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Lords Chamber

Volume 717: debated on Wednesday 10 February 2010

House of Lords

Wednesday, 10 February 2010.

Prayers—read by the Lord Bishop of Wakefield.

House of Lords: Companion to the Standing Orders


Asked By

To ask the Leader of the House on how many occasions in the past 12 months she has intervened in the House to draw the House’s attention to the need to comply with the Companion to the Standing Orders; and what assessment she has made of the response of Members.

My Lords, no such statistics are kept. In a self-regulating House, interventions to draw the House’s attention to the guidance in the Companion are not confined exclusively to the Leader. In the Leader’s absence, this role falls to the Deputy Leader or to the senior Government Whip present; and the opposition Front Benches and the Convenor also can and do draw transgressions to the attention of the House.

My Lords, have not attempts over the past week more vigorously to enforce the Companion clearly indicated, despite some success, that some Members simply ignore or refuse to accept the authority of the government Front Bench? That being the case, should not the Procedure Committee be prevailed on to ask the Lord Speaker to intervene and act to defend the finer aspects of self-regulation?

My Lords, I believe that many Members of this House strongly support self-regulation, and I believe that most Members of this House accept the authority of the House. I, of course, was present yesterday and I think that most of the House were very much with me yesterday in what I was doing.

The role set out for the Leader in the Companion is simply to draw the House’s attention to the guidance in the Companion and to any transgressions of the guidance. In relation to the Procedure Committee, I know that on the Benches behind me, and in other parts of the House, there is a strong desire for change—not throughout the House, but on the Benches behind me. I suggest that if any Members wish to take matters to the Procedure Committee, they can so do.

My Lords, is the Leader of the House aware that from this side of the House, we greatly support and admire the work that she does in drawing the attention of the House to those Members who occasionally transgress the rules? Before making any change, would it not be a very good idea for more Members of this House to visit another place and judge for themselves whether discipline and behaviour in the House of Commons are better than in the House of Lords?

My Lords, I am grateful for the support of all Members of the House in ensuring that discipline is properly maintained in this House. I do not think that I want to comment greatly on what happens in the other place, but I am mindful of it.

My Lords, there is a mood for change in this House, as the Leader rightly says. Why is she shilly-shallying about setting up a Leader’s Group? This House is not affected by a general election. We could get on straight away with listening to ideas for improvement. If there are worries about the composition of the group, why not hold a ballot of all Members of the House on the composition of such a group—to be conducted by STV, of course?

My Lords, I could not go as far as STV. I understand that there is a mood for change in some parts of the House. The Leader has not been shilly-shallying. The Leader has been doing what it is appropriate for the Leader to do, which is to try to ensure that all parts of the House are included in such a Leader’s Group. I accept that not everybody wishes to establish a Leader’s Group at this point. Notwithstanding what the noble Lord said about the election, I think that with six weeks—who knows?—before an election, although we know that an election will come before June, perhaps it would be better to wait until we return after the election. I can see the noble Lord nodding his head. We are all coming back. If, as I very much expect, we are still sitting on this side of the House and it should please the Prime Minister that I should still be the Leader of this House, I will set up a Leader’s Group. But I do not think that it is appropriate to do so in the last six or eight weeks before an election.

My Lords, does the Leader of the House accept that her strictures, especially over the past week, are very welcome in all parts of the House? Does she agree that frequently these days, when the fourth Question is reached, we are well into the 23rd minute of Question Time? Will she encourage noble Lords to bear that in mind because it prevents the fourth questioner having the time he or she should expect?

My Lords, I am grateful to the noble Lord for pointing out to the whole House that when the clock says 23 we are actually in the 24th minute.

My Lords, is my noble friend aware that many of us on the Benches behind her and elsewhere in the House regard self-regulation as we have it, supplemented as it is from time to time by the government Front Bench with suitable tact and lightness of touch, as infinitely preferable to rule from the Chair or the Woolsack which would, whatever the merits of the occupant, lead, as we see every day in the other place, to excessive adversarialism across the House and constant challenge to the rules of the House?

My Lords, it is interesting to have another view from the Benches behind me. That encapsulates the different views around this House. I am Leader of the whole House and, therefore, I have to ensure that all views are taken into proper consideration and that proper procedures are followed.

My Lords, does the Leader consider the remarks of the noble Lord, Lord Boston of Faversham, as applying, as I am sure he intended, to Ministers as well as to Back-Benchers?

Yes, my Lords. I frequently remind my ministerial colleagues in our weekly meetings that they should keep their answers short in order to ensure that Back-Benchers have proper time for questions.

Should there not be wider aspects of reform at this urgent moment? Why should not all Peers pay UK taxes and declare in the Register when they make extra payments as inducements to prospective candidates?

My Lords, that question is rather wide of the mark. However, as all noble Lords will know, an amendment was put to the Constitutional Reform and Governance Bill in the other place, and I am confident that in future all Peers will pay tax.

Sri Lanka


Asked By

To ask Her Majesty’s Government what is their assessment of the treatment of the Tamil population in Sri Lanka.

My Lords, we continue to urge the Government of Sri Lanka to address the underlying causes of conflict. We hope that recent progress on returning the internally displaced persons from the camps to their homes continues and is carried out according to international standards. However, progress towards an inclusive political solution that addresses the legitimate grievances of all communities, including Tamils, is slow and that puts at risk the long-term peace and stability of Sri Lanka.

My Lords, I thank the Minister for that response. Does he support the view that the Government should put pressure on President Rajapaksa to address the plight of Tamils in internment camps as a matter of urgency and arrange for the displaced persons to return to their homes? Secondly, what steps will Her Majesty’s Government take to ensure that President Rajapaksa makes reconciliation between the Tamils and the Sinhalese a priority and undertakes development assistance in the Tamil-populated areas?

My Lords, the latest official United Nations figures, from 15 January, estimate that 187,500 internally displaced persons—IDPs—have been released from the camps and that around 100,000 remain. This progress is welcome, but we continue to have concerns. Humanitarian agencies lack the full access that is required to assist IDPs to recover their livelihoods and to rebuild their communities. The restriction on the freedom of movement of those who remain in the camps has eased, but there are still constraints. My right honourable friend the Foreign Secretary spoke to his opposite number, the Sri Lankan Foreign Minister, on 5 February and urged him to allow all IDPs full freedom of movement and to lift remaining restrictions. On the noble Lord’s second supplementary question, it remains our view that genuine national reconciliation is a requirement that will bring the Sri Lankan Government to promote and protect the rights of Sri Lankans, including Tamils. We urge that policy on the Government and hope that they will put it into practice. My right honourable friend the Prime Minister wrote to the President of Sri Lanka, urging him to use his new mandate to take forward a process of national reconciliation.

The Minister may have seen the claim made yesterday by a Sri Lankan Minister that all the IDPs have been resettled except 70,000. Whatever the actual number, does the Minister agree that there is no coherent programme for making the former inhabited areas that were subject to conflict safe for habitation by removing the mines and by rebuilding the damaged or destroyed houses? Also, what progress has been made in dealing with the 11,000 alleged former LTTE fighters who are in indefinite detention? Will they be brought to trial?

The noble Lord makes two important points. I will have to write to him with up-to-date information on the point about the detainees, but he is absolutely right about the requirement for demining and for reconstruction. DfID is providing some £12.5 million of humanitarian funding aimed at supporting two British NGOs, the HALO Trust and the Mines Advisory Group, to undertake demining activities. We are also supporting the UN operations team to provide transitional shelter for 2,000 returning IDP families to the Vanni area.

My Lords, over the years, the Commonwealth has had a remarkable record in seeking to bring together factions within Commonwealth countries. India is involved here as well as Sri Lanka. Does the Minister see any prospect of an intervention or initiative by the Commonwealth Secretary-General?

My noble friend makes an important point about the role of India, which is an important player in the region. I am not aware of any current Commonwealth proposals to intervene in the situation. There is a newly elected President and a dissolved Parliament as of yesterday, with elections to be held within the next eight weeks. Hopefully we will move forward from there. I have no specific information in respect of the Commonwealth.

My Lords, does the Minister accept that we on this side of the House are extremely concerned about the hardship and suffering among the Tamils, and about other matters that my noble friend Lord Sheikh has raised? We fully support the Minister’s concerns about human rights, the actions of the present Government, which seem to be very much on the edge of human rights, and the general turn of events in this unhappy land. Does he also accept that there is now a need for an independent inquiry into the alleged war crimes committed by both sides in the recent military conflict, which might help, and does he accept above all that any support that the Government can give for reconciliation processes will have our full support on this side of the House?

My Lords, I am deeply appreciative of the support that the spokesman for the Opposition has given to the Government. I think that we are at one in this House in wanting to see reconciliation in that troubled country. Tamil and, indeed, Sinhalese communities have been disturbed by violence, and by deprivation as a result of violence, and we want to see them returning to their homes and to a much better life. We urge reconciliation on that Government and we are providing humanitarian assistance. We have urged the Government to allow an independent inquiry into crimes that were stated to have happened during the conflict. The country is not part of the Rome treaty and cannot be imposed on from outside, but a new mandate is being formed and a new Government are coming to power. We hope that the pressure that the international community puts on them from all sides will bear fruit.

Now that the military and the presidential campaigns have been won, is not this the best possible time to show magnanimity and statesmanship? In the mean time, will the Minister say a bit more about the financial assistance that has been given to the displaced people in the Tamil north and, in particular, the work of international organisations such as the World Bank and the International Organisation for Migration?

My Lords, I do not have an up-to-date figure for the amount or the activity of the international bodies, although I will happily write to the noble Lord on that. His first point is crucial. Now is the time for the Government and the President of Sri Lanka, in this moment of military victory and an election victory by a substantial majority, to reflect on the words of Winston Churchill, who said, “In victory, magnanimity”. That lesson has been well learnt in other parts of the world. In this part of the world, it could be essential in bringing together a community that is damaged by a quarter of a century of conflict.

My Lords, did the Minister see a report from the governor of the Central Bank yesterday that $1 billion is being raised for reconstruction in the north? However, none of it is going to reconciliation. Will DfID therefore make that one of its priorities?

As I indicated, DfID funding has been determined in terms of humanitarian concerns. I will take away the point made by the noble Earl and bring it to the attention of my DfID colleagues.

Electoral Reform


Asked By

To ask Her Majesty’s Government when they will implement their 1997 manifesto commitment on electoral reform.

My Lords, the other place voted last night by 365 votes to 187 in favour of amendments to the Constitutional Reform and Governance Bill to provide for a referendum to take place before the end of October 2011, offering a choice between the current system for elections to the House of Commons and the alternative vote system.

My Lords, I congratulate the Minister on keeping a straight face while he gave that extraordinary excuse to the House. I gently point out that that does not fulfil the requirement given in the Labour Party manifesto in 1997; namely, to have a review, which was undertaken by Lord Jenkins and his very distinguished commission. Why do the Government think that a consensus was required before a referendum on that recommendation was permitted, while last night no consensus was achieved? Indeed, Conservative MPs did not have a veto last night as they had on the Jenkins commission. Is the Minister saying that in future no Labour manifesto promise will be of any worth whatever unless the Conservatives agree to it?

I can hear some amusement from the last comment. The 1997 manifesto had a commitment to put a proportional alternative in a referendum. During that Government there was considerable legislation, new institutions were established, there was the Jenkins report, new voting systems were tried, and a great deal of learning took place. Neither the 2001 nor the 2005 manifestos had any reference to proportionality, which requires multi-Member constituencies or two classes of MPs. That would destroy the clear central theme of the House of Commons and the link between the single Members, all of whom are a common class with their constituencies.

My Lords, will the noble Lord continue to try to keep a straight face and tell us when the Constitutional Reform and Governance Bill will come to this House, and whether he thinks that he can get it through before the general election?

My Lords, the first past the post system has the strong constituency link and the equality of Members, and produces decisive governance. It is a good system. We nevertheless believe that the alternative vote builds on that system. Alternative votes will ensure that MPs will be elected with broader support. We believe that this majority mandate will enhance the legitimacy of MPs as they will need to reach out to a wider range of voters than under the existing system. Crucially, AV maintains the essential link between an MP and a single geographical constituency.

My Lords, why did the Government reject the sensible advice of the Jenkins commission that they could have the unique distinction of breaking the spell under which parties, when they want to reform, do not have the power to do so and, when they have the power, do not want to reform?

The position taken by the Government has been to introduce a great deal of constitutional reform, and they have developed an understanding of the consequences of that reform. The Government are strongly of the belief that no system of proportionality would make sense in the special circumstances of the House of Commons, and they think that they have a strong consensual position in that regard. Last night, a proposal to introduce a proportional amendment was defeated by 476 votes to 68.

My Lords, do not the elections to the European Parliament indicate the dangers of having multi-Member constituencies through the opportunities offered to extreme parties like the BNP to get representation in Parliament?

My Lords, electoral systems have results and in democracies we live with them. The European Parliament is a very different place from the House of Commons. It is primarily a representative body and is not an executive body in the sense that the Executive are not drawn from it. We believe that representatives in the European Parliament should be broadly representative of the electors of the UK, and that is why we think that PR is appropriate for UK European elections.

Does the Minister accept that the most fundamental need is to restore confidence in the democratic process in this country, which should encourage us to do everything we can to increase the number of people who consider it important that they should exercise their vote at the general election?

My Lords, I agree entirely with the right reverend Prelate. We have looked at research to see whether any of the various voting systems have a significant impact on voter involvement and we do not believe that that feature is significant. However, we believe that it is important to restore confidence and that the alternative vote system will require candidates to reach out to the whole electorate in their campaigning. That will be an important step, but the relationship between the constituency and its Member is the way forward.

My Lords, of course the constituency link is absolutely crucial, but does my noble friend agree that there is a further big advantage to AV in that it prevents the need for tactical voting and therefore produces a better result, particularly in those constituencies where up to now tactical voting has sometimes determined the outcome and sometimes has not quite worked?

I agree entirely with my noble friend, but add a word of caution. We believe that AV has much to recommend it, which is why we should set it in front of the British people in a referendum. It will be for them to decide.

My Lords, if the referendum is such a good idea, why was it not provided for in the Bill as originally drafted in the House of Commons?

Haiti: Natal Care


Asked By

To ask Her Majesty’s Government how they are assisting the 37,000 pregnant women in Haiti to receive adequate antenatal and postnatal care and a clean and safe delivery.

The Department for International Development has contributed £300,000 to the World Health Organisation for early warning surveillance and £1 million to the organisation, Action Against Hunger, to include support for mothers and babies under one year old. We continue to monitor the overall health situation and remain ready to address gaps through existing partnerships with the United Nations and non-governmental actors.

My Lords, the Minister must know that even before the earthquake, Haiti had the highest rates of maternal and child deaths in the western hemisphere. Reports from the UNFPA tell of women giving birth in the streets and, as a consequence, dying for lack of obstetric care. When the emergency period in Haiti is over, and following the initiative of the White Ribbon Alliance and the All-Party Group on Population, Development and Reproductive Health, would the Government consider taking the lead on maternal health in the health sector in Haiti, rather like they championed education in Rwanda after the genocide?

My Lords, we are making substantial assistance available in response to the humanitarian crisis following the emergency and the reconstruction crisis. We are working through the United Nations co-ordinator in Haiti and with the United Nations organisation responsible for health. In that context, we see our role as examining and filling the gaps we find in areas of need that are not covered. In that regard I will take on board the noble Baroness’s points.

My Lords, we know that Her Majesty’s Government do not invest in private charities, but are they aware of the highly successful tent programme of the Cornish charity ShelterBox? Each shelter box contains a 10-person tent, blankets, water purification and cooking equipment, tools and a stove. Have the Government any plans to emulate its very successful package to send to Haiti?

My Lords, at the moment in Haiti we are moving out of the emergency and rescue phase into the emergency prior to reconstruction phase. There is a major problem just over the horizon called the rainy season, which will arrive in about five weeks’ time, to be followed by the hurricane season. That is why we have a ship en route there, to provide not only the tents, which have been largely supplied by many international bodies, but much more substantial housing. Plastic tents will not survive the rainy season, and certainly will not be helpful in hurricanes, and the Government are addressing that area of concern, again, through their partnership with the United Nations. I will take on board the points the noble Baroness makes because there is certainly a continuing need for all forms of assistance. We can be proud of what we are doing so far but there is much more to be done.

Does my noble friend agree that this tragic problem is one symptom of a terrible reality in Haiti as one of the poorest countries in the world? Is it not therefore essential that the British Government give a lead, not only on this but on the generation of social infrastructure in general within Haiti and the overcoming of poverty? Will not effective international co-operation be absolutely indispensible if this is to be achieved?

I agree that we should be part of the team that gives the lead. However, on this issue, there are countries with a much closer affinity to Haiti—Canada, for example, which has a major aid programme for that country, and the United States. The United Nations is now there with a number of agencies and we should play our part. Our historical involvement in the Caribbean has been with the English-speaking countries and, prior to this disaster, we have not had an ongoing presence within Haiti. How long we will be there remains to be considered in conjunction with our international partners. We will be there as long as is necessary for the rebuilding of that country and for the stabilisation of the Government and their ability to govern.

My Lords, UNICEF has identified the situation in Haiti as the most severe child protection emergency. How can we make sure that there is assistance not only for vulnerable women and children in the current situation in Haiti but, as others have said, for ensuring their protection in the future? Is this not an argument for setting up a long-standing organisation such as UNRWA, which has a very good record in the Palestinian territories in this regard?

The noble Baroness makes an important point. It is for the UN family to work to ensure that the right kind of agencies continue to have an ongoing process. As someone who has worked in the system, I have to confess that sometimes there is almost a competition to provide assistance and people fall over themselves. Alas, it is not the most efficient system. Having a single leadership, through a resident co-ordinator or a special envoy, which is what is happening in Haiti, is a much more useful approach. The point made by the noble Baroness will, I am sure, be taken on board when we decide internationally the best way of assisting Haiti in its reconstruction and beyond.

My Lords, when emergencies in which we have a moral responsibility to help are over, how, with the best will in the world, can we take on responsibility for difficulties of this kind in all countries which have them?

The noble Baroness also makes a good point. The answer is that we cannot; we can do it only in concert with others, whether it is through the European Union, which will have a major part to play in assisting reconstruction within Haiti, or in the emergency tasks that we take on board. For example, we are looking at providing substantial support for the provision of durable shelters using locally salvaged materials and materials supplied by the Dominican Republic. Alas, road contact between Santo Domingo and Port-au-Prince may be a victim of the rainy season. We can be proud of what we are doing as a Government; we can be proud of the support that we have in both Houses; and, most of all, we can be proud of the British people, who have given more than £70 million for this task. Therefore, I think that we can respond.

My Lords, what is the Government’s approach towards cancelling Haiti’s debt and what action have we taken?

I know that your Lordships implore Ministers to be brief in their answers. The answer is that we have already done it.

Fiscal Responsibility Bill

Second Reading

Moved By

My Lords, I am pleased to open the debate on the Fiscal Responsibility Bill. I intend to provide a general overview of the key provisions of this important Bill and the background to it.

As my right honourable friend the Chancellor explained in the other place, the Government have set out consolidation plans to halve the deficit over a four-year period and put debt on a downward path. The Fiscal Responsibility Bill enshrines these targets in law, ensuring that the deficit is reduced at an appropriate and sensible pace that allows us to protect the economy and maintain key public services.

Whatever the economic circumstances, Governments need rules and objectives for their fiscal policy. As part of the Government’s reforms to macroeconomic and fiscal policy in 1997, we established a new fiscal framework with two clear fiscal objectives, which have been maintained since. The first is over the medium term to ensure that public finances are sound and that spending and taxation should impact fairly within and between generations. The second is over the short term to support monetary policy to help smooth the path of the economy. The objectives that we set out then remain today.

Between 1997 and 2007, the Government operated according to two fiscal rules, designed to deliver the following objectives: to balance the budget, excluding public investment, over the economic cycle; and to keep government debt at a prudent level. Those two rules were appropriate for the challenges that we faced at the time. Over the 10-year economic cycle, we balanced the budget and significantly increased investment in public services.

Those were sound rules for the time, but we are now operating in a completely different environment, and economic policy here and in other countries has adapted. Just about every country has been hit by a severe financial crisis, resulting in the worst global economic recession for decades. Borrowing and debt have risen in most countries, ours included. The recession has had a profound impact on the public finances, here and in most countries. This has resulted in a significant increase in government borrowing and public sector debt.

As my right honourable friend the Chancellor set out in the other place, we have had to be flexible in our response to these changing global circumstances. The Government had a duty to support the economy when the economy was weakened. The support provided has helped to limit the severity of the downturn and its impact on businesses and individuals.

There were costs to stepping in. However, not to allow borrowing and the deficit to rise to help people and businesses would have meant greater pain, more job losses and more damaged lives. As we look to the future and levels of uncertainty recede, the Government believe that it is appropriate to strengthen the fiscal framework. The UK is not alone in doing this. As Governments around the world work together in response to the downturn, many other countries are also looking at their respective fiscal frameworks. For example, Germany has introduced similar legislation, and the IMF has highlighted fiscal responsibility laws as a way to support fiscal adjustment by strengthening institutional arrangements.

The Fiscal Responsibility Bill should be viewed alongside other elements of the fiscal framework, in particular Section 155 of the Finance Act 1998 and the Code for Fiscal Stability, a revised draft of which was published on 19 January. The Finance Act 1998 sets out five key principles—transparency, stability, responsibility, fairness and efficiency—and the code explains how they will be applied to fiscal policy. The Fiscal Responsibility Bill effectively takes some matters which would otherwise be in the code and elevates them to primary legislation. The key example is that fiscal plans now and in the future must be set out in law. The code will be retained as part of the strengthening of the framework; in particular, it will provide important information about the nature of the Government’s fiscal plans.

The Fiscal Responsibility Bill sets out the Government’s first fiscal plan as a duty in primary legislation, which the Government are required to meet. It further requires that the Government set out future legislative fiscal plans for delivering sound public finances to be approved by the other place, and places a duty on the Government to meet those plans. This Bill gives Parliament a clear role in both setting and monitoring the Government’s medium-term fiscal plans. Fiscal plans must be approved before they become law, and this Bill gives a new level of scrutiny to the Government’s medium-term fiscal plans and means that Parliament should be able to hold the Government to account for them. The Bill represents a strengthening of the fiscal framework in response to new challenges. It will bind the Government and ensure that they deliver on the tough decisions to more than halve the deficit over four years and get debt falling.

Clause 1 imposes three duties on the Treasury: first, to ensure that government borrowing as a share of GDP falls in every year to 2015-16; secondly, to ensure that government borrowing is at least halved as a share of GDP over a four-year period to 2013-14; and, thirdly, to ensure that government debt as a share of GDP is falling by 2015-16. These three duties are in line with the Government’s fiscal judgment, which was set out at the time of the Pre-Budget Report. In 2010-11, government borrowing starts to fall and continues to do so each and every year thereafter. Borrowing will fall to 5.5 per cent of GDP by 2013-14, so that we more than halve from the 12.6 per cent of GDP reached this year. With further consolidation thereafter, debt as a share of GDP is projected to fall in 2015-16. This is the sharpest reduction in the budget deficit for any G7 country. There is no power in the Bill to amend the duties in Clause 1. They can be changed only through new primary legislation.

