take on the responsible clinician role. The professions that can become approved clinicians and therefore take on this role will be set out in directions from the Secretary of State and Welsh Ministers. Only suitably regulated professions will be selected. In both England and Wales they will include chartered psychologists, mental health and learning disability nurses, occupational therapists and social workers, in addition to doctors. Individuals wishing to become approved clinicians will need to demonstrate that they have the right experience, skills and competencies to take on that role. Draft directions for England, which include the professions that can be approved, are in the Library and on the Department of Health website.

The noble Baroness quite rightly asked what will be in the regulations to require the second professional to examine a patient. The primary legislation will require the second professional to be professionally concerned with the patient; they will know the patient’s case. The draft regulations will, of course, be made available, and we would welcome the input of all noble Lords.

I am glad that we can support Amendment No. 4A and I ask noble Lords to do so. I also urge noble Lords to support the government amendments.

On Question, Amendment No. 4A agreed to.

Motion, as amended, agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 5 to 31.

Moved accordingly, and, on Question, Motion agreed to.

32: Clause 32, Page 20, line 40, leave out from beginning to end of line 17 on page 21 and insert—

“(b) it is necessary for his health or safety or for the protection of other persons that he should receive such treatment;(c) subject to his being liable to be recalled as mentioned in paragraph (d) below, such treatment can be provided without his continuing to be detained in a hospital;(d) it is necessary for his health or safety or for the protection of other persons that he should be liable to be recalled to hospital for medical treatment;”

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 32. I shall speak also to a number of other amendments.

We come to the final part of our discussions: the introduction of supervised community treatment. I do not exaggerate when I say that both here and in the other place supervised community treatment has been a source of considerable debate. Without having a Second Reading debate on the principles, I emphasise that supervised community treatment is intended to provide a way to minimise restrictions on people’s lives, allowing some patients to spend less time in hospital and giving them more freedom rather than less.

I understand the controversy that supervised community treatment has attracted and we have listened hard to the concerns and questions raised in debates. The amendments brought forward today were laid in the other place and, together with further amendments tabled by the noble Lord, Lord Patel, which the Government will accept, we have come to a satisfactory conclusion, which will ensure that we have a system that is workable for professionals, is beneficial to patients and strikes the right balance between patients’ rights and prevention of harm.

Commons Amendment No. 33 removes from the Bill the examples of conditions that could be attached to a community treatment order. We have been responsive to the many strongly expressed concerns about the conditions. Although we have always been clear that the conditions could not be used to exert undue control over a patient’s freedom, we know that the term “psychiatric ASBO” has passed into common parlance. This has caused unnecessary alarm to patients and their families and has to be dealt with. That is why the amendment makes it clear on the face of the Bill that the conditions must be about ensuring that the patient receives treatment or about preventing harm to the patient or others. With one exception, which is a technicality, the Bill makes it clear that conditions cannot be imposed for any other purpose.

We have recognised, too, that despite the many safeguards for patients on supervised community treatment—the same rigorous process and timing of review as for detained patients, the right to apply to a tribunal and the hospital managers for discharge, automatic referral and the nearest relative’s right to discharge—some people were concerned that it would be hard for patients to get off supervised community treatment. We decided that, in addition to those safeguards, it was right to accept a further provision, originating in this House, that an AMHP should have to agree to the extension of a CTO each and every time it comes up for review. Our Amendments Nos. 38, 39 and 42 cast that provision in a slightly different way from the original but have exactly the same effect. We must get the provisions and safeguards for supervised community treatment right so that best practice can flow from the right base. I hope that your Lordships will agree that the amendments address some of the key concerns that have been expressed.

I emphasise that supervised community treatment will be suitable only for a limited number of patients; it cannot realistically prevent all suicides and homicides by people with a mental disorder. But supervised community treatment allows a system to be put in place that makes prevention more likely than it would be without it. It is a fact that a significant proportion of homicides and suicides follow patients’ non-compliance with their medication. If we can tackle non-compliance with treatment through supervised community treatment to keep patients well, that is an end in itself. There is also a real chance that, as a consequence, supervised community treatment will save lives. I am certain that it will improve patients’ lives while at the same time improving patient and public safety.

I turn now to the criteria for eligibility for supervised community treatment, which has been the subject of much debate and concern. Your Lordships removed the Bill’s original criteria due to fears that they were too broad and would allow too many patients to qualify. In their place, your Lordships put criteria that would have restricted eligibility to very few patients indeed. I understand the concern that noble Lords expressed. I also understand that your Lordships considered that aftercare under supervision would be available only for those at risk of harming themselves. Noble Lords will recall our debate and the concern that I expressed that running two schemes in parallel would not work. Those original amendments required two compulsory admissions before supervised community treatment would become available.

I always understood the rationale for those amendments, but we could not accept them as they stood because they would immediately risk excluding patients who might benefit. Those patients would either have to remain in hospital or be discharged without any form of supervised treatment in the community. We felt that that would put families, carers and clinicians in an impossible position. It would mean that they would have to wait until the patient relapsed before supervised community treatment could become an option. For some patients that could be too late, because the relapse might be fatal, and for all patients the prognosis is worse the longer they wait to get the treatment that they need. Therefore, we felt that such a criterion was arbitrary and would fetter clinical judgment.

Therefore, the Government made amendments in the other place, which were accepted, to reinstate the criteria in the original Bill. Before doing so, we reviewed those criteria very carefully. We considered whether the criticism of those criteria made by your Lordships was justified. We concluded that the criteria did the job that they were intended to do and that they were set at the right level.

However, we accept that those criteria have given rise to concerns that supervised community treatment could be used too readily and that it could be used as a failsafe option without true justification. We do not agree with that, but we understand that we have to allay those concerns. That is why we support the amendments tabled by the noble Lord, Lord Patel, as they put beyond doubt what supervised community treatment is all about. In so doing, I pay tribute to the noble Lord. I am most grateful to noble Lords who have taken part in these extensive discussions. I beg to move.

Moved, That the House do agree with the Commons in their Amendment No. 32.—(Lord Hunt of Kings Heath.)

rose to move, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 32, at end insert “but do propose Amendment 32A as an amendment to Commons Amendment 32, and Amendment 32B as a consequential amendment to the Bill”.

32A: Line 7, leave out paragraph (d) and insert—

“(d) it is necessary that the responsible clinician should be able to exercise the power under section 17E(1) below to recall the patient to hospital;”

32B: Page 21, line 19, at end insert—

“( ) In determining whether the criterion in subsection (5)(d) above is met, the responsible clinician shall, in particular, consider, having regard to the patient’s history of mental disorder and any other relevant factors, what risk there would be of a deterioration of the patient's condition if he were not detained in a hospital (as a result, for example, of his refusing or neglecting to receive the medical treatment he requires for his mental disorder).”

The noble Lord said: My Lords, before I speak to my amendments, I, too, thank the Minister for his informative and supportive manner and his continued patience with those of us who are relatively new to the House and are trying to find our way through the complexities of health and social care legislation.

When the Government announced their intention to introduce community treatment orders, they offered the reassurance that these were designed specifically to apply to so-called “revolving-door” patients, who, as many noble Lords are aware, constitute a relatively small number of those people who are detained under the Mental Health Act. I remind your Lordships that part of the Government’s rationale for introducing a CTO power was that it could provide a less restrictive alternative to long stays, or repeated stays, in hospital for such patients. I think that it is true to say that a great many of the experts from whom we have heard over the years, whether professionals or patients, have found the idea of a CTO acceptable only on these terms: that is, if its use is confined to the revolving-door patients—those who have had multiple admissions to in-patient care.

If Parliament drafts the law too widely, the danger is that CTOs will be applied too widely. They could even become part of the normal discharge process for detained patients generally, as a kind of safety net for risk-averse mental health service staff and managers. If this happens, Parliament will not have produced a measure that enables a less restrictive alternative for the effective management of this small group of patients, but instead will have increased massively the legal coercion of psychiatric patients generally. I do not believe that this is the intention of Parliament and I hope that the Minister can reassure me today that my belief is correct. I again take this opportunity to point out the very understandable fear in some black and minority ethnic communities that any increase in coercive powers will impact disproportionately on them.

It was with a view to defining the scope of CTOs more precisely that this House tightened the criteria for their use in its previous debates, but of course these amendments to the Bill were undone in another place. I understand that the Government are particularly concerned not to allow any threshold for using CTOs that arbitrarily excludes patients. I understand that concern, which we all share, but there are still some differences between us on what an arbitrary threshold would be. I doubt that I am the only one in this House who felt deep concern at the phrase used by some government officials and Ministers that every exclusion is a patient not treated.

As chairman of the Mental Health Act Commission, I find it particularly disturbing to see the conflation of treatment opportunity and coercive treatment in this way. It is important that we establish a threshold below which treatment is offered rather than insisted on. It should be a salutary lesson to us all that, even in parliamentary debates and ministerial statements outside the House, the focus on revolving-door patients as the proper subjects of CTOs appears to have blurred. If the lawmakers cannot keep such a focus, it is a vain hope that the people who operate the law will do so.

With that in mind, I will pay close attention to the consultation on the code of practice, and I hope that the code will end up with a clear statement of intent regarding CTOs. That is not as good as the proper legal threshold that I and many others in this House and elsewhere would like to see, but it seems that this is the best that we are likely to get.

Therefore, my amendment is a modest proposal designed to ensure that professionals pay some regard to the clinical history of a patient for whom they are considering a CTO. It does not have the effect of establishing a threshold for CTO that certain things must have occurred in the patient’s treatment history, such as disengagement with services leading to relapse, but it will stand as a reminder to clinicians that they should be basing their decisions about a person’s liberties on evidence and not on supposition. It is not as far as I would like to go in defining the law, but it improves the government amendment, and I hope that the Minister will be able to accept it. I beg to move.

Moved, as an amendment to the Motion that the House do agree with the Commons in their Amendment 32, at end insert “but do propose Amendment 32A as an amendment to Commons Amendment 32, and Amendment 32B as a consequential amendment to the Bill”.—(Lord Patel of Bradford.)

My Lords, in view of the unprecedented level of interest in the Bill, I will be extremely brief. I have two questions for the noble Lord, Lord Patel of Bradford, although he might be assisted in his answers by the Minister. In Amendment No. 32A, on the necessity of imposing these powers, is that decision justiciable? Can it be reviewed using the legislative process? Under Amendment No. 32B, clinicians have to take into account not only the patient’s history of mental disorder but “any other relevant factors”. That is the sort of language that, when it appears in an opposition amendment, is mauled by the Government. Will the Minister tell us precisely what that phrase means? What will be included and what will be excluded by clinicians?

My Lords, in a very real sense the provisions relating to community treatment orders represent a leap of faith. The effectiveness of CTOs must surely remain a matter of considerable uncertainty in the light of the published international evidence, which, as the Minister will know, came to some pretty negative conclusions. Of course we hope that CTOs will do good and that they will be seen as having a place for certain groups of patients, but there are still real uncertainties about their implementation.

I have two questions for the Minister on CTOs. The first concerns the length of time that a CTO should continue before being brought to an end. We debated that at earlier stages without result. The Minister may say that this is a matter for clinicians and not for Parliament, but at what point does a CTO achieve its purpose? At what point does a clinician know that it is safe to remove the conditions of compulsion under which the patient is living? As Genevra Richardson pointed out, that judgment would be extremely difficult to make, and clinicians may prefer not to make it but instead to play safe by simply letting the CTO run on. We are back to the analogy of the lobster pot. What, if anything, will be included in the code of practice to prevent a CTO from running on indefinitely year after year? How reasonable and ethical is it and how justifiable by reference to the evidence from other jurisdictions is it for a patient to remain on a CTO for years at a time? If the Bill allows this, as it appears to do, I, for one, am not at all comfortable about it, and the amendments passed in another place unfortunately do not meet that concern.

My second question relates to the conditions that a clinician may specify in a CTO. It is very welcome that the circumstances in which such conditions may be applied are now more tightly drawn than they were previously, but what if the patient subjected to a CTO thinks that the conditions are unreasonable? When we debated this at earlier stages, the Government did not see that as a problem, but what legal remedy does a person subjected to a CTO have if he thinks that the conditions supposedly placed on him for his own good are an unreasonable infringement of personal liberty? Is it right or just that there is no appeal mechanism for this aspect of his regime?

I ask these questions partly as a result of a letter that I received in the past few days from an eminent professor of psychiatry, whom I shall not name. He refers in his letter to the confusion about what CTOs are actually for. The purpose of a CTO, he says, is to get non-compliant patients back on medication and to make sure that they stay there—no more, no less. That, according to the professor, is an end in itself; anything that may follow from it is secondary. I was shocked by that opinion. It may seem extraordinary that at this late stage of our deliberations on the Bill we should debate a fundamental issue of this kind, but I would be glad if the Minister took this opportunity to comment on it. Until now, I had thought that the point of a CTO was to make a patient well again. If the point is no more than to get him to take his medication, we are saying that medication should be forced on a patient even if it is doing him no good and even if it may lead to harm. Such an attitude in the highest ranks of the medical profession shows, I have to say, why patients need protection from certain doctors and why some of us have been arguing strongly for safeguards in the Bill, such as therapeutic benefit.

Will the Minister undertake to ensure that the code of practice is quite clear about the ultimate purpose of a CTO? In the light of the attitude reflected in the letter to which I referred, does he not agree that the view recently expressed by the Royal College of Nursing that compulsory medication should not be used as a substitute for adequate mental healthcare is absolutely to the point? To return to the questions that I asked earlier, if a doctor’s sole purpose in using a CTO is, heaven forbid, nothing more than to get a patient to keep on taking his medication, when is the end point reached in that process, how will a doctor know and at what point along the road do the conditions attached to the CTO become inherently oppressive and unfair?

My Lords, obviously this is a very important debate. Let me respond to a number of points raised by noble Lords. I come first to the question of evidence. Of course there has been considerable discussion about the evidence that underpins the proposals. We have had a debate about the evidence commissioned by my department—or my previous department—and, as ever with these matters, noble Lords have brought their interpretation to that evidence. Clearly, one has to say that there is a lack of what might be called gold-standard evidence available anywhere in the world. We must rely on the evidence that is available and we sometimes have to accept its limitations.

There is no doubt that around the world there is evidence to show the potential of supervised community treatment to prevent harm. Indeed, closer to home, Scotland has been mentioned in this House on a number of occasions, although noble Lords have for some reason been rather quiet about it in relation to supervised community treatment. But there we have it—in Scotland, you do not have to be detained before you are eligible for the benefits of supervised community treatment. Circumstances sometimes make comparisons rather difficult, but throughout the world it is clear that community treatment orders of one kind or another are increasingly accepted. I remind noble Lords that we propose supervised community treatment only after immediate prior detention in hospital for treatment. So we are proposing a system with narrow eligibility, which is found in the majority of jurisdictions that use such orders. In answer to some of the other points raised, I do not think that this has always been recognised.

