My Lords, with the leave of the House, I should like to make a Personal Statement about the proceedings on the Social Security (Contributions) Bill and the Consolidated Fund Bill on 22nd December last.

I see from the Official Report that on a number of occasions the noble Lord, Lord Brockway, sought to address the House. These questions were all clearly debatable, but I understood on each occasion that the noble Lord had desisted from his attempt to speak in the face of opposition from the House itself. Having refreshed my memory from a reading of the Official Report and having listened to the tape of the proceedings, I am confirmed in my view that this is so. If I was wrong in this, I can only express my regret. But in view of the fact which appears from the Official Report that the next question was, in each case, moved from the Front Bench, I had no alternative but to propose that question.

I also see from the Official Report that when I was collecting the voices Lord Brockway continued to say "Not-Content". In each case I put the question twice and I heard no dissentient voice on the second occasion. If the noble Lord was still dissenting on the second occasion, I regret that I did not hear him. Had I done so, or had any noble Lord drawn my attention to the fact that he had said "Not-Content", I would have put the question again and, if dissent had been persisted in, in due course cleared the Bar for a Division.

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

My Lords, the Government have now received the views of a range of interested organisations and individuals on the Manpower Services Commission's proposals. We are anxious to give full consideration to the points which have been raised. This is bound to take a little time, but my right honourable friend the Secretary of State for Employment will make a further Statement as soon as practicable.

My Lords, I thank my noble friend for that reply. Is he aware that many disablement organisations are still reacting against the commission's report, because they are alarmed at the prospect of losing the quota scheme? In these circumstances, are the Government taking action to promote rational discussion of alternatives? It is not enough that the commission should be carrying out consultations, because they are naturally regarded as being predisposed in favour of their own recomdations.

My Lords, that may well be so. But, of course, the representations will be made to the Secretary of State and he will take into account all those representations before he makes his further Statement.

My Lords, is the noble Earl aware that, even if there are amendments made to the quota system, what has always perturbed the disabled is the fact that there has not been enough enforcement of what Parliament has decided? Could this also be discussed with the organisations and representatives who might be meeting the Government?

My Lords, of course such points will be taken into account. But the noble Lord, Lord Molloy, will be aware that the quota system refers to 3 per cent. disabled, which used to be the case some years ago. The fact is that there are now under 2 per cent. disabled and so, in fact, it is impossible for all firms to keep to the 3 per cent. quota, simply because mathematically it cannot he done.

My Lords, may I ask the noble Earl which other EEC countries have safeguards for the employment of their disabled people?

My Lords, so far as I am aware, each country has different legislation with regard to its own circumstances.

My Lords, would the noble Earl agree that the record of the Civil Service in employing the disabled could be improved?

My Lords, if the noble Lord would care to write to me saying in which way, I will certainly take it into account.

My Lords, would the noble Earl also consider that when we are talking about the handicapped we must also remember those who are suffering froms sensory handicap? More often than not, when we speak about the handicapped, we are referring to those who are physically handicapped. I do not want to take away any of their advantages, but the blind and the deaf also need some special consideration.

My Lords, I think that they would be covered under the Disabled Persons (Employment) Act, which defines a "disabled person" as one,

"who, on account of injury, disease or congenital deformity, is substantially handicapped in obtaining or keeping employment, or in undertaking work on his own account, of a kind which apart from that injury, disease or deformity would be suited to his age, experience and qualifications".

I think that that would cover the noble Baroness's point.

My Lords, is my noble friend aware that one of the problems about carrying out the scheme, which has now been operating for nearly 40 years, is that many severely disabled people refuse to register for this purpose?

My Lords, my noble friend is entirely right and that is one of the difficulties of the scheme. But it is also true that that is one of the points which my right honourable friend will be taking into account before he makes his further Statement.

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

My Lords, the terms "strategic", used to describe those nuclear weapons systems defined as such in the Strategic Arms Limitation agreements, and "theatre", covering all other land-based nuclear forces, have been used generally in the past. It is preferable to talk in terms of range wherever possible, and I therefore welcome President Reagan's decision to describe the current negotiations in Geneva as dealing with intermediate range nuclear forces. But, while I have considerable sympathy with the thought expressed in the Question, the terms "strategic" and "theatre" have come to have well-understood meanings and they will still inevitably be widely used.

My Lords, is it not the case that the widely understood meanings which they have come to have profoundly corrupt perceptions of reality? Is it not also the case that all nuclear weapons are highly strategic to those upon whom they may land? Can the noble Viscount undertake that in their publications and official utterances from now on the British Government will use the new nomenclature; namely, identifying the system by range?

My Lords, as I have already said, since we have sympathy in wanting to use "range" wherever possible, we shall use it wherever we can, but there are no terms which cover everything without any form of doubt. To try to change the existing meaning of those terms would be difficult. So far as the perhaps unfortunate implications of the term "theatre" are concerned. I agree entirely with the noble Lord and would take this opportunity to say that theatre nuclear weapons, along with all others, are part of deterrence to war.

My Lords, is the noble Viscount aware that for some time now the noble Lord, Lord Kennet, has been pressing both the United States Government and the British Government to accept this change in terminology and that the description of the Geneva conference as the intermediate range weapons conference is a considerable personal success for him?

My Lords, whether President Reagan's decision to use the term is entirely due to the efforts of the noble Lord I do not know but, as I have already said, the Government welcome using range wherever possible.

My Lords, is the term "inter-regional" acceptable in place of "intermediate", or is "intermediate" regarded as the same thing as "inter-regional"?

My Lords, if I heard the noble Lord correctly, he asked me whether "intermediate" and "inter-regional" are the same thing. Without a definition of what the noble Lord means by "inter-regional"—perhaps he would write to me on it—I hesitate to answer.

My Lords, if we wish to change from the conventional use, which used to be "theatre" and "strategic", have we really made a good selection in choosing "intermediate"? I remember my friend Aneurin Bevan on one occasion, objecting to somebody calling himself "a centre man", saying, "What does he mean? He has to look to his left and then he has to look to his right before he can ascertain where he stands". My Lords, intermediate between what and what?