Clause 2 requires that the Government must continue to have a legislative fiscal plan after 2016. It also makes provision to give the Treasury the power to add, by order, further duties to the Government’s fiscal plan. Noble Lords will note that the Government published a draft order on the day of the Pre-Budget Report, requiring that borrowing, as a share of GDP, is reduced to 5.5 per cent or less by 2013-14. This goes further than halving the deficit in four years.

As we emerge from the global downturn we now need to ensure sound public finances.

I do not know whether the Minister noticed that the Chancellor of the Exchequer was quoted in the newspapers the day before yesterday as saying that Greece must reduce its deficit to 3 per cent within two to three years in accordance with what was agreed at ECOFIN. Why does what applies to Greece not apply to us?

I am afraid that I did not see the newspaper interview to which the noble Lord, Lord Lamont, refers and therefore cannot comment on it. Quite clearly, however, there is a commitment contained in this Bill and in our financial plans significantly to reduce the deficit. As I was saying, there can be no disputing the need to move towards ensuring sound public finances; this Government are clearly committed to achieving that outcome.

As growth resumes, and the economy is better placed to support tightening, fiscal policy will shift towards consolidation. Well timed and planned fiscal consolidation will support economic growth during the recovery. The Government’s judgment is that tightening fiscal policy too much in 2010-11 would present risks to the recovery and a deterioration of the fiscal position. The Government are cautiously confident about the prospects for the economy and believe that it will be able to support a more rapid tightening in 2011-12, and subsequently. Growth will help us to reduce our borrowing and debt.

Clause 3 sets out the reporting requirements on the Treasury, which must report through regular progress and compliance reports. Those will be produced alongside Budgets and Pre-Budget Reports. Reporting at those times allows the reports to be set in the right context. Progress reports must set out the progress which has been made towards compliance with the plans. The reputational costs of not being on track are, clearly, significant. Compliance reports must set out whether the plan has been met. That must be based on information available at the time. If plans have not been achieved, the Government must set out why they were not met. The reputational costs of not meeting the targets are, clearly, significant.

Noble Lords will have noted that the revised Code for Fiscal Stability, published on 19 January, sets out that the Treasury must also report on what it will do to remedy the situation. Compliance reports will be made at the Pre-Budget Report after the target end date. This assessment is necessarily retrospective, so that out-turn statistics can be used rather than forecasts. All reports must be laid before Parliament; that is the means by which the Government are held accountable to Parliament.

Clause 4 makes it clear that it is Parliament alone to which the Government are accountable for the approval of, progress towards and compliance with their fiscal plans. At present, Parliament has no direct say in medium-term fiscal policy—that is, spending and taxation brought together—beyond the year ahead. However, fiscal policy, by its nature, is largely accomplished through setting medium-term targets. The Bill requires the Government to set out their fiscal plans for a reasonable period ahead into the medium term, establishes statutory requirements to report on those plans and gives the House of Commons the right to approve or vote down those same plans.

I note the amendment before the House. Although I shall respond in detail in my closing speech, perhaps I may explain that the Bill gives Parliament a new role in both setting and monitoring the Government’s fiscal plans. It is right to give Parliament a formal, statutory role in holding the Government to account for their fiscal plans; that is what the Bill does. Furthermore, the Bill’s provisions mean that there will be more, not less, scrutiny of fiscal policy in the future. That is a significant evolution of the extent to which the Government are held to account for their medium-term fiscal policy. Parliament is the right body to hold the Government to account for their plans for tax, spending and borrowing.

Fiscal policy is, ultimately, a judgment that brings together all taxation and public spending decisions that have an impact on the public finances. That is a particularly difficult judgment in the present climate. It is for that reason that the Government believe giving Parliament a role in holding the Government to account is beneficial. The Government’s approach is to strengthen the existing fiscal framework and to enhance accountability to Parliament.

As my right honourable friend the Chancellor made clear in the other place, the Government expect to see growth in the economy this year, and that will pick up in 2011 and 2012. As growth accelerates, we must ensure that we have sound public finances. These are absolutely essential to economic stability, prosperity and the long-term health of the economy. An enhanced fiscal framework through this Bill will support this task and Parliament is being given a new role to hold the Government to account. I commend this Bill to the House. I beg to move.

Amendment to the Motion

Moved by

As an amendment to the Motion that the Bill be now read a second time, at end to insert “but this House regrets that the Bill may pass into law without consideration of Clauses 2 to 6 in either House of Parliament, and affirms that the principle of full parliamentary scrutiny of proposed legislation in at least one House of Parliament is conducive to the proper conduct of constitutional government”.

My Lords, I shall start by dealing with the Bill—I thank the Minister for introducing it—and then shall move to my amendment, which raises rather different issues from those raised by the Bill itself.

I shall try very hard not to be unkind to the Minister today. I know that he is not responsible for this silly Bill. The Treasury is not even responsible for this silly Bill. It was cobbled together by the Prime Minister and his old ally, the Schools Secretary, just before the Labour conference. It was clear that the Government had squandered the legacy they inherited in 1997 and there was nothing positive to say about the economy. The golden rules had turned out to be fool’s gold. Boasts about leading the world out of recession were looking decidedly weak. So they dreamt up the wizard idea of passing a law that would pretend to achieve the fiscal responsibility which had been so absent from their time at the Treasury.

Back in 2002, Mr Balls co-wrote a book with a foreword from the Prime Minister. It was called—this is not a joke—Reforming Britain’s Economic and Financial Policy: Towards Greater Economic Stability. These policies rested on three pillars. The first pillar was the independent Monetary Policy Committee, and this is the only pillar which is still standing. The second pillar was the creation of the Financial Services Authority to “ensure financial stability”. The final pillar was a fiscal policy framework to deliver sound public finances through a code for fiscal stability, firm fiscal rules and better planned public expenditure. I promise that I have not made this up. As one commentator has observed, this book will now be sought only by historians with an interest in crumbling pillars. These were the men who fantasised that they had created a new way to run the economy. When that went belly up, they then invented a law which would make other people believe that they had succeeded rather than failed.

When Her Majesty the Queen delivered the gracious Speech at State Opening last November, the Government made Her Majesty say:

“Legislation will be brought forward to halve the deficit”.

If anyone else had delivered that line, it would have brought the house down. It is risible to think that legislation can deliver an economic outcome. That is the fundamental weakness of the Bill. It pretends that to legislate for duties or targets is to make them happen.

The noble Baroness’s colleague the noble Lord, Lord Lamont, referred to the 3 per cent target, to the Greek situation and, implicitly, I assume, to the now general support on the opposition Benches for the Maastricht criteria. If those sorts of things have been laid down, what is wrong with the things that we are laying down?

My Lords, I try never to talk about the stability and growth pact and I shall not do so today. I was explaining the fundamental weakness of the Bill—namely, that it pretends that to legislate for duties is to make them happen. It ranks alongside the Climate Change Act and the Child Poverty Bill in diverting attention from underlying failure by seeking to bind a later Government to deliver what this Government's own policies have failed to do.

We agree with the direction of travel of the duties set out in Clause 1; achieving a reduction in borrowing and net debt would be a step in the right direction. As we have debated on other occasions, however, our policies would have greater ambition in clearing up the economic morass in which we now find ourselves. However, we do not need an Act to make this a duty, we need government action. Words in this Bill are not a substitute for action. The PBR, as we debated last week in the context of the Maastricht Motion, conceals beneath its surface a need to reduce spending by anything up to 24 per cent in some departments. But the Comprehensive Spending Review is on hold and the Prime Minster refuses to talk about expenditure cuts.

Clause 2 reaches the height of absurdity because it requires the Treasury to tell the Treasury to do things to secure sound public finances. Why do we need a statute to do that? Will the Treasury no longer do its job unless the law tells it to? It is sheer, arrant nonsense.

Clause 3 requires the Treasury to report on progress, but what substance does it add? It effectively requires the Pre-Budget Report and the Budget Report to show borrowing and debt figures. Have we never seen borrowing and debt figures in those reports? Of course we have. Have those reports ever given an honest explanation of why the Treasury’s forecasts for borrowing and debt have been miles out? Of course they have not. Will this clause make any difference? I leave noble Lords to draw their own conclusion.

Clause 4 blows the whole Bill apart. We have these duties and reports, but there is absolutely no legal consequence for anybody or any organisation if they are missed. What on earth is the point of legislating if there are no consequences and the only outcome is reports which we already get?

As there is no commencement clause, the legislation will come into effect as soon as Royal Assent is received. The clever clogs in Number 10 Downing Street and the schools department will congratulate themselves that they have solved the financial problems of the country. But of course the Bill will make no difference at all. The most compelling bit of evidence for that is the impact assessment, which states:

“There are no monetisable benefits arising from the Bill”.

That, at least, is an honest statement, because the Bill will make not one jot of difference to the real world. Either the Government will get a grip of the public finances or they will not. We rather think that the current Government will not do so in a month of Sundays, and that we will have to wait until the other side of the election for a new Government who will have to act.

This is a Bill of such stupidity that it is an insult to Parliament to use its time to process it. But the bigger insult to Parliament comes from the process which the Government have used to force the Bill onto the statute book. The Bill has come to your Lordships’ House certified as a money Bill by the Speaker. We therefore cannot amend it. Sorely though we may be tempted, our House cannot challenge the Speaker’s certificate, and I do not do so. Once issued, the Speaker’s certificate is accepted without question, and this of course stifles consideration in your Lordships’ House. It is perhaps for another day, in the context of wider parliamentary reform, to look at whether this convention continues to serve the public interest.

The bigger problem with the Bill is that the Government, through the deliberate use of their majority in the other place, have used the procedures of the other place to ensure that the Bill was not properly considered. The other place has the exclusive right, which we fully respect, to take decisions on its own business. However, as my amendment to the Motion suggests, wider parliamentary considerations arise when the other place decides not to examine a Bill in detail and the Speaker’s certificate means that matters which will become the law of the land are not scrutinised by Parliament. What is Parliament for if not to scrutinise proposals tabled by the Executive? I submit, as my amendment to the Motion sets out, that it is part of the proper conduct of constitutional government for at least one House of Parliament to examine proposed legislation in detail before it becomes law. I do not believe that certification as a money Bill should alter that principle.

I remind the House what happened in this case. After the Bill’s Second Reading in the other place, it had its Committee stage on the Floor of the House. This enabled the Government to avoid the evidence phase that is now a feature of the Public Bill Committee procedure in the other place. It does not take a genius to work out that evidence sessions would have exposed the Bill as completely lacking in intellectual support or hard evidence.

The Government allowed only one day of consideration in Committee. The other place was able to consider amendments only to Clause 1: Clauses 2 to 6 were untouched. The debates on the amendments to Clause 1 revealed significant deficiencies. Clause 1 fails to mention the structural deficit; does not cope with a double-dip recession and lacks independent scrutiny such as we have proposed with an office of budget responsibility. Of course, the Government used their majority to make sure that these sensible amendments were defeated. The Government allowed no time for reflection, and no Report stage. The Bill went immediately to Third Reading and arrived here the next day. Why did the Government do that? It was one way to close down debate on the Bill. Put simply, the Government used their parliamentary muscle to squash dissent.

One other Bill has recently been treated in this way in the other place: the Personal Care at Home Bill. Fortunately, that Bill did not attract the Speaker’s certificate, and I am sure that it will be dealt with in your Lordships’ House in the way that it deserves. However, we cannot do anything to the Fiscal Responsibility Bill because it is a money Bill. It will go onto the statute book unamended soon after our proceedings today. The least that it deserves is to be amended, to have emptiness replaced with substance. The most that we can do is to hold it up for a couple of weeks.

We cannot amend the Bill, but we can amend the Motion approving its Second Reading. I hope that the House will agree that a Bill that has not been fully scrutinised in either House of Parliament offends against the proper conduct of constitutional government, and that we regret that the Bill will pass into law without full scrutiny. I beg to move.

The original Question was that this Bill be now read a second time, since when an amendment has been moved at the end to insert the words printed on the Order Paper. The Question is that this amendment be agreed to.

The noble Baroness, Lady Noakes, was extremely careful in the phrasing of her speech. However, her amendment deals with issues that are referred to in the Companion, and the House may be interested in paragraph 4.52, which concerns criticism of the House of Commons, when it comes to debate further.

My Lords, I strongly support the remarks made by my noble friend Lady Noakes. I will divide my own remarks into two parts, the first on the Bill and the second on fiscal responsibility. The only connection between the two is an inverse one: the appearance of this absurd Bill is nothing more than a pathetic political substitute for the much needed exercise of genuine fiscal responsibility.

I turn first to the Bill. I am all in favour of setting out medium-term fiscal projections and ambitions. It would be very odd if I were not, for these were an integral part of the medium-term financial strategy that my noble and learned friend Lord Howe, who I am glad to see in his place today, and I launched some 30 years ago in March 1980. The MTFS was a much more substantial affair than this wretched Bill. A declining path for public borrowing was only part of it. There was much else besides, including public expenditure projections over the ensuing five years, about which the present Government are conspicuously silent. It was also, unlike this Bill, economically literate, not least in its discussion of the effects of the economic cycle on public finances.

This ridiculous Bill, which is only marginally less absurd than if the Government had introduced a Bill to impose a statutory duty on themselves to provide good government, is touted as a means of improving accountability. This was also one of the objectives—but by no means the only one—of the medium-term financial strategy, but there are two important differences. First, the MTFS was introduced in the first year of a new Government, whereas this comes before us in the dying months of an old and discredited Government. Secondly, we chose not to dress up the accountability which published projections provide in a Bill in which the Government impose a statutory obligation on themselves, with no penalty of any kind for non-performance, as my noble friend Lady Noakes pointed out. That does nothing whatever to improve accountability but merely makes a mockery of the rule of law, which is quite a serious matter, as I think noble Lords on all sides of the House would accept.

Before I leave the past, perhaps I may be permitted to remind noble Lords of my own exercise of fiscal responsibility—“been there, done that”, as they say—conducted, I may add, without any legislative vehicle of this absurd kind. During my own six-plus years as Chancellor, public expenditure as a share of GDP declined by 8 per cent, and I am using figures which include no help from privatisation receipts. Incidentally, it should be noted that we called it by its correct name of “expenditure” rather than “investment”.

In no other six-year period within living memory, either before or since then, has a decline of this magnitude been seen, nor did any other country at that time achieve anything similar, which demonstrates that this was not a cyclical phenomenon. It was achieved by holding the growth of public spending in real terms down to little more than 0.5 per cent a year. As spending on several programmes, such as health and defence, rose by significantly more than that, it meant that elsewhere there had to be very considerable cuts. However, it was done, and the result was that the public finances went from deficit into surplus, and public sector net debt fell to less than 28 per cent of GDP, the lowest within living memory. It now stands at roughly twice that level and is rising fast. On the Government’s own projections, it will move to more than 70 per cent over the next two years. According to the latest report by the OECD, in all its 28 member countries, public sector borrowing as a percentage of GDP in the UK was exceeded last year only by Iceland and, by a whisker, Greece. This year, it reckons that UK public sector borrowing will be the highest in the entire OECD.

That brings us to the crisis we now face and the urgent need for real fiscal responsibility rather than this pathetic paper substitute. I address these closing remarks chiefly to the leadership of my own party, which I hope will find itself in office in some 12 weeks’ time, as I have long given up hope of any fiscal responsibility from this profligate and disastrous Government.

It is of the first importance not to be seduced by the Augustinian prayer, “Lord, give me chastity and continence, but not yet”—the mantra of the neo-Keynesians, to which the Minister implicitly cleaves. It is no accident that at no time since the war has fiscal retrenchment ever been embarked on too soon. The argument for delay is always seductive and invariably mistaken, sometimes disastrously so. Moreover, in the real world, there are inescapable time lags in the system, which mean that spending cuts announced immediately after the election will in any case take time to have their effect.

Although the world economic recovery is still somewhat anaemic—particularly in this country, sadly—it is important that the threat of a global banking meltdown, which is the very real danger, has been averted, as the markets have recognised, so there is no economic case for delay.

My Lords, the noble Lord, Lord Lawson, says that it is essential not to delay. How does that relate to the fact, as the distinguished commentator Sir Samuel Brittan pointed out the other day, that we have a huge output gap—to use the traditional phraseology—of productive potential? Unless the noble Lord thinks that we can magically reduce the output gap, is there not prima facie evidence that fiscal policy should not be tightened too soon? I am speaking in line with the article by Sir Samuel Brittan. Does the noble Lord not agree with that?

No, my Lords, I certainly do not agree with that and nor do the Government agree with what is implicit in the remarks of the noble Lord, Lord Lea. The Government say that the fiscal tightening should start in a year’s time—not now—and there will still be a substantial gap then; the 10 per cent gap will not suddenly have disappeared by then. I am afraid that the noble Lord is mistaken.

The idea that much needed fiscal retrenchment might be inflationary should, in any case, have finally been put to rest by the experience of 1981, when no fewer than 364 economists, some of them quite distinguished, wrote to the Times to warn that fiscal tightening in the depth of the then recession would condemn our economy to a self-perpetuating downward spiral. Of course, nothing of the sort occurred. However, there was a substantial tightening, rightly introduced by my noble and learned friend Lord Howe in his 1981 Budget. So far from activities spiralling downwards, shortly afterwards the economy began a prolonged period of expansion.

Today, as current events in parts of the eurozone remind us, there is above all the crucial dimension of confidence. That is even more important in the UK. If, in our present alarming and unprecedented fiscal predicament, a new Government are not seen to grasp the nettle of fiscal responsibility from the moment they take office, confidence both at home and overseas will be shattered, with potentially disastrous consequences. This is not a matter of spelling out an itemised list of savings now, any more than we did before we took office in 1979. If they have not already done their homework, which I trust they have, my friends in the other place who will take the responsibility after the election may be assured that Treasury officials will have done theirs, and will present them with a list of options to choose from. No, it is a matter of iron resolve and the courage to be hugely unpopular in the short term.

This Government have lost all credibility—that most vital of assets for any Government—which this farce of a Bill will do nothing whatever to restore. Sadly, once again, in the eyes of the world we in this country have become what we were in the 1970s, a second-rate nation. The task of rescuing our country from this fate now has to be embarked on all over again. The success or failure of the next Government in discharging that task will be determined to a very large extent by the decisions that they take, not merely in their first 100 days but in their first 50 days.

My Lords, it is always a privilege and a pleasure to follow the noble Lord, Lord Lawson. He has done part of my work because I, too, was going to begin by reminding your Lordships how difficult fiscal responsibility has been in our economy. The medium-term fiscal financial strategy that he mentioned was indeed a pioneering act which lasted quite well for a while. While the 364 economists are always mentioned, it is my great regret that I did not add my name to their letter as I was out of the country, but I would have had I been here.

The 1980s recession was longer than any other we have had, and the current recession is only about half its length. While the economy may have started to recover after the 1981 Budget, it took a long time to attain the pre-1980 level of output. The rate of inflation, which was increased by the decision to double VAT—no, there was a promise not to double so it was raised from 8 to 15 per cent, which I agree was not quite doubling by a very truthful Government—took ages to come down. It was quite a severe recession, but a fiscal responsibility was achieved. As the noble Lord, Lord Lawson, reminded us, he achieved a considerable reduction in debt.

Then it all went awry. We will all remember how the 1992 election was bought by spending lots and lots of money. There was a recession and I do not know why it was caused. We were not even in power. Again, there was high inflation, but perhaps the gnomes of Zurich were doing something. That inflation and the big rise in the debt/GDP ratio had to be tackled by the noble Lord, Lord Lamont, who is in his place. I paid tribute to him the other day and I do so again because the reduction of that deficit was achieved with great difficulty.

In those days, we had to resort to entry into the ERM as an external straitjacket to force a British Chancellor of the Exchequer to abide by fiscal responsibility. I remember—I was there and I took part in those debates. Indeed, we thought that the ERM would be the perfect straitjacket. Alas, that too broke down and we had a bloodbath on an exchange rate that George Soros made lots of money out of. Then we steadily had to work hard again in the early 1990s until the Labour Government came to power. My right honourable friend, the then Chancellor and now the Prime Minister, achieved the biggest repayment of debt of any other Government in the first four years after coming to power.

Fiscal responsibility has been a cyclical thing in this country—it comes and goes. Then for a while we have to tighten our belts, behave ourselves and abide by what the Government say. But then every Government have been tempted by the good times—when they come, the system gets relaxed and we can start misbehaving again. Whatever the Opposition may say, the course of the economy after 1997 was thanks to the Finance Act 1998 and the strategy that it laid down.

It is not true to say that we have only recently thought of fiscal responsibility. In 1998, a strategy was laid down and we achieved an unprecedented continuous expansion of output for something like 40 to 45 quarters. We are in trouble again, because there has been a worldwide recession and financial breakdown. I will not deny that we entered the recession with a structural deficit; I have said so myself. The problem is that when this Bill comes before us the Opposition take the view that I attribute to Milton Friedman about trade unions; that they are ineffective and dangerous. The idea is that this is a useless and dangerous Bill. I do not think it is either of those things. The Bill puts the Pre-Budget Report into some kind of legislative framework. We had a discussion on the Pre-Budget Report not that long ago. In those projections, we were down by the terminal year of the convergence report to 3.2 per cent of GDP for our deficit, and the noble Baroness was objecting that we had not really achieved the Maastricht criterion of below 3 per cent. That is not very relevant at present. The Bill lays down what has been promised in the Pre-Budget Report, and there is no harm in laying it down.

There are two ways of thinking about it. Many of my strongly Keynesian friends will say that this is terrible; no Government should ever give promises like this about what to do about debt and spending, because you never know what might happen next. We could have a double dip recession or another crisis. Maybe in 2011-12, whichever Government are in power will find themselves bound by this Act—and what will happen? As the Minister explained, if whichever Government are in power then find that they cannot abide by this because economic circumstances have changed, they will have to bring forward primary legislation. That is the strictest requirement that the Bill imposes. I do not see anything wrong with that. As has happened in previous Administrations, both Tory and Labour, Governments abandon targets and change definitions; now you at least will have to have primary legislation that will be debated by Parliament. That is a good thing. That is a bit of discipline that the Bill imposes and which I welcome.

Let me say something about the amendment tabled by the noble Baroness, Lady Noakes. She has said that it is a pity that there has not been adequate discussion of the Bill. As the Lord Speaker has reminded us, we cannot say very much about what another place does. That is its business. But in the speech made by the noble Baroness, Lady Noakes, she did not say that there was much content to Clauses 2, 3 or 4, and that Clauses 5 and 6 are clearly formal. I think she is objecting to the fact that another place did not discuss the clauses which she thinks are not worth very much. Indeed, another place concentrated on one important clause and we have its reactions.

Let us resolve that there are no perfectly virtuous people and no sinners in this respect. All parties have this problem. If we can again decide that we need some sort of fiscal structure, discipline or framework to abide by, and if the Bill is on the statute book, whichever Government are in power will have to remember to bring in new primary legislation if they want to change the rules. That should be welcome. That is why I welcome the Bill.