The noble Baroness, Lady Barker, asked about the factors that a clinician must consider when making an initial decision about the patient’s eligibility for supervised community treatment. As part of this process, the clinician must decide whether he needs to be able to recall a patient to hospital. For this purpose, the amendment in the name of the noble Lord, Lord Patel, allows a clinician to take into account factors that are relevant to that decision, including the patient’s history. It is important that a clinician can consider all relevant factors, an obvious example being the patient’s current medical state. Other relevant factors might include the degree of recovery of symptoms, any suicidal ideas or feelings of hopelessness, which will be important predictors of likely risk. In addition, a patient’s insight and attitude to their treatment, and the protective circumstances into which a patient would be discharged, might be relevant. These are all factors that may not be evident in the patient’s history.

The amendment has the effect that the responsible clinician must consider the risk of the patient’s condition deteriorating in the community when deciding whether it is necessary for him to be able to exercise the power to recall the patient to hospital. This means that, in order to place a patient on supervised community treatment, the responsible clinician will need to be able to show that he has properly considered and, if appropriate, assessed the risk of deterioration—otherwise, his decision could be open to challenge in the courts. I hope that that clarifies the position for the noble Earl, Lord Howe.

The noble Earl, Lord Howe, also asked whether a patient should be able to challenge the conditions of community treatment orders. We discussed this before. My right honourable friend Mrs Winterton, the then Health Minister, said in Committee in the Commons that for supervised community treatment to work a patient must accept and be ready to co-operate with the conditions of a CTO. There would simply be no point in setting a condition with which a patient would not comply, because nothing hangs on a failure to comply. I very much take his point about the code of practice. The code of practice will ensure that patients and those close to them will be involved in agreeing the conditions. On account of that, a third-party appeals process would not be appropriate.

In response to the other question that the noble Earl, Lord Howe, raised, I accept that if a patient goes on to supervised community treatment, and it is no longer necessary for that treatment to apply, the last thing that we would want is for that patient to have to remain on supervised community treatment. I understand his point about what I guess he would call defensive medicine by the clinician. We will have to address that through the code and clinical professional practice. I assure him that we will do so. However, given the clinician’s responsibility to themselves, to the patient and in law, they must apply the provisions as laid down in this Act. The Act ensures that, where a patient no longer needs to be subject to supervised community treatment, that patient should no longer be so.

A lot of our debate has been about the context of practice within the law. I accept that one of the concerns in this whole mental health debate has been about clinical practice. As we now move forward with a Bill that will, we hope, shortly be an Act, I emphasise again to noble Lords that whatever the disagreements there have been—and there have been many—we have worked hard to try to meet the major concerns. I know that we have not met all those concerns and that some noble Lords passionately argue for further changes. However, I think that we have reached a position where, with the code and with the regulations, we can determine and do everything we can to ensure that the practitioners out there understand the law and good practice, so that we can develop mental health services in the way that noble Lords have expressed a desire to see them develop. Above all, this legislation will prove to be a foundation on which to take forward the provision and development of services in the interest of both the public and the patient.

As these are my departing words as a Health Minister, let me say that it has been a great privilege to have served in this position. I am most grateful to all noble Lords who have taken part in these extraordinary debates. I end by paying tribute to parliamentary counsel and to the Bill team, who have done a magnificent job of work under great pressure.

On Question, amendment agreed to.

Motion, as amended, agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 33 to 40.

Moved accordingly, and, on Question, Motion agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 41.

Moved, That the House do agree with the Commons in their Amendment No. 41.—(Lord Hunt of Kings Heath.)

My Lords, I beg to move, as an amendment to the Motion that the House do agree with the Commons in their Amendment No. 41, at end insert “but do propose Amendment 41A as an amendment to Commons Amendment 41, and Amendments 41B to 41D as consequential amendments to the Bill”.

41A: Line 7, leave out paragraph (d) and insert—

“(d) it is necessary that the responsible clinician should continue to be able to exercise the power under section 17E(1) above to recall the patient to hospital;”

41B: Page 25, line 45, at end insert—

“( ) In determining whether the criterion in subsection (7)(d) above is met, the responsible clinician shall, in particular, consider, having regard to the patient's history of mental disorder and any other relevant factors, what risk there would be of a deterioration of the patient's condition if he were to continue not to be detained in a hospital (as a result, for example, of his refusing or neglecting to receive the medical treatment he requires for his mental disorder).”

41C: Page 63, line 17, leave out sub-paragraph (iii) and insert—

“(iii) that it is necessary that the responsible clinician should be able to exercise the power under section 17E(1) above to recall the patient to hospital;”

41D: Page 63, line 27, at end insert-

“( ) After subsection (1) insert—

“(1A) In determining whether the criterion in subsection (1)(c)(iii) above is met, the tribunal shall, in particular, consider, having regard to the patient's history of mental disorder and any other relevant factors, what risk there would be of a deterioration of the patient's condition if he were to continue not to be detained in a hospital (as a result, for example, of his refusing or neglecting to receive the medical treatment he requires for his mental disorder).”

Moved accordingly, and, on Question, amendment agreed to.

Motion, as amended, agreed to.

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 42 to 108.

Moved accordingly, and, on Question, Motion agreed to.

Business of the House

My Lords, we are about to move to a Statement with the Leader of the House. Following the Statement, we were scheduled on today’s Order Paper to consider Commons amendments to the Corporate Manslaughter and Corporate Homicide Bill. Discussions continue on these amendments, with the hope of finding an amendment that is acceptable to the whole House, so I hope that the House will understand that, having had discussions through the usual channels and with all the people who have shown an interest in the Bill, we propose to postpone consideration of Commons amendments until a date to be arranged. That means that we get a slightly earlier night, which I am always in favour of.

Counterterrorism

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Home Secretary regarding the weekend’s events. The Statement is as follows.

“First and foremost, I am sure that all Members will agree that our top priority is the success of the investigation and any subsequent prosecution. For this reason, I will not be drawn on speculation concerning details of what is still a fast-moving investigation.

“The facts as they have been reported to me by the police and other agencies are as follows. At 1 am on 29 June an ambulance crew reported a suspicious Mercedes vehicle outside a nightclub in the Haymarket in central London.  The vehicle contained significant amounts of petrol, gas cylinders and nails.  Explosives officers from the Metropolitan Police Counter Terrorism Command were called and manually disabled the means of detonation.

“During the course of their investigation on Friday, the police learned of a second Mercedes vehicle that was issued with a parking ticket about 2.30 am on 29 June.  The car was parked in Cockspur Street, London, close to the location of the first vehicle.  The second vehicle was taken to a pound in Hyde Park at about 3.30 am that morning.  The vehicle contained similar materials to those found in the first, including a significant amount of fuel, gas canisters and a quantity of nails.  As with the first device, the vehicle was quickly made safe by explosives officers.  The police quickly confirmed that the vehicles were linked. Further examination will reveal additional detail about the impact that these devices may have had if detonated, but at this stage the police believe that these were potentially viable devices that could have caused significant injury or loss of life. 

“At 15:15 on 30 June, a Jeep Cherokee drove into a front door at the check-in area of the terminal building at Glasgow Airport and caught fire on impact.  One member of the public sustained minor injuries in the immediate aftermath of this incident.  The police have confirmed that the incident at the airport was linked to the vehicles discovered in London. 

“The investigations into these incidents have involved police forces across the United Kingdom.  To date, six individuals have been arrested in connection with the events: one at Glasgow Airport, a further two in Glasgow, two in Staffordshire—north of junction 16 on the M6—and one in Liverpool. One further individual of interest remains in a critical condition in hospital. Searches have already been carried out in at least 19 locations but, as I have already said, this is a fast-moving investigation.

“I am sure that the House will join me in thanking all those involved in the response to these incidents: the ambulance crew whose vigilance potentially averted an attack; the police, particularly the explosives officers who manually disabled the device in the Haymarket; and the Security Service. In addition, the response from the public and business community—including staff at airports—has been excellent in support of the police and other emergency services.

“I would also like to thank colleagues in Scotland and internationally in the United States and in Europe for their support. Since Friday morning, the Government have held four meetings of COBRA, chaired by the Prime Minister and myself and attended by ministerial colleagues from key government departments and the police and intelligence agencies. Our priority has been to co-ordinate the necessary responses to protect the public.

“I turn now to the response that is under way across the country. The police have substantially stepped up protective security measures including: high-visibility patrols, including armed response vehicles; increased use of stop-and-search powers for vehicles and pedestrians; and increased physical protection around airport terminal buildings, including tighter controls on access roads and installation of new barriers, in conjunction with airport operators and the Department for Transport.

“As ever, these measures are designed to maximise public safety while minimising disruption to normal life. This supplements the substantial programme of work that is already under way to protect high-risk locations. Police counterterrorism security advisers have already advised a range of crowded places in recent months, including over 450 major sporting venues and around 400 shopping centres.

“As the House will be aware, the UK national threat level was raised from ‘severe’ to ‘critical’ on Saturday 30 June by the Joint Terrorism Analysis Centre. JTAC sets threat levels based on a comprehensive analysis of all intelligence relating to international terrorism.

“Terrorism is a serious threat to us all. We must ensure that our resources, capability and legislation support our common endeavour to defend the shared values of this country from terror. To that end we have doubled expenditure on counterterrorism since September 2001. Work as part of the current Comprehensive Spending Review will further assess the expenditure necessary. We have started a full consultative review of counterterrorism legislation with a view to a Bill later this year. This process will continue. We have refocused the Home Office, developed the Office for Security and Counter-Terrorism and have established a weekly security board, chaired by the Home Secretary, to co-ordinate the efforts of key departments and agencies. Across government, Ministers will work together to oversee the delivery of this complex package of measures.

“Let us be clear: terrorists are criminals, whose victims come from all walks of life, communities and religions. Terrorists attack the values that are shared by all law-abiding citizens. As a Government, as communities and as individuals we need to ensure that the message of the terrorists is rejected.

“I very much welcome the strong messages of condemnation that we have heard throughout the weekend from community leaders across the country. It is through our unity that the terrorists will eventually be defeated.

“Mr Speaker, in closing my Statement I would also like to express my admiration and thanks to all members of the public in this country, in all our communities, for their patience and measured response to these events. My aim as Home Secretary is to allow the British public to live their lives as they would wish, within the law. The fact that people have been prepared to go about their lives as normally as possible this weekend sends the strongest message to those who wish to destroy our way of life and our freedoms that we will not be intimidated by terror”.

My Lords, that concludes the Statement.

My Lords, I welcome the noble and learned Baroness the Attorney-General to her new post. Even in these uniquely difficult circumstances I know that the whole House will join me in recognising her abilities.

I thank the noble and learned Baroness for repeating the Statement, which was made a short while ago in another place. I join her in expressing gratitude to the members of the emergency services and the police for their prompt and, as she set out, courageous actions. I also thank the public for their calm, positive response to the events of the weekend in what were very difficult circumstances for all of them. They have done exactly what terrorists hate most—they have got on with their lives. We have seen a series of murderous attempts to disrupt our sense of community, our values and our British way of life. That must not be allowed to succeed.

The response to a government Statement is usually seen as the time to challenge and expose the inadequacy of government policy by asking a series of hostile questions. That is not the right way ahead today. In another place my right honourable friend David Davis posed two questions, of which he had given prior notice to the Home Secretary in that spirit of co-operation. For completeness—for courtesy to this House—I will repeat those questions. On 22 April, a newspaper carried a report produced by the Government’s Joint Terrorism Analysis Centre that predicted a high risk of an attack at the handover from the last Prime Minister to the current one. Despite that, the threat level was not raised above “severe”, which is the level it stands at most of the time. We simply ask: why was that? Also, what were the implications for the police forces and security agencies of this lower level? Once alerted to the threat it is clear that the agencies responded remarkably quickly.

We appreciate that the Home Secretary will have a very difficult task ahead because, although numerous threats have been foiled, we now have to face the fact that three attempted atrocities have occurred without warning.

We recognise that the Government may well have to consider a significant increase in the size of the single intelligence budget and associated police budgets in the current Comprehensive Spending Review. Whatever their decision, it will have the Official Opposition’s clear support.

I welcome the statement made by the Prime Minister earlier today that he will not rush into creating new legislation, and the commitment by the Home Secretary, which I heard clearly on the radio, to consult other political parties and wider community representatives to decide on new laws and on other ways of countering the terrorist threat.

It is important that we all maintain an open mind during the search for a constructive way forward, one not only that will appear to bring a solution, but that is evidence-based, not flawed and will deliver a secure future for all the people of our country. British people of all religions and none will stand together in the face of this evil. Ultimately, tackling terrorism in Britain must be a combined effort with politicians, the police, the security services and the whole community working together. If, in the days ahead, we are able to carry that forward, our society and our country really will have come out of this ordeal a stronger place in which to live.

My Lords, I also thank the noble and learned Baroness, Lady Scotland, for repeating the Statement in your Lordships’ House. Let me from these Benches offer our congratulations on her appointment as the Attorney-General in the new Administration. She is a loyal member of her Government and has been a formidable Home Office Minister, defending at times what is difficult to defend. But, in her new role, I am sure that she will offer independent advice. That is a sure sign that her best is still to come.

It is right that we should congratulate the police, the security services, our emergency services and members of the public who averted carnage both in London and in Glasgow. I also thank Black Rod and staff at the House of Lords for ensuring that Parliament is adequately secured.

The Home Secretary’s response has been measured. There were no hard-line pronouncements, but a determination to ensure that terrorists will not be allowed to succeed in undermining our democratic values. There is, however, a serious issue of concern. Religious fundamentalism of any kind is incompatible with our democratic values. That said, let us not forget that a substantial number of our ethnic population are law-abiding and loyal. They have condemned the action of the terror gangs. Let there be no backlash, because we need their support if we are to defeat terrorists from within or without. For that reason stop-and-search powers based on intelligence are certainly welcome, but their indiscriminate use on a particular section of the community could be very counterproductive.

I commend the Government for moderation in their response, their change in tone and the decision not to use these events as a political point-scoring exercise in search of political draconian measures.

I have said before that there is no such thing as total security. Some attackers will make a break through the network of intelligence and policing. We may not have done enough to secure our critical national infrastructures. Will the Minister give us assurances on that?

The Statement comes when arrests have been made and police investigations are continuing. It would be counterproductive to further speculate on the matter. It is now more than important that the new Home Secretary convenes the cross-party talks which were promised a few weeks ago. It is vital that we make up our mind on intercept evidence and, above all, look for measures that will send a message that a determined Parliament and people of all races, religions and colours in the United Kingdom will not allow terrorism to succeed, nor allow our hard-fought civil liberties to be sacrificed.