My Lords, the noble Lord asks me, "Intermediate between what and what?" Between intercontinental strategic missiles on the one hand and short-range tactical use missiles on the other.

My Lords, would the noble Viscount agree that whatever arguments there may be about vocabulary we ought to be concentrating our attention upon securing a balance of power over the whole field and not trying all the time to draw attention to specific weapons? It is a balance of power generally which matters.

My Lords, I agree entirely with my noble friend—a balance at the lowest level that we can achieve through the current disarmament initiatives.

My Lords, is it not the case that these terminologies are often used to disguise the true horror of these weapons, and is not the terminology which the noble Viscount used just now when he referred to the "counter-force policy" as part of the deterrence somewhat concealing rather than exposing the realities of the new policies which are being advocated on the other side of the Atlantic?

My Lords, I think that the noble Lord is covering different ground from that covered in the original Question. I would merely say once again that the purpose of retaining all these very powerful—hideously powerful—weapons is to deter an aggressor who clearly at the moment shows no sign of dropping his aggressive habits.

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

My Lords, it was agreed during the visit to London by the Spanish Prime Minister that direct communications between Gibraltar and Spain will be re-established on 20th April.

We have been assured by the Spanish Government that early practical steps will be taken in the interests of air safety to adjust the application of the Spanish prohibited airspace in such a way as not to impede the safe and effective use of Gibralter airport.

My Lords, while warmly congratulating Her Majesty's Government on the subject matter of that Answer, and my noble friend in particular in view of the well-known efforts he has made in this direction, may I ask him why the re-opening of the border, originally promised to him in April 1980, is deferred until April and not effected immediately?

My Lords, I am most grateful to my noble friend for his congratulations but, as he has pointed out in his supplementary, we are now back to where we were two years ago. Still, that is better than being further back than we were two years ago, and so I think we ought to be grateful for that. To reply to the noble Lord's question, I think the answer is that it has been difficult in terms of domestic Spanish politics.

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

My Lords, as was said in the Statement on Defence Estimates—Cmnd. 8212–1—the estimated cost of Chevaline is about £1,000 million and development work is close to completion.

But was not the original estimate for this rather less than £450 million and not £1,000 million? Can the noble Viscount say when the original Chevaline decision was taken and by whom? When Parliament first learned of the decision to spend up to £1 billion or more on modernising this weapon, how long was that announcement after the original decision to go ahead with the expenditure?

My Lords, the original funding decision was taken in 1974 by the last Administration and the estimate at that time was £240 million, in 1974 prices. The Administration previous to the last Administration—that is, the Heath Government—had taken a decision in principle to pursue the Chevaline route, but the main funding decisions were taken by the Labour Administration. If there be any doubt about all-party belief in the development of Chevaline, noble Lords will have noted that leading members of the SDP on a recent programme on television were clearly party to the 1974 decision.

I would only add that since 1974 there has been a considerable quantity of inflation, which would of course put up the price in any event. We were also developing something at the frontiers of technology, which I believe will be finally proved very soon, and that is always hard to estimate. So the Government generally believe that, at £1,000 million or thereabouts, we have got very good value in maintaining our independent deterrent in the cause of peace.

My Lords, could the noble Viscount, Lord Trenchard, inform the House just how much of the work done was performed under contracts which guaranteed a profit? Is the noble Viscount aware that there is some anxiety in the country following recent reports that the guaranteed profits on certain defence contracts have been grossly exceeded in many cases? Will the noble Viscount inform the House whether any of the Chevaline contracts were involved in this?

My Lords, the noble Lord, Lord Bruce of Donington, has raised two questions. The vast majority of defence contracts, if they are not competitive contracts, are controlled closely and within a very small percentage of certain targets which have been agreed by successive Administrations. So far as the Chevaline contract is concerned, I believe that the major part of this is a non-competitive contract, but it is very closely regulated in accordance with the procedures for ensuring that undue profits are not made.

My Lords, I thought that I heard the noble Lord, Lord Jenkins of Putney, ask whether the noble Viscount Lord Trenchard, could say when the original announcement was made in the Defence Estimates. If it was not in the 1974 Defence Estimates when the decision to fund this programme was taken, could the noble Lord say in what year this announcement was first made? Could he also say under what heading of the Defence Estimates the Chevaline programme was contained before it was publicly announced?

My Lords, I am afaid that I do not have the exact date of the first announcement to Parliament and I will have to write to both noble Lords who have raised this question.

My Lords, may I ask the noble Viscount, Lord Trenchard, whether the Government will take into account the very heavy cost of Chevaline, and also the very heavy cost of replacing the motors in the Polaris missiles, when they come to consider whether they should proceed with the Trident project?

My Lords, the point which the noble Lord raises has of course been examined in great detail and continues to be examined. I would only say to the noble Lord at this stage that the planning for Trident extends to the maintenance of an independent deterrent well into the next century and different considerations apply to the considerations which will make it necessary for some degree of Polaris remotoring to take place in this decade.

My Lords, would the noble Viscount the Minister agree that this is a great gamble? Is it not the case, hopefully, that the Geneva talks may make it quite unnecessary? Would e not agree that it is the case objectively that the next Government may not proceed with Trident and may even cancel Polaris? Cannot the Government delay a decision on this matter in order to take a consensus of the opinion of our electorate?

My Lords, I do not agree with the noble Lord, Lord Brockway, that this question is a gamble. It is quite clear from all current opinion polls that the public do not think so either. So far as the outcome of Geneva is concerned, should in the future any disarmament talks affect our own nuclear weapons, there will be no hesitation in taking the correct action. But at the moment the Government are quite clear that we have to deal with the facts of the situation as it is and continue to deter aggression. I believe that any future Government—and we have aspirations in that respect—will have to pay attention to the facts of the situation.

My Lords, will my noble friend bear in mind the reply given by President Reagan—If not us, who? If not now, when?—when we are thinking in terms of protection in the future?

Yes, my Lords.

My Lords, may I just ask the noble Viscount the Minister to clarify his answer to me? Did he say the Government are proposing to carry on with the Trident project?