My Lords, I hope to make a short speech, because the Bill deserves short shrift. I add my voice to the many criticisms of the Bill and support all that my noble friend Lady Noakes on the Front Bench and my noble friend Lord Lawson, with whom I had the privilege to serve as Chief Secretary in the mid-80s, have said about it.

There are so many criticisms of and clear flaws in the Bill. Most obviously, anyone can set targets, but without plans to reach them and without sanctions for breaching or failing to achieve them, the exercise, and hence the Bill, is meaningless. The Explanatory Notes state:

“The purpose of the Bill is to ensure that there is always in place a duty on the Treasury to secure sound public finances for the United Kingdom”.

We do not need a Bill to do that. I had always thought that every Chancellor and Chief Secretary had that high on their list of responsibilities and priorities. Is the Minister really saying that, up to now, no Chancellor, no Chief Secretary and no Treasury has ever regarded that as one of their duties? The more I read the Bill, the more it seems to me that it adds nothing to what any good Chancellor and any proper Treasury would do anyway. It adds nothing, especially as it has let-out clauses in its later part, which were not even looked at in the other place.

As for accountability to Parliament, surely that has always been the case. I challenge the Minister to tell us that, hitherto, the Government have regarded themselves as not being accountable to Parliament in numerous ways and through numerous mechanisms. The Bill adds nothing in that respect either. The way in which the Government railroaded the Bill through the House of Commons does not augur well for any parliamentary scrutiny arising from the Bill. It is a waste of parliamentary time.

The targets are worth little if there are so many let-outs and no penalties. They are no substitute for real, costed plans and real action. They are based on the fantasy that wishing makes it so. This morning, the Minister talked about Clause 1 with a straight face when he described the targets as though, thanks to the Bill, they would just happen. As Richard Lambert, director-general of the CBI, said,

“it’s a bit like me saying I’m going to join the gym and that means I’m fit already”.

What does the Bill do that a Budget and the public expenditure review are not doing or should be doing already? It is meaningless. After the election, no one will pay any attention to the Bill; it is real decisions and real measures that will count.

Indeed, no one is paying any attention to the Bill now. Is it an attempt to convince markets, domestic and international? If so, it has failed, as is demonstrated by the current turmoil in international currency and bond markets and by the fact that it has been totally ignored by all the bankers, economists, financiers, speculators and commentators. Has anyone said, “It’s all right, we have the Fiscal Responsibility Bill, and that will see us through”? No one has said that.

In conclusion, I made two comparisons. The first is with the fiscal rules, which were drawn up on the back of an envelope and trumpeted as part of fiscal discipline. In the period of prudence, until about 2000, when the then Chancellor was observing and constantly talking about prudence, the fiscal rules were observed. Increasingly, as public expenditure increased, the rules had to be stretched and fiddled—changing the date line and so on. They were increasingly broken and discredited and, finally, ignored, dropped and forgotten. This Government ended up with a massive fiscal deficit, leaving this country one of the least prepared to face the global credit crunch. The Bill, with all its let-outs, including Clause 4(3), could easily go the same way as the fiscal rules if this Government had to implement it.

The second comparison is with other recent actions dreamt up by the Prime Minister. After 13 years of opposing it, the Prime Minister has proposed a referendum on an alternative vote system—after the election, of course—in a blatant bribe to the Liberal Democrats. The Personal Care at Home Bill, described by one of the presenters on the “Today” programme this morning as a back-of-the-envelope piece of electioneering, has been devastatingly holed under the water by 79 local authorities in a letter to the Times today. In my view, it was shredded at Second Reading by the noble Lords, Lord Warner and Lord Lipsey, and, in particular, by my noble friend Lord Howe, speaking from our Front Bench. My local newspaper, the Eastern Daily Press, said that, given the realities of the country’s finances, it could seem a promise plucked straight from cloud-cuckoo-land. This Bill follows the same process. The Prime Minister’s frenetic activity and headline electioneering are no substitute for thoughtful policy and practical actions. The Bill is in the same vein, giving the pretence, rather than the practical reality, of tough action on the fiscal deficit.

In my 36 years in Parliament, I cannot recall an example of an affront to Parliament and an abuse of legislative process such as this Bill. I have a great deal of respect for the Minister who introduced the Bill. After a shaky start—I make no criticism of that, because it is quite a translation to come from the City to Parliament—he has demonstrated in all the things that he has been responsible for that his experience, expertise and authority count. Today, however, he had to have a straight face as he read out the nonsense that was put in front of him. If I were a Treasury Minister now, I would vigorously oppose the Bill within the Treasury and, if I had to put it forward, I would have my head down and my hands over my ears; I would read as rapidly as possible through the stuff that I was supposed to read out and hope that no one would follow me afterwards. There was something of that sort from the Minister today. He gabbled through. I suspect that he knows that he was talking gobbledegook without substance. In short, we should not be wasting our time with a Bill such as this.

My Lords, as this is a money Bill, this House cannot amend it, but I shall discuss the motives and principles underlying it. My speech will not give satisfaction to the two opposing parties, but I hope that, for that reason, it may gain in coherence. As the noble Lord said, we shall see.

The Government are in a bind. The markets are clamouring for retrenchment. On the other hand, the Government know that retrenchment now would be fatal for recovery. This rather feeble measure is the result. It reminds me of nothing so much as the optimistic promises that I used to make to my bank manager when he called me to ask what I intended to do about my overdraft. This, of course, was in the days when I knew who my bank manager was. He was called Mr Gay and was a delightful man.

Deficit reduction will start in 2011 and proceed steadily year by year until 2015. By 2014, at least half of this year’s deficit will have gone. By 2016, the national debt as a proportion of GDP will be lower than in 2015 and, after that, we are promised an era of sound public finances. It would be interesting to know the economic analysis underlying this rather random collection of figures and dates, because I have not found it. However, one thing is clear: as for St Augustine, virtue is for the future.

An interesting feature of the Bill is that these promises are set forth as duties. The Government seek to bind themselves to what they promise to perform, but these are not hoops of steel but hoops of elastic. As has been pointed out by other noble Lords, there are no sanctions for non-fulfilment of the duties; there is simply an extra duty to report to Parliament on progress towards and compliance with the other duties, or non-progress and non-compliance, as the case may be. The programme seems rule-bound, but it is at the discretion of the Treasury to be bound by the rules that it lays down. This ample escape clause is no doubt wise, given the fact that neither the Government nor anyone else can know whether they will be in a position to fulfil their duties. That depends entirely on what happens to the economy, and no one knows for how long it will have to be on a life-support system.

This being so, I would rather there had been no Bill at all than one that makes a mockery of the concept of duty. However, given that it may have been politically necessary to have some statement of future intentions with a law-like look about it, I would have liked to have seen an independent fiscal policy committee set up as part of the machinery of the Bill and charged with the duty of reporting to Parliament on the validity of any reasons that the Government might give for non-fulfilment of their statutory duties as laid down in Clause 1. Such a committee, I suggest, should become a permanent part of our fiscal system. Talk about primary legislation and strengthened accountability to Parliament seems to me to be largely eyewash. This Government know that any Government with a reliable majority can always get their money Bills through Parliament.

I want to make a few more general observations. I notice that there is no duty laid on the Treasury to restore the much vaunted fiscal rules that were suspended in 2008. This interim period affords us an opportunity to rethink the content of these rules. The rules state that, over the cycle, the Government should borrow only to invest and that investment should not add to the national debt. In fact, these rules were being broken before the present downturn. Everyone knows that. I am surprised that the Minister said otherwise when he introduced the debate. Part of the doubts about the solvency of government finances today is due to previous cheating on the rules.

By 2007, after five years of GDP growth of 2.7 per cent per annum on average, which was widely accepted as the trend rate, or even above trend, there was no excuse for a deficit in 2007-08 of 2.6 per cent of GDP. Over the period, the Budget should have been balanced on the Chancellor’s rules or even been in slight surplus. In fact, there have been only three years of surpluses—1999, 2000 and 2001—over 17 years of positive growth.

The so-called rules lent themselves to manipulation for two reasons. First, no one really knows when cycles start or how regular they are. One can only know for sure in retrospect. Secondly, and possibly more important, public sector investment is an inherently vague term, as the noble Lord, Lord Lawson, pointed out with his usual clarity in his book View from No. 11. His words are worth repeating:

“The current/capital distinction does not have the same meaning in the public as in the private sector. School buildings, for example—however desirable and productive in the larger sense—do not produce a cash return which will service debt interest. Nor are outlays on them inherently more productive than, say, expenditure on better teachers, which counts as current”.

Therefore, I have considerable sympathy with his conclusion that,

“those who seek to assimilate the system of public expenditure control to the conventions and methods used in the private sector always remind me of small children playing at shops. It has little relationship to the real thing”.

One could argue that we need fiscal rules, and I would agree, but if we are to have them I would prefer the following rule: that the Government should set taxes to balance the Budget when the economy is growing to trend, as measured by a moving average of outcomes over the previous five years, with a surplus accruing when the economy is growing above trend and a deficit when it is growing below. Of course, if a black swan, such as the meltdown of 2008, happens, all bets are off. The rules have to be suspended. There always have to be escape clauses in any financial rules, but that does not seem to be a sufficient reason for not having any.

My final point concerns a matter of economic theory. John Redwood remarked in the other place that,

“we cannot solve a crisis of over-borrowing by borrowing too much in the state sector”.—[Official Report, Commons, 5/1/10; col. 97.].

That is definitely wrong. If every bank had started to deleverage simultaneously without any increase in public borrowing, the collapse in aggregate spending would have made the great depression look like a vicar’s tea party. Keynes pointed this out years ago in his famous paradox of thrift. The Government are a qualitatively different borrower from a private sector borrower; to treat the private and public borrower as equivalent is like children playing at shops, to use the words of the noble Lord, Lord Lawson. Mr Redwood and most of his colleagues should go back to school.

One may argue about how big the output gap was and is and about whether the stimulus policies have been enough, too much, or well or ill designed, but I am absolutely sure that some stimulus was and remains necessary. The Government are therefore absolutely right to resist the austere spirits who are calling for draconian spending cuts and tax increases now. If this Bill, full of mirrors, is the price that needs to be paid for pretending to listen to them, I am content to support it.

My Lords, fiscal responsibility should be the first duty of any Government in macroeconomic matters. The entire credibility of our economy is founded on that, as is our ability to engage with other partners in a global world. No one can object to the principle of fiscal responsibility. Indeed, even the current Prime Minister, on taking office as Chancellor of the Exchequer in 1997, promised us that he would,

“introduce tough rules for government borrowing … meeting the golden rule for borrowing. Over the economic cycle, the government will only borrow to finance public investment and not to fund public consumption … alongside this golden rule commitment, we will keep the ratio of government debt to GDP stable on average over the economic cycle and at a prudent and sensible level”.

Those were fine words, but I remain to be convinced that the Government have lived up to their own aspirations. We need to recognise that we as a country face a major problem of credibility, and that we will achieve credibility only by adopting a serious approach and by taking difficult decisions. Anyone who takes the complex decisions that will need to be taken in the highly charged global economic environment of the coming months will need to make fiscal responsibility a top priority.

Our current fiscal situation is truly dire, and we should all be very worried about the problems. Government borrowing over the next five years is projected to exceed the entire debt inherited from all previous Governments put together, and our national debt is set to double to more than £1.5 trillion. Debt as a proportion of gross domestic product is estimated to be around 43 per cent, but some project that this might increase to 80 per cent by 2013. Our credibility is at stake and we need to act.

However, I am not sure that the way out of this crisis is for Parliament to enact legislation that requires the Government to do what they should be doing anyway. The Prime Minister’s ambition to halve the deficit within four years, as he announced at his party’s conference last year, will still leave it at 7 per cent—the same ratio as when this country went to the International Monetary Fund in 1976. Even in those circumstances, we need to recognise that our markets are not going to be as attractive as they could be, which should alarm all of us who are interested in the well-being of our economy.

It is disturbing that our international credit rating could be put in jeopardy through the fiscal expansionism over which this Government have presided over the past 12 years. The consequence of that change in our credit-rating status may result in an increase in interest rates, which could only inflict further harm to our economy and prolong the suffering that we as a nation endure on the road to recovery from the recent recession.

I return to my original point; most economic actors and political commentators recognise the crisis that we face, but can another piece of legislation truly be the answer? The problems are more fundamental, and it is not clear what this legislation will deliver in practice beyond grand aspirations and worthy ambitions. What will this legislation enshrine that would prevent any Government breaking the rules, even after the legislation is passed? We need to have a clear and coherent answer, otherwise we risk the charge that this Bill does nothing but articulate fine aspirations.

To be fair to the Government, a recognised problem lies in the definition of the timings of the economic cycle in applying the golden rules. It does not help that the Government have changed the definition of the economic cycle on several occasions to suit the communications agenda and political conveniences of the day.

These changes have damaged our credibility internationally, as the Institute for Fiscal Studies has observed. It said:

“The perception that the Chancellor has moved the goal posts and has delayed the tax raising measures and cuts in spending plans that we and other independent commentators had been saying would be necessary until after the 2005 election undermines the credibility of the fiscal framework”.

If this Bill can seek to restore that credibility, that can only be a positive step forward, but I am concerned that it will do little more than create yet another government target. In view of the country’s present financial situation, parliamentary time could be used more productively by putting together a credible plan to reduce the increasing deficit and restoring our credibility in international markets. I hope that I am wrong, but I do not believe that the Bill will make a tangible difference to that course.

I do not underestimate the scale of the task that will face whoever happens to sit on the government Front Bench after the general election, but I commend the approach that my party has agreed to adopt. The economic model that has sustained the Government’s fiscal expansion is damaged, having been constructed on the basis of a public spending boom, a confused regulatory mix in the financial services sector and excessive consumer borrowing that fed a housing-price bubble. We need to undertake a fresh analysis of where future economic growth will come from, and construct a firmer foundation for future economic stability.

I welcome the comments from my Front Bench over recent weeks that have painted an ever clearer picture of how we would build economic growth on a competitive tax system and new infrastructure. We should look to the growing economies of the east not to supply goods and services for our consumption and use, but to be partners in competition that will want to purchase what this country can offer and provide. We in this country have a great deal to offer the world economy, and restoring our position should be our prime focus.

The eight benchmarks on which the Conservative Party’s policies can be judged are measured and sensible. We must act with urgency to protect our credit rating, without which we will face an even bigger task to recover from the unfavourable situation in which we find ourselves. We need a more balanced economy, which will involve increasing the role of the private sector in every region of the United Kingdom. We need to think seriously about wealth creation and not just about government intervention. The proposed reforms of the banking system have already attracted much attention and will deliver added strength to our economic growth. The banking system must serve the needs of the economy. We should all be concerned at the high level of youth unemployment. I am glad that my party takes this problem seriously and includes it in the eight key criteria on which economic policy can be judged. Tax competitiveness should also be a factor, as we need to ensure that we attract global wealth creation to our shores. We should not be afraid of creating a comparative advantage over our competitors, as we need to create an economic climate that thrives and creates wealth through dynamism and innovation.

We cannot expect to tackle the fiscal crisis without adequate reform of our public services, which will need to demonstrate value for money. In recognising the contribution that innovation can provide in supporting the green economy, we can exploit the advantages that will emerge in the international market. These are the eight critical steps that will restore the credibility that is so lacking in our current economic system. I do not feel that this Bill, on its own, will improve the situation regarding our credibility.

In conclusion, I am pleased that the Government appear to recognise the need for action in restoring fiscal responsibility to the top of our economic management; but a real programme of action to reduce the deficit and to make people want to invest here will do far more than another piece of legislation enshrining yet another target. Actions will count more than words, and it is time to stop talking and to start acting. If this Bill makes a positive contribution to that, it will be worth while, but I am not without doubts.

My Lords, at first sight the Bill appears to infringe one of the fundamental principles of welfare economics; namely, that reducing the size of the choice set available to a decision-maker cannot improve the outcome of the decision he has to take. That is taught in first-year economics—or what the Americans call Economics 101. In so far as noble Lords opposite have any knowledge of economics at all, which I am now beginning to doubt, that limit must be Economics 101. But there is a vast amount more economics to be learnt than that.

Research and behavioural economics, together with the theory of games, show that the simple proposition that I have just mentioned is not always valid. The best analogy for our purposes today—albeit, like all analogies, it is imperfect—is addictive behaviour. A smoker would find it easier to give up the habit if severe limitations to the purchase of cigarettes were put in his way. If he were also able to take out a contract which penalised him significantly if he puffed on a cigarette again, that would, a fortiori, help him even more.

What concerns us here is the bad habit or, dare I say, the addiction to excessive public expenditure. The Government are committed to reducing public expenditure to a level and rate of growth that is sustainable in the long run. The Bill rightly seeks to reinforce that commitment by placing it on the statute book. That is an exactly correct move on the part of the Government. I am horrified that noble Lords opposite do not seem to have any glimmering of understanding, for obvious party political reasons, of what the Government are seeking to achieve.

The noble Lord used the analogy of the cigarette smoker and said that there was a necessity for sanctions. Could he outline the sanctions in this Bill?

I have a whole speech to make and am glad that the noble Lord is at least sitting through it. Not everyone who has spoken seems to have felt the need to hear me. And now I have lost my place.

We have been reminded that we are in a difficult position because the Speaker has certified this as a money Bill, which is a judgment I find difficult to comprehend. But the Speaker’s word is law and he has no need to justify what he says explicitly. The result is that we cannot amend the Bill, particularly in the direction in which I should like to go, which is my reference to the noble Lord who has just intervened. I should certainly like it to be tougher. But the fact that we cannot amend it is our problem. I do not know what the noble Lord’s honourable friends and right honourable friends in another place were doing in their failure to bring the Government to account on this Bill, but perhaps we will learn about that from another speaker.

However, the Bill draws our attention to progress reports and compliance reports and, above all, it reinforces accountability to Parliament. We should remember that we are still part of Parliament. I therefore assume that when the Bill becomes law, we will be able to deal with the accountability side via our Finance Sub-Committee of the Economic Affairs Committee. In that committee, we could examine all the detailed points. Again, as it is a money Bill, the other place does not have to take any notice of us, but it cannot stop us saying what we have to say.

The noble Lord has asked about penalties, a matter which also bothers me. However, if the Government fail in their public expenditure commitments, the Prime Minister and the Chancellor will at least have to suffer the shame and indignity of living through it being pointed out. My difficulty—and this is my response to the noble Lord opposite—is that I cannot conjure up any other penalty for failing to hit the financial targets, and I have not heard anyone offer anything better. That is true of Parliament and the world generally.

Is the right solution—I say this as a joke—to include in the Bill a provision stating that if the Government do not meet their financial targets, the Chancellor and the Prime Minister must pay the excess out of their own pockets? That seems a bit much. It would also be incompatible with our constitution, unwritten as it is, to say that they must automatically resign. So I agree that the issue of penalties is a problem. I shall never be a Minister, let alone a Chancellor, but I would be ashamed if I had to live through putting out figures and then not achieving them because I was at fault. The commitment that the Government are making in the Bill is not trivial.

The objectives of economic policy are full employment on a sustainable growth path and a low and stable rate of inflation. The optimists claim that all of those are compatible and achievable while the pessimists deny that they are. The pessimists say that except in the long run, when we are all dead, we have to select one objective above the others. I have always been inclined to the optimistic end of the spectrum. But recent economic experience has moved me away somewhat. Everyone, including all the speakers today, supports fiscal responsibility; by which they mean reductions in the annual fiscal deficit and the government debt-to-GDP ratio. That requires a combination of public expenditure cuts and taxation increases.

However, in speeches in your Lordships' House, Peers always add a proviso when speaking of public expenditure. Without exception, they say: “I am totally in favour of cuts in public expenditure”, except for whatever area is dear to their heart. That is true of farm subsidies, university finance, medical research, various parts of the NHS amounting to the NHS in toto, homecare for the elderly, poverty eradication and child support. The list is endless. I ask myself this: who except for me is in favour of public expenditure cuts, with no ifs or buts? In the cases I have referred to, Peers uniformly will tell us that if this bit of medical research is not done or the number of university places is cut down, the world will come to an end. I would say that if we do not get public finance in order, that is what will cause the world to come to an end.

I want to make another clear party political point. I long to hear anything from the Leader of the Opposition in the other place that gives any sort of indication of what he would actually cut. I know that he is desperate to win the general election and become Prime Minister, but if he really believes in fiscal responsibility—and let us not forget that we are talking about tens of billions here—he owes it to the country to say where he will find those tens of billions. Until he does, I for one am finding it impossible to take any advice from noble Lords opposite.

I feel strongly that in producing the fiscal outcome we want, the right path is on the public expenditure side. I do not favour—with one exception which I am about to mention—the path of vast tax increases. Although we can talk about marginal rates in certain areas, we have broadly the right average level of taxation to GDP. But if there have to be some tax increases, the obvious place to look at is VAT. I would remove all the existing exemptions from the payment of VAT. The exemptions distort the price system. They do not and never have made any fiscal sense. Of course, if any Government did that the cries of pain would be deafening.

My last point is to disagree totally with the noble Lord, Lord Lawson, who I think was most irresponsible in his remarks, quite apart from giving us a misleading account of the past. The technical problem on public expenditure cuts is one of timing. The Government have to convince everybody that the cuts will definitely be made, which is the purpose of this Bill, but that they will not come into effect before the recovery is well under way. Although the recovery itself must be led by private investment and exports, we have to bear in mind that some of that will itself depend on public expenditure. We are therefore obliged to appreciate how difficult economic policy-making is, and let me say that I am extremely glad that I am not in charge of it.

In conclusion, what I would advocate is a suggestion made by my noble friend Lord Barnett, who has been the Chief Secretary. I mention this specifically to my noble friend Lord Myners. All government departments should be told immediately that they must plan to cut their expenditure for the next fiscal year. I would suggest a figure of 5 per cent. I have pulled that figure out of a hat, and if someone does not like it, I would say, “Let us try 10 per cent”. That would focus minds, and if it were public knowledge—I am talking now about the next fiscal year, which the noble Lord, Lord Lawson, deplores—that would give confidence to the markets and others who have to take major decisions on these matters.

My Lords, it is a pleasure to follow the noble Lord, Lord Peston. I just want to record that although I am sure that my economics are out of date, I seem to remember that there was a day when savings equalled investment—not, I think, a formula which is followed by this Government. It is always a disappointment when the Minister follows his text because we have become used to enjoyable ad libbing, and it was not at all to the encouragement of enjoyment today that there was no departure. I suppose there will not be any departure now because the noble Lord, Lord Barnett, is not in his place. I want to make one reflection on the global recession. No one seems to have mentioned China and its role in perhaps throwing dust about before the whole thing started, or its role now, with the rate of growth that it is enjoying. Indeed, in a lesser but not insignificant way, no one seems to have mentioned India.