My Lords, first, perhaps I may say a very humble thank you for the compliments that have been showered on me. I just hope that I will be able to merit them in due course.

I rejoice most of all in the total unity expressed in this House by the noble Baroness, Lady Anelay, and the noble Lord, Lord Dholakia. It does them both honour but it also reflects the unity of our Parliament. The people of this country have stood bravely together and will continue to do so. It gives me considerable pleasure to see that we in this House seek to emulate the unity that has been shown outside it.

On the first point raised by the noble Baroness, of course we note what was said in the document referred to in the Sunday Times on 22 April. The noble Baroness will know that it is not our practice to comment on leaked information. What I can say is that the Government continually receive intelligence from a variety of sources. This intelligence is evaluated and of course judgments have to be made on what actions should properly be taken in response to it.

The United Kingdom threat level was previously set at “severe”, which the House will know is used when the assessment is that an attack is highly likely. All efforts were made to make sure that we were properly ready for any eventuality. Noble Lords will know that that level was recommended to go to “critical” because of the events of the past few days. The Joint Terrorism Analysis Centre is responsible for making that assessment.

On new legislation, noble Lords will remember that my right honourable friend the then Home Secretary made a commitment about how it would be dealt with, which my right honourable friend in another place reiterated today. We will continue to look for consensus. It is clear that that is the aspiration and desire of all Members of this House and, indeed, of the other place. There will be no precipitous rush regarding those issues. I can give that reassurance to the noble Lord, Lord Dholakia.

I agree very much with the comments of the noble Lord, Lord Dholakia, about the law-abiding and loyal members of our community. All law-abiding citizens abhor acts of terror. I am delighted that we as a people stand united against the viciousness of the terror which is inflicted against all of us, irrespective of, as the noble Lord, Lord Dholakia said, race, colour, religion or ethnicity.

My Lords, from her party’s Back Benches, I welcome my noble and learned friend to her new position as Attorney-General, a job to which she brings considerable experience. I am sure she has realised that the events of the past few days show that there are no easy issues in the new position which she occupies. However, I know that she has the good will of the whole House in the task in front of her.

In the Statement my noble and learned friend referred to the undoubted bravery of the ambulance and explosives officers in Haymarket. It is right that we all acknowledge what they did and our debt to them. Will she join me in extending that appreciation to the fire officers, the police and the civilians who dealt with the terrifying incident at Glasgow Airport where people were put at risk? It is a mark of Glasgow’s resilience that civilians were prepared to give the police a hand in those circumstances.

This is not the first time that Scotland has been affected by terrorism. However, it is the first time that we have had a co-ordinated attack throughout the United Kingdom. My noble and learned friend will know that the Lord Advocate in Scotland has responsibility for the prosecution of offences and directing the police in the conduct of their investigations. Can she say something about the contacts that have been made with the Scottish Administration? Will she confirm that their existing political differences will not inhibit their proper co-operation and that full co-operation will take place between respective police forces and security agencies?

My Lords, I thank my noble and learned friend for his compliments. I join him in commending the bravery of those who participated in those events—both in London and Glasgow. It is important that we look at the way in which people came together in Glasgow. I endorse the bravery demonstrated by the civilian who ran towards danger as opposed to away from it in order to give assistance to those who needed it. I do not hesitate to commend, without reservation, those acts of extreme bravery.

There has been the closest contact between the Government and fellow law officers and police officers dealing with events in Scotland. I had the advantage of speaking at length with the Lord Advocate yesterday and we have spoken twice today. All officials, officers and the Lord Advocate’s team in Scotland are working as closely with us as is possible. We are totally at one in our response.

My Lords, does the noble and learned Baroness accept that while the elements found in these cars were wicked and lethal, they could have been more sinister? If they had been the constituents of a dirty bomb or a chemical or biological attack, it would have been crucial to discover the nature of that attack at the earliest possible moment. In spite of the most commendable reaction of all the emergency services, will the Government carry out a review of whether it was discovered at the earliest possible moment that the nature of these potential attacks did not constitute something much more sinister?

My Lords, we will do everything in our power to make sure that we find that out. It is important that we make properly informed decisions as early as possible.

My Lords, I warmly congratulate the noble and learned Baroness on achieving an office that she will fill with great distinction. I also commend the measured reaction of the Government and official sources to what has happened in recent days. They have correctly avoided rushing to judgment—let alone to legislation.

In her new role I invite the noble and learned Baroness to apply her legal skills, together with those available at the Home Office, to review the efficacy of control orders. In the absence of any alternative system—no better has been suggested so far as I am aware—does she consider it appropriate to examine whether control orders might be made more efficacious by reviewing all existing ones so that absconding would be more difficult and courts would be presented with evidence to show that, in some cases at least, more effective restrictions on controlees are required? As the independent reviewer of terrorism legislation, I believe that to be is a reasonably urgent and necessary piece of work.

My Lords, first, I thank the noble Lord for his comments about me, but more importantly, for his views on the measured response, with which I concur. It is certainly something that has inured to the benefit of our country. His comments will be taken very seriously. There is now an opportunity for us to review the provisions that might be necessary and to consider carefully how those issues are taken forward.

My Lords, in being informed of the many investigations and inquiries into these bombers’ purposes, would the noble and learned Baroness hazard a statement on what could have been the purpose of these destructive and murderous plans?

My Lords, it is clear to us that they wished to strike terror into the heart of the people of this country. I am sure that they wished to divide this community so that we would turn one against the other. If that was their intent, they have palpably failed.

My Lords, I join other noble Lords in praising the ambulance service and the police and congratulating them on their quite extraordinary degree of alertness and courage. Although the noble and learned Baroness may not be able to answer my question today, will she make a point of looking closely at those who have been apprehended and finding out how long they have been in this country, how they came into this country, what took place at their point of entry—in so far as that can be ascertained—and whether any special directions now need to be given to all those at our airports and ports to ensure that they too are on maximum alert?

My Lords, I join the noble Lord in commending the ambulance service. It was its acuity and bravery which led to the first vehicle’s discovery. Without that, we might have been facing a very different scenario today. We will have the fullest possible investigation about the provenance of these acts and from whence these individuals came.

My Lords, may I also be a showerer of compliments on the noble and learned Baroness? As it appears that one of the people was a suicide bomber, perhaps I may say that this building is immensely vulnerable to someone driving past it in a van loaded with some explosive device and that it would be a catastrophe of appalling magnitude if it were damaged in any way. Therefore, could we consider—and this may seem anodyne—making the precincts of Parliament a traffic-free zone?

My Lords, your Lordships will know that great care is taken in relation to the security of this building. Recently, we have had the new barriers at the front. Black Rod is responsible for considering very carefully what further or other protection we will need and I can assure the noble Lord that every consideration will be given to making sure that this building and all sensitive buildings in our country have the appropriate level of security provision made for them.

My Lords, does my noble and learned and most worthily promoted friend agree that there is an ongoing tension between the quite proper requirements to inform the public about what is going on as much as possible, and the equal necessity to ensure that terrorists have the minimum information available to them? In that context, I draw her attention to two things. I have noticed in the past few days that a lot of information comes out on CNN and Fox News which does not come out on the British channels, that can have come to them only through leaks from authorities over there who have been told things—I hope in confidence—over here. Can my noble and learned friend arrange for some monitoring process to see that that does not happen again?

There is an article in today's Wall Street Journal, which is an intelligent and responsible newspaper, that gives useful advice to terrorists on how to blow up drums containing propane—as they failed to do in this case—and how to make those drums less of a giveaway as to the source of the people of criminal intent. It occurs to me that it might be an idea—of course, I am not in any way suggesting censorship—if we were to reinstate the D-Notices Committee to give advice to editors on the sort of things that it is most unhelpful to publish at this time.

My Lords, my noble friend Lord Gilbert makes some valuable points. He is absolutely right: there is a difficulty in relation to controlling the sort of sensitive information that gets out in various media. Your Lordships will know that I will be properly constrained in this House in what I say. I certainly wish that others would be similarly restrained. We will look further at this matter; my noble friend makes a very important point.

My Lords, I add my congratulations to the noble and learned Baroness the Attorney-General. I am sure that we shall be clashing swords on many future occasions and I look forward to that.

The Statement reads:

“As a Government ... as individuals we need to ensure that the message of the terrorists is rejected”.

Does the noble and learned Baroness not agree that there is no discernible message being put across by these terrorists? Will she ensure that in the full consultative review that we are promised, the causes of why we are targeted by terrorists will be frankly addressed, whether they be people from abroad or people who have been born and brought up in this country?

My Lords, first, I thank the noble Lord for his kind comments. I savour them because I know how unusual they are likely to be.

There are many reasons that terrorists purport to give for why they commit acts of terror against us. Our view is that there are no reasons that they can explore or expand on that could ever justify the acts of terror to which they wish to subject us.

My Lords, I congratulate the Prime Minister and the First Minister of Scotland on the expeditious way in which they worked together over the weekend. Further to the answer that the noble and learned Baroness gave some moments ago, when she assured the House that there was co-operation between the two jurisdictions, does she not think that there might be a case for having more permanent machinery in place to ensure that, at both a political and an official level, co-operation is maintained for the future?

My Lords, we have a number of mechanisms to ensure that that co-operation is as comprehensive as it needs to be. What has happened in the past few days demonstrates that there is no lack of opportunity, will or determination between any of the participants to work together. I have been deeply impressed that what we have heard is one voice on behalf of the United Kingdom saying precisely the same thing: you cannot divide us; we will stand together; and together we will defeat you.

My Lords, after the detailed Statement, can the noble and learned Baroness the Attorney-General say what was the nearest building to the place where the second car was parked before it was driven away from Cockspur Street to Park Lane?

My Lords, I am not able to say that with precision now. The noble Lord will know that the police are looking at CCTV cameras and other information precisely to identify where that point may have been.

My Lords, from the Cross Benches, I add my very greatest congratulations to the noble and learned Baroness on her splendid appointment—especially because she is a female.

Is what I read in the press true: is one of the suspected terrorists a medical doctor? If so, does she agree that there is something particularly abhorrent about that?

My Lords, first, I thank the noble Baroness for her comments. If I am showered with any more, I shall no longer be the same colour; I will be bright red. Noble Lords should think of that as they make their contributions.

My Lords, there may be much wisdom in that suggestion.

I am not able to give any information about the nature of the individuals or their backgrounds. A great deal of speculation has been expanded on in the press. It would be safest if I did not comment. We await the outcome of the final investigation in due course. If it proves that there were those who specialised in certain medical or other areas, of course we would take that very seriously.

My Lords, going back to the question asked by my noble friend Lord Gilbert and the issue of the transmission of intelligence material to the United States, whether in JIC reports or through other intelligence organisations, what efforts are we making to emphasise to the Americans that that material should not be leaked in America, especially where it can undermine and prejudice investigations going on within the United Kingdom?

My Lords, of course I cannot comment on whether any information has been leaked in America. I do not know whether that is the case. What I can tell the House is that we have had the strongest possible offers of support, help and assistance from the United States and a number of our EU colleagues. We have been very grateful for that support. I am sure that our colleagues in other jurisdictions understand the difficulties that we face and will do everything that they can to ensure that our difficulties are not enhanced by anything that they may do.

My Lords, does the noble and learned Baroness accept that it would be reassuring to the people of the United Kingdom if in this particular case she could at the earliest possible moment confirm that none of those involved was born in the United Kingdom?

My Lords, I understand that desire, but although of course we will do everything that we can accurately to identify those who are responsible, whether they were born here or elsewhere is in many ways of less importance than what they do as a result of their beliefs. Whoever does this, from wherever they come, it is pernicious, vicious and wrong.

Fraud: EU Committee Report

rose to move, That this House takes note of the report of the European Union Committee on Stopping the Carousel: Missing Trader Fraud in the European Union (20th Report, HL Paper 101).

The noble Baroness said: My Lords, I rise to tell the House how to construct a multi-million pound fraud. This has been made possible by a European Union-wide agreement concluded in 1992, known as the Edinburgh agreement. We, enforcement authorities and indeed fraudsters were all initially slow to grasp the full range of its possibilities but, in 1999-2000, this fraud cost the taxpayer somewhere between £1.5 billion and £2.4 billion. Between 2005-06 it rose to somewhere between £3.5 billion and £4.75 billion, an amount which would go a long way towards funding the 2012 Olympics.

This has been a difficult subject on which to get a grip. The inquiry for this report started under my distinguished predecessor, the noble Lord, Lord Radice, in July 2006. However, like Her Majesty’s Revenue and Customs, we have been chasing a moving target. The original purpose of the report was to look at ways where countries could co-operate more closely in sharing information, but that issue turned out to be only a small part of the problem.

When I took over the chairmanship of Sub-Committee A, we considered setting up a shell company to see if we could indeed readily commit this fraud. In the end, wiser counsel prevailed, and we decided to rely on the guidance of our special adviser, Tony Jackson from the Chartered Institute of Taxation, to whom our grateful thanks are due; HMRC, which went well beyond the call of duty, appearing several times before the committee and providing us with useful papers; and witnesses, including many small UK firms that took the trouble to write to us. I must also thank my Clerk, Simon Blackburn, and Petros Fassoulas, the committee adviser, both of whom have been indefatigable in their efforts.

In describing this fraud and how it is committed, I need to remind the House that a major feature of VAT is that companies and firms collect the tax—currently at 17.5 per cent—on behalf of the Government. Companies and firms to whom a VAT rebate is due have the legal right to claim that rebate from the Government irrespective of whether the first company or firm has actually remitted the VAT it has collected to the Government. It is the Government’s problem to make sure that VAT collected on their behalf is gathered in to the Treasury coffers.

Therein lies the opportunity for fraudsters and the problem for Government. Before 1992, where company A, resident in the UK, bought goods from a company in France or anywhere else outside the UK, company A had to pay VAT at the point those goods entered the country. Safe transmission of 17.5 per cent of the order value into the Treasury was ensured at that point. Company A, having received the goods in the UK, would then sell them on to company B, which would be entitled to make a claim for VAT. With the money from the first transaction safe in its coffers, HMRC would pay company B’s legitimate claims.

Compare and contrast the situation after 1992 when EU countries agreed that, in the interests of fostering trade, VAT should not be payable when a company in one EU country bought goods from a company that was also in the EU. Company A, still resident in the UK, can now buy goods from a company in France without paying VAT. When said company A sells on to company B, A will charge VAT at 17.5 per cent and should then remit the money to HMRC since it is collecting the VAT on behalf of the Government. Company B remains entitled to claim back the VAT it has paid—at which point, while company A still has the money it has collected as VAT and company B has a claim for that money, company A disappears, leaving the Government facing a claim from company B, with no money from company A with which to pay it. This is why it is sometimes called missing trader fraud.