My Lords, the Government have decided to replace Polaris in the 1990s with Trident. There is now the question which the Government have been studying which stems from the United States' decision to move from the C4 Trident missile to the D5. The Government's decision on that matter is not yet ready but will he announced as soon as it is reasonably possible.

My Lords, the noble Viscount the Minister referred to Gallup polls. Is he aware that the recent Gallup poll showed a large majority against the adoption of Trident?

My Lords, I think we are getting into different questions. I have debated public opinion polls with the noble Lord before and will do so again.

My Lords, was it not the case that the original decision to go ahead with a modification for Polaris was concealed from both Houses of Parliament at the time? Considering that we have had to go ahead with this without an opportunity to discuss it, this must raise the question of whether we are similarly tied in relation to Trident. The increase from £240 million to over £1,000 million is tied to some extent to American decisions and we are liable to be equally tied in relation to Trident. Therefore, will the noble Viscount ask his colleagues to look again at the Trident position, which might involve us in a totally untenable position if we go ahead with it?

My Lords, that too is an entirely separate question. We shall conduct our affairs in the way that this democratic Government have always done in matters of supreme importance such as defence.

My Lords, at a convenient moment after 3.30 p.m. this afternoon my noble friend Lord Mansfield, with the leave of the House, will repeat a Statement which is to be made in another place on the Invergordon smelter. This will be followed by my noble friend Lord Bellwin, who will repeat a Statement on London Transport and the Greater London Council, It might also be for the convenience of your Lordships if I inform the House that it is now expected that the House will rise tomorrow, Tuesday, 19th January, at approximately 8 o'clock and that dinner will not therefore be available.

My Lords, I beg to move that this Bill be now read a second time. The primary purpose of this Bill is to finance the many benefits that will be available to people in the coming tax year. It therefore has to provide that the income to the national insurance fund from contributions will be sufficient to meet the likely demands made upon the fund in the coming year without leaving an unnecessarily large surplus. It is a function of the Government Actuary to estimate what that demand is likely to be. This estimate is published in the report of the Government Actuary on the financial provisions of the Bill which was presented to Parliament by my right honourable friend the Secretary of State in December of last year. From this it will be seen that we are likely to be paying out very substantially more in national insurance benefits during the year 1982–83 than during the current tax year.

Total expenditure from the fund on benefits next year will in fact be little short of £19 million. That is rather more than £1·6 billion above what will be expended this year. It is also a very striking fact that, of the total expended—which will be just under £19 billion—no less than £13½ billion will go on retirement pensions. Retirement pensions now account for over 70 per cent. of national insurance fund expenditure on benefit. Indeed, they represent about one-eighth of the whole of Government expenditure in a financial year. Taken in conjunction with the current expectation that the numbers above the present retirement age which are expected to increase until the end of the century—which is now only 13 years away—and that we expect the number of people aged 75 and over to increase by a fifth within that time and the number of those aged over 85 to have gone up by a half, these figures will be seen to be of more than passing interest.

This Bill, however, is concerned only with the financial year immediately ahead of us. It makes provision for demands expected to be made upon the national insurance fund and it does so while preserving the traditional way of funding the national insurance scheme. This is known as the "tripartite arrangement. The three main sources of funds are respectively the employer's and the employee's contributions and the Treasury supplement. The employer's and employee's contributions are paid into the fund, which is run on what is termed a "pay-as-you-go "basis. It would perhaps be less confusing if it was called a "pay-as-they-go "basis, because what it means is that those now in work and their employers are paying for those no longer in work and it is their contribution which has to balance the demands made upon the fund in the year in which they pay them. Today's contributors are paying today's benefits in the confident expectation that when they themselves need to draw a benefit it will be paid from the contributions of people then in work.

The three sources of income that I mentioned are not, of course, the only sources from which money arrives in the fund. There are also Class 2 and Class 4 contributions by the self-employed and voluntary Class 3 contributions by other people wishing to preserve their contributions record for pensions purposes. In addition, there is the investment income of the fund. In spite of this investment income, however, and next year it is estimated to amount to nearly £6,000 million, it has always been accepted that, while employers, employees and other contributors may be expected to provide the bulk of the income to the national insurance fund, it would not be reasonable to expect them to do so unaided. It is for this reason that they are boosted by an addition from the Consolidated Fund. This is the so-called " Treasury supplement ".

The purpose for which the supplement was introduced has always remained the same but the way in which it has been applied has varied from time to time, as has its proportionate amount. Originally it was principally applied to enable benefits to be made available under the old flat rate scheme to people with contribution records which did not suffice to qualify for them. As the graduated scheme succeeded the flat rate scheme, and as in time the present fully earnings related scheme for employees came in, the changes have been reflected in the Treasury supplement. There is nothing new, therefore, in proposing changes in the rate of the supplement as this Bill does.

My Lords, I am most reluctant to interrupt the noble Lord, but when he spoke about investment income he mentioned £6,000 million. Should this not be £600 million?

My Lords, I am advised that indeed it should and I misread the script. I am most obliged to the noble Lord for the close attention which he pays as well as for his very helpful intervention. To save me making a formal apology later I should like to apologise to the House now.

I am making this relatively simple explanation for my own benefit as well as for anybody else's. If any noble Lords find that I am being too simplistic, I apologise for pitching it at my level, rather than at theirs.

My description would be a good deal too simple if I left the impression that all the money paid by way of contributions actually arrived in the fund. As your Lordships will know, there are also elements which are specifically earmarked for other purposes. I refer, of course, to the National Health Service allocation and the employment protection allocation. All contributions—employers', employees', and others—contain the National Health Service allocation. It does not provide a great deal of money in relation to the overall expenditure on the National Health Service: the total for 1982–83 is expected to bring in a little over £1·6 billion. This means that of total NHS spending only 12 per cent. will come from national insurance contributions. But this does provide a worthwhile contribution towards the costs of the health service. The inclusion of the National Health Service allocation is a desirable means by which people in work and their employers, together with others paying contributions, help to fund benefits for all those who need them.