I am not sure that it would ever be worth spending any time on this Bill. It is like one of those games that children play, with rules that can be changed in the middle—in this case, by the Treasury for the Treasury and relying upon such woolly documents as the Code for Fiscal Stability, which is often mentioned in the Bill. This code carries a low index of credibility if Google’s record of hits is anything to go by. There is also the annual Economic and Fiscal Strategy Report, with its strategy lost in a mass of detail, subsequently revised. When Governments run out of road, they resort to strategy. It is an uneasy haven where there are many academic practitioners but a scarcity of those who can implement. Again, I refer to the speech of the noble Lord, Lord Peston, and remind him gently that economics does get muddled up with politics. Indeed, these reports, which are not a popular read, contain little that can be recalled as successful strategy.

Nevertheless, behind this slimly virtual Bill lies an important principle. It is a gesture; it is said to convey a message. While it is true that messages can be important, they should not be delivered by legislation. Legislation should not be about gestures, or about messages, or about games whose rules are bound to be broken. In contrast, we depend upon respect for good law and our willingness to live within that law. Unenforceable legislation is by definition bad legislation.

As has already been mentioned in the debate by, I think, the noble Lord, Lord MacGregor, no respect has been shown for this Bill either inside or outside Parliament, and I do not feel that the speeches from the Benches opposite have shown great respect for the Bill itself. Indeed, there never will be respect for it, only speculation. Is it an ineffective attempt to send a message to the bond market? Is it a dithering attempt to fill in time before reality returns, or is it just designed to blow up in some four years’ time amid an artificial media frenzy? That is silly season stuff. Playing this sort of frivolous game with Parliament does its shaky reputation no good at all. Legislation is meant to be reasoned and necessary, and thus to be both sensible and acceptably enforceable within the law. Not so this Bill. When it becomes an Act, it will need to be repealed as soon as possible.

My Lords, I begin by offering my commiserations to the Minister. He has had a distinguished career in the City, as I have more reason than many in this House to know, and he has been sent here today to take the fig leaf and defend the indefensible. It is more than indefensible; it is also disreputable. In the progress of this Bill, there will be damage to the reputation of the country abroad and damage to the reputation of Parliament at home because both those audiences, whether abroad or at home, believe that it has no contact with reality. Along the way it will also do some damage to the reputation of the Labour Government, but that is something which I can regard with equanimity.

I shall come on to the disreputable nature of the Bill, but before doing so I would like to dwell for a moment or two on the way that the Government—I emphasise that it is the Government—have handled the proceedings of the Bill so far. On Second Reading, the Chancellor of the Exchequer placed great emphasis on the importance of the Bill. He said:

“There is no doubt that we face a huge challenge as a country. There will be difficult judgments over the next few years. I have said before that some tough decisions will have to be taken …That is why it is important that we get it right … This Bill will help us to achieve that”.—[Official Report, Commons, 5/1/10; col. 71.]

I read that as a ringing endorsement which emphasises the central nature of the economic issue to the country’s future—who would demur from that?—and the role of the Bill in tackling it. It is therefore surprising that having emphasised the Bill so much, the Government should allocate only four hours and 45 minutes for its discussion in Committee—that is very short—and a further 45 minutes immediately after for Third Reading. The Bill began at 1.35 pm on 20 January and finished by 7 pm. For major legislation, that is quite a short time.

The Bill is organisationally disreputable from the Government’s point of view. When you read the Hansard report of the Second Reading and the Committee proceedings, it is astonishing how little support for the Bill there is from the Government Back-Benchers; they either do not believe it or do not agree with it, or possibly both. Indeed, two of the three speeches made from the Government Back Benches at Second Reading were opposed to the Bill. In Committee, only one Back-Bencher, Mark Todd, the Member for South Derbyshire, felt able to make some vague noises of support. He said:

“I am puzzled by the reasons for using legislation in this way … I can see some value in at least facilitating an orderly debate on a subject … There is no common view of the data set on which we base our understanding”.—[Official Report, Commons, 20/1/10; col. 335.]

By any stretch of the imagination, that is lukewarm support. Therefore, for the Government then to have a whipped majority of the size that they had, it is not surprising that the public regard the proceedings in Parliament with a degree of cynicism.

Turning to the Bill, my noble friend Lord MacGregor referred to Richard Lambert and the description of it being the fat man who after Christmas joins the gym. I saw this description in a leader in the Times and still thought it was apposite—either the Times heard Mr Lambert or Mr Lambert read the Times; I do not know which. The FT put it even better. It said that the Government believe in the “announce and it will happen” approach to government.

The Bill is disreputable because it is deceptive. It is deceptive about numbers, about accuracy, about relevance and about sanctions. How the Minister, for whom I have the greatest respect, could read out paragraph 3 of the Explanatory Notes about transparency, stability, responsibility, fairness and efficiency with a straight face, I do not know.

Let me deal with the deceptive nature about numbers, transparency and accuracy. Over the past few years we have had fascinating debates on the make-up of government finances. I recall my noble friend Lord Saatchi trying at some length to discover whether PFI projects form part of the public sector borrowing; not huge clarity was achieved. Of course, it is not only the PFI; there are also the public/private partnerships, Network Rail and the bank bail-outs. However, there is, I am afraid, a much larger elephant in the corner of the room because the Prime Minister, when he was the Chancellor of the Exchequer, drove a stake through the heart of private sector final salary pension schemes. Such schemes, I am sure, would have had a difficult time because of increasing longevity, but he did for them finally. He did so in three ways: he robbed the private sector pension schemes of billions by tax changes; he then created a private sector regulator with extensive and quite arbitrary powers; and, finally, he developed the perfect storm for pensions—low interest rates, so that the discounted value of liabilities was high, and low asset values, so that the value of assets held to discharge those liabilities was very low.

Meanwhile, in the public sector, where there are extensive inflation-proof final salary pension schemes, nothing was done. Preparations were undertaken but the union paymasters said no and everything was abandoned. The deficit in public sector pensions is truly terrifying; it runs to hundreds of billions of pounds—some people have said £1 trillion. I refer the Minister to the Evening Standard of Monday 1 February, which stated: “Black hole in London councils’ pension funds grows to £10 billion”. That is only London councils’ pension schemes. To make the Bill credible, we need greater clarity and transparency about assets and liabilities.

Members of the House will have received the briefing from the Institute of Chartered Accountants in England and Wales and it is worth putting on the record two of the points it makes. The briefing states:

“However, significant problems with the transparency and accountability of UK public spending decisions remain to be addressed … In particular, sustained commitment is required behind the Whole of Government Accounts (WGA) initiative. WGA promises to provide robust, audited information across the public sector. WGA will make information more transparent and more accessible … It will be the only source of information where the public sector’s assets and liabilities are brought together ‘on balance sheet’”.

We need to find a way to improve transparency and accuracy if the Bill is to have any value.

Secondly, the Bill is deceptive about effectiveness. When he introduced the Bill, the Minister said that the levels of uncertainty about our economic future are receding. However, let us suppose that his hopes—and probably all our hopes—are dashed and we face a double-dip recession. A large proportion of government spending is in the automatic stabilisers—social security payments, employment benefits and so on—and the idea that in a recession these could be reduced or removed is laughable. What will the Government do? They will abandon the Bill—the whole thing—just as they abandoned the golden rule. For years the Prime Minister lectured us about the golden rule and its sacrosanct nature. Now, coyly, paragraph 6 of the Explanatory Notes states:

“In the 2008 Pre-Budget Report the Government announced that it would temporarily depart from the golden rule and the sustainable investment rule until the global shocks had worked their way through the economy in full”.

The noble Lord, Lord Peston, said that the answer to this Bill was to have some shame. There appears to be no shame in abandoning this central tenet that the then Chancellor, now the Prime Minister, has lectured us on over the years. This legislation will go the same way.

The Bill is also deceptive about sanctions. As my noble friend Lord Lawson said, statute law is only of value if it is enforceable. Unenforceable laws merely bring the law itself into disrepute, and Clause 4(3) gives the game away.

I have said that the Bill is deceptive in many places, but there is one group that the Bill is meant to deceive but has not deceived: those people who the Chancellor needs to buy all the gilts he will have to sell over the next few years. Unsurprisingly, they are not deceived and confidence in the Chancellor and the Government can be measured in two ways: exchange rates and interest rates, both of which, in the three short weeks since Second Reading, have moved against the Government and will lead to a much more expensive and difficult time in the future.

The Bill is the latest and one of the most egregious examples of cavalier government by new Labour. Initiative after initiative has been trumpeted with headline-grabbing announcements, all too many of which have run into the sand because little, if any, thought has been given as to how they should be implemented or what their consequences would be. As the Financial Times put it, “announce it and it will happen”. Sometimes initiatives have even been recycled and relaunched with further trumpeting, but to no greater effect.

The Labour Party has said that it wants to dominate the agenda for years to come. Well, I think it has succeeded in this, albeit not quite in the way it intended, because the next Government will spend five or 10 years trying to repair the damage that it has left behind. This Bill is perhaps a fitting epitaph for a man who claimed to have abolished boom and bust and ended up delivering the biggest bust of all.

My Lords, that was an uncharacteristically political speech by the noble Lord, Lord Hodgson of Astley Abbotts. Perhaps I can reply in kind. He mentioned the elephant in the room and alluded in that connection to the “union paymasters” of the Labour Party as regards pensions. That is peanuts when compared with the reliance of the Conservative Party on the City of London, which can do no wrong. It is because of that fact that David Cameron is now wriggling on the end of a hook. The hubris of the City of London, after all, caused the biggest hole in the economy since 1931. Since Lehman Brothers, we have been in what I would call a “Roosevelt moment”. The fiscal balance, after all, can only improve as growth improves.

We all know that the real agenda of the party opposite is first to get elected and then to make “savage cuts”—as the widely used expression goes—from May onwards. The Conservatives are now being very careful, running scared as they are, about saying that. On whether we need savage cuts, Sir Samuel Brittan wrote last week:

“My own view is that there is little case for action just yet. But the cat may jump in either direction … In any case, I would base policy on the state of the economy - real growth and inflation - rather than on a narrow view of the government's own finances, and avoid like the plague the draconian spending cuts and tax increases set out as ‘options’ by the Institute of Fiscal Studies”.

I turn to remarks made yesterday by the Nobel Prize-winning economist Joseph Stiglitz, who generally takes the line that the Prime Minister, whom he met yesterday with the Chancellor, should ignore what he calls “fiscal fetishism”, defy the markets or even extend the fiscal stimulus. I am not a paid-up member of the Joseph Stiglitz fan club, but he is surely right to warn that financial markets were like a “crazy man” that could not be appeased with cuts in public spending. He said:

“You're dealing with a crazy man. You're asking what I can do to placate a crazy man? Having got what he wants he will still kill you”.

He rejected the idea recently put forward by David Cameron that some symbolic trimming of the budget deficit in the current year might regain the confidence of the financial markets. He said that it was “unconscionable” for the ratings agencies to threaten to downgrade Britain’s creditworthiness, given their poor record in the crisis. He also said:

“Fiscal fetishism is really dangerous”.

He believes that if financial markets refuse to buy British government bonds, or gilts, the Bank of England could buy them instead—that is the case for extending quantitative easing if the circumstances arise—because, as has been said, a premature withdrawal of stimulus is more likely to produce a double dip.

I cannot see why the party opposite, which has over the years bought into having frameworks of targets and supported Gordon Brown, when he was Chancellor, in a whole range of medium-term targets, now purports to believe that the targets in the Bill are not conscionable. Earlier frameworks were supported. I mention the example of the Maastricht criteria, which seem now to be supported with some numbers and guidelines. On that basis, the European Union—meeting, I think, today or tomorrow—will wish to toughen up its relationship with Greece. Toughening up a relationship begins with having some numbers. I am not sure that there was any legal significance—I do not remember; I stand to be corrected if I am wrong—in the famous five economic tests for joining the euro being supposedly written on the back of a cigarette packet. This Bill is a lot more nicely written out, but no one doubts that those were important criteria to have written down.

Perhaps the noble Lord will allow me to correct him on a point of history. The whole point of the five tests, which were introduced by Mr Gordon Brown when he was Chancellor, was to make him the arbiter of whether we should go into the euro and to prevent Mr Blair moving to bring us in. It was done for political reasons; it had nothing to do with economic analysis. Therefore, it has absolutely no part in this debate.

As a version of history, that is pure invention. I think that the noble Lord, Lord Lawson, agrees with me that the tests were effective despite their not being of the type advocated—namely, all-singing-and-dancing sanctions connected with something—and despite there apparently being no value in a government policy statement of a framework. The noble Lord, Lord Lawson, has just kicked through his own goal.

The Explanatory Memorandum is very simple and clear; I do not know why people are having a go at it on those grounds. As has been said, points made in the House of Commons were mostly second-order; nothing landed a punch. The only one of note was a question about whether the overall deficit included the impact of the automatic stabiliser. The answer, which I think the Treasury would confirm, is that the Fiscal Responsibility Bill includes targets for the overall deficit, rather than the structural deficit. Perhaps my noble friend will confirm that that is the case.

I would like to see a markets responsibility Bill alongside a Fiscal Responsibility Bill. That is the background to the blame-game being started by the Conservative Party—“just blame the Government”. What about blaming its friends in the banks and the City of London generally, to whom it is totally in thrall to get its finance?

My Lords, although the Financial Services Secretary was as loyal as ever to the virtues of collective responsibility, it is no wonder that he lacked his natural ebullience today. His deadpan delivery, masking qualms about the Bill, reminded me of old Stone Face himself, the great Buster Keaton. Many of your Lordships will remember that Buster Keaton’s final silent film was aptly called “The Railroader”.

This pointless legislation has been railroaded through Parliament by use of a guillotine in another place. Only four and a half hours of debate were allocated to its Committee, Report and Third Reading stages. Committee scrutiny never stretched beyond Clause 1. So much for Gordon Brown’s much trumpeted promise in his 2007 Green Paper on the governance of Britain that the Government would,

“act to ensure that it is answerable to Parliament”.

He said those words at a press conference.

I note with an unusual form of admiration the Bill’s certification as a money Bill, but observe with greater interest a masterpiece of irony in paragraph 31 of the Explanatory Notes, which states:

“There are no significant financial effects of the Bill”.

I could not have put it better myself.

I fancy that this Bill was forced on a reluctant Treasury by Downing Street’s teenage spin doctors posing as policy advisers. It has been disparaged across the spectrum as one more boneless wonder and one more headline. No Labour Back Bencher spoke in favour at Second Reading in another place. Charles Clarke, the former Home Secretary, ridiculed it as “vacuous and irrelevant”. Paragraph 6 of the Explanatory Notes unveils the truth behind the Bill when it claims that in the November 2008 Pre-Budget Report,

“the Government announced that it would temporarily depart from the golden rule … until the global shocks had worked their way through the economy”.

Thus it was inferred that the golden rule was fragmented by the collapse of the markets in September 2008. As most of us know, the truth is otherwise. The key date for the death of the golden rule was 18 July 2008, two months before the collapse in the markets. On that date, the Treasury sanctioned the golden rule’s obituaries. The Financial Times splashed its front page, disclosing that the Treasury had extinguished the golden rule. Robert Peston, no less, with his impeccable links with the Treasury, confirmed its termination and David Smith, the economics editor of the Sunday Times declared it part of history’s dustbin. These verdicts were reached on the basis of Treasury briefings on 18 July 2008, two months before the collapse in the markets, because by then our public finances were in disarray. No wonder this led the eminent economist, the noble Lord, Lord Desai, who is sadly not in his place, to declare that the golden rule had been, “fudged and fudged again” by Mr Brown, leaving Mr Darling an “empty kitty”.

The blame for the crisis in our public finances lies squarely with Mr Brown, and begs the question that if our public finances were in such disarray in July 2008, thanks to him, why did the Government not introduce this paltry specimen of legislation then instead of now? Why do we have to wait two years for this Bill? This Bill is no more than a comical booby-trap, which merits instant disposal by an incoming Administration. It serves no purpose and fools only greenhorns. The next Government, irrespective of hue, must establish a more credible framework for tackling our public finances, which requires an immediate Budget followed swiftly by a public expenditure White Paper along the lines of the one published by my noble and learned friend Lord Howe of Aberavon in 1979.

I found what the noble Lord said there most intriguing. Is he advising his right honourable friend the shadow Chancellor that he must immediately, were the misfortune to occur of him becoming the actual Chancellor, introduce major public expenditure cuts? Is it his view that that is the right path to go along immediately after this coming May, were he to be in power?

I share the view expressed by my noble friend Lord Lawson in that respect. Of course, a lot of it will have to do with how the markets behave. As the noble Lord will realise, it is very often the markets that put pressures on new Governments, just as the markets at the moment are putting pressure on the Club Med countries. That is a flexible position that any Chancellor needs to be aware of, and I am sure that the shadow Chancellor is even more aware of that than the noble Lord, Lord Peston.

Can the noble Lord clarify further? When he refers to markets, does he assert that they are never politically motivated? For example, this week they have had people getting together to put huge bets against the euro, which has incidentally had a stable relationship with the pound sterling for several months. Is the market to be worshipped? Is that the point that he is making?

If the noble Lord wants the real answer to that question, I advise him to go as fast as possible after this debate to the Library, where he will find remarks made earlier in the week and last week by the president of the Bundesbank. No one could claim that his words were political in the context of what is happening at the moment in Greece.

If an immediate Budget is followed swiftly by a public expenditure White Paper and a form of the MTFS, as described by my noble friend Lord Lawson, who put it together in 1980, further action is a necessity. As I said in part in my reply to the noble Lord, Lord Peston, first and foremost it should be carried out to avert a potential UK gilt strike. Sovereign debt contagion is lethal. We are experiencing the tensest spell in the gilt markets since the 1970s, and the markets will need to be certain that a British Government have the willpower—to use the word of my noble friend Lord Lawson—to slice our dangerous deficit. We have already witnessed pressure on Greece, where plans to cut the deficit are frankly implausible. In principle, Greece must raise $50 billion by 30 June to avoid default. Portugal lacks a consensus on austerity and the green light is still shown to the regions for mounting up further debts. Spain could of course be in the firing line soon. We hope and pray that these nations are acting as our proxies until polling day. After all, according to PIMCO, we are resting on a bed of nitro-glycerine.

Questions over our creditworthiness have also been raised by Fitch. Standard & Poor’s, another agency, has amended its outlook of the UK from stable to negative. Of course, the chief executive of the Debt Management Office, an important figure, voiced concerns a fortnight ago. Last week the Institute for Fiscal Studies concluded that reductions in public expenditure would have to reach 18 per cent to 24 per cent in some non-protected departments to pacify the markets. Even if the next Government, whatever their hue, take action, the risks of inflation are clear and present, as I have twice sought to persuade your Lordships. Inflation overshot Bank of England forecasts for the whole of last year in every single month. Andrew Sentance, an MPC member, as well as Spencer Dale, the Bank of England’s chief economist, have delivered warnings that inflationary pressures are lurking, in spare capacity, oil hikes, commodity prices as well as asset bubbles in the Far East. This leads to the question: can interest rates remain so accommodating if UK inflation breaks barriers? It also prompts the inquiry about whether we should retain the present measure of CPI. Whatever the consequences, however, the post-election Chancellor must insist on strict ceilings for inflation. Otherwise, bond yields will go haywire and the cost of borrowing will hamper our recovery. I was pleased to read recently that the shadow Chancellor has brought anti-inflation rhetoric back into the picture.

Our fiscal deficit runs at more than 13 per cent of GDP. It is worse than the Club Med countries. Everywhere, markets are querying the willpower or ability of the British Government to repay their debts. They are unimpressed with this Bill; it is an object of their scorn. As Buster Keaton would have put it in his great vaudeville days, it is about as much use as handing a comb to a bald man.

My Lords, this year the UK is set to record its largest budget deficit since the Second World War. It is one of the largest in the industrial world. The financial crisis has significantly increased the structural deficit, which means that, in the absence of large spending cuts and tax increases, borrowing will remain high and the public debt will rise to unsustainable levels. In other words, the fiscal situation is becoming very parlous.

The Government have form on the issue of fiscal responsibility. In his famous— or should I say infamous—Mansion House speech of 1997, the present Prime Minister set out his fiscal rules. He said:

“We will introduce tough rules for Government borrowing”.

A year later, he told us:

“I will never let the deficit get out of control. We will not spend money that we have not earned”.

Well, we all know what happened to those fiscal rules. With the golden rule, the Chancellor moved the goalposts three times between 2005 and 2007. He altered the start date of the current economic cycle once, and the end date twice—both backwards and forwards. The Institute for Fiscal Studies, or IFS, said in its March 2007 Budget briefing:

“The perception that the Chancellor has moved the goalposts and has delayed the tax-raising measures and cuts in spending plans that we and other commentators had been saying will be necessary until after the 2005 election has undermined the credibility of the fiscal framework”.

Like other speakers, I have sympathy with the Minister for introducing the Bill here. I also absolve him and the Treasury from responsibility for a scheme dreamt up by the Prime Minister and Ed Balls. I looked for examples of other countries producing fiscal responsibilities; I could find only one, and that was Nigeria—not a very encouraging precedent. I am not sure how successful it has been. The other scheme, the Gramm-Rudman amendment, seemed to perish after several years.

What do independent experts think of the Fiscal Responsibility Bill? The IFS said that it was not immediately obvious why breaching the targets set out within it should involve a greater political or reputational cost than breaching or finessing the fiscal rules set out under the Code for Fiscal Stability that was enshrined in legislation in 1998. Independent economic observers had lost confidence in the fiscal rules well before the recent crisis. In its new year survey of the views of independent economists in January 2007, the Financial Times concluded:

“Almost none use the Chancellor’s fiscal rules any more as an indication of the health of the public finances”.

According to the journal Public Finance, Gemma Tetlow of the IFS added:

“The concept of it as a law is strange. There is usually a penalty for breaking a law, but it’s hard to say what that might be. There really aren’t any sanctions that can be applied on a chancellor or government if they fail to meet it, with the exception of embarrassment. It might be more credible if they set out their plans on spending”—

that is, setting out the total departmental spending and giving a date for the next spending review. Willem Buiter, one of the economists appointed by the Prime Minister to the Monetary Policy Committee, said:

“Fiscal responsibility bills are the acts of the fiscally irresponsible to con the public”.

Finally, one leading City economist, Michael Saunders of Citibank, has said:

“The Government’s plans for legislation to cut the deficit are not convincing, and probably just camouflage—a sort of fiscal fig leaf for the lack of genuine action”.

Why are those independent experts so critical when, on the face of it, a Bill to control borrowing would seem to be sensible? Carefully considered legislation, debated in full—without a guillotine—and suitably amended, would give reassurance to the markets. That is particularly important as there needs to be some £180 billion of funding over the next year, and the prop of quantitative easing has been removed for the moment. Other speakers have talked about the gilt market. One can see some of the demand for gilts being satisfied by the banks, but there could still be a funding gap of, say, some £80 billion.

Once the Bill is examined in more detail, the reasons start to become clear. Clause 1 says that by 2014 public sector net borrowing as a percentage of gross domestic product must be no more than half of what it was in 2010. Nowhere does it say how that will be achieved. I listened to the Minister carefully; he talked about how the deficit will be decreased by means of growth, but I did not hear him say much about spending cuts or tax increases. There is to be no Comprehensive Spending Review showing in detail how spending will be cut, and there is unlikely to be one ahead of the election.