I am deliberately making this simpler than it is. It is important to understand that this fraud usually involves an elaborate chain of traders and often comes round in a circle between the same fraudulent traders several times, hence “carousel fraud”, which is the other name for the fraud. Some traders in the chain may not be involved in the fraud at all but be smaller traders who were offered goods at what seemed to them like a good price. There are many variations on the basic theme, but what they have in common is that they are designed with the objective of creating confusion and concealing the fraud from HMRC’s view. What they also have in common is a trader who has collected large amounts of VAT on the Government’s behalf and then vanished.

They are very large amounts of VAT, rising to between £3.5 billion and £4.75 billion for 2005-06. The figures for 2006-07 are not yet available, so we must rely on HMRC’s contention that it is being successful in combating this fraud to some degree, but at a very substantial cost in effort, manpower and painful consequences for smaller traders.

This fraud is enabled by a systemic weakness in the Community cross-border trade. Witnesses told us that this problem of the system being vulnerable to fraud was well understood in 1992, but that it was perceived that there was no alternative if trade within the European Union was to develop as all hoped. The noble Lord, Lord Kerr of Kinlochard, my colleague on the committee who was there at the time leading the negotiations for the UK, will tell your Lordships more this evening about the considerations actuating the contracting parties 15 years ago, I hope.

Her Majesty’s Revenue and Customs has not, of course, sat idle while these vast sums have been stolen, but it is operating under handicap. One party can import goods free of VAT and, before vanishing, can sell them on immediately to another party who can claim the full amount from HMRC. The situation is, as one witness said, like standing in front of a jeweller’s window in which there is no glass, trying to prevent passers-by helping themselves.

In these circumstances, HMRC has fought back by various means, principally by introducing a system of extended verification which subjects all claims for VAT to a process of examination and scrutiny to ensure that all the VAT due in respect of any transaction has been paid. It has also co-operated with the Metropolitan Police and the Serious Organised Crime Agency, and to date has brought two successful prosecutions against fraudsters, with others pending. HMRC is clear that it is dealing with professional criminal gangs that are also involved in other criminal activity, including money-laundering and smuggling, but have turned their attention to this fraud because of the substantial money involved.

While HMRC has reduced the level of money lost to the Exchequer, it is taking the full attention of 1,550 HMRC employees, and has gone a long way to paralysing trade in the communities most affected. In evidence, we heard of companies that had been waiting 12 months for a VAT repayment, and of some that had been forced out of business by the effect on cash flow of being unable to access VAT repayments.

HMRC also sought to promote more sharing of data and information between member states, but this is an elaborate process and the UK is to some extent handicapped by the requirements of the Data Protection Act from playing a full part, or persuading others to do so. In the EU, 27 law enforcement agencies need to be fully involved to make the system effective, and this is very difficult to achieve.

We concluded, in the light of all this, that while the amounts being lost were being reduced, the effort being deployed was unsustainable in other than the very short term. However, at the time we took evidence, HMRC was in the process of negotiating a change in European Union rules which was finally achieved on 1 June this year. It hoped that this would prove a more permanent and less strenuous solution. This was to allow the United Kingdom to impose a “reverse charge” to tax on two classes of goods—mobile phones and computer chips—in which fraud and attempted fraud had been particularly rife. The reverse charge is not dissimilar to a sales tax. From 1 June, a company wishing to deal in mobile phones or computer chips cannot import VAT-free, but must charge itself VAT on the invoice so that HMRC collects the tax due as the goods enter the UK. Missing trader fraud involving these two commodities is no longer possible, and we were told that HMRC believed that the imminence of this change accounted in part for the sharp fall in fraud involving mobile phones or computer chips earlier in the year.

The United Kingdom secured the derogation that enables HMRC to impose a reverse charge for only two years. More seriously, witnesses told us that the fraud, being as profitable and as straightforward as it is, will migrate to other goods and, worryingly, services both in the UK, which was of course the primary focus of this report, and in other European countries.

The inescapable conclusion was that extended verification was an effective if blunt instrument that could not be deployed at its present intensity other than in the short term, and that the imposition of a reverse charge on mobile phones and computer chips was also only a short-term measure that would last as long as it took fraudsters to shift their operations to other goods and services. We therefore turned our attention to looking for a longer term solution. It seemed to us that we needed to shore up the weaknesses in the current VAT system. VAT is a useful and robust tax that is deployed by almost all developed countries, with the exception of the United States, and there is no good case for recommending a change to another sort of tax. Modifying the reverse charge system and practising it selectively in the UK could easily lead to a reverse charge being levied on several different goods—or even on all goods and services, as Austria currently proposes. The member states of the European Union would then have in effect a sales tax. This tax is markedly less robust than VAT because, unlike VAT, it all has to be collected on the final transaction rather than at different points in the chain, which renders VAT as we know it both fairer and easier to collect. Moving to a sales tax would be a retrograde step, and we would not recommend it.

In essence, we recommended that the UK should seek to lead the debate on a new system for cross-border VAT payments, and we suggested some options. Work is of course being done in the Commission, and the UK is not the only member state suffering serious losses to fraud as a result of the current system, but we want the Treasury and Customs to do some new thinking and to publish a review of the options, including the ones that we have identified. Specifically, we concluded that the most promising options involved some form of an origin system. Under such a system, VAT would be charged at the rate of the exporting country, and the purchaser would be able to claim a refund of the VAT paid in his own country. Our old friend, company A, would order goods from a supplier in Luxembourg, but would have to pay VAT at 15 per cent because that is the rate charged in Luxembourg. Company A could then charge company B VAT at 17.5 per cent as he sold the goods on. HMRC would have to collect the VAT from the Luxembourg Treasury, which would require the creation of a clearing house to facilitate VAT transfers between revenue authorities.

It may not surprise your Lordships to know that Treasury witnesses did not favour a change to an origin system, adducing the concern that there could be difficulties in ensuring that member states received the tax that they were due through the clearing house. They told us that around £40 billion of VAT was associated with goods traded between the UK and the other member states, and said that they believed that the system would carry considerable risk. We found this a little difficult to accept, given that substantially larger sums are allocated without incident or problem by clearing and settlement systems associated with securities trading. The Treasury also suggested, uncharitably in our view, that revenue authorities in other member states would not be motivated to collect tax revenue that they would pass to another member state.

We concluded that the most promising change might be to a variant called the flat-rate origin system, which would involve all cross-border transactions carrying a 15 per cent flat-rate tax, wherever they originated, with a clearing house used to make sure that tax was received in the country of consumption. There are objections to this system, but it has the merit of being simple for both importers and exporters. It would involve setting up a clearing house, but this is no longer rocket science; the technology is now well understood and very efficient. Above all, it would not involve, as the present system does, a standing invitation to professional criminals to help themselves. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on Stopping the Carousel: Missing Trader Fraud in the European Union (20th Report, HL Paper 101).

My Lords, the speech that I am about to deliver is made solely for the benefit of our country and the EU. First, I congratulate the noble Baroness, Lady Cohen, the chairman of our sub-committee, who has presented very well the problems that have faced us. All of us on the sub-committee are grateful to her for her leadership.

Although we have some quite elderly Peers in this House, no one is old enough to remember the South Sea bubble and the huge number of investors who lost their money in the 1700s, although they may have read about it. We have, however, had several confidence tricksters in the more recent past. One whom I remember well was Emil Savundra, who had an insurance company called Fire, Auto and Marine, which was designed and set up to be fraudulent. Then there was Bernie Cornfield, who ran a fraud called the Dover plan and wrote a book called Do You Sincerely Want to be Rich?. We had a major fraud that was based principally in London and surrounded BCCI, a bank engaged in money-laundering. Even more recently, huge fraud was perpetrated by Enron, the American giant, which resulted in considerable changes to corporate governance, and continuous boiler-room share transactions have preyed on old people and greedy people hoping to make a profit from worthless shares.

All these frauds defrauded greedy and naive people and created a great deal of scandal in a comparatively short time. Edmund Burke said:

“Among a people generally corrupt, liberty cannot long exist”.

So it should be. Missing trader fraud, commonly known as carousel fraud, is none of those things. It does not directly defraud individuals, but it directly defrauds nation states. It has spread its tentacles throughout government, and hardly any country has not been affected by it. The sub-committee, of which I am a member, has carried out an inquiry and, along with several colleagues of mine, we have come to certain undeniable conclusions. Those of you who have not read the report should do so, as carousel fraud is certainly the most sophisticated and widespread fraud ever perpetrated on a number of countries. Our own country, Britain, admits to the loss of about £19 billion in the past eight years. The sub-committee reckons that a lot more has actually been lost, but no one can know for certain. France has not admitted the exact amount that it has lost, but certain reliable sources have said that it has lost the equivalent of €12 billion in the past year alone.

Italy, Germany and Spain all have large economies and are all being severely hit by this fraud. The larger the country, the more it loses. The only countries that are partially escaping this fraud are very small and have a GNP that is low enough for them to be able to deal promptly with any attempt at fraud. The Scandinavian countries—Denmark, Finland, Norway and Sweden—have been fortunate in escaping the worst effects of this fraud, but countries such as Belgium, Holland and Portugal have all been substantially affected. We in the sub-committee believe that, because the fraud is so widespread and the amounts of money involved are so great, no Government will admit to the exact figures that their Exchequer is losing, and that when they strike out to try to stop the fraud, they succeed only in diverting it.

Let me explain. Because of the large number of VAT frauds—this fraud is all about VAT—our Government decided that they would withhold VAT refunds to almost every mobile phone company. Mobile phones were and still are the principal product used to embezzle the Government, so our Government decided to withhold all payments to any trader in mobile phones. Several genuine companies and honest sole traders have gone bankrupt because the Government would not repay them their VAT. However, we must understand that the Government wanted to bring this fraud to an end and thought that stopping VAT refunds would have the desired effect. In some cases no payments have been made for over a year, and the Government hoped that this would halt the problem. It does no such thing.

The Government have also introduced a reverse charge, which your Lordships will read about in our report as being one of the methods we have suggested to stop the fraud. I will come to the argument later that in the case that I put forward there is only one true way to stop the fraud, but in the mean time I will continue with what I reckon has resulted in the diversion of the fraud. Already crooked traders are starting to deal with other products. They are dealing in cosmetics, white goods and clothing. All those are smallish products but of a high value, very much in the same way as mobile phones. This was why mobile phones were the first chosen instrument to defeat the VAT regulations. There is no doubt that the Government—and every Government—want to try to stop fraud, and I commend them for trying. They have taken on an extra 1,500 staff to deal with the problem, which is costing the Exchequer billions every year. How much better would it be if those moneys were being spent on schools, hospitals and similar things which would improve the quality of life in Britain? Maybe it would even reduce the rate of tax.

Many of your Lordships will remember the fraud that occurred concerning the dollar premium. For those of your Lordships not conversant with this fraud, it was an actual fraud on the Government. People dealt in the dollar premium, for which one got a 28 per cent rebate, and one rather prominent businessman left Britain never to return. That was a fraud on the Government which was much more confined in size and scope than missing trader fraud. Your Lordships may wonder what proposals I have for trying to contain and solve the problem. I have always been keen on a procedure which we used to call, in business, rattling the cage. What this means is that when and where one knows that a fraud is being committed, but one is not actually sure how it is being done or about the mechanics of it, one should send in a team that will investigate the fraud from every conceivable angle.

I know that the Government have employed a huge number of extra people to deal with this fraud, but I think, with respect, that many of these are clerks checking VAT returns. I advocate—very loudly—that the police or the Serious Fraud Office, or both, raid premises at Heathrow Airport, where it is known that freight forwarders have been sending plane-loads of mobile phones abroad at least three times a week. It is not only Heathrow, but equally applies to freight forwarders all over Britain. As I said earlier, this fraud will migrate to other areas and, because the Government have been refusing repayments of VAT to mobile traders, this area of fraud may be coming to an end. But, in order for the fraud to migrate into other goods, all that will happen will be that the freight forwarders at Heathrow and throughout the country will deal in different goods. It is imperative that these are raided, papers are taken away and the trail of where these goods go is followed and dealt with in a proper and efficient manner.

A bank in the Caribbean was closed as a result of questionable transactions. How many more banks are used to transfer huge amounts of money? Obviously the 1,500 extra staff employed are engaged in various areas of investigating this fraud, but one of the things that we have not been able to establish in our committee is how many of them are working at desks following paper trails, how many of them are in the field examining records in board rooms, offices and financial departments, and how many are involved in visiting banks to check the flow of funds inwards and outwards. These are questions that I would like answered. I would also like to know how many other banks have been investigated. Many banks throughout the world are of a somewhat shadowy nature and engage in money-laundering and doubtful transactions with doubtful companies. It would be helpful to know how many premises have been raided, how many prosecutions are pending at the moment, and how many individuals or companies are before the courts. That information will help present a picture of correct deployment of personnel.

I go back to my suggestion of rattling the cage. Our committee knows through evidence that a number of freight forwarders have been engaged in transactions, some of which must be placed in the dubious category. How many freight forwarders have been raided, and how many of these have yielded information helpful to the apprehending of criminal gangs? It has been estimated that there are up to 100 highly organised criminal gangs spread across Europe engaged in missing trader fraud, but we do not know how many enthusiastic amateurs have jumped on to the merry-go-round and are engaged in fraud, though perhaps not as well controlled as those involved in sophisticated criminal gangs. My strong recommendation to the Government is that they raid freight forwarders, follow the paper trails in offices, and investigate banks to see where the flow of money is coming from, and where it goes.

I know that it is highly difficult to stop this fraud and that the Government are genuinely doing their best. I know that VAT rates are different throughout the EU and that it will be difficult to get the VAT rates agreed in all the different countries. Rattling the cage will catch a few criminals—perhaps the less sophisticated ones—but one has to hope that Governments will treat the matter extremely seriously, and that Governments throughout the EU will come together in an effort to get rid of this dreadful problem. I hope our Government will take whatever action they can as a matter of great urgency.

My Lords, as a member of Sub-Committee A, I join the noble Lord, Lord Steinberg, in paying tribute to the noble Baroness, Lady Cohen, for running our debates on the inquiry with a rod of iron. She is primarily responsible for the very high quality of the product. I commend the report to the House. As we worked on the inquiry we found that the subject was larger than we had first thought. Most of us concluded that, while we might have some doubts about the means of extended verification being used by HMRC to deal with the fraud, we had no doubt about the necessity for strong action to deal with what was undoubtedly a substantial organised criminal attack, deliberately defrauding the Exchequer and hence honest taxpayers through manipulating the system for charging VAT on mobile phones and computer chips traded across frontiers.