The same could be said about the employment protection allocation, although up to now it has been confined to the employer's contribution. The money raised from the employment protection allocation—and it will be some £584 million in 1982–83—is paid into the redundancy and maternity pay funds. What this means is that, through their contributions, employers and now employees collectively will provide income to the fund from which some help, although as I shall say later, only limited help, is given to individual employers towards the cost of the redundancy payments which they make to their employees.

Your Lordships will be aware that changes in national insurance contribution rates and in the earnings limits for liability are usually made by statutory instrument. This Bill contains a number of changes which could have been made in this way. But because a Bill was needed to provide for those changes which could not be made by order, the Government decided that it would be convenient for both Houses if all changes proposed for 1982–83 were contained in a single piece of legislation. To be specific, the total increase in the employee's contribution and the introduction of an employment protection allocation in the employee's contribution require legislation: the other changes could be achieved by order.

My Lords, may I intervene for one moment to ask the noble Lord whether after all these changes it is reasonable to describe this as an insurance fund in the normal meaning of that term?

My Lords, I will leave that to the judgment of your Lordships when you have heard the end of my tale. I believe indeed that the purposes for which the fund is used and the means by which it is funded are fairly generally understood by those people who pay close attention to these matters, at least in general principle, and that it is proper to retain the name by which it has always been known.

This is a Bill which aims to strike a proper balance between general taxation and contribution revenue and aims also to apportion the burden of meeting the extra costs of benefits where they can most readily and fairly be met. I shall say more about the specific objectives of particular clauses in the Bill as I come to them. It is to the specific contents of the Bill that I now turn.

I shall look first at Clause 2 which proposes a reduction in the Treasury supplement. Next I shall consider what I might call the " non-national insurance " elements in the employee's contribution—the National Health Service allocation and the new employment protection allocation—which are dealt with in Clause 3 and to which I think the noble Baroness was referring in particular. Finally, I shall return to Clause 1 which covers national insurance contribution rates and earnings limits. In that context I shall deal with the overall effect on both employers and employees of the proposals in the Bill.

Clause 2 of the Bill provides for the Treasury supplement to be reduced from 14·5 per cent. to 13 per cent. I would remind your Lordships of what I have said about the nature of the supplement. It is a contribution from the Consolidated Fund to the national insurance fund, but there are no hard and fast rules about its size. The percentage is that of the amount of net contributions of all classes received in any one year, after deducting payments towards the cost of the National Health Service and into the redundancy and maternity pay funds. Contributions paid at a reduced rate by contracted out employers and employees are treated for the purpose of calculating the supplement as if they were paid at the full rate.

In deciding on the level of Treasury supplement that is appropriate for the coming tax year, the Government have looked at the amount of benefit expenditure in general that will fall to be met from the Consolidated Fund. This represents a straight burden on the tax-paper, and it is a burden that has tended to grow in recent years. The overall proportion of benefit expenditure—both contributory and non-contributory—which is met from general taxation has gone up from 37 per cent. in 1975–76 to 45 per cent. in the current year. The Government take the view that it is not reasonable to expect the general taxpayer to finance a significantly greater proportion of benefit expenditure in 1982–83, when total expenditure on social security benefits will be in the region of £30 billion. The reduction in the Treasury supplement will achieve a steadying of this proportion: it will still be about 45 per cent. I recognise, of course, that the reduction in the Treasury supplement will bring about a change in the relative amounts of expenditure met by, on the one hand, people in work—who are contributors—and, on the other hand, the general taxpayer. But the extent of that change should not be over-rated. We are holding the proportion of benefit expenditure financed by the general taxpayer steady: the change in the proportion of the national insurance fund funded from Treasury supplement will therefore result in a slightly greater emphasis on contributions to it made by people in work. That contribution is in itself the essence of the national insurance scheme: the idea that those in work pool their collective contributions to meet the costs of the contributory benefits for those who are not in work. The change in the rate of the Treasury supplement endorses this contributory principle and the idea of social insurance to which successive Governments have rightly attached such value.

I should also emphasise that the reduction in the percentage of the Treasury supplement will not in itself greatly reduce the actual amount of supplement going into the national insurance fund. The Government Actuary has estimated this as £2,591 million for 1982–83 —this is only £9 million less than in the previous year—a reduction of only 0–35 per cent. Nevertheless, the reduction in the Treasury supplement will achieve a saving in public expenditure of £260 million. This in itself represents a welcome relief, however small, of the pressure on the public sector borrowing requirement.

I turn now to the first part of Clause 3 of the Bill, which will increase the National Health Service allocation in the primary Class 1 contribution and in the Class 4 contribution by 0–1 per cent. I have already outlined the case for a National Health Service allocation, and the increase in its percentage will bring in an extra £104 million. This is, obviously, a useful contribution towards the increased expenditure on the National Health Service which we are planning for 1982–83. And that increase is a substantial one. We shall be spending just over £12 billion in England on the National Health Service in 1982–83 compared with rather under £11 billion in 1981–82. So we will be spending over £1,000 million more on health in the corning year.

My Lords, can the noble Lord say whether that increase is due to inflation and rising costs, or whether it is an increase in real terms?

My Lords, I was about to tell your Lordships that we have, in fact, increased expenditure in real terms by 5 per cent. since 1979. I am talking about real terms—one would not perhaps gather so by reading some of the media or listening to some of the speeches in this House.

The Government take the view that it is not unreasonable to look to those in work to pay towards the services they can get, and that part of the growth of the National Health Service should therefore be financed from an increase in the allocation. In general we believe that people are ready to pay more for health by way of a specific contribution than through general taxation. An increase in the National Health Service allocation recognises this preference. But it recognises it without imposing an unwarranted extra burden. As my right honourable friend the Secretary of State pointed out in the Second Reading debate in another place, the increase in the National Health Service allocation does not amount to more than an extra 15p a week for a man on average earnings.