Placing duties on the Treasury to reduce public sector borrowing and the deficit is not a guarantee that that would happen. Every Budget and Pre-Budget Report produced since 2003 by the Chancellor and his predecessor has promised falling net debt at the end of a five-year horizon, and every one of those forecasts has been wrong. In times of boom and bust the present Chancellor, according to our shadow Chancellor in the other place, has had his total borrowing forecasts wrong to the tune of £560 billion since he entered 11 Downing Street. It is now four times higher than when he announced his forecast for the PBR in 2007, after the credit crunch began. How can we believe his latest forecast just because it is written into the Red Book?

John Redwood, in another place, pointed out a further anomaly within Clause 1. He said:

“Clause 1 tells us that ‘in each of the … years 2011 to 2016, public sector net borrowing expressed as a percentage of gross domestic product’ has to fall compared with the preceding year. To ensure that it falls by a reasonable amount, there is the added rider in subsection (2) that it needs to halve by 2014”.—[Official Report, Commons, 5/1/10; col. 98.]

While I am not an economist, it seems to me that there could be individual years when the economy was growing where the deficit could be permitted to increase even if the percentage decreased. However, if in that period we had another unfortunate period, when the economy was not growing, it would be necessary to reverse and cut borrowing in cash terms. Can the Minister give guidance on these points? The Government should change it and come up with a formula that recognises the economic cycle.

Clause 2, as other speakers have mentioned, contains the strange concept of the Treasury placing an order on itself, which does not seem a very daunting imposition that will make the Treasury sit up and take notice. Again, as other speakers have said, Clause 3 seems fatally flawed because there are no penalties if the targets are not met. As the shadow Chancellor said in another place:

“This must be the first law introduced into Parliament that contains absolutely no legal sanction whatever for those who break it”.—[Official Report, Commons, 5/1/10; col. 74.]

Overall, the Bill is very disappointing and has the appearance of being cobbled together in a great hurry for election purposes. As other noble Lords have stated, only two Labour Back-Benchers spoke at Second Reading and they were both unable to support the Government. The Chancellor says that he has produced this Bill to cut the debt. At the same time the Government are irresponsibly increasing it by introducing the Personal Care at Home Bill. This measure, which would be laudable if the money was in the government coffers, will cost at least £670 million, and several expert organisations, such as the Association of Directors of Adult Social Services across 61 councils, believe that the full cost will be more than £1 billion. As I have said several times, the Bill is opposed by the noble Lord, Lord Warner, a former Health Minister, and the noble Lord, Lord Lipsey, a former member of the Royal Commission on Long-Term Care, both of whom have some knowledge on the subject. The strength of my argument is endorsed by the leader in today’s Times in which more than 70 leaders of social care throughout England warn that the Government’s plans to provide free homecare are flawed, unfunded and will force cuts to current services. The Minister has refused to comment on two previous occasions about my concerns over the financial implications of the Bill. Can he tell me why we can afford to spend £1 billion at this time of borrowed money, however laudable the project?

It is a shocking reflection of the way that the Government have programmed business in the other place that this Bill, which could have been important if discussed and amended properly, was, as other speakers have said, rushed through in two days without Clauses 2 to 6 even being considered by the other place. For that reason I shall support the amendment of my noble friend Lady Noakes.

My Lords, a paradox lies at the heart of today’s debate. I suspect that everybody in the Chamber agrees with the aims of the Bill—to halve the deficit over the lifetime of the next Parliament—but, equally, everybody knows that the Bill is completely irrelevant to achieving that aim. There are a number of reasons for this irrelevance. First, it does not set out a path towards achieving the aim; it sets out only a distant goal. As the noble Lord, Lord Lawson, pointed out, it allows for the seductive Augustinian argument that it is indeed a very noble aim, and we must meet it, but we do not need to meet it now—we will wait until later because it is some distance into the future.

The second reason for the irrelevance of the Bill relates to sanctions. The noble Lord, Lord Peston, talked about the Bill in the context of an addiction. He said that if you have an addiction, increasing the costs of feeding it makes it less likely that you will continue with it. The problem is that if you have a serious addiction—for example, alcoholism—the costs of feeding it are almost irrelevant. The only way to tackle it is to have a fundamental change of heart and an iron will to maintain that change of heart through difficult times. As the noble Lord, Lord Peston, discussed, being ashamed is almost totally irrelevant. People who have an addiction very often are ashamed most of the time but that does not stop them having an addiction. Therefore, the Bill, by possibly making Governments feel mildly ashamed from time to time, will be ineffective in facing down the addiction of expensive expenditure.

Thirdly, the Bill does not admit the possibility of unexpected shocks to the economy blowing the Government off course. Suppose, for example, that the Government decide, as they will do—any Government will do—to back-end load the expenditure reductions towards the second half of the next Parliament. Suppose that in 2014 we find ourselves—God forbid—in another major foreign war, or the world is hit by some other economic storm and the automatic stabilisers take effect. In those circumstances, what power would the Bill have—or should it have—to prevent the Government increasing expenditure to deal with the crisis, even if it meant that the terms of the Bill were breached? The answer, obviously, is that in those circumstances the Bill would be ignored. The noble Lord, Lord Desai, said that primary legislation would be required in those circumstances. Perhaps it would, but in the absence of a sanction perhaps it would not. In any event, I should have thought that a clause in a Finance Bill would consign this Bill to the rubbish heap of history.

That does not mean that we on these Benches are totally opposed to fiscal rules. There is a value in rules but, as we have seen in recent months, rules must have a means of dealing with exceptional circumstances. Incidentally, I took to the Skidelsky rule, which I had not heard adumbrated before. That is an extremely good rule for public expenditure and I hope that we shall discuss it. But with any rules we have, we need to have a get-out clause in extreme circumstances. Interestingly, the Bank of England Act has such a rule, which enables the Treasury to override the inflation target in exceptional circumstances. Any set of rules that we contemplate introducing around public expenditure in future should have such a get-out clause.

In introducing the Bill, the Minister said that it would increase parliamentary scrutiny of government fiscal policy. I do not see how it achieves that. Virtually all the provisions of the code for fiscal stability are already covered by information provided by the PBR and the Budget itself. The so-called Economic and Fiscal Strategy Report contains information which is certainly largely published already. The only exception I could see was in paragraph 41D, which suggests that the report should present illustrative projections of the outlook for the key fiscal aggregates for a period of not less than 10 years into the future. I think that is quite sensible, but that in itself does not justify a Bill and is something that the Government could do and should have done in any event.

The Government are missing an opportunity in terms of information being provided to Parliament—this was referred to by the noble Lord, Lord Hodgson—in the whole of government accounts project, the purpose of which is to enable parliamentarians to get a better handle on what on earth is going on in government expenditure. That project has, in the somewhat diplomatic language of the Institute of Chartered Accountants, been faltering. The Government should put some effort behind that project so that, at the very least, Parliament has a better view of what is really going on.

I agree that Parliament should have a greater role in the scrutiny of public expenditure, but this Bill will do absolutely nothing to effect this. A sustained period of detailed work undertaken by Parliament is required if Parliament is to exercise any scrutiny at all. I understand that the conventions of the House mean that it would be improper for me to suggest how the Commons might begin to do this although, if one talks to Members of another place about the scrutiny of public expenditure, it is clear that there is near universal agreement that it is not effectively done at the moment. It would certainly be possible for the Economic Affairs Committee of your Lordships' House to set up another sub-committee to look expressly at public expenditure. The area within that general ambit which I think needs particular attention and where Parliament could play a useful role is looking at themes which have a cross-cutting impact. I attended an event last week at which the chief executive of the British Library explained how she had cut sickness among staff at the library from 11.5 days per year, which is about the public sector average, to 6.5, which is slightly better than the private sector average, by taking a series of small steps which any public sector body could take but which most public sector bodies are not taking, with a possibility of huge savings in expenditure. That is the kind of issue on which Parliament could shine a light and a sub-committee of your Lordships' House could certainly do that.

At the moment, the Treasury is giving a lot of thought as to how best to undertake “fiscal consolidation”, which to me is a lovely new euphemism for public expenditure cuts. The Treasury has undertaken a survey of all the fiscal consolidations that have taken place in recent decades. The document on this has been obtained, in part at least, under freedom of information action. It reports that the IMF identified that, of 74 fiscal consolidation periods from 1974 to 1995, only 14 could be counted as successful. The document then sets out the common features of those successful consolidations, and contains a section called “Emerging themes”, which no doubt draws lessons from international experience. Unfortunately, that section has been blacked out in the document available to your Lordships and anyone else. While we can get some basic intelligence about what has been going on, the Treasury’s conclusions on what all these fiscal consolidations have shown are kept within the Treasury. Will the Minister consider publishing at the time of the Budget this document with the “Emerging themes” section available for public view, so that the rest of the world could see what the Treasury thinks can be learnt from a whole raft of initiatives to cut public expenditure in an effective way that have been taken in recent decades?

We have spent very little time today talking about what happens next and the substance of the cuts that will be made. The noble Lord, Lord Lawson, strongly advised that an incoming Conservative Government needed to take action within the first 50 days. Although it has a ring of truth, this is pretty different from at least the mood music coming out of the Conservative Party leadership in terms of the action that it will take.

Last week, we discussed at some length the substantive issues around fiscal consolidation and I shall not repeat today any of the arguments I made then. I will, however, repeat my conclusion. We will not have the much needed serious discussions about how we actually undertake fiscal consolidation and reduce the budget deficit until after the next election. That election cannot come soon enough.

My Lords, I thank all noble Lords who contributed to the debate. It has been a very wide-ranging debate in which many issues have been raised, all of which I found very interesting and have noted. One feature common to all the speeches was a clear commitment to the need for fiscal consolidation, a commitment which is of course at the heart of the Bill. As we have debated, the financial crisis and global recession have had a profound and persistent impact on the public finances in many major countries, resulting in a significant increase in government borrowings and, as a result, government debts. These severe economic shocks have hit every country in the world and have meant that we have had to be flexible in our response to changing circumstances—the noble Lord, Lord Skidelsky, referred to “black swan” events. Therefore, in the face of these shocks, as the Chancellor set out in the other place, the Government’s first priority has been, and will continue to be, to provide support to the economy.

Costs were of course incurred by stepping in; but not to have intervened would have meant even higher costs, burdening the economy over an even longer period. The Government have always been clear that support must be followed by steps to secure public finances. Our fiscal stimulus was deliberately time-limited to increase its impact during the downturn, bringing forward expenditure on capital projects and supporting sustainable public finances over the medium term.

The Government are confident but cautious about the prospects for the economy. As growth resumes and the economy becomes better placed to support tightening, fiscal policy will shift significantly towards consolidation. Well timed and planned fiscal consolidation will support economic growth during the recovery. As many noble Lords suggested, there is an issue of timing. The noble Lords, Lord Lawson and Lord Ryder, among others, pointed to the need to act swiftly. On the other hand, we heard contributions from my noble friends Lord Desai and Lord Peston and from the noble Lord, Lord Skidelsky, cautioning us against moving too quickly. My own view, as I said last week, is that the risks of moving too early considerably outweigh the risks of moving too late. They are asymmetrical in the sense that a premature move which tips the economy back into recession will not deliver the benefits that those advocating such a move would suggest.

The scale and quantum of the likely cuts are also a matter for judgment. I invite the noble Baroness, Lady Noakes, to talk a little in her closing speech about the scale of cuts that a Conservative Government would wish to introduce. It is clear to me from contributions from the other side that there is a lust for savage cuts in public expenditure, notwithstanding the lessons that we learnt from both the 1930s and the 1980s. We heard talk last week of the UK being the sick man of Europe. That is absolutely preposterous, but it is entirely consistent with a softening-up for the scale of cuts that I am sure a Conservative Government, if we have one, would have in mind. Indeed, to his credit, the noble Lord, Lord Forsyth of Drumlean—in a contribution which I read on a website with the somewhat curious name of Conservative Intelligence—suggests that there need to be cuts of £75 billion in government expenditure. That is quite extraordinary in terms of the consequences for the lives of British people and the prospects of British business. The sooner we have clarity of message—and I am looking to the noble Baroness to provide it—about the scale of cuts that a Conservative Government would contemplate, the better.

I am sure that the noble Lord wants to be fair. If he expects my noble friend Lady Noakes to outline the scale of cuts that a Conservative Government might want to introduce, will he first say what scale of cuts the present Government, of whom he is such a distinguished member, have in mind?

I thank the noble Lord, Lord Lawson, for that intervention. The scale of the Government’s approach to fiscal management is made very clear in the supporting schedules to the Pre-Budget Report. There is absolute clarity there about the glide path to fiscal responsibility that my right honourable friend the Chancellor of the Exchequer has in mind.

The Government have set out measures that reduce borrowing by £57 billion by 2013-14 and contribute to more than halving the deficit over four years. This Bill embeds this deficit reduction in legislation and sets further targets to reduce the deficit in each year to 2015-16. The fiscal consolidation plan extends from 2009-10 to 2015-16 and requires the Government to take very real and serious action to commit to going back towards fiscal consolidation and fiscally sustainable policies. By putting explicit targets in the legislation, the Government are demonstrating their commitment to delivering consolidation and the importance they place on action to ensure sound public finances in the medium term. These plans contribute to ensuring sustainable public finances in the medium term. Legislating provides certainty and stability for businesses and individuals regarding the future path of fiscal policy. Parliament is being given a new role in setting and monitoring the Government’s fiscal plans. In particular, Parliament must approve fiscal plans.

I am grateful to the Minister for giving way. I take it that he is on his peroration. If so, will he reassure the noble Lord, Lord Newby, and me that the whole of government accounts project will take place; and will he give us the timing, so that we have the transparency and accuracy that he says are so important?

I was going to come to that point when I dealt with the interventions of the noble Lord, Lord Newby. I had already written on my notepad that this was clearly a matter into which I should look, and that I will owe a letter to the noble Lord. I will of course send a letter to all noble Lords who participated in the debate. To my shame, this is not a project on which I have been required to focus a great deal of time over the past 12 months, so I need to become more familiar with the issues. I thank the noble Lord, Lord Hodgson, for his intervention.

Parliament is being given a new role in both setting and monitoring the Government's fiscal plans. In particular, Parliament must approve fiscal plans before they become law. This is a significant evolution of the extent to which the Government are to be held to account for their medium-term fiscal policy. I listened with great interest to the speech of the noble Lord, Lord Lawson of Blaby. His contribution towards encouraging Governments to set out with greater clarity their medium-term thinking is commendable: we have learnt and benefited greatly from the pioneering work in this sphere done by the noble Lord himself and by the noble and learned Lord, Lord Howe of Aberavon. We build upon that and seek to improve it, and to embody such requirements in law.

A number of noble Lords raised the question of selecting the pace of consolidation. This is a very difficult assessment. The Government's judgment is that tightening fiscal policy too quickly in 2011 would present risks. The Government’s judgment is that the economy will be better able to support a more rapid tightening in 2011-12. The projected tightening will be a significant consolidation and, as I said, will represent the sharpest average annual reduction in the budget deficit of any G7 country over the next four years.

As the Chancellor made clear in the other place, if growth proves to be stronger than we are forecasting—here I answer a point raised by the noble Lord, Lord Northbrook, in his thoughtful contribution—the first priority must be to get structural borrowing down even further. This is allowed for in the Bill, which sets fiscal ceilings but not floors. The legislation sets targets that the Government judge appropriate, but is drafted to allow overachievement. The ceilings are hard and binding. They are designed to provide certainty that the Government will deliver their consolidation plans, which are based on cautious assumptions.

As was debated in the other place, flexibility is important. It is worth noting that, subject to making progress in reducing borrowing every year, there is flexibility over the profile by which the deficit is halved by 2013-14. For example, if growth is lower and the impact of the automatic stabilisers is greater, there is the flexibility to accommodate this, as long as progress continues on reducing borrowing. That answers a point raised in the helpful contribution from my noble friend Lord Lea of Crondall, whose economic observations I support, although I could not possibly go as far as he did in his comments about the activities of bankers, many of whom are close personal friends as a result of my intimate engagement with them over the past 12 months.

In the event of significant and sustained economic shocks, such as those that we have faced over the past 18 months, the Chancellor would have to consider carefully what path of fiscal policy was appropriate for the economy. This would happen in the round, considered alongside other changes that affect the level of borrowing. Given the importance of these consolidation targets, the Bill has been designed so that any decision to depart from them would require new legislation. The Government would have to come back to Parliament if it were necessary to amend the targets set in the Bill.

Transparency is essential as an element in promoting wider understanding of the Government's objectives and as part of their fundamental democratic accountability. The Bill strengthens transparency. Parliament will take an active interest in the various reports produced in accordance with the Bill. That will stimulate debate and understanding. To the extent that the Government deviate from the path that has been set, noble Lords should not underestimate the shame, embarrassment and humiliation that would result. There are undoubted and very real sanctions in the Bill that would hit the pride of men and women of great standing.

The noble Baroness, Lady Noakes, and the noble Lord, Lord MacGregor of Pulham Market, asked what the point of legislating was. I hope that I answered that in my opening address, and again in these comments. Parliament’s role is being enhanced. In particular, Parliament must approve fiscal plans before they become law. This gives Parliament an oversight that it has previously not enjoyed. The IMF has set out that the strengthening of frameworks, including through fiscal responsibility laws, should support the global financial and fiscal adjustment that is necessary. I note the support of my noble friend Lord Desai for the value that will arise from the Bill.

The noble Lord, Lord Lawson of Blaby, made the point, to which I have already referred, that consolidation needs to start earlier. However, the Government's judgment is that the economy will be able to support much more rapid tightening in 2010-11, as GDP is forecast to accelerate from 1.5 per cent in 2010 to 3.75 per cent in 2011-12. There will be greater space for the MPC to use interest rates to manage any potential disinflationary impact. I note and appreciate the positive comments from the noble Lord, Lord Skidelsky, on the issue of timing.

The noble Lord, Lord Lawson, also asked why the UK has one of the worst fiscal positions of any developed economy. It is a perfectly reasonable question. The UK entered the downturn with a starting point of very low public debt—well below the G7 average. That was a consequence of effective economic management, before we found ourselves confronting a two-standard deviation global circumstance—the first year for 60 years in which global economic growth contracted. Governments across the world, along with institutions such as the IMF and the OECD, recognise that it is right to allow fiscal policy to support the economy in such difficult times. Global economic developments have had a profound impact on all countries, including the United Kingdom. However, our current estimate is that the UK's borrowing requirement will still be below the G7 average as a percentage of GDP at the end of the crisis period.

The noble Lord, Lord Skidelsky, asked why we were not simply going back to the old rules from which we had departed. He asked what was happening to the old rules. The noble Lord, Lord Newby, has now christened a new set of rules the Skidelsky rules, which one must look at very carefully because, as I listened to the noble Lord, they had a certain appeal. The old fiscal rules were right for the time, and the Government met them. However, with unprecedented levels of economic uncertainty, the temporary operating rule was right for its time, too. Now the priority is to get public finances on a sustainable path and undertake fiscal consolidation.

I have already answered the question from the noble Lord, Lord Lea, about the operation of the automatic stabilisers. The noble Lords, Lord Hodgson, Lord Lawson of Blaby and Lord MacGregor of Pulham Market, and the noble Baroness, Lady Noakes, all observed that the law was not enforceable and did not have consequences. The most powerful consequence is the one of embarrassment for being called to account in Parliament, in a context in which Parliament will have much greater responsibility for fiscal matters than in the past.

The noble Lord, Lord Hodgson, talked about whole of government accounts. As I said, the Government are apparently committed to the principle of transparency, in which this Bill plays a part, and they fully support the publication of whole of government accounts. These will provide Parliament with enhanced information about all government income, expenditure, liabilities and cash flow. Something that I did not know but can now advise the House is that whole of government accounts will be published for 2009-10 once central Government have moved to the International Financial Reporting Standards and once the necessary legislation is in place. I hope that that gives some comfort to the noble Lords, Lord Hodgson and Lord Newby.

The noble Lord, Lord Ryder of Wensum, in a somewhat political speech—in which I thought he was doing extremely well until he was knocked off balance by my noble friend Lord Peston, although he very quickly regained that balance—asked why the old fiscal rules were not in legislation. The old fiscal rules are effectively embodied within these rules. Their abandonment was on a temporary basis, which is not to say that at some point my right honourable friend the Chancellor of the Exchequer might not seek to refer to them formally in his policy thinking.

I am afraid that the noble Lord, Lord Northbrook, was simply incorrect in suggesting that Nigeria is the only other country with a Fiscal Responsibility Bill. I am told that a tax break was enshrined in the German constitution in June 2009 and that a similar debt break is in place in Switzerland. In the US, the legislative fiscal framework between 1990 and 2002 provided by the Budget Enforcement Act—a piece of legislation to which I think the noble Lord referred by name—is credited with contributing to successful fiscal consolidation over that period.

Perhaps I may interrupt the noble Lord before he finishes his very full answers to everyone who has spoken, for which we are very grateful. He said a little while back that, although our deficit in the coming year is projected by the OECD to be the highest of all 28 countries, by the end of the fiscal consolidation, we will be below the average. On what basis does he make that assumption? Is he assuming that no other country is going to undertake fiscal consolidation? If so, that is totally unreasonable.

Noble Lords would not expect me to come to Parliament on the basis of number work that I had done on my own. They would be suspicious that I had started with the answer I sought and that I had done the arithmetic to arrive at that answer. The information that I gave was of course based on IMF statistics and projections.

The noble Lord, Lord Northbrook, also mentioned Mr Willem Buiter, who is now an economist with Citibank. The noble Lord regularly mentions Mr Michael Saunders, although it looks as though he is going to have to patronise some other banks in addition to Citibank for his sources of information. I think that we have already set out that Mr Willem Buiter—I almost referred to him as “the noble Lord” but perhaps he will become a noble Lord in due course—is mistaken in some of his thinking about international practice.

I am not going to be drawn into how we justify expenditure on care at home, the legislation for which is currently going through Parliament. However, I can say that we regard it as a priority and as worth while. All those who benefit will appreciate the Government’s commitment to helping those who need care at home and will have the comfort of being in their homes. They will also note that the Conservative Party is very opposed to that.

In closing, I want to come back to the point that I was proposing to make to the noble Baroness. I continue to wrestle with the exact positioning of current Conservative fiscal thinking. Certainly, at the time of the Manchester party conference we were being prepared for an age of austerity. That then changed, with the Conservatives saying, “We don’t have to do very much and we shouldn’t move too soon. We might just make a start”, but then last week the noble Baroness told us that we should prepare ourselves for an age of austerity. I also heard her say that she could not possibly be precise about where cuts would be made because she had to wait until they had seen the books. However, Members of the Opposition are perfectly able to submit Written Questions or freedom of information inquiries to find out what they need to see in the books. Speaking as someone who has come relatively late in life to this job, I have to say that one does not discover many things in the books that are not already in the public domain, and some of them do not get into the public domain through the official channels.