The sub-committee concluded that HMRC was right to claim that it was succeeding and that the scale of the fraud in respect of such goods was diminishing. We also thought the Government right to seek EU agreement to a derogation permitting reverse charging in respect of mobile phones and computer chips. That has ended the fraud in this country on these goods. We were delighted about that, although we noted that the scope of the derogation was rather shorter than the Government had wanted, more restricted and only two years rather than the three originally sought. But we became more and more uneasy—or at least I did—as the inquiry went on. Many of us felt that we had stumbled on to a larger issue. The reverse charge derogation is extremely effective but merely transfers the problem elsewhere in the European Union. So its renewal in two years’ time is by no means a foregone conclusion.

Given the scale of the prize available to the criminal—we were told that the incidence of this fraud in this country reached £3 billion in 2005-06—and the enormous complexity of the defensive extended verification procedures required to combat it, it seemed to us inevitable that, with mobile phones and computer chips blocked off for the present, the fraud would migrate and mutate to something else. The Government did not dissent. They told us that the next vulnerable sectors would be iPods and satellite navigation systems. They talked then of cosmetics, pharmaceuticals, precious metals and computer software, and even, possibly, razor blades or golf clubs; that is, any sector where the traded goods crossing the frontier are high in value and low in volume.

We saw little chance of the Government being able, by a series of successive reverse charges, to pass the buck. We applauded the enforcement efforts, but we thought that the criminal always would be probably a step ahead. The authorities would go on being valiant in trying to plug gaps in the dyke, but we began to wonder whether it might not be better to drain the lake, which is why the second half of our report looks at options for change to the overall EU system as it applies to cross-border trade. In my view, the Government have reacted rather encouragingly to our recommendations. In their reply, they have accepted that there is a systemic weakness in the VAT treatment of cross-border trade and have confirmed that they are actively engaged in exploring, with other EU member states, a number of options for change.

We highlight a number of options in our report, but I want to touch simply on two which seem to be the most promising. The first option would be to move away from today’s destination system, whereby VAT is collected in the country where the goods are finally sold, to an origin system, whereby it is collected in the country where the goods are first produced and then distributed through a clearing-house. That would undoubtedly eliminate missing trader fraud. As the noble Baroness, Lady Cohen, said, that was indeed the system which was first proposed and which the United Kingdom hotly opposed in the early 1990s. The noble Lord, Lord Lamont, who is in his place, was eloquent in attacking this system. I worked for him at the time. I could not match his eloquence, but I attacked as his dog of war.

The Commission proposed an option system, which was defeated not just by the eloquence of the noble Lord, Lord Lamont, but by the general acceptance around the council table that the clearing house system would be immensely complicated. That is why we ended up with the destination system, which is still known in Brussels as the “provisional” system. It was always envisaged that it would be replaced in due course by an origin system. As the French say, nothing is more permanent than the provisional.

The noble Baroness, Lady Cohen, said that I should explain why I sinned so greatly. We were trying to build a single market and were getting rid of an enormous number of checks at frontiers, paperwork and documentation, and we succeeded. The 1992 programme brought about a tremendous liberalisation of intra-EU trade, but I now believe, like Lord Keynes, that when the facts change, you had better change your views. I have changed my views on an origin or destination system. The facts have changed. Modern technology now copes perfectly well with a clearing house on the scale envisaged. It seemed horrifically complex at the time. When one thinks of inter-bank clearing systems or, as the noble Baroness, Lady Cohen, said, securities trading, it is perfectly possible to envisage a clearing house system which would work.

Moreover, the Commission now suggests that the VAT which would be remitted through the clearing house should not be at the rates charged in the country of destination but at a flat rate which would be the same wherever the destination. As the noble Baroness, Lady Cohen, said, it could be the EU average rate of 15 per cent or the median rate of 18 per cent. It does not matter. The clearing house would deal with only one rate, which would be a huge simplification of the systems and would greatly benefit traders.

I pay tribute to the excellent evidence given to us by the Institute of Chartered Accountants. It came down firmly in favour of a solution on those lines. Government witnesses were rather more cagey and I think that I traced three streams of scepticism. First, there was scepticism about such dependence on IT, which I can understand. Secondly, I thought that I detected a feeling that it would be rash to rely on other member states to be active in the collection of VAT on goods destined for export, because the VAT so collected would be distributed through the clearing house to the country of import—that is, another country. That seemed to me to be a rather unworthy suggestion. Co-operation between national and fiscal authorities in the EU has always been rather good. The current system leaves the Revenue and the honest taxpayer at the mercy of the criminal. Given the choice, I would rather trust the tax man.

The third objection we heard is based on a misunderstanding. It has been suggested that an origin system plus a clearing house might infringe national fiscal sovereignty. This is untrue. Lest noble Lords think my judgment has been coloured by seven years in Brussels, do not take my word for it; take the words of the Institute of Chartered Accountants, which is no crazy Euro-phile. Its evidence states that,

“the harmonisation of rates of tax in member states is not essential in order to operate the origin system”.

The proposed system would not in any way limit our ability to set our own rates of VAT or to continue our zero-rating of particularly sensitive goods. Neither standard rates nor harmonised coverage would be required. Fiscal sovereignty would not be impugned. The difference from the present system would be that the huge rewards available to the criminal would disappear.

If a move to an origin system is thought too dramatic—it certainly would take time and there would be a very high transitional cost—one could envisage a refinement of the destination system which might be equally effective in eliminating fraud. We learnt from the Commission’s evidence—I pay tribute to Commissioner Kovacs and his team for their constructive co-operation with our inquiry—that it has just such a solution on the stocks. It, too, would involve simplification. Instead of obliging the trader to register in the country to which he was exporting his goods, and to pay VAT at the rate applicable in that country, the Commission now envisages a one-stop shop where the trader would account for all his liabilities in all other member states, online, in his own language, in his country of establishment. It would not be a clearing house but a self-clearing system. This solution, too, would eliminate or massively reduce the scope for missing trader fraud. It, too, would not threaten fiscal sovereignty and would be dependent on effective IT.

I am not an IT expert any more than I am a tax expert, as has already become clear in this debate, but my plea to the Minister is that he urge his new Treasury colleagues to approach both options I have described with an open mind, in a spirit of inquiry about their practicality. The key question is not whether this was something we opposed 15 years ago; it is whether it would work today and prevent fraud tomorrow.

There is sometimes too much theology in these matters. Remember Alexander Pope, who said:

“For forms of government; let fools contest:

Whate'er is best administered is best”.

The Government deserve our support for their success in getting on top of missing trader fraud in mobile phones and computer chips. I hope that they will be just as successful, although rather more speedily, when the fraud switches to another sector, as it no doubt will. Perhaps it already has. I thank the Government for admitting that there is a systemic weakness which the criminal will always seek to exploit. So the long-term solution is a change of system. The Commission will produce its reform ideas later in the year. I hope that the Government then will come back to the House with their reactions. If they do not agree with the Commission’s proposals, I hope that they will bring forward alternative suggestions for reform.

My Lords, I rise also as a member of Sub-Committee A of the European Select Committee, but unlike those who have spoken already, I am a very recent member. This report was almost complete by the time I joined. In the few meetings that I had the pleasure of attending, it was a case of running hard to catch up with all the work that the other members had done. I echo the congratulations to the noble Baroness, Lady Cohen, on bringing together this extremely complex matter in this report and on the way in which she has explained the basic issues to the House tonight, issues which were taken up in the contributions by the two noble Lords who spoke afterwards.

The report was published on 25 May, and just a month later a response, dated 25 June, came from Dawn Primarolo on behalf of the Government. Next to her letter is the official government response to the report. There is some progress in that response, although perhaps not as much as we would have liked. As has been mentioned, the Government acknowledge that we are dealing with a systemic problem:

“MTIC fraud is a sustained and organised criminal attack on the system that exploits a weakness in the VAT treatment of cross border trade in order to commit fraud”.

That acknowledgement is hugely important. Clearly at the moment the Government are engaged in an enforcement exercise involving 1,500 staff and costing £95 million a year. However effective that enforcement effort may be at what it is focusing on at the moment, the more effective it is at focusing on that, the more the problem will shift elsewhere. There is a huge range of goods which are light, easily moved and of high value to which this fraud can attach. So if it is acknowledged that there is a systemic problem, the obvious answer is to look again at the system, as was acknowledged in evidence given to us on page 98 of our report. Mr Eland, speaking for HMRC, said:

“All I would like to say, speaking from an operational perspective if I may, is that yes, it is always the best solution to change the rules so that things cannot happen in the first place. Any enforcement activity is always going to be following on after the event or in response to a failure, if you like, of those rules, so getting the rules right, I agree, is obviously what we want to do”.

I am delighted to hear that and to repeat what is in an abbreviated form in the main body of the report.

It is now acknowledged that the rules have to change. We examined in the report and set out briefly in the final chapter the options for change. We looked first at a generalised reverse charge or sales tax, then at the origin system, then at a flat-rate origin system and then at the origin system or flat-rate origin system without clearing house—of course, clearing house was considered in that context as well. We deliberately did not recommend a single solution; clearly, individual members of the committee will lead in different directions on this. We were hoping for a detailed response from the Government to these options. There is a certain amount of disappointment on our part at the response received because it is so brief.

The noble Baroness, Lady Cohen, expressed her view on a generalised reverse charge, which would be like a sales tax, and on the limitations of sales tax. One of the limitations of sales tax was outlined to us in a very stark way in the evidence we received, and I cannot resist the temptation to quote Mr Brown, from Her Majesty’s Treasury. He said:

“One of the reasons why more countries have been attracted by value added tax as opposed to sales tax is that the fractionated nature of the payment regime means that there is an element of self-policing within the tax system and that that basically provides you with greater taxing power than you would otherwise have. Very few of the sales taxes which operate get into double figures. We do see value added tax at rates of 20 per cent which appear to be sustainable”.

That lays it out very simply, very clearly. If you go for a sales tax—which will eliminate missing trader intra-Community fraud completely and save billions of pounds—it will be difficult to persuade the consumer to pay a sales tax of 20-plus per cent, whereas with the fractionated VAT adding up from each transaction and collected in stages, the poor consumer ends up paying 20-plus per cent. He does not notice it so much, except perhaps when he wonders why consumer goods are so much cheaper across the Atlantic than they are here. Part of the reason—although not all of it—why things are cheaper is that they do not have VAT but they have a sales tax. There are other reasons, and I do not want to simplify a highly complicated matter, but I could not resist the temptation of sharing with your Lordships the Treasury’s very stark view of the disadvantages of a sales tax.

In the Government’s response there is not, as I said, a detailed consideration of the options. We are, however, informed that:

“The UK and our European partners are looking at these radical approaches, and indeed the Commission is carrying out a study, due to report to the Council by the end of this year, on both the generalised reverse charge and the flat rate taxation of cross border trade with a clearing house system”.

So two of the options that we mentioned are being discussed, and the Commission will report to the Council at the end of the year. I find this entirely unsatisfactory. There is within the United Kingdom a dissatisfaction with the way in which the European Community so often works. It appears to be beyond our reach and beyond our ability to influence. Things then appear over the horizon quite quickly and take the form of a diktat or directive in which we then find that we have very little say when it comes to legislating here. While I understand the reason for that view, I am not sure that it is always accurate. I find sometimes when one moves about Europe that there is greater openness within European institutions and processes than exists within our own process, and I think this is another case of that.

The Treasury acknowledged in its response to us that it has a systemic problem. The obvious thing to do is to look at ways of curing that systemic problem, and to have a debate in which Members of this House and, through them, the public could become aware of what the problems and options are and could contribute. This is part of what we hoped we would generate by producing this report. We hoped that it would be a springboard for a debate, but the Treasury does not want a debate. It just mentions that there is an issue and says, “We will not talk about it until after we have consulted or completed a process that is taking place in Europe beyond our view and beyond our opportunity to influence. We will wait until the matter comes before the Council for a decision, then we will take whatever decision we think is appropriate and we will come back and tell you”.

Maybe I am extrapolating unfairly from one case, but the real cause of dissatisfaction with the processes within Europe lies in how those processes are handled by our own Government, who do not consult properly their own people, representatives and Parliament but prefer to go to Europe, take a decision and then come back and tell us. That really is not good enough. Maybe I am exaggerating; but the Government, who themselves complain about what they say is the public’s inaccurate view about European processes, could provide for greater transparency. I look forward to the Minister, in his reply, meeting all the desires that I have expressed with regard to generating and carrying through a debate well in advance of any decision in the Council.

My Lords, I put down my name to speak in this debate, but somehow it did not get on to the speakers’ list. I join in the debate as a member of the sub-committee under the exemplary chairmanship of the noble Baroness, Lady Cohen, and I would like to take this opportunity to thank our clerk and professional advisers and congratulate them on their outstanding work in the preparation of the report.

I wish to focus briefly on what I believe are two important issues raised by the report. First, while we must acknowledge the success of the Government and HMRC in reducing the extent of missing trader fraud in the computer chip and mobile phone trade over the past two years, that has been offset by serious damage caused to legitimate traders in the sector, particularly small companies. Applications for VAT registration, for example, are now taking up to three months for approval, and worse still the process of “extended verification” that is used to check all claims for the refund of VAT is taking up to a year. Many small companies have suffered, and in one of many cases reported to us, a company had repayment claims of more than £8 million in VAT withheld for more than a year, and was forced into voluntary administration. Clearly the damage to legitimate business is an unsatisfactory situation and one that cannot be allowed to continue indefinitely.

That brings me to the second important and related issue I wish to stress, one which has also been discussed by the other noble Lords in the debate. Both the extended verification process and the “reverse charge” derogation introduced on 1 June 2007 relate only to the mobile phone and computer chip businesses, and obviously only to UK trade. Clearly the fraud can be switched to other trades or even services, and to other member countries of the European Union, many of which are already experiencing the fraud. It is thus a European problem and the report urges the Government to start discussions with the European Commission and other member states, and to look more sympathetically at a radical change to the VAT system.

In their response, the Government acknowledge that discussions are already taking place and that the Commission is carrying out a study and is due to report to the Council by the end of this year. The Government insist that any change to the VAT system must fit three criteria: that the right tax ends up in the right place; that the potential for fraud and non-compliance is minimised; and that business is not overly burdened. Those are sensible criteria and the Government take the view that the report’s recommendation for a common, flat rate of 15 per cent on intra-Community trade with or without a clearing house is a possible solution, but would meet the three criteria only if accompanied by a clearing house.