One final point, however, to which I should draw your Lordships' attention, is that we have not increased the amount of National Health Service allocation in the Class 2 contribution. This is in recognition of the need, to which I shall refer again, to keep additional burdens on the small businessman to a minimum. The aim of keeping the burdens on industry in general to a minimum is also recognised in the second part of Clause 3 of the Bill. This introduces, for the first time, an employment protection allocation into the primary contribution—the employee's share. It will be 0·35 per cent. The employment protection allocation is, as I have already said, paid into the redundancy and maternity pay funds, from which payments are made to employers to help finance their redundancy payments. There is, of course, already an employment protection allocation in the secondary contribution—the employer's share. It is currently 0·2 per cent.

An increase in the employment protection allocation is needed to keep the redundancy fund within the statutory borrowing limit of £300 million which came into force on 7th December. There has been a sharp increase in redundancies over the past year, with correspondingly heavier calls on the redundancy fund. Even though we believe that we have now passed the peak, there will still be a need for extra finance for the redundancy fund next year. Cutting the size of the rebates given to employers would be no answer. Even a cut from the present 41 per cent, to, say, 35 per cent. would save less than £50 million. This would not be nearly enough to keep the fund within its borrowing limits. And for such a modest return, there would only be more troubles—most obviously, an immediate direct effect on the cash flow of firms who already have problems, leading in turn to even more redundancies.

I have already emphasised our desire to keep new burdens on employers to a minimum. The existing burden of redundancy payments is already a heavy enough one for them, and it is one which at present they shoulder alone. Employers can get only 41 per cent. of the redundancy payments which they make to their employees refunded to them from the redundancy fund: the remaining 59 per cent. is entirely a liability on them. And, of course, under existing arrangements the financing of the redundancy fund is a burden on employers alone. What this amounts to is that the entire cost of financing redundancy payments is at present met solely by employers as a group.

We have decided that it is right to ask employees to contribute to the cost of redundancy payments. There is an obvious—and, I believe, fair—analogy between asking people in work to contribute towards unemployment benefit to people out of work, as they already do, and asking for a similar contribution for payments for people who lose their jobs. It is an accepted principle that benefits should be funded primarily from contributions on the earnings of those who work. The contributions will bring in some £353 million in 1982–83, and this should be enough to keep the fund within its statutory borrowing limits. I should add that this will still leave employers meeting three-quarters of the cost of statutory redundancy payments.

I come now to Clause 1 of the Bill and the overall effects of what is proposed there. Clause 1(1) raises the lower and upper earnings limits for Class 1 contribution liability from £27 and £200 a week to £29·50 and £220 a week respectively. These changes are purely routine: the lower earnings limit is linked to the basic rate of retirement pension by the Social Security Pensions Act 1975, and the upper earnings limit has to be between 6½ and 7½ times that rate. The upper limit proposed in the Bill falls within that range: it is in fact 7·43 times the basic rate.

Clause 1(2) raises the employee's contribution from 7·75 per cent. of liable earnings to 8·75 per cent. This is, of course, the total amount by which the contribution is raised—it includes the additional National Health Service allocation of 0·1 per cent. and the new employment protection allocation of 0·35 per cent. that I have already dealt with. There remains 0·55 per cent.; of this 0·25 per cent. compensates for the reduction in the Treasury supplement and 0·3 per cent. is needed to keep the national insurance fund in broad balance. Your Lordships will find the detail of these changes set out in the report of the Government Actuary. What they will mean to a man on average earnings of £150 a week is £1·50 a week more in contributions if he is not in contracted-out employment and £1·57 if he is. The employer of a man on these earnings will have no more to pay if he is not contracted-out and 11p more to pay if he is—because a raised lower earnings limit increases the band of earnings on which the full rate of contribution is paid.

In proposing these changes, the Government have been at pains to afford the maximum possible protection to employers. They could only be spared the effect totally if those changes did not include raising the upper earnings limit for contribution liability; but this would in itself have the undesirable effect of distorting the shape of the national insurance scheme. It would also disappoint the legitimate expectations of low paid and high paid alike—of the low paid that earnings limits should rise with inflation, so that those at the upper end of the earnings scale meet their fair share of higher costs; and of the higher paid that their additional pension rights should not be impaired.

By sparing employers any increase in their contribution rates to meet the needs of the national insurance and redundancy funds and of the National Health Service we have gone as far as we reasonably can to protect them. And that is a long way: of the estimated £652 million increase in employers' contributions in 1982–83, only £140 million—21·5 per cent.—results directly from the higher earnings limits. The remaining £512 million will come from increased earnings and would have arisen anyway. So we have done all that we reasonably can in an earnings-related scheme to help bring about the recovery of industry and a drop in unemployment.

Some noble Lords may cavil at my decision to favour the employers in this. It is one of the curses of British industrial history that the politicians of at least one party traditionally think of employers and employees as having interests which always differ and always conflict. Never has it been a greater fallacy than now. The failure of a business does not assist its employees—it renders them unemployed. The unprofitability of a business does not assist the unemployed; it merely inhibits the creation of new jobs into which they could move. The success of a business is just as important to its employees as it is to its employers.

It is a principal object of Her Majesty's Government's policy to create conditions in which businesses can become both more efficient and more profitable. That is the way in which they can acquire the strength to expand and to sign on larger workforces. I make no apology, therefore, for the steps we have taken to limit the cost of our proposals to employers.

My Lords, will the noble Lord give way?

My Lords, I ought to have injury time for interventions already. I think that I ought to continue. Clause 1(3) of the Bill raises the contribution payable by married women and widows who have the right to pay the lower rate from 2·75 per cent. to 3·2 per cent. In doing this, we are recognising that opted-out women should not be protected from the increase in the National Health Service allocation—which they already pay in full; this is because they benefit from the health service and it is fair that they should pay the new employment protection allocation as they can qualify for both redundancy and maternity payments. Nor do I think it unreasonable to expect them to contribute to the general costs of the national insurance scheme, though of course it is necessary to preserve a proper differential between their contribution and that of others who are eligible for the range of benefits that opted-out women have chosen to renounce. The difference between the reduced and full rate contributions will be 5·55 per cent.