I suggest to the noble Baroness that she should not hold back from sharing her thinking with the House. As one of her colleagues said—it may have been the noble Lord, Lord Northbrook—the IFS is suggesting that cuts for non-protected programmes will need to be in the region of 20 per cent or so. Of course, the Conservative Party has said that it is going to go further and faster. I should like the noble Baroness to tell us whether that is true. Is the Conservative Party committed to an early cut in public expenditure on the scale of cutting one-fifth of all public expenditure? It is a very simple question. In this House I have always tried to give straightforward answers to questions. If I have not been able to do so, I hope that I have been punctilious in writing to Peers with explanations and answers to their questions. Therefore, I put a very simple question to the noble Baroness: is the Conservative Party so committed? I know that she might need briefing—indeed, the noble Lord, Lord Northbrook, was briefing her just now and I am sure she was very grateful for his contribution—because last week she was very wobbly in answering a question from the noble Lord, Lord Dykes, on whether the Conservative Party would never join the euro. I think that that is where she started off in her reply. She then backed off from that position and qualified it a little, saying that she had always been told never to use the word “never”. However, Mr Cameron is now saying that if he is Prime Minister we will never join the euro. Perhaps she could clarify that point as well.

What else can I say? I think that I have covered just about everything. The noble Viscount, Lord Eccles, has given me the Google index of credibility. He says that the number of hits on the Code for Fiscal Stability suggests that not many people are reading it. That is probably evidence of the fact that they think it is so universally wise, profoundly significant and important that they do not need to read it, but I shall be using the Google index of credibility to establish how credible Conservative Party policies are in a number of areas.

The noble Lord, Lord Ryder of Wensum, talked about a gilt strike. I am afraid that that is absolute nonsense. In fact, we have just had another auction, which was excellently covered, and gilts continue to be funded at less than 4 per cent over a 10-year maturity. That is extremely attractive by comparison with the past. Certainly when the noble Lord was himself a Minister, such funding was taking place in the mid-teens, and I can see no evidence of a gilt strike. The noble Lord also referred to a Buster Keaton film, suggesting that “The Railroader” was appropriate. With this important piece of legislation, I should prefer to say that the Buster Keaton film to which I would look is “The Navigator”. Once again, our inspired leader, the right honourable Gordon Brown, is navigating us through troubled waters on a path to fiscal sustainability, consolidation, safe and secure national financing, and prosperity for ever more.

My Lords, I thank my noble friends for their support in this debate. I was going to say that I was glad that so many of them were kind to the Minister, as I tried to lead them to be at the beginning of my speech. However, having listened to the last five or 10 minutes of his speech, I am not quite so sure that they should have been. Of course, while my noble friends were kind to him, they were quite properly very unkind about the Bill. Many of them emphasised the importance of credibility and confidence in markets, in which the UK will need to fund the massive deficit that we face. They agreed that markets have paid, and will pay, no attention whatever to this Bill.

Several of my noble friends, led by my noble friend Lord Lawson, emphasised the need to start to tackle the deficit earlier and more forcefully than this Bill appears to require. That makes this Bill of marginal interest to us, but we still object to it on the grounds that it is damaging and disreputable, to use the words of my noble friend Lord Hodgson.

The noble Lord, Lord Myners, tried to tempt me to talk about our approach to what is now coyly referred to as fiscal consolidation. I shall follow the lead of my noble friend Lord Lawson and say, “I’ll show you mine if you show me yours”. The fact is that, for all the talk of glide paths, the Government have not set out what they will do. All of this is beyond the scope of today’s debate, as is our position on the euro. However, I thoroughly endorse Mr Cameron’s views on whether and when we should join the euro.

My purpose in tabling my amendment today was to draw attention to the lack of parliamentary scrutiny of this dreadful Bill. The noble Lord, Lord Desai, suggested that perhaps not scrutinising Clauses 2 to 6 did not matter, but Clauses 2, 3 and 4 at least should have been scrutinised and the supposed duties, reports and accountability—

My Lords, does the noble Baroness recall that, at the beginning of our debate, the Lord Speaker read a passage from the Companion about what we cannot do? I thought that she said that we must say nothing that would implicitly criticise the Speaker in the other place or criticise the way in which the other place conducted its business. The noble Baroness seems to be going down the path of criticising the way in which the other place conducted its business. I am not sure who can read out the relevant bit of the Companion that was read out earlier. I mention this partly because I had intended to criticise the other place but, the moment I heard what the Lord Speaker had to say, I thought that I must not do it. I am now worried about the path that we are on, but I am not sure who is in a position to advise us on this.

My Lords, perhaps I can help. When I spoke earlier, I was at pains to point out the lack of scrutiny that the Bill received in another place; I was at pains not to criticise the other place but to criticise the Government for the way in which they used the procedures of the other place to achieve the result that this Bill had virtually no scrutiny. I stick to that. I do not believe that I have departed from that in these concluding remarks. If I have, that was wrong and was not what I intended. I think that I have made plain what I intended. That was my purpose and I believe that the clauses that were not scrutinised—they deal with duties, reports and accountability, which in statutory terms is a nonsense—should have been exposed to scrutiny. In the normal case, your Lordships’ House can remedy insufficient scrutiny in another place with its own careful deliberations but, of course, we cannot do that on a money Bill. I hope that today’s debate has illustrated the desirability of full scrutiny of at least one House of Parliament in the context of good, constitutional government. If it has, I have achieved my purpose. On that basis, I beg leave to withdraw my amendment.

Amendment withdrawn.

Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2010

Motion to Approve

Moved By

That the order laid before the House on 19 January be approved.

Relevant document: 6th Report from the Joint Committee on Statutory Instruments.

My Lords, it is good to see your Lordships again. It is also good to see such refreshing, young faces—not the sort who had to be brought in to be seated behind Mr Cameron when he spoke to so-called university students at a lecture earlier this week, who subsequently proved not to be students of the institution in question. These certainly are students of the institution in question: the Opposition.

This order seeks to make a change to the definitions regime for regulated activities, as laid out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001. Specifically, the order seeks explicitly to exempt alternative finance investment bonds from the current collective investment scheme regulations and to create a new specified investment under the regulated activities order. The order further seeks to introduce a unique regulatory definition of alternative finance investment bond for this purpose.

This change will benefit institutions looking to issue corporate sukuk by creating regulatory clarity and reducing potential legal and compliance costs. In the Finance Bill 2009, we introduced relief from stamp duty land tax and tax on capital gains for any transactions undertaken as part of the issue of alternative finance investment bonds. The purpose of this legislation is to remove further obstacles to the issuance of corporate sukuk in the UK. The FSA has estimated that these regulatory changes would reduce the overall costs of corporate sukuk issuance by around £35,000 for sukuk of five years’ duration.

It may help the House if I briefly outline what alternative finance investment bonds are, how they are currently treated within the regulatory framework and the background to this order. Alternative finance investment bonds refer to a type of financial instrument commonly known as sukuk, or Islamic bond, but can also refer to any financial instrument with similar characteristics. These instruments replicate the economic effects of conventional bonds. Sukuk aim to do that in a way that conforms with the principles of Sharia. Sharia compliance is not a requirement for an instrument to be treated as an alternative investment bond under the order. The Sharia-compliant features of sukuk, which include the principle of mutual co-operation and risk and profit-sharing arrangements, mean that in some cases these would fall within the broad regulatory definition of a collective investment scheme in Section 235 of the FSM Act 2000. Arguably, that puts alternative finance investment bond issuers at a disadvantage to issuers of conventional debt securities, as authorisation as a collective investment scheme involves application fees, ongoing supervisory fees and, more importantly, internal and third-party costs associated with compliance procedures. Although the structure of sukuk may be such that they do not fall within the collective investment scheme regulations, this uncertainty was cited by the Islamic finance industry as a barrier to the issuance in the UK of corporate sukuk.

In December 2008, Her Majesty’s Treasury and the FSA launched a joint consultation into the regulatory treatment of alternative finance investment bonds. Four policy options were identified. Option 1 was to introduce legislative amendments to exempt explicitly these instruments from collective investment scheme regulations and create a new specified investment under the regulated activities order and to introduce a unique regulatory definition of alternative finance investment bonds for this purpose. Option 2 was the same as option 1, but with alternative finance investment bonds being defined by the existing tax definition. Option 3 would be the same as option 1 but would include alternative finance investment bonds under the existing specified investment of creating or acknowledging indebtedness. Option 4 was to do nothing.

HM Treasury proposed that the first of those—to introduce legislative amendments to exempt explicitly these instruments from collective investment scheme regulations and create a new specified investment under the regulated activities order and to introduce a unique regulatory definition of alternative finance investment bonds for this purpose—be taken forward. The 20 responses to the consultation paper showed that there was broad industry support for that course of action. The views of the industry were summarised and the authorities’ feedback given in a second document, published in October 2009. We received three responses to this during a second consultation phase and took these views into account in our further refinement of the statutory instrument. We intend that the legislation will come into force on 24 February so that the legislative changes and the changes to the FSA’s handbook can take effect at the same time.

The effect of the order before the House today will be to make alternative finance investment bonds a specified investment for the purposes of the Financial Services and Markets Act 2000 and to afford them equivalent treatment to conventional bonds. I beg to move.

I thank the Minister for introducing the order. I shall be brief, because this is all that stands between the Lenten Recess and those of us who deal with Treasury business in your Lordships’ House.

My party supports the adaptation of UK regulatory and tax law to accommodate Sharia-compliant instruments. The UK’s financial services industry is famously innovative and has adapted to the demand for Sharia-compliant products. We would not want to stand in the way of that, provided that any costs imposed are proportionate and risks are capable of effective regulatory oversight.

If it is the FSA’s judgment that its regulatory oversight of the relevant products is unimpaired by this reclassification, clearly there is no problem. However, I could not find that clearly stated in the paperwork accompanying the order or in the consultation that preceded it. Perhaps the Minister could today give that confirmation.

The original consultation in December 2008 showed that the FSA had not yet calculated the costs. If the costs of option 1 in that document, which is the solution being put forward in the order, were unavoidable and material, the FSA, it was said, would examine other legislative solutions that would avoid such costs. The document did not say what sort of level was material. The October 2009 summary of responses noted the support for option 1 but was silent as to the FSA’s costs.

The impact assessment for the order shows that the one-off costs for the FSA amount to £175,000. That seems rather a large amount of money to add one specified investment to the FSA’s systems, although in the context of the FSA’s budget of around £300 million it is clearly small beer. Can the Minister say who pays the £175,000? Will it be borne by those who issue relevant bonds or will it be lost in the general pot and therefore be borne more broadly?

Finally, we seem to be dealing with Islamic finance on a piecemeal basis. That may have been appropriate in the past, with low demand and transaction volumes but, if the UK is to capitalise on its strength as a financial centre, is there a case for a wider review of the ways in which the tax and regulatory regimes might be modified further? I have absolutely no idea whether further changes would be desirable and would certainly need the assistance of my noble friend Lord Sheikh on that. I am pleased to see him in his place. However, I want to see the UK being more proactive, rather than reactive, so that we can capture as much of this global business as possible. Perhaps the Minister will comment on that.

My Lords, I shall start where the noble Baroness finished. Just over a couple of years ago, the Prime Minister, then Chancellor, said that it was his aspiration that the City should be the global centre for Islamic finance. As with so many other government initiatives, the Treasury has had—on a charitable viewing—other things to do over the past couple of years. However, the assertion having been made, there has been precious little activity to support it. I strongly support the noble Baroness in putting further impetus behind that aspiration.

As luck would have it, yesterday morning I somewhat improbably found myself at a breakfast seminar on Islamic finance. One of the questions raised was whether the Government were contemplating, or had contemplated, issuing sukuk-compliant orders as a partial way of meeting the deficit. The speakers said that they understood that the issue had been actively considered by the Treasury until a couple of years ago. At that point, it appears, active consideration stopped. Given the size of the market and the strait in which the Government find themselves, it seems to me that having sukuk-compliant products of their own might be an extremely good way of tapping into a market that is currently unaccessed by the Government and their debt office. I would therefore be grateful if the Minister could respond today on that or look further into it. The order seems eminently sensible and we support it.

My Lords, I certainly welcome our increasing involvement in Islamic finance. We have the largest finance industry in the western world and are very keen to promote this. I see us as being the stepping stone into more penetration into Europe. Islamic finance is taken not only by Muslims but by non-Muslims because of its ethical nature and the fact that it is mutual. Therefore, the idea of promoting sukuk is marvellous. There is a large Islamic banking sector here—not only wholesale but retail banks. We are also keen to promote Takaful Islamic insurance because there is a demand for it. I repeat that this change will appeal to Muslims and non-Muslims. If the world had followed Islamic Sharia principles, perhaps we would not have had such a drastic credit crunch. Islamic finance is based more on mutuality, assets and transparency. We need to promote the order and I welcome the Minister’s comments.

My Lords, we believe that alternative finance investment bonds should, as far as possible, be afforded a level playing field with their conventional equivalents. We have said that the aim of the order is to create clarity over the regulatory treatment of corporate sukuk and to reduce potential legal and compliance costs that may have been a barrier to increased issuance. The joint Treasury and FSA consultation concluded that the most appropriate way forward was to introduce legislative amendments to exempt explicitly these instruments from collective investment scheme regulations and to create a new specified investment under the regulated activities order. The FSA estimates that these regulatory changes could reduce overall costs of sukuk issuance by around £35,000 for a sukuk of five years’ duration. The responses that we have received to our consultation have been generally supportive.

The Government believe that the additional cost of around £175,000 to upgrade the FSA’s technology is justified by the increased prospect of corporate sukuk issuance in the UK and related developments in the UK market. We see these as a public benefit for many who will, potentially, be able to access them. The HMRC impact assessment for the amendment of tax legislation on alternative finance investment bonds, published in April 2009, estimated that there will be up to 20 issuances per year under the revised tax and regulatory framework. As the market gains momentum, as the noble Lord, Lord Sheikh, has suggested it could, and London becomes Europe’s centre, we could see a much more active market that will attract the involvement of other agents who have no previous skill or knowledge in this area.

We have dealt with the £175,000. The noble Baroness, Lady Noakes, asked whether FSA assurance on the regulation of alternative finance bonds is appropriate and whether treatment would be the same as for conventional bonds. Alternative investment ensures that economically equivalent instruments are afforded equivalent regulatory treatment. That is to say that sukuk are the same in substance as conventional bonds and accordingly it is appropriate that they should be treated as such. The Treasury and the FSA engage with industry on an ongoing basis to take views about the opportunities and challenges in the area of Islamic finance. In particular, I would welcome an opportunity to discuss this further with the noble Lord, Lord Sheikh.

My Lords, this may display my total ignorance about Islamic finance, but can we be assured that the Islamic finance industry in London treats women in every respect as equal and that there are no discriminatory obstacles to the progress of Islamic finance?

This is a matter on which you would expect the Minister to reply, but if the noble Lord, Lord Sheikh, thinks it appropriate, I would be delighted to hear a contribution from him. I think that there is nothing in the regulations that would in any way prejudice or adversely affect the treatment of people of either gender under the law of this country or under Sharia law. To some extent, that point is slightly off the centre of the rather specific order that we are discussing today.

We have a group that regularly meets to discuss Islamic finance, tax and technical issues and the noble Lord, Lord Sheikh, may wish to share his considerable knowledge in this area with that group. As I said before the noble Baroness on the Cross Benches asked her question, I was much taken by the speech made by the noble Lord, Lord Sheikh, about the importance of the ethical dimension, which the House will know has been lacking in much of our financial sector for some time. He also talked about the concept of mutuality.

Whether the Government will issue in the sukuk market is a matter that we will monitor and continue to keep under assessment. In deciding to date not to issue a sovereign sukuk—it would be reasonable to say that there are no plans at all for an issue to take place in the foreseeable future—the Government took into account the current situation in world financial markets, including the sukuk market, and the fact is that the Government’s debt management policy is doing admirably well, with a range of conventional instruments of a depth of maturities and duration that have been sold through both the tender process and syndications and which are proving to be attractive to investors. I think that I have covered everything that has been raised. I commend the order to the House.

Motion agreed.

EU: Directive on the Protection of Animals Used for Scientific Purposes (EUC Report)

Motion to Take Note

Moved By

That this House takes note of the Report of the European Union Committee on the revision of the EU Directive on the protection of animals used for scientific purposes.

Relevant Document: 22nd Report, Session 2008-09, HL Paper 164.

My Lords, I am pleased that the House has the chance to consider the proposal to revise the EU directive on the protection of animals used for scientific purposes, particularly at a time when discussions are still under way in the European institutions.

The most recent statistical report by the European Commission shows that just over 12 million animals were used in scientific procedures in the 25 member states that made up the European Union in 2005. France, Germany and the United Kingdom were the member states with the highest numbers of animals used, accounting for half of the 12 million. This is not a new state of affairs. In 1986, the European Community adopted the first directive on the protection of animals used for experimental and other scientific purposes. Also in 1986, in the United Kingdom, the Animals (Scientific Procedures) Act was enacted, which put in place the current system of controls in this country regulating scientific work on living animals, as well as implementing the 1986 directive.

In carrying out our inquiry, it was made clear to us that since 1986 the UK has maintained controls which have promoted good standards of animal care and use. However, we were left in no doubt that the 1986 directive has not been implemented consistently across all member states and that the standards achieved in the UK are not replicated in all parts of the EU.

When the European Commission published the proposal in November 2008, it highlighted the following objectives: to strengthen the protection of animals used in scientific procedures; to promote the replacement, reduction and refinement of the scientific use of animals, the so-called three Rs; and to put right the wide variations in the implementation of the 1986 directive, to ensure a level playing field across the EU.

As a committee, we supported those objectives, and we agreed on the need to revise the 1986 directive. Since 1986, there have been developments in science and in the understanding of animal welfare which, after 24 years, should be taken into account in new legislation. The process of revision provides an opportunity to put in place some really effective safeguards, to ensure that the new directive will be implemented consistently across all member states.

We are grateful to all those organisations which sent us evidence or appeared in person and made some very powerful arguments. I should also record our thanks to our special adviser, Dr Jane Smith, who enabled us better to understand a subject of some complexity. I also acknowledge the work of my colleagues on the committee, who ensured that the inquiry into this challenging subject was carried out with vigour and insight. It is right for me to pay tribute to my predecessor, the noble Lord, Lord Sewel, who I see in his place, for whom this inquiry was his swansong as chairman, after guiding the committee through many perceptive and influential inquiries.

In chapter 2 of our report, we deal with a number of general issues, including the proposed extension of the scope of the directive. The proposal of November 2008 was that the directive should apply not only to vertebrate animals, but also to certain classes of invertebrates, including cephalopods, such as octopus and squid, and crustacean decapods, such as crabs, lobsters and shrimp. The arguments for extension of the scope turn on the issue of whether such creatures feel pain and can suffer; that is “sentience”. We concluded that, on the basis of current scientific knowledge about sentience, cephalopods should be included in the directive, but decapods should not.

In the UK, under the 1986 Act, protection is provided to animals from half way through the gestation or incubation period for the relevant species. The November 2008 proposal for a revised directive foresaw extending its scope to embryonic forms of animals from the last third of their normal development; that is, at a later stage than half way. We saw no evidence to suggest that the UK’s approach was unjustified, but in the interests of EU-wide consistency we supported the proposal.

The November 2008 proposal provided that scientific procedures should be classified according to the severity of pain experienced by animals, but it failed to include definitions of the four categories proposed: “up to mild”, “moderate”, “severe” and “non-recovery”. We welcomed the steps which the Commission took to fill that gap. During the course of our inquiry, an EU expert working group made proposals for relevant definitions, which we endorsed. We also made the important point that, regarding the reuse of animals, the provisions needed to be carefully considered to avoid unintended consequences for animal welfare.

As your Lordships would expect, we received a good deal of often conflicting evidence on the issue of the care and accommodation standards proposed. The standards in the EU proposal presented as mandatory requirements had previously been formulated as non-mandatory guidelines by the Council of Europe, but much of the explanatory text accompanying the Council of Europe guidelines had not been included in the EU proposal. We were told that this meant that the resulting provisions of the proposal could be misleading, so we concluded that the some of the text had been “lost in translation” and needed to be restored.

In the face of evidence that the standards proposed for reduced stocking densities for rodents and rabbits would not necessarily offer any measurable benefit for the welfare of animals, we concluded that the timescale for introducing the revised densities should be extended, and in particular we recommended that the timescale for the academic sector to implement the range of new standards should be extended.

In chapter 3, we looked at the use of non-human primates in research. The primates in question are essentially macaque, marmoset or tamarin monkeys. The use of non-human primates accounts for less than 1 per cent of all procedures, but such is the particular concern of the general public that this is an important area. In the UK, the use of non-human primates is already more tightly controlled than the use of other animals. It is authorised by the Home Office only if there is sufficient justification, if there is no alternative, and if purpose-bred animals are used.

The Commission's proposal of November 2008 provided that all use of great apes—such as gorillas, orangutans, and chimpanzees—should be prohibited. This is already the case in the UK. However, going beyond that, it also proposed that the use of other non-human primates should be limited to research related to,

“life-threatening or debilitating conditions in human beings”.

Again, our witnesses were divided on the justification for that additional limitation. Representatives of the pharmaceutical industry said that, in stipulating that research could be justified only if it related to a specific disease, the additional limitation appeared to show a misunderstanding of the way in which research operated. Conversely, witnesses from animal protection organisations argued that special provisions were appropriate, and that progress needed to be made towards phasing out the use of non-human primates altogether.

Evidence from the European Commission suggested that, in practice, the proposed limitation could be applied less restrictively than was feared by the pharmaceutical industry—allowing the use of non-human primates for research into infertility, for example.

In the light of that evidence, we concluded that the proposed limitation struck the right balance between animal welfare and scientific research. We recognised that it could be helpful to clarify the wording of the limitation to make its range of application clearer, but we stood clearly by the desirability of placing tighter limits on the use of non-human primates than on other species.

The November 2008 proposal also contained provisions aimed at limiting the use of non-human primates to the offspring of animals bred in captivity—so-called F2 animals. The proposal specified deadlines, varying according to species, after which only F2 animals could be used.

Here again, as your Lordships would expect, there was a sharp division of views. Representatives of the RSPCA, for example, stressed the power of deadlines for bringing about changes in industry practice, citing experience with the cosmetics directive, which meant that from March 2009 no animal testing of cosmetics was allowed in the European Union. Conversely, witnesses from the pharmaceutical industry and the research community questioned the animal welfare benefits of the F2-only policy, and underlined the practical difficulties of moving to self-sustaining F2 colonies over a relatively short timescale. We supported the aspiration of restricting use of non-human primates to F2 animals, but we recommended that the feasibility of the time limits proposed for each species should be reviewed for practicability.

In chapter 4, we looked at some generic procedural aspects of the 2008 proposal. The first relates to sharing of data from the use of animals in scientific procedures. Two types of data were in the Commission's sights. The first was data from tests required under Community legislation. We agreed with many of our witnesses that mutual acceptance between member states of such data is highly desirable. The second was information generated by scientific procedures conducted more generally for both academic and commercial research. We heard the concerns of the pharmaceutical industry and the research community and, in the absence of cogent evidence of widespread duplication of procedures, we made it clear that we too had reservations about the proposal for sharing the second type of data.