As I have said, this is a European problem and one that Europe must resolve. The report has certainly stimulated discussion and our committee will be monitoring progress with interest in the months to come.

My Lords, not being a member of the sub-committee and with the massed ranks of the Liberal Democrats behind me, I should like to congratulate the noble Baroness, Lady Cohen, on a very succinct report. Its best attribute is that it has lots of diagrams. Despite her excellent introductory speech, diagrams and pictures pave the way to accessibility and help people to understand the issue. To echo a point already made, a striking aspect of this problem is that it has come out of the success of the single market. But that was 15 years ago, and during my time of being involved in European affairs—the past 10 to 12 years—it has been a known problem of some magnitude and yet one that we are still left with.

While the report is of very high quality, it makes for a depressing read as it outlines the size of the problem, the simplicity of the crime, and the difficulty in finding solutions. If this sort of crime occurred as single incidents involving each of the hundred or so gangs that get involved in it each year, it would still result in a huge amount of crime. Before the recent tightening-up of the regime, the sums mentioned in the report work out at £50 to £60 per person in the UK. The noble Baroness mentioned the Olympics, but the problem is of equivalent size with the social housing budget of this country, the Royal Navy carriers project currently under way, and is actually similar in size to our annual net contribution to the European Union. A very large amount of money is involved; indeed, it is so large that it is difficult to conceptualise. That is presumably why it does not appear on the front pages of our tabloids each day, as would any other crime committed on a similar scale.

On simplicity, it was staggering to read in the report that although we know about mobile phones and computer chips, along with reverse charging on certain precious commodities, this criminal activity accounts for something like 10 per cent of our total legitimate trade figure. It is a white collar fraud crime of amazing proportions. The noble Lord, Lord Steinberg, is not in his place right now, but he mentioned money-laundering and the banks. I used to be in the financial services sector and I remember spending huge amounts of time with individuals, private citizens, in order to get them to comply with money-laundering rules by asking them to prove who they were as a company secretary or director by showing their passport, driving licence and latest utility bills. We would go through all this, and if we were even slightly concerned about anything we would refer it on to what is now known as SOCA, but at the time was the ICS. We had the impression that all our money-laundering prevention procedures, including those of the banks for the money must pass through their systems, failed in this area.

The solutions are a source of even more frustration. The report has two themes, one of which competently goes through how the system is tweaked at the moment, while the other moves on to highlight how we might start to tackle this crime using either the origin system or, potentially, harmonisation. However, we do not have solutions to the problems of how to implement those proposals. More than that, even if we did come up with a perfect system, particularly for the United Kingdom, we do not have a way to deliver it because taxation is not an area for qualified majority voting. So to achieve this fundamental change in the VAT system, we would have to have 27 out of 27 member states agreeing in unanimity to changes in the system. So we have problems both in finding solutions and how to apply them. Even if the report from the Commission due at the end of the year comes up with the best solution, can the Government say how we are going politically to deliver it to the Council of Ministers?

I should like to put one or two further questions to the Minister. First, what priority is this likely to be given under the Portuguese presidency, and have the Portuguese mentioned it in their programme for the EU over the next six months? I would particularly like to find out how many prosecutions there have been involving carousel fraud and whether those have involved anyone other than the minnows. Have any of the main players been prosecuted, and what have the penalties or sentences been?

What strikes me about the whole subject is the size of the crime. Back when I was 11 years old in 1963 and on holiday in Devon, the Great Train Robbery took place. It was a case of shock-horror when £2.6 million was taken from that mail train in Bedfordshire. Those criminals were eventually apprehended. They each received 30 years’ imprisonment. Some escaped; some, I think, are still serving their sentences. Twenty years later, in 1983, we had the Brink’s-Mat robbery, the size of which—£26 million—was quite staggering then. Both crimes have gone down in UK criminal history and folklore. Yet here we have an annual fraud of between £3 billion and £4 billion, perpetrated by as many—or as few—as 100 masterminds. We hear so little about it, and have so little hope of a solution.

My Lords, I join in congratulating the committee on its excellent and comprehensive report. It really is a top-class document. Estimates of the size of the fraud vary, but the report states that there is no evidence that the evasion rate is any higher for VAT than for other forms of tax. We should bear that in mind when looking at the problem, so that any remedies are proportionate.

The report quite rightly states that matters cannot be left as they are and that something needs to be done. In her evidence, the right honourable Dawn Primarolo said that action taken so far had been effective in causing,

“a massive drop to the point where it is now minuscule”.

Additionally, permission to derogate has now been received for the reverse charge for certain categories of goods. This will continue the downward pressure. Certainly, time should be spent on seeing how the steps already taken turn out. The derogation will have to be renegotiated in two years, giving an in-built date for reviewing the situation. Perhaps if the fraud has migrated to other countries, they will be more anxious to co-operate and may not—as on the occasion of asking for the present derogation—demand a pound of flesh in the form of the UK making further concessions on our rebate.

The problems of mutation and migration will exist whatever happens, even if they appear in a different guise. It is the nature of taxation that there will always be people who seek to evade it. Inevitably, if one door closes, another will open. That may sound defeatist but it is not meant to be. It is an argument for giving the present steps a chance to work, and examining the results before making wholesale changes that may result in different sorts of fraud taking place.

In the event that further changes need to be made, the end-user tax certainly merits a great deal of further consideration. I disagree with the statement that there will be an extra burden on the retailer in the case of an end-user tax. The retailer will still be selling the same quantity of goods, but instead of remitting to Her Majesty’s Revenue and Customs the VAT on goods sold, less the VAT he has paid to his supplier, he will simply send the VAT on the goods sold: one step fewer, administratively, than at present. Additionally, he will have an improved cash flow, as he will not have to finance VAT on the goods that he has purchased for resale. Administrative costs will be lower and the elimination of the chain would make fraud more difficult. That tax would be collected in one hit, rather than bit by bit, should be no objection, as that is how virtually all tax is collected.

I support the arguments of Her Majesty’s Revenue and Customs against the origin system favoured by some noble Lords today. I will not repeat those arguments, but they should be listened to most seriously. I share the report’s concerns about potential hardship for businesses and enterprise, highlighted so eloquently both by my noble friend Lord Steinberg and the noble Lord, Lord Cobbold. It is clear from the evidence in the report that the extended verification system has created considerable difficulties for British companies. It is all very well for there to be a process whereby, in the case of hardship, delayed VAT repayments are made. I have no doubt that—and I say this from personal experience—Her Majesty’s Revenue and Customs will be sympathetic and helpful, but if security or bank guarantees are required for traders to receive delayed repayments, there will certainly be instances where security cannot be given. Companies facing hardship do not usually have surplus or unsecured assets. What happens then? Do they go under, as the noble Lord, Lord Cobbold, pointed out has already been happening?

Add to that joint and several guarantees, and it becomes all too easy for the innocent to be swept up with the guilty. The comment by the Institute of Chartered Accountants, that joint and several guarantees would be difficult to enforce, completely misses the point. The combined effect of the cost of having to defend yourself if accused—however innocent you may be—and the untold stress and time taken up by defence and being many months in arrears on VAT payments, could easily bankrupt almost any business. One arrives at a situation where Her Majesty’s Revenue and Customs effectively has the discretion to put any but the strongest companies out of business.

I hope that the application of reverse VAT will substantially change these problems for innocent traders, as they will not have had to finance VAT on purchases. That is another benefit of the end-user tax. If the Government are reluctant to look more closely at end-user tax, there is one simple solution to carousel fraud, which the Minister might like to ponder: make VAT payable between companies in different countries in the European Union, just as if they were all in the same country. It worked before 1992 with different rates of VAT, so there is no reason why it should not work now. A single market need not mean a single tax system. With one stroke—albeit from 27 different pens—carousel fraud would be eliminated.

My Lords, this has been a most interesting debate on the back of an extremely incisive report, for which we all owe thanks to the committee chaired by my noble friend Lady Cohen. It has identified a very real problem. I am happy to relate, as members of the committee who participated in the debate acknowledged, that the Government have been active in response. I recognise that there are anxieties that the response has not been comprehensive enough. Certainly, the committee identified an area of concern, to which the Government have made very significant responses indeed.

We are all aware of the threat. The impact on VAT receipts was estimated at between £2 billion and £3 billion in 2005-06. The measures the Government have taken to stem these losses have been reflected in this debate. We introduced the reverse charge for mobile phones and computer chips from 1 June. I hear what the noble Lord says: mutation—a word to conjure with—will occur with regard to the goods.

I shall respond to the point made by the noble Lords, Lord Steinberg and Lord Cobbold, about the resources used by the Treasury and the Revenue and Customs in dealing with these issues. If a company switches from mobile phones to another significant white good, that may be an indicator to the Revenue and Customs of the mutation to which noble Lords have referred. I emphasise that we are not unaware of these possibilities and will pursue them with vigour. There have been significant numbers of prosecutions of fraudsters in recent years. In August last year, the Revenue and Customs carried out the biggest ever operation targeting VAT fraud. Officers searched more than 160 premises across the UK. To date 18 people have been arrested and charged and we are continuing with these inquiries. There have been notable successes and I assure the noble Lord, Lord Teverson, who, along with the noble Lord, Lord Steinberg, earlier in the debate, also commented on this point, that we are devoting resources to these inquiries and they are producing results.

I am grateful to noble Lords who have indicated how sharply the authorities need to respond to changes in fraud. We have taken a multi-faceted approach and introduced both criminal and civil measures. Where we have the evidence we use every opportunity to tackle this matter. Freight forwarders, who were introduced into the debate by the noble Lord, Lord Steinberg, are regularly inspected by HMRC. We are active, but we are also conscious that this is a very significant problem, as the noble Baroness, Lady Cohen, so accurately defined it.

We appreciate that the committee set out to produce a number of potential solutions. I also recognise the point made by the noble Lord, Lord Cobbold, and nearly all other contributors to the debate—certainly the noble Lord, Lord Howard of Rising, emphasised this—that we cannot make the solution more difficult for business than the fraud. We need to protect the Revenue and we need to deal with criminality, but we should bear in mind the impact the measures may have on business. We are concerned that we meet both objectives of ensuring that people pay what they ought to pay through the VAT system and, at the same time, guaranteeing a climate in which legal and lawful businesses can pursue their objectives with a limited amount of difficulty. We have to keep a balance between tackling serious fraud and supporting business.

We aim to process all applications for registration and repayment as efficiently as possible. We are committed to improving the taxpayers’ experience in all their dealings with individuals and businesses and to minimising any negative impacts on business; we are out to refine processes and procedures. But noble Lords have identified in the report an area of fraud which needs to be tackled with strong and condign measures. There is bound to be an impact on business and there is some tension in that position which is not altogether remediable.

Checks have caused delays for some applicants. In 2006-07, 7,100 applications for registration were refused on the grounds that they were suspect and 2,500 were registered with specific conditions, such as financial security. This is against a background of 280,000 applications, so one has to keep a sense of scale between the areas where action needs to be taken and constraints imposed and the very large number of applications.

The noble Lords, Lord Cobbold and Lord Howard of Rising, stressed the issue of repayments rather than registration. As regards registration, the average time we expect to take to clear an application is 38 days. That will be too long for some noble Lords but it reflects an effective and appropriate target. It is not as good a performance as we aspire to and we are taking steps to deal with the current delays. An additional 102 staff have been devoted to VAT registration but, as I said, we need to keep this in perspective.

On repayments, HMRC processes some 8 million VAT returns and approximately 2 million of these are for VAT repayments. Of the 2 million returned each year, about 10 per cent fail credibility checks and are selected for further checking. A tiny fraction of these claims are suspected of being linked to fraud and are therefore subjected to the highly targeted process of extended or in-depth verification. We have to keep the number of returns which cause anxiety in perspective.

The committee has identified the cost to the Exchequer and the Revenue of the fraud which is going on; that is why we welcome the report. I appreciated the contribution of the noble Lord, Lord Kerr, who saw this as a Europe-wide issue; the Government had clearly recognised in their response to the committee report how important this is and how we have to work with our European partners to analyse alternative ways to combat fraud. I shall come on to the fact that the committee took matters further and not only identified the problem—that would not suffice for the noble Baroness, Lady Cohen, given her role in the committee—but looked at potential solutions, on which I shall comment in particular.

We should remember the criteria we must employ for potential solutions: the right tax has to end up at the right place. Noble Lords have suggested different areas and different stages in the process in which taxation might take place, but the important principle is that the right tax has to end up at the right place. By that I mean the VAT must accrue to the member state of consumption. The solutions must be effective in tackling existing fraud and not vulnerable, as noble Lords have emphasised, to new forms of fraud and non-compliance, which is the danger of the concept of mutation. The solutions should not place an unacceptable burden on business and noble Lords have been at pains to emphasise that we need to strike a balance.

With these criteria in mind, let us look at some of the solutions proposed. First, there are the radical solutions of applying a reverse charge to all goods and services or applying VAT to all intra-community trade. Both of these radical solutions may indeed have an impact on carousel fraud in its current form, the first by deferring the payment of the VAT to the very end of the transaction chain, the point where the goods or services are sold to the final consumer; and the second by greatly reducing the amount of VAT that could be stolen on intra-community supplies.

But both solutions come at a cost. The report accepts that a wide reverse charge would have the effect of turning VAT into a sales tax. I think it was the noble Lord, Lord Trimble, who advocated the virtues of a sales tax. The weakness of a sales tax is not that the consumer will not pay but that all of the tax falls at the end of the supply chain, where the seller is tempted to withhold all of the tax. A VAT seller, of course, can only withhold a fraction of the tax. Fraud then takes place against the whole of the tax charge when the fraudulent individual moves into action. At least with VAT, it is a case of fractions. Therefore, it is not as if a sales tax is not attended by some difficulties. The report is not about the normal processes of business and its relationship to the Revenue but about those who seek to break the law and to distort the proper amount that they should pay. Therefore, the point about sales tax is not readily accepted by the Government.

The taxation of intra-community trade also presents us with problems. In order to tax intra-community trade, it must first be decided where it is going to be taxed, and that could be either the member state where the customer is established or the member state where the supplier is established. To tax the goods in the member state where the customer is established would mean that businesses making cross-border sales would be required to account for VAT in every member state in which they make a sale. This is worrying for two reasons. First, it places an onerous burden on business and secondly it means that member states would be faced with the task of attempting to recover VAT from non-established businesses, which is no simple matter.

If taxation of cross-border trade in the member state of the customer throws up some difficulties, another possibility would be to tax cross-border supplies in the member state of the supplier. However, member states have long-standing concerns that to charge tax at the rate of the member state of the supplier would lead to tax harmonisation. Noble Lords may approach that issue with composure. However, that is not the case in many parts of the political community. If there were not harmonisation, all that would happen would be that businesses would relocate to the member state with the lowest VAT rate.