The contribution rates for self-employed people are dealt with in Clause 1(4) and (7) of the Bill. Just as we have been concerned to protect employers from the full force of changes in contribution arrangements for 1982–83, so too the Government have been particularly anxious to build on the encouragement and stimulus that we have given, and are continuing to give, to small businesses by sparing the lower earner among the self-employed. If we had continued to apply in full the formula for calculating the Class 2 contribution which has been used since 1978, the new rate would be about £4. Instead the Bill proposes a rate of £3·75 a week. This represents a suspension of the formula for the coining year to provide a further modest encouragement to the small businessman, but not on such a scale that we have had to look for an extra weighting on the Class 1 contribution. A self-employed person with profits less than £3,450 will only have to pay £18·20 a year more—and if he expects to make less than £1,600, he will be able to obtain an exception from any liability at all.

While we have not been able to provide quite so much shielding for the higher earners among the self-employed, who have a liability for Class 4 contributions, we are nevertheless raising the Class 4 contribution rate by only 0·25 per cent. Application of the usual formula would have demanded an increase of 0·35 per cent. This again offers a further small stimulus to self-employed people. The level of profits at which these contributions will become payable will be raised in line with inflation, like the upper earnings limit for Class 1. This is required by the basic nature of the national insurance scheme, but your Lordships may feel that by and large the self-employed have got not a bad bargain at all in this Bill.

This Bill is rendered necessary by the changing and difficult economic conditions of our time. In it the Government have maintained the just balance which is an essential feature of the national insurance scheme and of our whole system of benefits. At the same time we have done everything within our power to see that the changes which we are making assist our present climb out of recession and our battle against unemployment. It is a Bill about financing benefits of various kinds—the national insurance benefits, the benefits of redundancy payments, and, of course, the wider benefits of the National Health Service. It will enable us to increase our spending on national insurance benefits by £1.6 billion next year. It will also mean that we raise an extra £104 million specifically for the National Health Service. To achieve, or rather to redress, the balance which I have mentioned, the Bill will make a very modest redistribution of the burden of financing social security benefits between people in work and the general taxpayer: this accounts for the reduction in the Treasury supplement.

Similarly, I have argued that it is fair also to ask employees now to carry a part—although still a very small part—of the other burden, of redundancy payments, which employers at present shoulder alone. With a heavy, though decreasing, load of redundancy payments next year and with employers needing every relief that we can give them, it is reasonable to ask people in work to contribute towards helping their colleagues who lose their jobs.

I have laid repeated emphasis on the two concepts of fairness and balance because they are what underlie this Bill. We are providing for increased spending on national insurance benefits—with the lion's share going to the retirement pension—and on the National Health Service and redundancy benefits. All of them provide help where it is needed—a basic requirement of fairness. We are also providing for this spending to be met in a way that maintains a fair distribution of the burdens which it inevitably imposes. I regret if I have spoken for too long; perhaps I should not have given way so often. On the other hand, the interventions were most useful.

My Lords, before the noble Lord sits down, I wonder whether he could now answer my question. An insurance, as it is commonly understood, means that the insured pay certain premiums in exchange for which in certain contingencies they have the right to certain benefits. Is this now still an insurance scheme?

My Lords, I am anxious not to be drawn into a protracted argument about semantics at this stage. I shall merely say that this is the term that was coined to describe the " pay-as-you-go " scheme. It has always been based on that principle. I think that it is the right term. I beg to move that this Bill be read a second time.

My Lords, this is clearly a Treasury Bill, and a bad Treasury Bill at that. No one could say worse of any piece of legislation that comes before your Lordships. In our view, it is a mean and regressive measure, the main purpose of which is to reduce the Treasury's contribution to social security and to load an increased burden on to contributors. For reasons of order, obviously we must concentrate today on this destructive little Bill, but I would remind the House that it has to be read in the context of other policies and other measures by which this Government are deliberately impoverishing increasing numbers of our people. It has to he considered against a back-ground of high inflation; intolerable unemployment; increased rates and rents; a decrease in the real value of many benefits; higher prescription charges; and increased charges for many social services. This Bill shows a totally insensitive approach to the casualties of this Government's policies.

The underlying difficulties are in fact much more fundamental than can be dealt with in this measure. In the first place, the problems are the result of the Government's economic policies, and, in the second place, the result of a failure to give the basic necessary thinking to the whole question of social security in the 1980s. I am not making a party point on this, because I think that neither this Government nor the previous Government have really taken on board the changing situation in this matter. We have stumbled on from Lloyd George to Beveridge, and since Beveridge we have not really had a fundamental rethinking of social security in the 1980s. So we have a series of stop-gap measures about social security which confuse applicants and even administrators. It is as though we—again I refer to both Governments—are running about putting our fingers in the dyke when we should be rebuilding the dyke itself.

It is more than time that we faced up to the need for a total review of the post-Beveridge situation. I believe that we have to balance between income tax and insurance contributions in a totally different way. The Government's policy of reducing income tax, which benefits the richest people, and increasing national insurance contributions, which is harmful to the poorest people, seems to me totally wrong. It reveals with clarity the social and economic prejudices of this Government.

I would remind noble Lords opposite that in the Conservative manifesto of 1979 these words were printed:

" We have muddled on from Lloyd George to Beveridge and it is time that we had a completely different attitude ".

Then there is this sentence on page 27 which says:

" Our social security system is now so complicated that even some "—

perhaps not all, but some—

" Ministry officials do not understand it ".

We have certainly not done anything to make our social security system more understandable even to these clever Ministry officials, and certainly not to the people who queue up at the offices week after week trying to find out what benefits they are going to get.

Beveridge envisaged a tripartite scheme of contribution, and successive Governments upheld that decision. The Beveridge policy was that the Exchequer should pay one-third of the cost of unemployment benefit, and one-sixth of pensions, disability and maternity allowances. But now the Government are chipping away at these principles and increasingly transferring the nation's responsibility from income tax to individual national insurance contributions, which have infinitely less relevance to a person's ability to pay. In fact, if noble Lords ever meet any ordinary people they will find that most of them look on national insurance contributions just as a bit more on top of their tax. My friends just talk about their take-home pay, and they do not differentiate between the deductions for national insurance or for pay as you earn. It is just one lump taken out of the pay packet. In the practicalities of budgeting they certainly do not differentiate between tax and insurance. It is all just one big piece of deprivation.