However, most of chapter 4 relates to the authorisation of scientific procedures using animals. In broad terms, the November 2008 proposal provided that authorisation arrangements similar to those in place in the UK should apply across the EU. We were therefore interested to hear comments from our witnesses on the effectiveness of the UK control regime. We were not persuaded by the concern expressed by representatives of the pharmaceutical industry and research community that, although high standards of animal welfare in the UK had been achieved and should be maintained, the operation of the UK system of controls was slower and more complex than elsewhere. Not only the Home Office but other witnesses pointed to publicly available information that, for applications under the 1986 Act, the evidence did not chime with claims of tardiness. In fact, 85 per cent of project licence applications were awarded in 35 days, with an average of 18 days.

For us, however, the most important consideration is to ensure that the system of authorisation set out in the proposed revision of the directive should be effectively and consistently implemented across the EU. We were concerned to hear that negotiations on the proposal under the Swedish presidency might allow for the concept of tacit approval of certain procedures. In the UK, all procedures have to be authorised under the 1986 Act. Tacit approval, on the other hand, might allow procedures to go ahead without specific reference to the regulatory body concerned. We made it clear that we were opposed to any such change to the proposal, and we have been reassured to hear from the Government that the concept of tacit approval is not being taken forward.

Finally, I come to what we regard as the central issue: the measures proposed to ensure effective and consistent implementation. Member states will have primary responsibility for implementing the requirements for the authorisation of scientific procedures. They had that responsibility under the 1986 directive, but the significant differences in the way in which the 1986 directive has been implemented in practice make a prima facie case for increasing the pressure on member states to act fully on that responsibility.

The November 2008 proposal provided that member states should carry out two inspections of relevant sites each year, and that the Commission would monitor national inspection arrangements. When the European Parliament gave a First Reading to the proposal in May 2009, it agreed amendments to oblige the Commission to undertake controls of the infrastructure and operation of national inspections. In our report, we voiced firm support for all those provisions. We are deeply concerned that the tendency of negotiations on the proposal during the latter months of the Swedish presidency has been to weaken them by reducing the required frequency of national inspections, and by limiting the monitoring role of the Commission.

The committee supports the objectives which the Commission says that a new directive should serve: strengthened protection for animals in scientific procedures and, importantly, a level playing field across the EU. However, if the new directive does not contain effective safeguards to ensure consistent implementation, animal welfare standards will vary, and different member states will require those involved in the use of animals in research to expend different degrees of effort. We hope that this will not be the case, and we look to those involved in the current negotiations—in particular, the UK Government—to ensure that they take the opportunity of agreeing the new directive to secure high standards of animal welfare across the EU and, most importantly, at the same time place all concerned on an equal footing.

My Lords, I join Her Majesty's Government in welcoming the House of Lords EU Select Committee report and its findings. In doing so, I declare several interests. I have a long-term interest in the protection of animals. I held a Home Office licence from 1950 until my retirement from the university. I have been a member of the Animal Procedures Committee of the Home Office and I am currently a patron of the Fund for the Replacement of Animals in Medical Experiments, otherwise known as FRAME.

Over the past 50 years or so, the United Kingdom has been in the lead in laboratory animal practice legislation, development and welfare. Many years ago, it was well recognised that good welfare for laboratory animals equated with good science, good research and reliable results that were important in understanding and treating diseases of man and animals. Some countries have been slow to adopt laboratory animal regulation believing that it would be prejudicial to biological research in general and to the development of biological research. An example is the United States of America where, until relatively recently, there was strong opposition to the regulation of laboratory animal work. It was only in the 1960s that federal regulations and financing projected laboratory animal welfare on a federal scale. In 1981, the Johns Hopkins Center for Alternatives to Animal Testing—CAAT—was established. It gave strong impetus to the production of federal regulations.

In the United Kingdom, there are three main stages governing laboratory animal work. First, an institution needs to have a certificate of designation; secondly, there is a project licence in which a research worker or group details the work to be done and which is approved by the Home Office inspectorate; and, thirdly there is a personal licence for the individual to undertake the research. Each institution must also have a named veterinary surgeon who advises on standards of animal health and welfare and on experimental technology and may assist in certain surgical procedures and the rest. In addition, each establishment is required to have a permanent, independent ethical review committee whose duty is to review proposals for a project licence and to promote the three Rs—reduction, refinement and replacement—which I shall come to later.

An important strength of the United Kingdom system is the inspectorate. It currently consists of 27 full-time professionals, of whom 25 are veterinarians and two are medically qualified. There are approximately 200 establishments in the United Kingdom where animal research is conducted, and the inspectorate undertakes about 2,000 visits a year. Apart from its inspectoral duties, it also plays an important advisory role, and many of its members are specialists in given fields and may be called upon to advise on issues of physiology, pathology and sentience, for example. It is important that the inspectorate be maintained as well as the professionalism of its members. The inspectorate has recently been audited under the Hampton principles of better regulation, and the auditors’ report praises it for the strong advisory role it plays in supporting the science community while assuring high standards of animal welfare.

It is therefore disappointing that the proposed EU directive considerably reduces the role of a professional inspectorate, under pressure, I believe, from other member states that currently have no inspectorate, a much less focused inspectorate or a less professional inspectorate. The proposed directive does not require inspectors to be veterinarians or medically qualified persons. An indication that the United Kingdom takes this issue seriously is the fact that the Royal College of Veterinary Surgeons has recognised certificate and diploma qualifications in laboratory animal science that are required for appointment as a named veterinary surgeon in an institution. Furthermore, several veterinary faculties in this country have specific courses on laboratory animal welfare in preparation for those who might serve in various capacities up and down the country.

I have mentioned the promotion of the three Rs, the concept of which was introduced by Russell and Burch in 1959 in the seminal publication, Principles of Humane Experimental Techniques. This was a landmark publication, and the concept has spread globally. There has always been a need for research to advance the three Rs. Initially, any work to advance them was almost a secondary issue for the Home Office committee, although they were considered a better way to undertake research and investigation.

In 2003, the House of Lords committee that dealt with laboratory animals proposed a national centre for the three Rs, which was established; the noble Lord, Lord Turnberg, was its first chairman from 2004 to 2007. The important point about the centre was that specific provision was made for funds to be provided to advance the three Rs in all their aspects. This has made an important difference to the development of the three-R concept.

Another important issue in laboratory animal work is public confidence. The committee took evidence on animal welfare, on the care taken in research and on secrecy about what research was being done. Its report in 2003 indicated that research work should be published, at least in summary. This is now done and will, I hope, allay the fear that so much is done in secrecy. Of course a degree of confidentiality must be maintained by, for example, pharmaceutical companies, but it is necessary to assuage the charge of secrecy that is often levelled at the Home Office and the research establishment, and the numbers and the work that is undertaken by research workers are published regularly.

The advisory Animal Procedures Committee and the new centre for the three Rs will do much to determine the extent of the need to study the sentience of laboratory animals in more detail. Sentience issues for a number of species have been referred to already this afternoon, and this is where the three Rs will take particular effect. We have heard that cephalopods, such as the octopus, are now included as protected animals in United Kingdom legislation. It took several meetings of the Home Office advisory committee to reach this conclusion, and much evidence was given by physiologists and people connected with pain transmission and sentience before it did so.

Although other invertebrates are not included at this time, as physiological sciences advance in the coming years, other animals, such as decapods, might be added to the list of protected animals. I am informed that although cephalopods are now protected animals and can be used in experimental work, very few, if any, have been used so far. The animals whose sentience is also under question are the foetal forms of non-human vertebrates, which are now included and are protected species. Given the three-R situation and the fact that the committee is allocating funds, it is likely that we will go ahead and will have a much firmer basis for study.

In conclusion, I welcome the report and the directive should be implemented. I hope that it will be consistent across the member states and that laboratory animals are used across what is often called a level playing field.

My Lords, I declare an interest in so far that my wife is employed by a university where research is conducted on animals, although she does not do that herself—except on me. I thank my noble friend Lord Carter of Coles for his generous comments. I should let him into the secret that you should make sure that you have enormously able Clerks and committee specialists behind you. In that, I was enormously fortunate. I have many happy memories of my time as chair of the sub-committee. Perhaps my most fond memory is of the refreshment—a Scottish term—that unfailingly appeared, thanks to the noble Earl, Lord Arran, when we went to Brussels. We had a wonderful refreshment to accompany our rather dry sandwiches.

The case for a new directive boils down to one simple argument; namely, that the old one failed. It failed because it was inconsistently applied across the EU. In judging the proposed new directive, the criterion must be whether it meets the test of being able to ensure consistent application across the EU. I wish to concentrate on two areas, authorisation and inspection.

Authorisation has two basic legs—ethical reviews and prior authorisation. Great emphasis rightly has been placed on ethical reviews, but ethical reviews in themselves cannot carry the whole burden of authorisation. There needs to be prior authorisation in order to get full and proper scrutiny of the details of the projects being considered. As my noble friend Lord Carter indicated, during the passage of the evidence that we took, we were particularly concerned that there was a weakening—a dilution—of prior authorisation, with the idea of tacit approval gaining currency. Fortunately, that has been rejected, but quite rightly.

However, it has been replaced by something which I understand is called simplified administrative processes. I have a concern when I read about such things in this context. Obviously, one wants the most simple administrative process available. But is it possible that we are opening the door to the very thing on which we tried to close it; namely, that by simplified administrative processes, inconsistent application will be allowed to rear its ugly head again? That is my concern. It is not necessary or inevitable, but we should be concerned about it and look at it. The test will be to ask when the simplified administrative process becomes an inconsistent application. We need to be alive to that issue.

As my noble friend has already indicated, the original text allowed or required two inspections at each establishment a year. It is quite worrying that that was viewed by many member states as being too onerous, too resource-intensive and too prescriptive. It is difficult to see how you can have an effective inspection regime unless there is a minimum requirement for the number of inspections that will be carried out and a number of inspections are carried out on an unannounced basis. That is fundamental and I am concerned that we seem to be moving away from it by introducing the concept of a risk-based approach. Again, that is something which needs a little more definition and a little more flexibility left in the hands of the domestic operators, if I may put it that way.

The most worrying thing of all is that the number of inspections, in terms of the proportion of unannounced inspections, is described as “appropriate”. We all know that “appropriate” is one of the principal weasel words in the administrative lexicon. Can the Minister confirm that zero could be an appropriate proportion in some cases? If so, that is worrying. I am afraid that there is a need for a degree of specificity that the directive fails to deliver.

I turn now to the role of the Commission itself. It has a fundamental role to play in ensuring that although the enforcement processes and mechanisms are the responsibility of member states, to put it bluntly, the Commission ought to be making sure that they do the job by checking that there is an effective regime in place on the ground. During the latter part of the discussions under the Swedish presidency, that was significantly weakened. The amendment from the European Parliament quite rightly would have obliged rather than merely permitted the Commission to undertake control of the monitoring of national inspections throughout the member states, but it has not been adopted. Instead, the Commission will be under an obligation to carry out controls where there is reason for concern. Again, this is a slight weakening of the position. Given the fact that the Commission sees its role as one that ought to be resource neutral—so no more resources are going to be put into this activity—it is difficult to see how the Commission will play a stronger role now than it did in the past, yet in many ways it was the failure of the Commission to play an effective role that lay at the heart of the failure of the 1986 directive.

I make no apology for concentrating at some length on these two points because this is a fundamental issue that lies at the heart of whether the new directive will be as effective as we want. The rest of the detail set out in the draft directive is perfectly acceptable and commands general support but, in these two areas and particularly on inspection, there is a real concern that the very objective of trying to remove inconsistent application will actually bring it back into the system, and therefore the strength and justification for the directive will be fatally undermined.

In closing, I should say that this is not important only to this particular draft directive. It has a more general application throughout the EU. That is because what undermines confidence in the EU among its citizens is when it becomes clear that directives are being implemented in wholly inconsistent ways across the Union. That leads to scepticism and cynicism which undermines the very Union itself. The answer must be for a greater role for the Commission. I understand that some member states may not welcome that, but in this context it is worrying that the Commission itself does not wish to seize the challenge.

My Lords, I thank the noble Lord, Lord Sewel, who has said much of what I was going to say and has got right to the kernel of what the directive is about. I also thank him for the wonderful way in which he chaired the committee. Although we were considering a serious and interesting subject, we did, as he rightly said, have a little bit of fun as well which made the work all the more pleasurable. I also thank all those who helped us. I am grateful for what the noble Lord, Lord Carter of Coles, said, and I echo his thanks for the work of our special adviser and support team.

I look forward to the day—I cannot see it in the foreseeable future but I hope it will come—when we do not have to carry out experiments on animals. In the mean time, while that work is necessary, we owe it to animals to keep them in the best conditions and to inflict on them the least possible suffering and stress. The committee set out on its inspection of the directive with the high hope that this would be the result of what the Commission proposed.

The noble Lord, Lord Soulsby of Swaffham Prior, gave a detailed account of the UK procedures. We are wonderfully blessed in this House that we have experts such as the noble Lord. He will recall the Select Committee on Animals in Scientific Procedures, on which he sat in 2001-02. I should like to draw the Minister’s attention to some of the matters contained in that Select Committee’s report, and I would like him to contrast, as I have, what the noble Lord, Lord Soulsby, said about the UK procedures and what is happening overseas.

Not much has changed since the report was published on 16 July 2002. I draw the Minister’s attention to the evidence that the committee took in France. On page 61, the report states:

“Not all inspectors were trained in laboratory animal science, and those that were had only taken the same 15 day course as potential personal licence holders”.

That is a marked difference to what happens in the UK. On page 14, in paragraph 1.27—again this relates to France—the report states:

“We were told that this makes the enforcement of care and welfare standards difficult. The Veterinary Inspectors considered that the system was essentially based on trust”.

As the noble Lord, Lord Sewel, said, the directive was proposed because the 1986 directive failed.

In arriving at its proposals the Commission took a great deal of evidence. I refer the Minister to the evidence that our committee took from Susanna Louhimies, who is policy officer at the Directorate-General Environment, European Commission, on Wednesday, 3 June last year. I draw his attention in particular to question 10, which was asked by the noble Lord, Lord Sewel, and concerned the need to have a sufficiently rigorous and robust inspection regime. Ms Louhimies replied:

“The Commission is ambitious but we have to say that we based our proposal exactly on the results of the Technical Expert Working Group, which was agreed with the Member States”.

She went on to say:

“The recommendation from that working group was to have two-yearly inspections covering not only the user establishment but, also, breeding and supplying establishments, and have one of those inspections unannounced. That, it was felt, would give enough security and assurance”.

With that evidence, why has the UK changed its position? What is the Home Office up to? The proposed directive will not be worth the paper that it is written on. The only country to implement it will be the UK. The Home Office has not gold-plated this directive as it did the 1986 directive, and there is clear evidence that it is being less bureaucratic, for which I am grateful, but there is no doubt that the continuing stress and suffering of animals will be at varying levels throughout Europe. That cannot be seriously challenged. Why did Meg Hillier, the Parliamentary Under-Secretary of State, permit the UK to resile from the original text of Article 33 and go to a risk-based approach? That is a severe backward step which compromises the whole directive.

There are many good things in the directive—of course the law needs updating, and there needs to be flexibility for the future, as the noble Lord, Lord Soulsby, said—but if the Minister takes away nothing else from today’s debate, he must take away the certainty that this directive will fail if the UK does not take a much stronger view and support the Commission. I do not expect the UK Government to support the European Parliament in its amendment, as I would, but they should at least go back to the original text of Article 33, because without that, this is all just a load of rubbish.

My Lords, I declare an interest in that I have held an animal-operating licence in various guises since 1970. I have about 40 years’ experience of being an animal researcher in various university circumstances, in the United Kingdom, to some extent in Europe—where I worked in Belgium—and, most recently, in California in the United States, where I still conduct animal research.

Having read the report last night—I offer my congratulations to the committee and its chairman on the common sense in it and on how it has been laid out—I decided to go through my own curriculum vitae and look at the number of my publications which were purely animal-based concerns in peer-review journals. There are more than 100 publications of research which I believe could not have been done without the use of animals. While we support reduction and refinement, one has to say that reduction is only reduction. Perhaps unlike the noble Earl, Lord Caithness, who expressed worthy thoughts, I do not believe that we will ever find it very easy to abolish animal research completely. Those are great sentiments, but it is not the case in practice.

It has been interesting to make a list of the research that I have been involved with. For example, the research that we did on foetal lung development in premature infants, using a rat model, was crucial to understanding lung development; it could not have been done in humans. Some of the work done in contraception was benign work in rabbits. Fertility and IVF were largely animal research-based projects which could not have been done with a human egg. Work on ovarian function and the infections caused by chlamydia, which I have done in the United States, and refinements of pelvic surgery could not be done in human subjects; it had to be done in animals first. Ageing and the genes which affect it are much easier to study in the mouse model, but very difficult to study in the human. The same goes for gene expression in human development. Screening for fatal genetic diseases to prevent children dying of them essentially had to be done in animal models first of all. Xenotransplantation may offer great hope for transplantation in the future—it is worth bearing in mind that, every 15 minutes, somebody is put on a waiting list for an organ transplant. The idea of being able to use animals of human size for transplantation must be a humane endeavour.

One reason why I mention this is because the report points out that the breeding and killing of animals for their organs should not be part of a licence. I agree with that completely. It seems to me that it is essentially no different ethically from eating animals for dietary purposes, and if one is to use animals at all for farming one might be better off using them for their organs to save human lives.

Finally, I mention the work that Carol Readhead and I have done on humanised organs, which might make it easier to develop drugs that are not going to fatally attack the human immune system, as happened in Northwick Park hospital two or three years ago.

On reduction, which the report refers to, one should point out that there is likely to be, and perhaps there should be, a continued rise in the number of animals used, particularly of the mouse model. There is no question that if one looked at all the biological developments in the past 30 or 40 years, at least in my view, the human genome sequencing is really quite trivial compared with understanding how genes work. That was made possible only by the use of mouse transgenic models, whereby we can either remove or replace genes or make their expression inactive in various mouse models. That has been perhaps the most colossal development in biology in the whole of my lifetime as a medic, researcher and scientist. It seems inevitable that this work will continue to be important. It is worth bearing in mind that human children’s lives have been saved from leukaemia and that cancer victims are saved as a result of using transgenic models. It is likely in future that more and more drugs will be needed to try to prevent different types of cancer and prolong lives in cancer victims. Some 40 per cent of us will eventually develop cancer and it is possible in future that we may live longer and almost normal lives with cancer, like diabetics. But that is likely to be possible only if we can continue to use the mouse model and similar models to develop those drugs. This is something that we have to bear in mind when we talk about reduction, as we do in this report.

The report also focuses on the use of primates. While all of us agree that there are massive ethical problems in dealing with non-human primates in research, there is no doubt that the continuing use of non-human primates in specific experiments is very desirable indeed. There are two examples that I would give. First, in the field of neuroscience, many of these things are quite benign, and the witnesses who sometimes spoke against the use of primates in the report did not quite do justice to the full scope of experimental procedures—particularly single-neuron recording, which cannot be done easily in the human but provides very useful evidence in animal models and is likely to be of extreme in the use of the rhesus macaque, which is a common non-human primate source.

Secondly, recently I made a visit to Singapore, which is rather different in its use of primates from most other developed countries, where there are quite large primate colonies, some of which are bred using F2 animals and some of which are brought in from other Asian countries. One of the most interesting and important aspects of the research in Singapore is the development not of genetics but the new field of epigenetics—how gene expression and gene working is changed by early developmental and environmental changes. That will be a very important area for human medicine in the next 10 or 20 years. If that sort of work were abandoned and we could not observe primates having a regulated diet or other environmental influences during early development, it would be a serious drawback to the pursuit of good human medicine.

The human genome on its own is useless, unless we understand the function of the genes within the genone, which will require huge investment in epigenetics. That is something that cannot just be done in humans because we cannot regulate the environment in a controlled way, as we can in a rhesus monkey. There is no question that the work in Singapore means that the Singaporean people, along with many interested people from Canada, America and New Zealand as well as British workers, because of those colonies, will lead in that field. It does not matter who leads in the field—I am not suggesting being in competition here—but it is important to understand that this work has a fundamental importance in pursuing the best human health under all circumstances, particularly for our children in future.

I want briefly to draw attention to data sharing. Dr Mark Walport told the committee that, in his view, data sharing would not reduce the suffering of animals, nor would it increase transparency—and Mark Walport, who is an absolutely honourable and honest scientist, is right to say that. It is worth bearing in mind that science is not black and white. We often think of science as portraying the truth, yet it is possible to do two experiments with diametrically opposing results but for both experiments in those cases to have valid results, which we can learn from. It would be ludicrous to suggest that we start taking action as a result of one or two experiments. Experiments always need to be replicated if we are to make sure that we get the best and safest information, particularly when it comes to human health.

Another issue that was briefly referred to is that of changing an experiment and its protocols during its course, because new data have come up. That has been a particularly difficult issue for human researchers and I hope that, with the Home Office, we can find ways to make sure that it is possible to modify an experiment more easily during its progress. Otherwise, I fear that the use of animals will become more prolific rather than less.

Finally, I mentioned that some of my work has been done—and is still being done—in the United States. Here, we are of course looking at a European directive, but it is very interesting to look at the animal research at, for example, the California Institute of Technology in Pasadena. It is interesting that it is actually much easier to get a licence or an authorisation to do work there. Certainly, my impression is that, if anything, animals are treated with absolute humanity in that establishment. It is highly effective, and what is also impressive about American institutions is the quality of the environment in which animals are kept and in which research is done. We could do well not merely to look in the rest of Europe, but to consider particularly what is happening across the Atlantic in the United States.

My Lords, I, too, congratulate the noble Lord, Lord Sewel, on chairing our committee so very ably, and I thank him for his generous remarks about me as a barman in Brussels. It is always a great privilege to serve on one of your Lordships’ Select Committees, since our discussions frequently touch upon issues in which the public have a very considerable interest. Today is no exception.

Opinion polls suggest that a majority of people in Britain are conditional accepters of animal experimentation for medical purposes—that is, they can accept at least some forms of animal research, provided that there is no unnecessary suffering and/or that no alternative will do. It is very clear that people place importance on avoiding the use of animals where possible, with a majority of those polled—70 per cent in the most recent survey—also agreeing that there needs to be more research into alternatives. Clearly, it would be wrong to carry out an animal experiment if another method, not using animals, could achieve the goal. That ethical imperative is recognised in both the UK and EU laws, which prohibit the use of laboratory animals if another method is available. Yet what if another method has not yet been identified or developed? How can we enhance progress in finding substitutes for the use of animals?

One key aim in revising the EU directive on the use of animals for scientific purposes is to promote,

“the development … and implementation of alternative methods”.

Those methods span all the three Rs, namely: the reduction, refinement and replacement of animal use. The Commission has shown ambition in asserting that,

“the ultimate goal should be to replace the use of animal experiments altogether”,

but is also realistic in its view that,

“with current knowledge a complete phase out of animal experimentation is not yet achievable”.

As witnesses called to our inquiry emphasised, future progress will need to capitalise on new technologies such as tissue engineering, advances in computer technology, non-invasive imaging techniques and understanding of gene function, to name but a few. Identifying, adapting and bringing new approaches on stream will in large part depend on the proactive efforts of researchers themselves. The scientific challenges should not be underestimated. Further progress will require lateral thinking, bringing a wide range of expertise to bear.