Member states have, indeed, given this issue a lot of consideration, and have recognised that a possible solution to this harmonisation issue could be to tax cross-border trade at a single, fixed rate; for instance, 15 per cent. A minor problem for the United Kingdom is that, with harmonisation at 15 per cent, we would lose about €8.6 billion, based on figures for 2006. Therefore, we cannot pretend that these issues are easy to resolve. It would not just be Britain. A number of other member states would also lose out with such harmonisation. There might be relatively few winners. Against that background how on earth could we look forward to obtaining agreement on the issue easily within the Community? So the setting up of a mechanism to redistribute the revenue to the member state of consumption is vital, and it is with this thought in mind that the European Commission and member states are taking this work forward.

The report enjoins the British Government and the European Community to give serious thought to this very acute problem. The Government have not dismissed any of these radical solutions and have been actively participating in discussions with our European partners on finding an effective solution to the fraud. The European Commission is committed to producing a report on the feasibility of these solutions by the end of the current year. I hear what noble Lords said about our not having very much time because the derogation lasts for two years only. I think that the noble Lord, Lord Kerr, emphasised that point. That reflects the importance of the matter. Action needs to be taken but these are not short-term issues.

That is why we are actively participating in work with our EU partners and the Commission on the second group of solutions—those which seek to improve the working of the current system—because the radical solutions may be difficult to obtain in the immediate future. This includes a wide range of initiatives, such as improving data flows about intra-Community trade and making it easier for member states to exchange information between each other. The Commission is again committed to reporting to the Council its findings, along with any necessary proposals, by the end of the year. We have, of course, been participating vigorously in these discussions.

The Government fully acknowledge the report’s most important proposition—that the Community needs to recognise VAT carousel fraud as a major problem. I say to my noble friend Lady Cohen that that message has struck home and requires an active response from government. However, through the measures we have taken, both within the UK and within the auspices of the developing EU strategy, we believe that we are building the tools necessary to defeat this fraud. We are committed to tackling this issue while at the same time sustaining a business-friendly environment. A balance has to be struck between tackling this appalling abuse, which is so costly to European countries—we recognise the cost to us—and not making the burdens on businesses so onerous that, as several noble Lords emphasised, they can be brought down by the measures taken to control fraud.

We have found the report invaluable in identifying the issues. We are grateful that it put forward solutions, although at this point we have reservations about them. We have reservations about the practicality of obtaining Community agreement on them and about whether they would necessarily make the situation better. However, it is rare for us to have a report which identifies an issue and proposes both short-term and radical solutions. I am grateful to the committee and to my noble friend for having introduced the report.

My Lords, before the Minister sits down, I should apologise for being absent for a short time but I did not hear him comment on banking. Banking is a line of inquiry which should be followed much more vigorously than a lot of the others. As the Minister is probably aware, in the Netherlands Antilles, the First Curacao International Bank was closed down because of fraudulent deposits and payouts. I should be interested to know, as, I am sure, would my colleagues, whether other banks—the Minister does not necessarily have to give me their names—are being investigated. Through their bank accounts surely you would be able to, as I said, rattle the cage a bit more and get some more information.

My Lords, I hear what the noble Lord says about rattling the cage but he is rattling the cage of my time. I am meant to respond to this debate in 20 minutes and he has already eaten up a minute and a half of that after he has brought that point into the debate. I apologise for not having spoken specifically about the banking sector, but when we say that the Revenue uses all the weapons which it can to tackle this issue, of course the banking system has a role to play within that. I cannot comment on the particular bank that he identified but I assure him that we are so concerned about this issue, as, indeed, are our partners in Europe, that the forces of law and order will take every measure they can to bring the perpetrators of these fraudulent activities to book.

My Lords, this has been a fascinating debate, on a subject of great intrinsic interest. It is not often that I find myself—I hope—illuminating an issue that has cost this country close to £20 billion over the past eight years. That is money which, had it been available to the Exchequer, could have funded many public goods. I am grateful to everyone who has spoken in the debate.

Our report was greatly assisted by the presence of one of the architects of the 1992 agreement in the person of the noble Lord, Lord Kerr. It must be unusual to hear such clear and well reasoned arguments for why a change of heart on the part of the Government of the United Kingdom is now both necessary and urgently needed. I am a little disappointed by the Government’s response. Having accepted that there is a systemic problem, the Government surely should be prepared, having willed the end, to will the means to resolve the problem. I hope that some urgent efforts will be made to find a solution. I also offer by way of warning the comment that my committee will do another report fairly shortly when we see what progress is being made.

On Question, Motion agreed to.

EU: Company Law

rose to ask Her Majesty’s Government what studies have been made of the impact of the provisions of the eighth company law directive on the competitive position of the City of London.

The noble Lord said: My Lords, I hope that the noble Lord, Lord Evans of Temple Guiting, will forgive me for saying that I very much hoped to be the first to welcome his colleague the noble Lord, Lord Truscott, or one of the other Ministers to their new role. They are Ministers for no longer the DTI but the rather inelegantly named DBERR, or Department for Business, Enterprise and Regulatory Reform. It is regulatory reform that is central to my remarks this evening. I know that, although this is pretty detailed and technical stuff, the noble Lord will deal with it with his customary calm, expert and dispassionate approach.

I want to raise concerns about the provisions of the eighth company law directive, which must be implemented by 29 June 2008. I appreciate that the title “eighth company law directive” does not exactly send the parliamentary pulses racing. Nevertheless, these directives contain, sometimes well hidden in the rather leaden prose favoured by Brussels bureaucracy, decisions that can have grave implications for British competitiveness. Nowhere is that truer than in those affecting the UK financial services industry and the City of London. I am afraid to say that all too often this Government have been a bit casual and too ready to accept uncritically what is spoon-fed to them by Brussels.

As an example, last year during the Committee stage of what is now the Companies Act 2006, we on these Benches argued strenuously that the sections in that Act making it a criminal offence, and not as hitherto a civil offence, to fail to comply with provisions regarding takeover documents represented a gold-plating by the DTI of the takeovers directive, a gold-plating that we further suggested was not going to be matched by other EU countries. Not so, said the noble and learned Lord, Lord Goldsmith, the then Attorney-General, replying for the Government. Far from it; the proposals were the minimum required. Because at that stage the directive was not yet in force, we could not tell how individual EU countries would comply. Now, 18 months later, we can tell and, according to the paper that was kindly circulated by the department, very few countries have sought to criminalise and none of those is one of the UK’s major competitors.

Another example is the insurance mediation directive, which was published in December 2002 and supposed to be in force before 15 January 2005. According to the City research series, only the Netherlands among the UK’s major competitors has a comparably strict regulatory regime. The French regime is much less proactive, while the German regime is still not yet in place, even two and a half years after the due date.

Tonight, I wish to raise another regulatory imposition that the Government blithely appear to be prepared to accept. I have said that the eighth company law directive is in its final run-in to implementation. While most of the directive deals with auditor training, supervision and so on, and is uncontroversial, hidden away in Articles 41, 45 and 46 are two provisions that will affect listed companies and as such have implications for the competitive position of the London Stock Exchange.

The first of these in Articles 45 and 46 concerns what are known as third-country auditor provisions. The basic premise is that the auditor of any company that issues securities on a regulated market—not including AIM—in an EU member state should be subject to an equivalent minimum level of regulation, even when the company whose securities are being listed is incorporated outside the EU. Noble Lords will note the element of extraterritoriality in those provisions. Equivalence can be achieved in one of two ways: first, if the third country where the auditor is located has equivalent systems on quality assurance, oversight and so forth and that third country agrees to offer reciprocal arrangements to the EU; or, alternatively, through direct regulation by the EU audit regulator.

Consider the position of a company located in an eastern European country outside the EU that wishes to list on the London Stock Exchange. Its accounts are audited by one of the big four firms, but the partnership of the big four firm in that particular country is an independent partnership under the big four “umbrella”. If so, those accounts will not be acceptable unless the country—not the firm—in question demonstrates to the EU that it has equivalent supervisory systems for auditors and that it will offer reciprocal opportunities to the EU. If the above cannot be achieved, the only solution is for the company to have its accounts completely reaudited by a firm within the EU, which is a costly, time-consuming and duplicative exercise.

It does not take much imagination to see from this example that this gives rise to many technical, organisational and indeed diplomatic niceties, including the issue of territoriality. It is no wonder that some have described this as a potential EU Sarbanes-Oxley. Articles 45 and 46 of the directive may therefore, as a result of the law of unintended consequences, have a similar impact in London to Sarbanes-Oxley in New York. Very few financial centres in the EU other than the London Stock Exchange have many listings of companies from outside the EU, so most EU country Governments are indifferent to these measures. It is London that will suffer most.

Some may think that this is a trivial matter involving few companies and fewer countries. However, the facts are these. The Commission estimates that 220 audit firms from no fewer than 63 countries will be affected. More parochially, the London Stock Exchange has said that there are 320 international issuers on the exchange, with an equity market value of £2,611 billion, or £2.6 trillion. In addition, there are 6,000 international debt securities, which may also be affected. Technical this matter may be, but trivial it most certainly is not.

Secondly, I turn to the provisions of Article 41 concerning audit committees. This is of a lesser order of importance, but nevertheless it is a significant pointer to the attitude and approach adopted by the EU. Article 41 will place a statutory requirement on all listed companies to have an audit committee. Nearly every UK listed company already meets or exceeds this requirement under the provisions of the Combined Code on Corporate Governance. Those that do not have such a committee have to provide a reason for not having one under the “comply or explain” provisions of the combined code. If investors do not like the explanation given, they can choose not to buy the shares or, if they are already shareholders, they can choose to sell their holding. What are we achieving by accepting this clause? The short answer is nothing. In fact, we may even be going backwards, because a statutory role may be regarded as likely to increase the personal liability of the individual director, which may in turn reduce the pool of able men and women who are prepared to assume those responsibilities. That cannot be in the interests of UK plc.

I am very much looking forward to being reassured by the Minister when he replies that the Government have looked into these matters and have everything under control, although in the light of their record to date I will take some convincing. I hope that the Minister will not fall back on the tired arguments that we cannot do anything about the issues now—we have really had enough of doors being slammed after horses have bolted—or that we will defer any difficulties by lengthening the transitional period so that implementation of the provisions is deferred by several years. That would be a complete dereliction of duty on the part of the Government.

First, transitionals do not solve the problem; they only defer it, thus often making it worse, because of the intervening uncertainty. Secondly, transitionals can be implemented only with the consent of member states, thus introducing an element of EU-wide horse-trading. Since few EU Governments have any interest in this matter, for reasons that I have explained, it is hard to see much being achieved. Finally and most significantly, transitionals can be introduced only where the Commission has made a formal finding that a third country’s regime is not adequate. It will be instructive, to say the least, to watch the reaction in, say, the United States or Japan when those countries are told by the EU authorities that to qualify for transitional status they will have to accept that their existing supervisory regime is not adequate.

To conclude, the clock is ticking down fast. Many non-EU countries are very concerned; that is as it may be. What should concern us and, in particular, the Government is the impact on the competitive position of the City of London. As I said at the outset, this is quite technical stuff and it is probably a bit unfair to leave the noble Lord, Lord Evans, to face this bit of fast bowling. However, I hope that when he reports back to this newly named department he will remind it that the last two letters of its new acronym stand for “Regulatory Reform”. This eighth company law directive would be a good place to start to show that the department really means business.

My Lords, I first declare an interest as a chairman and director of listed companies in the UK, the full details of which are set out in the Register of Lords’ Interests. I am also a former chairman of the audit firm, KPMG International. I congratulate the noble Lord, Lord Hodgson, on introducing this short debate on the eighth directive, which is of great importance and will be of significant impact if the implementation is not got right.

I sought to understand why the eighth directive was what it is and why it came into being. I studied some of the various utterances of the commissioner, Frits Bolkestein, over the gestation time of this directive. Among the reasons that I could distil were, first, that it was a way of giving us better corporate governance within the European Union and more effective audit performance—which are to be applauded—and to make the EU a more competitive place in the capital markets, thus attracting more inward investment in capital markets. Another aspect was a need to avoid the extraterritoriality of Sarbanes-Oxley. Originally, this directive was postulated as a way of preventing Sarbanes-Oxley crossing the Atlantic. Sadly, it has failed, as we all know. We must learn lessons from Sarbanes-Oxley, as the noble Lord, Lord Hodgson, said—and I will come back to those in a moment. Was the directive a response to Sarbanes-Oxley as a way of imposing our own extraterritoriality within the EU or to deal with offshore centres—again, a matter of great interest to us—bringing them up to the same standards that we expect within the Union? A final reason was to regulate the EU market, thereby restoring investor confidence.

All, or maybe some, of those reasons have merit and, therefore, I give this directive a cautious welcome. The high ideals of what it seeks to achieve are generally to be encouraged; but at this point it is important to pause for a moment to consider what happens when you get it wrong. You cannot look for a better case study in getting regulation wrong than what happened with Sarbanes-Oxley. Sarbanes and Oxley are eminent senators who put their Bill together in the United States as a knee-jerk reaction to financial scandals. It moved away from what we have known for years in this country of principles-based, light-touch regulation. The amount of time, money and effort that registrants on the US exchanges had to expend to comply with the initial approach of Sarbanes-Oxley, which was incredibly detailed and very rules-based, has driven capital seekers away from their marketplace in significant numbers. It is no accident that Hank Paulson at the US Treasury is putting great pressure on those who regulate to withdraw a lot of the detail to get the cost of compliance back down.

The danger is that we do exactly the same with a directive like this. Let us look at what appeals in this directive. First, a single audit framework to create a competitive audit market across the EU is to be applauded. Secondly, if, in implementation, we can stick to principles-based standards and independence and get away from mandating rules, we will maintain a light touch in the regulation for which this country is well known and at which it has been successful. Essentially, when you distil what is in this directive, there is a lot that you could say is taking a UK template and applying it to the European Union. That is great if that is what we do. The notion of independent regulation based on the home country model, as it were, will minimise cost and it ought to drive improvements in audit quality. Finally, the requirements for transparency are to be encouraged.

Given all those aspects of the directive that we see as positive, where are the problems? As with many great ideals, the devil is in the detail and I will give just a few examples—different from those given by the noble Lord, Lord Hodgson—where I think that there are significant difficulties in the detail. First, the application of the directive is far too wide. The Government must seek to exempt small and medium-size firms from the regulations. I speak with particular knowledge of the cost of compliance. The cost of compliance with this directive, if it applies in its totality, to small and medium-size firms will make them unable to engage in the market.