I should like to ask the noble Minister who is to reply to this debate how much it would be necessary to increase income tax to take care of the increased contributions which they are asking for in this Bill. Would it be a penny in the pound on the standard rate, or what? It is the view of myself and my friends that where there is a need to raise more revenue it should be done on the fairest possible basis of asking those who earn most to give most. It would be interesting for us to know what addition to income tax would be necessary in order to block out this Bill.

Clause 1 of this Bill alters contribution liability and thereby increases, albeit silently, the inequitable switch from income tax financing to individual insurance contributions. I am not very good at figures but I have worked hard on this and I find—and I am subject to correction—that in 1979 a worker on average earnings paid about 6·5 per cent. of his income in national insurance and about 33 per cent, in income tax. Now the 6·5 per cent. to national insurance has gone up to 8·75 per cent., and the tax has shifted down to 30 per cent.

There was a reference to this in Hansard of another place on 17th December at column 469. This clause raises the lower limit in Regulation 7 of the Contribu- tions Regulations Class 1 from £27 to £29·50. I submit that this figure is far too low. It must be the very poorest people in this country whose income is £29·50 a week. It is below the basic retirement pension of £29·60. Even this Government have admitted that the calculation of that pension was wrong and that it should have been higher if it was to keep pace with inflation.

I ask, who are these people who earn £29·50 a week? I can tell noble Lords because I know many of them. It is usually part-time workers, very often women, who clean offices at dawn or do odd jobs, evening shifts, in factories, or shops or launderettes. Under this clause, as I understand it—I hope perhaps I may be corrected—if such an impoverished worker has the chance of, say, a £1 a week rise, he or she will have to beg the employer not to give the increase because, once a worker gets above £29·50, he or she will have to pay a contribution on the whole amount and not just on the amount above the threshhold. Somebody working hard—as I thought the Conservatives wanted us all to do—earning an extra £1 a week would then immediately have to pay £2·60 a week in insurance. What kind of sense does this make?

At the same time, there are the uneven contribution records of such persons who may be earning £29·50 at some time and then for a little while get a little more and come into the full scheme. What happens to their benefit entitlement when their contribution records are examined? This £.29·50 is far too low. It really ought to be a shame for any noble Lord to think that there are people in this country today earning as little as £29·50 a week. What sense is there in a policy which reduces the net income of the poorest and lowest paid people? What incentive have they to work harder if they end up taking home less pay?

From next April when all this comes into effect a person receiving five times the average earnings—say, £35,000 a year—will pay 2.9 per cent. of his income in national insurance. But a worker on £140 a week, which is about the average, will pay 8.5 per cent. of his income in national insurance. It seems that it would be infinitely fairer to increase the standard rate of tax so there was a more equitable distribution between different wage earners. Thus, we have at present an inequitable and irrational tax collecting scheme. I am not contesting the Government's need to raise more money. After all, we on this side want to see higher benefits, better conditions and more investment in the National Health Service, and of course we recognise the inevitability of the Government having to raise more money. But this Government are having to raise more money to pay for the bandages for the wounds of unemployment which they have themselves inflicted on the people of our country.

If we accept the need for more income for social security purposes, surely we can ask whether Clause 1 is the right way to raise funds. That clause raises the upper limit from £200 to £220 and I must ask whether that fully takes care of inflation. Does it mean that somebody earning £500 a week pays the same as a neighbour earning £220? Where is the social justice in that, if that is the case? And the greater the stoppages out of income and the lower the take-home pay, the more wage increases will be demanded, and reasonably so, so that at the end of the day the nation will have gained nothing because we shall have reduced the spending power of thousands of people and will have made it that much more difficult to get out of the recession, which must be the objective of all noble Lords.

I have a specific question to ask about Clause 1 in relation to contributions. What will be the position of young people who take part in the new scheme for youth training? I understand that young people under the YOP scheme are having some credits arranged for certain benefits. We understand that under the new scheme these young people are to be paid £15 a week. Have any arrangements been made for their social security contributions to be credited or for them to have cards that will be franked? If not, they will be in trouble in later life on the basis that their contribution records may be inadequate, and I hope we shall have an answer to that.

On the general question of contributions—I appreciate that this does not come strictly within the Bill but, because of the implications of Clause 1. I feel it is fair to raise the point—are the Government giving any thought (as I wish my Government had done) to computing these on an annual, rather than weekly, basis? We assess income tax on an annual basis but social security contributions are assessed on a weekly basis. I am sure that in these magic days of computers we should be compounding all the liabilities which the citizen has to contribute to national funds in a more reasonable and time and labour saving way.

Annual contributions would be fairer to many seasonal workers. For instance, a seasonal worker earning £50 a week for six months of the year pays more in national insurance than someone earning £25 a week throughout the year, although their annual income is the same. I will not press this point today, but it is one to bear in mind because I have never understood—I repeat, this applies to various Governments who have been in power—why national insurance must be on a weekly assessment and income tax on an annual one. The sooner we can get the two closer together, the better for all concerned.

Clause 2 provides for the Treasury supplement to be reduced to 13 per cent. of relevant contributions. In 1975 the Treasury contribution was 18 per cent. and in 1980 it was 14½, per cent. Now we are to go down to 13 per cent., which represents a reduction of £261 million. A fair question to ask is what the Treasury intends to do with this windfall of £261 million. If they said it was to go towards implementing the Mental Health Bill or the National Health Service or something useful, we should find it more acceptable. However, I read carefully the Official Report of the debates in the other place and no answer was given to the question what the Treasury intends to do with the additional £261 million which it is taking out of the pockets of the working people.

It is not a question of the Treasury saving that money; they are transferring it, and it will be the lowest Treasury contribution ever in the history of the national insurance scheme. It was accepted under the Social Security Act 1973 that 18 per cent. would be fair, and that was maintained for several years by successive Governments. I can find no trace of any Conservatives objecting to the figure of 18 per cent. What, therefore, is the basis of the calculation of 13 per cent.? Next year, will it be 12, 10 or 9 per cent.? Has someone just picked it out of the air? There seems to be no rational basis for the figure. In my submission, it is another indication of the balance being tilted the wrong way, away from general taxation, from which the Treasury gets its money, towards higher individual contributions.