For this reason we took the view that the Commission’s initial proposal that each member state should set up a national reference laboratory for the validation of alternatives would not provide the required impetus towards reducing the use of laboratory animals across the EU. It is unlikely that a single centralised laboratory can provide the breadth of scientific experience upon which any further progress will depend. More fundamentally, a focus on validation ignores the need to develop new methods in the first place. Instead, we were persuaded that a system of national centres across the EU would be a better approach, each working as a forum, aiming, like the UK national centre 3Rs, to bring together a wide range of experts and other interests to explore the potential of new technologies to reduce the use of animals; to think creatively about potential new approaches; and to serve as a source of inspiration and information about alternatives.

Since our report was published, the requirement for national reference laboratories has been removed from the draft directive. In the current draft, Commission and member states will be required to contribute to the development and validation of alternative approaches, the Commission to consult member states in setting priorities for validation studies, and member states to assist the Commission in placing validation studies in suitable laboratories. There will also be a Community reference laboratory covering all 3Rs.

It is my hope that these provisions will lay the foundation for an overarching strategic approach to the development of non-animal methods across the EU, which ultimately will help further to reduce the need to use animals in scientific research and testing. I noted very carefully the wise and experienced words of the noble Lord, Lord Winston, but I hope and think he will agree that it is most important that science and society continue to concentrate on this highly sensitive issue.

My Lords, when it fell to me to respond to this debate from these Benches, I felt that I was once again dipping my toe into traditionally choppy waters in which I had never thrashed before. However, I was rather relieved when I started to prepare for the debate, because the basic principle that research on animals should be kept to a minimum and carried out as humanely as possible seemed to run through the report and the responses to it. The concepts that you should not do anything more often than you need to and should avoid duplicating experiments ran through the report and reassured me as I read it. I think that theme has been reiterated by everybody who has spoken. Having said that, the noble Lord, Lord Winston, rightly asked what the minimum standard would be and how much of this you have to do at any one time. We do not know. As regards scientific research, sometimes we do not know what we do not know. We have to carry on working. Because something has worked once, it may work better next time. The need for expertise and a revaluation of evidence was at the centre of what the noble Lord said. However, I still felt that data sharing may well cut this over time. The idea of looking at that to make sure that we can reduce testing over time, as the number of models and the base of knowledge are increased, can be taken on.

I considered the interesting definition under which certain types of seafood are included or not included, and my attitude to crustaceans and octopuses. We went through the report discussing the various types of procedure. I can understand how people would find distressing the acceptance of the various types of suffering that an animal must undergo in certain types of experiment. I should be reassured if the Minister stated the Government’s attitude towards reuse and said that they would give as much support as they could to the idea that an animal should not have to suffer at any level more than once. That would make me feel a little more comfortable about what is said in the report about continuing experimentation.

There is not too much that we disagree with on care and accommodation standards. Whether the use of non-human primates, which is more distressing, is logical or not, I do not know. I would enhance the position that work on primates should be looked at very closely. As the noble Earl, Lord Arran, has said, the idea of what is acceptable to society must go hand in glove with scientific evidence.

However, I find myself in total agreement with the noble Lord, Lord Sewel, on authorisation and enforcement. Unless you are going to be rigorous about the directive and enforce it, there is no point in having directives. Unless the Community is prepared, at whatever level of direction you do it from, to be slightly irritating to people or very intrusive, there is no point in having these directives. Unless we have some standards across the Community, there is not much point in having the Community. Unless we are prepared to interfere and occasionally cause trouble, there is no point in being there. This is a bit like health and safety—everyone thinks that there is too much of it until it is their son on the scaffolding. Unless we try to ensure that these standards can be enforced and the Government give their full weight behind making sure that they are enforced, and that inspection takes place at realistic intervals to make sure that those undertaking experimentation have a realistic idea that there will be control and punishment if they do not conform to a standard, there is no point in having the standards.

I should be very interested in what the Minister says on that for the simple reason that, unless there is enforcement, it does not really matter what we put down in any form of legislation. We have to be prepared to annoy people sometimes.

My Lords, I congratulate the noble Lord, Lord Carter of Coles, on securing this debate so promptly after the report was issued. Unlike the noble Lord, Lord Addington, I should perhaps declare an interest in this subject. When I was comparatively green in your Lordships’ House, I sat on the Select Committee on the late Lord Halsbury’s second Private Member’s Bill, entitled the Laboratory Animals Protection Bill. I should also perhaps declare a non-interest in that my daughter is a junior lecturer at Sheffield University, working in the cancer lab. It will perhaps be instructive for this debate if I say that, as she had neither training in laboratory animals nor, unlike my noble friend Lord Soulsby and the noble Lord, Lord Winston, a licence from the Home Office, she had to get someone else to pursue her PhD research.

At first blush, it may seem a surprise that responsibility for consideration of the subject, and therefore of the report, falls to the Home Office. However, I quickly reminded myself that the Animals (Scientific Procedures) Act 1986 was a Home Office creature, as was its predecessor by 110 years, the Cruelty to Animals Act 1876—the first law passed anywhere in the world aimed at regulating animal testing. This country should be proud of that. However, given the subsequent changes in ministerial responsibilities, it remains surprising that the Home Office is still the sponsoring department.

Leaving that aside, it is legitimate to reflect that the United Kingdom has led the world in legislation that promotes and protects animal welfare. I tell my noble friend Lord Arran that we spent a lot of time investigating mathematical techniques, with a view to the ultimate abolition of animal testing. We came to the conclusion that we could not envisage such a thing happening. That may please certain noble and scientific Lords who have spoken this afternoon.

The 1986 Act was designed to implement an EC directive that harmonised measures to regulate any experimental or scientific procedure applied to a “protected animal”. As the noble Lords, Lord Carter and Lord Sewel, told us, the harmonisation has not been realised. It was intended to set a common minimum standard across the Community, and it is arguable—indeed, I do argue, and I hope that noble Lords will agree—that our 1986 Act went further than was strictly required by the Commission.

We are now confronted with proposals to update the 1986 rules. I congratulate your Lordships' European Union Sub-Committee D on giving such close scrutiny to the European Commission's proposed revision of the 1986 directive. I agree that the changes in scientific methods and understanding in the past 20 years mean that the rules on animal experimentation are due for an overhaul. I also agree that the exercise should be a levelling-up, as the noble Lord, Lord Winston, reminded us, rather than a search for the lowest common denominator, and that the high standards achieved and observed in the UK should not be diluted. Therefore, I have no objection to a process that seeks to raise standards across the EU to create a level playing field.

As I have indicated, there is a long-standing acceptance in this country that the testing of animals is regrettably necessary to help advance our understanding and treatment of diseases, but also that it must be conducted in as humane a manner as we are able to achieve. Unless we have a common approach to protecting animals used for scientific procedures, there is a risk that the good practices espoused in this country may be undermined if research is simply transferred elsewhere in the EU to places with less stringent standards. The question that my noble friend Lord Caithness put into my mind, therefore, is: what would be our legal position if our arrangements in this area went further than the directive? Are we likely to be taken before the European Court? I cannot understand how harmonisation will be achieved without a central EU inspectorate. I hope that the Minister will tell us how the Government reached their conclusion.

The draft revised directive is a step forward from the original proposals, and I am heartened to see in the Government's response to the report of your Lordships' sub-committee that the positions espoused by the directive, held by the Government and advocated by the sub-committee are becoming aligned. Some of the more objectionable measures have been reined in. For example, the idea that projects that should be subject to prior authorisation might be permitted by,

“tacit approval instead of authorisation”,

has been dropped. I welcome that step. Ideally, when implementing the changes in the directive, administrative burdens should be kept to a minimum, and those that are imposed must be justified by a gain in animal welfare. This must be the right approach.

As we have heard this afternoon, the sub-committee and the Government both support the promotion of the three Rs—the replacement, reduction and refinement of the scientific use of animals—and so do we on these Benches. The updating of animal welfare legislation is necessary as scientific procedures and our understanding of the physiology of animals advance. It is my hope that, by taking into account such advances when we put these rules in place, we are increasingly able to reduce the need for animal experimentation. An example of this responsiveness can be seen in the inclusion of new categories of protected animals.

That said, I am curious to know why, in the list of protected animals, decapods are excluded but cyclostomes are to be included. Decapods include creatures such as lobsters and crabs, which I am well aware can meet an unfortunate, if sudden, end in restaurants, but is it proven that they feel less pain than cyclostomes? Indeed, do they feel any pain? Our researches all those years ago on the late Earl’s Bill concluded that fish, including hagfish, did not feel pain That was accepted by the scientific community at the time, so what has changed since, or perhaps what scientific physiological progress have I missed in the intervening 30 years? I cannot be so certain that the absence of a sense of pain is true of cephalopods, such as the octopus, which are also included in the list. I may be incorrect in that assessment but it is an interesting distinction none the less, and I should be grateful if the Minister could enlighten me further.

My major concern with the directive, which the sub-committee has highlighted and which I do not think has been adequately dealt with in the government response, is how any future changes to the control regime in the directive will be made. If new scientific understanding emerges that necessitates protection being extended to other categories of animals, how will this be effected? The Government admit in their response to the sub-committee’s report that comitology will not allow changes to an essential element of the directive, but that the Government will,

“explore further whether this might be achievable”.

Can the Minister please elaborate on what the Government have done, or intend to do, to allow flexibility into the system where it would plainly be beneficial?

I was the Whip on the Bench in 1985 when my noble friend Lord Glenarthur introduced the Animals (Scientific Procedures) Bill to your Lordships’ House. I was struck then, as I am reminded now, of a dictum of the RSPCA, which as long ago as 1980 observed in a written response to the late Lord Halsbury’s Private Member’s Bill that the aim of any new legislation should be to provide a comprehensive system of control which can easily be interpreted, is readily applied and is applicable to current animal usage. I believe that that is what we should be striving for in applying any changes to the directive, and I congratulate noble Lords on the sub-committee who have sought to untangle the provisions of the updated directive and officials who have evidently worked hard to make sure that the standards that are to be applied across Europe will rise to meet the high standards of animal welfare that we expect of our scientists here. I therefore concur with the sub-committee that this new directive should now be agreed and implemented effectively.

My Lords, I am also extremely grateful to my noble friend Lord Carter of Coles; to his predecessor as chairman of EU Sub-Committee D, my noble friend Lord Sewel; and to all the Clerks and members for the committee’s very well balanced and perceptive report and for organising this debate. I am also grateful to all noble Lords who spoke, many of whom have a very detailed knowledge across this area. I mention, in particular, the noble Lord, Lord Soulsby, who seems to have been working in this field for some 60 years and has a remarkable depth of knowledge. Rather like the noble Lord, Lord Addington, I feel that I am dipping my toe into something that is a little tricky. I am no deep expert in this area, although I have a team who brief me very well. However, at least when the cephalopods were mentioned, I felt that I was getting a little closer to salt water and was a little more at home than I would otherwise have been.

On cephalopods, decapods and so on, the noble Lord, Lord Skelmersdale, asked me a specific question about pain and what research had been done. Perhaps I can get back to him in writing, as it might take a long time to answer him now.

Science and animal welfare have progressed significantly since 1986, as a number of speakers have mentioned, and no doubt a revision of the directive on the protection of laboratory animals is overdue. I share the view of the noble Lord, Lord Skelmersdale, that since 1876 we have led the world on issues of animal welfare. In this country, we have nothing to be ashamed of on that aspect. We have, quite rightly, put in a huge effort and that reflects what we expect.

Despite the progress on developing alternatives, animal use continues to be necessary to develop improvements in healthcare and in protecting man and the environment. The National Health Service could not function without treatments developed through research using animals. Almost every form of modern medical treatment has relied, in part, on animal use, as was so eloquently and clearly articulated by my noble friend Lord Winston.

It is vital that new European legislation is practical and proportionate and does not delay the scientific progress and benefits brought through animal research. As my noble friend Lord Sewel clearly pointed out, it is certainly required because the old directive was quite inadequate. It is essential that it does not undermine the success of UK researchers or our own high animal-welfare standards. At the same time, we have to develop proactively, validate and implement alternatives to animal use to deliver better welfare and better science.

The Commission’s proposal is premised on three high-level objectives, all of which we support. The first is to rectify variations in the implementation of the current directive by member states—that has been seen by some member states, including the United Kingdom, as adopting stricter measures and providing a high level of protection for animals. Meanwhile, other member states provide for only the minimum requirements of the current directive. We fully support harmonisation, which is essential to create a level European playing field for researchers in industry and academia.

Secondly, the Commission sought to strengthen the protection of animals by making better provision for their welfare. Good animal welfare and good science are inseparable and it is right that the European Community should set high welfare standards. That is also essential if we are to maintain public support—as touched on by a number of speakers—for the important research that still requires animal use. Confidence in the regulatory framework is an important component of our strategy to eliminate animal rights extremism.

Thirdly, the Commission sought to promote the three Rs: the development, validation, acceptance and implementation of methods and strategies that replace, reduce and refine the use of animals. That was mentioned by a number of speakers, particularly the noble Lord, Lord Soulsby, and the noble Earl, Lord Arran. The UK plays a leading role in this area. I strongly support the desire of the noble Earl, Lord Caithness, that one day we will not have to use animals. I am sure that all of us would like that, but my noble friend Lord Winston gave us a blast of reality that one cannot see that at the moment. However, that does not mean that we should not aspire to it. The three-Rs framework was developed in the United Kingdom, is a key component of our current harm/benefit assessment, and is supported by our National Centre for the Replacement, Refinement and Reduction of Animals in Research, something which is not replicated across Europe, unfortunately.

Of the European Commission’s proposal published in November 2008, a number of the provisions were acceptable in principle. Indeed, many were variations of current UK provisions. However, there were a number of concerns: for example, the inclusion of invertebrate species; poorly thought-through mandatory care and accommodation standards and humane killing methods; the absence of detail of severity classification, as mentioned by the noble Lord, Lord Carter; inadequate provision for the reuse of animals; and proposed restrictions on the use of non-human primates. Many detailed provisions would increase the administrative burden without benefiting science and, more importantly, animal welfare.

I can report that many concerns, including those identified in the committee’s report, have been remedied by negotiation. Only the arrangements for delegating and implementing acts under the Lisbon treaty remain to be finalised. I shall mention some key changes in the revised text; many were covered either in correspondence with the noble Lord, Lord Roper, or in the Government’s response to the committee’s report.

As regards the use of non-human primates, the draft text now includes a definition of “debilitating clinical condition” which encompasses almost all current uses of non-human primates in the UK. This has allayed our earlier concerns that work to remedy unmet clinical needs might be prohibited. Borderline cases can be provisionally authorised by a member state and subject to final decision by the Commission via comitology. In addition, the Commission has given a commitment to convene an expert working group to provide guidance on the interpretation of restrictions on primate use.

We believe that the new definition, the safeguard clause and the promised guidance provide the clarity we require and a suitable mechanism to resolve any areas of uncertainty about the use of primates, such that well justified use can continue. Although not a current EU requirement, only captive-bred non-human primates are currently used in the UK. The revised directive will go further and make the use of non-human primates which are themselves the offspring of captive-bred animals—so-called F2 animals—the European norm. The revised text requires the Commission to conduct a feasibility study to ensure that the timetable for this move will be adjusted if it is found to be unrealistic. The draft also requires the Commission to conduct a further study to establish the feasibility of sourcing non-human primates exclusively from self-sustaining colonies. This is also welcome.

Details of a severity classification system are based on the work of an expert working group which met in July 2009, as mentioned by a couple of speakers. The draft directive also sets an upper limit to the severity of procedures that may be authorised by member states without reference to the Commission. To go above this threshold would be to permit animals to be used in procedures which would involve long-lasting, severe pain, suffering or distress. We are disappointed that the possibility to allow such procedures remains within the scope of the new directive. However, we cannot foresee any circumstance whatever where we would permit this to happen in the UK.

We and the Committee were concerned that the framework for the reuse of animals in the Commission’s proposal would have increased the number of animals used and the suffering caused to the additional animals, a point raised by the noble Lord, Lord Addington. Changes made during the negotiations make better provision for the responsible reuse of animals, reducing the total suffering caused without causing unreasonable cumulative suffering to the animals used. That is consistent with the principles of reduction and refinement. It is with those principles in mind that the reuse requirements will be implemented in the UK.

The annexes setting out standards for the care and accommodation of animals and specifying humane killing methods have been substantially amended to correct the many faults in the original text. The deadline for implementation of the care and accommodation standards has been set at January 2017, allowing projects up to six years to adapt their facilities. Complying with these requirements will not compromise any of the UK’s very high welfare standards.

It is now agreed that all projects will be ethically evaluated prior to authorisation, which is already standard practice in the UK. Proposals for “notification” and “tacit approval” of projects, which were of significant concern to the committee, have been dropped.

The requirement for data sharing has been removed, and my noble friend Lord Winston gave a clear exposition of why that is not particularly damaging. The requirement for national reference laboratories for the validation of alternative methods has also been dropped. Instead, much more practical requirements are placed on the Commission to consult member states in setting priorities for validation studies, and over the allocation of tasks to the laboratories nominated.

Not everything in the negotiation has gone as we would have wished. The revised text would allow the use of great apes in exceptional circumstances—something we do not permit. Again, we cannot foresee any circumstances when this would be permissible in the UK.

Surprisingly, as commented on by my noble friend Lord Sewel, many member states, but not the UK, saw the requirements for at least two inspections at each establishment each year as too ambitious. The revised text requires a risk-based approach to inspection, but it requires only a minimum of one-third of users to be inspected each year. That is significantly less than the current United Kingdom inspections regime.

The noble Lord, Lord Soulsby, and my noble friend Lord Sewel both spoke well about the value of our inspectorate and how important it is. In addition, the Commission will be under an obligation to carry out controls, but only where there is reason for concern. Notwithstanding the comments made by the noble Earl, Lord Caithness, we are pleased that the principle of regular, risk-based inspection has been established through the EU, which is something that we believe requires more than the specified minimum inspection frequency, and that the Commission is under an obligation to oversee and enforce this aspect of the directive. My honourable friend Meg Hillier pushed to the limit what the market would bear. The risk-based approach will require that we work above the minimum and that others do likewise to satisfy the Commission and to make sure that its responsibility is being properly discharged. The latter point is significant, and the committee rightly noted that weak enforcement by the Commission was one factor contributing to the ultimate weakness of the current directive. I cannot argue with that; that was one of our concerns.

My Lords, could the noble Lord expand on this a bit? Why was what was agreed by the technical expert working group beforehand—so the Commission came up to the level in Article 33—resiled on when it was agreed by all the member states? The Minister has already given examples of where there are going to be differences in treatment in the UK compared to the rest of Europe. Why in this instance has there been such a resiling from the position of the expert working group?

My Lords, if I may, I will come back on the detail of that. As I understand it, we went as far as the market would bear. I do not think that it was a problem for us, but I will get back to the noble Earl about the details of the negotiation, as I cannot speak to them at the moment.

We have negotiated to develop practical, proportionate and enforceable legislation that makes proper provision for the welfare of laboratory animals and can adapt to further technical progress. My noble friend Lord Sewel asked whether we can guarantee unannounced inspections. The rigour of the current system and unannounced inspections will be maintained. We sought to avoid inflexible or disproportionate measures that would damage or undermine the competitiveness, sustainability and success of the UK and European research base or unnecessarily delay the healthcare benefits that animal research and testing continue to support.

Overall, we are satisfied that the revised text provides a sound and practical framework for the regulation of animal experimentation and testing in Europe. It is certainly better balanced, more flexible and less prescriptive than the Commission’s proposal and will allow the United Kingdom to maintain its traditionally high standards of welfare and animal protection. The noble Lord, Lord Skelmersdale, asked whether we can maintain current standards, so I hope that that answers that. Article 2(a) of the text will permit that and it will be done.

We welcome the fact that the revised proposal will allow member states to retain existing, additional animal welfare measures that do not distort the internal market. My noble friend Lord Sewel asked whether all projects will still be ethically evaluated and authorised. Simpler applications may be subjected to a lesser bureaucracy, but I can assure my noble friend that animal welfare and the quality of decision-making will not be compromised. The revised proposals avoid unnecessary bureaucracy and offer opportunities to reduce the current UK regulatory burden without harming animal welfare.

I have a response from the Box to the question asked by the noble Earl, Lord Caithness. The response says exactly what I said already, which is that I will write and explain the matter in detail. The Box has nothing further to add; clearly it knows as much as I do.

To summarise, we have a position in the UK to be proud of. I think that the negotiation has been successful. The European standard has been raised across the board. We can be proud of that negotiation. Could more be done? Probably, and we must keep doing it, but we have a good record in this country and it is important that we keep pressure on all these areas, because this matter is so important. Finally, I thank the committee again for its work and for bringing this report for debate.

My Lords, I thank all noble Lords who have taken part in today’s debate, which was enriched by the highly authoritative and informative contribution from the noble Lord, Lord Soulsby of Swaffham Prior. He set out clearly what has been achieved in this country by a control regime of many years’ standing. He talked at length about the three Rs—replacement, reduction and refinement—as have many other noble Lords. The committee took evidence from the UK’s NC3Rs and we were clear that it offers a model for wider application throughout Europe.

The noble Lord, Lord Sewel, and the noble Earl, Lord Caithness, both made powerful points. The noble Lord, Lord Sewel, as my predecessor, gave a clear and compelling explanation of the risks and gaps that we see in the proposed requirements for inspection and monitoring—a recurring theme. The noble Earl, Lord Caithness, with his depth of understanding and recall of things past, highlighted some of the recurring issues that we will have to continue to tackle and keep an eye on.

I was pleased to hear the welcome that the noble Lord, Lord Winston, gave to the committee’s report. The important part of his remarks related to the possibility of a reduction in the use of animals in scientific procedures. He gave several compelling examples of important research to which animals were essential. It is relevant to note that such research has been possible within the UK regime of controls. We should be concerned that a new directive will ensure that similar controls—this theme again—apply across the whole of the European Union. The noble Earl, Lord Arran, spoke eloquently about the importance of the NC3Rs, the UK’s national centre, and, importantly, about the continued need to search for alternatives to the use of animals.

The issue of consistent implementation of the directive’s requirements was raised by the noble Lords, Lord Addington and Lord Skelmersdale, and was addressed by the Minister, the noble Lord, Lord West, in setting out the Government’s view. We were pleased to hear the points that the Minister made, but the whole issue of risk-based assessment and the need constantly to monitor how it is being applied will be a matter of great focus going forward.

In our debate today, we have again brought out the strength of arguments surrounding the use of animals in scientific procedures and the importance of agreeing a regulatory framework that strikes the right balance—a point that many have made— between animal welfare and the interests of scientific research. As our report makes clear, the proposed revision of the EU directive provides an opportunity to get that balance right across all member states. We urge all those involved not to waste this opportunity.

Motion agreed.

Royal Assent

The following Acts were given Royal Assent:

Terrorist Asset-Freezing (Temporary Provisions) Act,

Fiscal Responsibility Act.

House adjourned at 4.34 pm.