Secondly, a number of the definitions within the directive are either far too wide or, at best, far too imprecise. I have seen three people look at article 23 which deals with the provision of non-audit services, and I have been given three different interpretations, ranging from a complete prohibition on an auditor doing anything at all for an audit client—the French model, which does not appeal to me—to something that says that it is only what we have in the UK and that there are certain things that an auditor should not do. We cannot allow that to be used within different member countries in different ways—and I shall return to that issue in a moment. Article 36, regarding the dismissal of auditors, is another example of an imprecise definition. What do “proper grounds” constitute? The article states that you can get rid of an auditor only if you have proper grounds. Does the fact that you disagree with him about his fee represent proper grounds? I can assure noble Lords that, in the eyes of many directors, it does. Finally, touching on the point made by the noble Lord, Lord Hodgson, mandatory audit committees are a bit silly. The one thing that works very well is “comply or explain”. It works well in the UK and it will work well within the European Union.

A final example is that we need to be wary of the notion of other member countries gold plating in a way that provides them with protection over their own affairs. I will give two examples. In France, the Code de déontologie, which is at variance with the eighth directive, actually extends extra-territorial service restrictions, adopting the French model of nothing other than audit services. I believe that the UK and the EU should challenge that. In Italy, mandatory audit rotation of firms, not partners, has been maintained. This has been proven not to improve quality; it has added cost and restricted competition within that market. There is no question about that. Italy is also trying to impose extra-territorial service restrictions. Again, I believe the Government should look at this closely.

It is my understanding that the Department of Trade and Industry has consulted widely on this, so I do not suppose that any of my remarks will come as a great surprise to the Minister. I urge the Government to take heed of the responses, particularly those on the detail; otherwise, a great opportunity will be lost. In summary, as I said at the outset, I give this a cautious welcome.

My Lords, I thank the noble Lord, Lord Hodgson of Astley Abbotts, for bringing forward this issue. It may be technical, but as I so often point out on these occasions, it is a great pity that none of those on the Cross Benches—which are full of people who express themselves as having expertise in subjects like this when they wish to have Lord or Baroness in front of their name—seem to find the time to come when they have the opportunity to exhibit their expertise. As I have often said, my noble friend Lord Sharman, though not a Cross-Bencher fortunately, is an example to everybody in how this House ought to bring people with his expertise to have this sort of debate.

An important issue highlighted by the noble Lord, Lord Hodgson of Astley Abbotts, is that this directive is most important for the United Kingdom because we are clearly now the financial centre of the world. We must be very careful to ensure that a directive that applies to Estonia—I am not sure why I am picking on Estonia; I tend to tease Lembit Öpik, but that is probably not appropriate in this august Chamber. Why not? We can be cheeky, can’t we?—does not damage our position as the pre-eminent financial centre of the world.

Following my noble friend Lord Sharman, the relevant department—I have not yet got the acronym, but it used to be called the DTI—

My Lords, it is the DBERR, is it? The DBERR has gone out to consultation. I assume it is taking over the consultation that the DTI started. As I have often said, the Department of Trade and Industry under this Government has been very good in the consultation. Very effective consultation has taken place and the Government have certainly, in this area, often listened to the representations that have been made. There is particular concern here about the consultation—I am making a general point. It is my understanding that we are well ahead of other member states in the consultation exercise; that is inevitably the case as we are the financial centre of the western world.

It is important, however, that that consultation exercise should not lead us into a too firm and restrictive form of regulation; huge detail is going into the consultation exercise. If I may take just one phrase out of the CBI response to consultation, it is that clearly the UK is way ahead in its regulatory approach. A cautious approach, however, will inevitably lead, unless we are careful, to a stricter solution. The point that my noble friend Lord Sharman made is that it would be very dangerous if this consultation exercise, and implementation of the directive, led us to go beyond the general principle of “comply or explain” that works so well in UK at the moment. That is a phrase that all regulators in this area should take on board. The second point that the noble Lord, Lord Hodgson of Astley Abbotts, touched on—I know having talked to him that he expresses concern about this—is the impact of the directive on non-UK companies being listed in the United Kingdom.

I am very puzzled by this issue, because two extreme views have been expressed in recent months. First, Paul Boyle, the chief executive of the Financial Reporting Council, says that he is astonished that few in the City have woken up to the impact of the EU directive governing the use of foreign auditors by companies seeking to list on European exchanges. He suggests that the 200-odd non-EU companies listed on the Stock Exchange will be in danger of having to be delisted because of the import of these regulations. However, Adam Kinsley, the director of regulation at the London Stock Exchange, said that a suggestion that foreign companies would be forced to delist was scaremongering.

When the Minister replies, it is important that he indicates whether he believes that Paul Boyle or Adam Kinsley is correct. As a Minister, of course, it is not necessary for him to say whether it is scaremongering. Are the Government concerned, however, that the impact of these regulations will be a reverse Sarbanes-Oxley, and cut off the supply of US companies currently listing in the United Kingdom, or are they satisfied that this will not happen? I suspect that the answer will be that the big four will do all the audit anyway, so they will be able to manage the process—that is maybe a cynical response. Will the Minister indicate whether he believes this represents a threat, if implemented, particularly to US companies listing in London? As a result of Sarbanes-Oxley, and because a lot of their executives like to live in our halcyon climes, there is a big drive that very much benefits London as a financial centre.

My Lords, I thank my noble friend Lord Hodgson of Astley Abbotts for giving us the opportunity to debate this directive. European directives are, unfortunately, not the most eye-catching pieces of legislation. As he commented, company law is not doing much to make this one the exception.

Nevertheless, this directive will have an effect, and it is by no means certain that that effect will be beneficial. As my noble friend clearly laid out, with considerably more expertise than I can claim, this directive will quite possibly remove one of the great competitive advantages that helps to make this country's capital a global financial centre. The US seems poised to rethink some of the more onerous parts of the Sarbanes-Oxley regulations. The UK cannot therefore rely in future on the excessive regulation of its competitors to ensure its financial health. We must make certain that our regulatory burden is enough to ensure good practice but no more.

This Government have repeatedly stated that they intend to reduce some of the expense of unnecessary red tape and bureaucracy that has been laid upon them in the past 10 years. Indeed, it was one of the cornerstone reasons why they introduced the Legislative and Regulatory Reform Act 2006. The Government repeated their intention to protect UK companies and British business from excessive regulation, this time from overseas, when debating the Investment Exchanges and Clearing Houses Act. Unfortunately, as my noble friend Lady Noakes pointed out, that Act provided protection only from the United States, not from the EU. Action was certainly needed; the British Chambers of Commerce has estimated that the extra cost that Labour has heaped on business since 1998 is £55.66 billion. Three-quarters of this has originated in Europe.

Unfortunately, the Government may be introducing legislation that is designed to unpick the damage that has already been inflicted, but they are not doing anything to stop the new costs that are still being added. The FSA has estimated that the EU's markets in financial instruments directive will cost up to £1.1 billion to implement and over £100 million a year to operate. Does the Minister have any estimate of how much this directive will cost? This directive is yet another clear example that we must start having proper regulatory impact assessment for EU legislation. It is impossible to have an informed debate about these directives, or any of the myriad pieces of EU-related law that seem to pass through this House, without them.

When the Minister responds to the questions that my noble friend, those on the other Benches and I have raised, I hope that he will also be able to explain why his Government fail to undertake proper assessment of EU regulations.

My Lords, I, too, thank the noble Lord, Lord Hodgson of Astley Abbotts, for introducing this debate; we have had a very brief discussion. The whole tone was summed up by the noble Lord, Lord Sharman, who said that the danger in such a directive is what happens when you get it wrong. I hope that my comments will reassure noble Lords.

I start by nailing the Sarbanes-Oxley example. This is not an EU version of Sarbanes-Oxley. The London Stock Exchange has commented that although it is important to get implementation of the directive right—the noble Lord, Lord Razzall, stressed that—it is important to note that this is not a Sarbanes-Oxley.

Before I turn to some of the important points that have been made and the questions raised, I want to comment on the general context and objectives behind the new directive. As we heard, last week saw the establishment of the new Department for Business, Enterprise and Regulatory Reform. Noble Lords have stressed the importance of regulatory reform, and that message will be taken back to the new department. The department has a clear focus to promote productivity, enterprise, competition, trade and better regulation within a framework of free and fair markets.

I am sure that all noble Lords agree that these are vital for maintaining and strengthening a vibrant British business sector. We hope that the new department will provide a strong voice for business and regulatory reform within Whitehall.

The reporting and auditing framework must ensure that interested parties and others are provided with fair and accurate information. But the framework must operate efficiently and in a way that minimises the regulatory burden. Both objectives are vital to maintaining and building on the competitiveness of our capital markets and of course to their attractiveness to international investors and issuers. Another point that has emerged is a concern that this directive may have an effect on that very thing.

The potential impact of loss of investor confidence across Europe and globally is immense. It has been estimated by academic studies that the loss in stock market wealth in the US as a result of the Enron and WorldCom scandals was $38.2 billion in the first year. The Government reviewed and strengthened regulation of audit and accounting after Enron to protect against the risk of similar events in the future. But, in doing so, we were very careful to build on and preserve the strengths of our existing system and to avoid overly burdensome new regulations. We were careful to maintain the strengths of the “comply or explain” approach to corporate governance. We built on the sound achievement of the existing self-regulatory regime and enhanced the remit of the Financial Reporting Council.

At European level, the new audit directive seeks to enhance confidence in the financial statements and annual reports published by companies across the EU. The aim is to achieve this objective by strengthening the EU framework of standards and public oversight for the audit profession, in particular for the audits of larger, publicly listed companies, and by introducing new provisions for auditors from non-EU countries. I will come back to that question.

This is a “minimum harmonisation” directive, intended to establish a set of basic principles for the conduct and oversight of statutory audits conducted in the EU. The directive clarifies the duties of statutory auditors and provides for their independence and ethical standards. It introduces a requirement for external quality assurance and provides for public oversight of the audit profession, including third-country auditors, and improved co-operation between oversight bodies in the EU. It also provides a basis for international co-operation between regulators in the EU and with regulators in third countries.

The UK already enjoys a high level of confidence in the quality of its financial reporting, the professionalism of our accounting and auditing community, and the general quality of governance in our public companies. Furthermore, as a result of the regulatory reforms we have already made, we are in the enviable position of already having many of the audit directive provisions in place. Implementation of many of the provisions will therefore require little, if any, change to existing auditing practice or to regulation. There are, however, various new provisions in the directive. These include measures which will, for the first time, extend to auditors from third countries.

I now turn to the points raised by the noble Lord, Lord Hodgson, about the provisions on third country auditors, and concerns reflected by the noble Lord, Lord Razzall. Noble Lords are right to draw particular attention to the importance of these provisions and the need to ensure that detailed implementation is practical and proportionate. This is a complex, technical process involving detailed discussions with the relevant authorities in the UK, the European Commission and other member states, and, indeed, with third-country authorities. We understand that these discussions are ongoing.

The provisions extend elements of the EU’s regulatory system to those non-EU auditors who audit companies that issue securities on EU-regulated markets. The intention behind them is to provide investors in the UK and other EU markets with enhanced comfort that financial statements have been audited by auditors subject to minimum levels of regulation equivalent to those in the EU. These provisions are particularly important for the UK, in view of the large number of non-EU companies whose shares are traded in London—a point stressed by the noble Lord, Lord Razzall, and others. They are also important to other member states with growing international capital markets and to the economic development of the EU as a whole.

As with other aspects of the directive, these provisions have to strike a balance, providing important protections to investors while keeping regulation efficient and cost-effective for the benefit of all. It is equally important to get the balance right in how the provisions are implemented and particularly in how the flexibilities provided for in the directive are used. Therefore, under the directive, if an auditor is subject to an equivalent regulatory system in his home country, it is not necessary to make him or her subject to the UK regulatory regime. In such cases, the directive enables the auditors’ home-country regime to be relied on. It is for the European Commission, acting with member states under comitology, to make determinations of equivalence. There is also provision for the Commission to provide transitional arrangements for countries which do not have equivalent regimes but which are developing their own regulatory systems along similar lines.

The Commission consulted publicly earlier in the year on its approach to these decisions. Market players and other interested parties, including the London Stock Exchange and many from the UK, welcomed the pragmatic nature of the Commission’s proposal. In particular, they welcome the intention to rely, wherever possible, on home-country audit regulations. The Government, along with the Financial Reporting Council, are working with the Commission and other member states to determine the best approach in the light of that consultation. The Government and the FRC have worked closely and effectively in planning for the directive’s implementation and developing a joint approach to the discussions with the European Commission and other nation states in the implementation of the provisions on third-party auditors.

The FRC and the Government are keen to make sure that the detailed implementation of these provisions works effectively in practice. The FRC supports the Government’s approach. The Government have consulted extensively on both the negotiation and implementation of the directive. A consultation document was published in 2004 and a wide range of interested parties commented on the proposals. Since the directive’s adoption, we have worked closely with all our stakeholders and delivery partners to develop proposals for the directive’s implementation into UK law.

We published a full consultation document in March setting out an approach. The consultation included a revised draft regulatory impact assessment—a request made, I think, by the noble Lord, Lord Razzall—which was updated in the light of evidence provided by stakeholders. We are grateful for the many constructive responses and continue to work on drafting these regulations. We hope to publish our response to that consultation and the draft regulation shortly and look forward to receiving any comments from those noble Lords who have taken part in this debate.

In the one minute remaining, I will deal with the matter of audit committees raised by the noble Lords, Lord Hodgson and Lord Sharman. As noted, the directive introduces a new requirement that listed companies should have an audit committee or a body performing equivalent functions. That goes beyond UK provision—where provisions on the composition and role of audit committees are set out in the combined code on corporate governance. This code operates on a “comply or explain” basis. In a consultation document published earlier this year, the Government set out a number of options for implementing the requirement. We are also keen to stimulate debate among interested parties as the best way forward to help us deliver the route wanted by the market.

The noble Lord, Lord Sharman, asked what the dismissal of auditors only on “proper grounds” means. We agree that “proper grounds” is a broad concept. However, this is exactly the type of thing that can be sensibly assessed only in the circumstances of particular cases. The important point is that shareholders have an additional protection against auditors being dismissed where the reason is that the directors or dominant shareholders disagree with the way in which the auditors are doing their job.

I have the answers to four more questions, but have run out of time. If I may, I will write to noble Lords, sending copies to everyone who has taken part in the debate. I once again thank the noble Lord, Lord Hodgson, for introducing what has been an interesting hour or so.

Concessionary Bus Travel Bill [HL]

The Bill was returned from the Commons on Thursday 28 June agreed to with an amendment and with a privilege amendment. The Commons amendments were printed in accordance with Standing Order 51(2).

House adjourned at 8.34 pm.