The Government seem to take the view—the noble Lord, Lord Elton, also seemed to take it—that it would be unreasonable to expect the general taxpayer to meet higher costs of benefit. But surely most of the time the worker and taxpayer is the same person, except of course for a few lucky people living on unearned income. It is because the cost of benefits, especially non-contributory pensions, is rising that the Treasury supplement should not simply be maintained but should be increased. More old people are living longer, and I count myself among them and long may that last, and I say the same to colleagues on both sides of the House. Are the Treasury worried because they know there will be even more people unemployed? When they say their expenses are rising, it is clear that they are rising because they are putting people out of work and are then complaining because the numbers receiving unemployment benefit are going up. That is the rationale of the situation.

The Government have refused to make good the 2 per cent. fall in the value of unemployment benefit and at the same time have abolished the earnings-related benefit. A person becoming sick or unemployed now receives about £17·50 a week for 26 weeks less than he would have received had he been on average earnings. A lower paid worker—somebody earning, say, two-thirds of average pay, would have received £10·50 for 26 weeks. They have paid for that benefit, but the Government have abolished it. I suggest to your Lordships that if any private insurance company had behaved in that way it would have found itself in the dock very quickly. Nothing in the Government's manifesto suggested such drastic measures. In fact, in my reading of social history I have to go back to the May Committee in the 'thirties to find similar excesses.

The Minister said in another place (Hansard, 17th December, column 494) that abolishing the earnings-related benefit would save the Government £445 million. So that means that another £445 million has been taken away from contributors, taken out of their purchasing power, thus adding to the recession and increasing pressure for wage rises. So the Treasury—I that some noble Lord will help me if I get it wrong—has taken away £445 million which people have contributed in respect of earnings-related benefits, and has taken £261 million in relation to reduced contributions. I make that a total of £706 million loaded on to contributors.

People cannot accept that there is fairness in those arrangements, and I stress very sincerely that it is only on the basis of a sense of fairness that our social security system can really work. It must be based on a concept that the Government, employers and employees should share in the funding of the welfare state. Once a sense of fairness is eroded, people will feel resentful and unco-operative, and the compassion of a caring society will fade.

I should like to refer briefly to Clause 3, which deals with the allocation of contributions. I am sorry to take so long, but the Bill is more complicated than would appear at first sight, and its impact on our people is worse than has been previously understood. Clause 3 deals with the allocation of the higher contributions, and 0·1 per cent. of the increase is to help the National Health Service. Of course, we would all agree that the National Health Service needs more resources—which makes all the more harsh the fact that Clause 2 of the Bill cuts the Treasury contribution towards financing national insurance. I should have thought that it might be more acceptable had the money been given directly to the National Health Service.

But the most disastrous and unacceptable part of the clause is contained in subsection (3), which provides—and this for the first time in history—that workers are to contribute to the employment protection allocation, which of course includes redundancy payments. This benefit was introduced by the Redundancy Payments Act 1965. It was agreed by successive Governments that it should be funded by Government and employers, and that was confirmed in consolidation measures in 1973 and 1975. I can find no trace of any Conservative voting against that.

So why the change? Is it that the Government, for all their guarded optimism, know that next year more money than ever will be needed to help redundant workers, that increasing numbers of our people will be declared redundant? Will the Government have to look for more money and take it off other workers, so that they can meet the bills? As the recession deepens and both bankruptcies and factory closures increase, many people fear that there will be many more calls on the redundancy fund. In my view the very fact that these fundamental, novel changes, are being considered by the Government is incontrovertible evidence of the failures of the Government's economic policies. They are coming to the House this afternoon saying that things are going to get worse and so we must find some more money from somewhere.

The Government are saying to people who are in work that they must finance their own coming redundancy, they must bail themselves out of the disasters that the Government have created. It is as though a man condemned to death was to be asked to pay for the rope that was to hang him. That really is what the present situation is like. I understand that about £353 million a year will be taken from contributions for this purpose. I quote that figure from the House of Commons Hansard of 15th December, column 175. We believe that the basic principle is wrong. The main reason why we believe it is wrong is that workers do not usually have a share in the decisions which cause their unemployment. And the sense of injustice is enflamed by this new policy—which was certainly not mentioned in the Conservative manifesto.

It is all very well for the Government to say, as the noble Lord the Minister said this afternoon, that the lucky people in work should pay for those who are out of work. But it is not the worker who sacks his mate. It has to be the employer who sacks him, often forced by Government policies into painful decisions on reducing manpower, in regard to which the extra payment on national insurance is of course a salient point.

I must remind the House that redundancy payments are made only to workers who have been with one employer for a minimum of two years. Under the Bill a man or woman will be forced to contribute to the redundancy fund. But I must ask this: If they are sacked after, say, 18 months, will they get nothing? Will they not even get back their contributions? Again the sense of injustice will be bitter indeed. Lucky indeed are the people who nowadays can be sure of being in work, in the same job for two years. A Minister in another place invited people to get on their bikes and go around looking for jobs. If the jobs do not last two years, under the Bill those men and women will have contributed to the redundancy fund; but if they are sacked perhaps only a day or two before the two years is up, they will get nothing. I cannot see the fairness of that, and I hope that the Government will look again at this point. The people who change their jobs the most often are likely to be the lowest paid and the unskilled in depressed areas, people who must move from firm to firm to get jobs. And if people are made to feel that they are putting money into a benefit fund from which they will never get anything, there will be a great sense of injustice.

I must again apologise for having gone into so much detail on the Bill, but that seemed to me to be absolutely necessary. We have spoken a great deal about statistics, percentages and abstractions, but this Bill is about people. It is about how people, including some of the most impoverished and hard-up people in this country, are to manage over the coming years. If people are made to feel they are paying more and are receiving less and less there is a very real sense of injustice.

It has been said before that there is no sight more unacceptable than a fat man telling a thin man to tighten his belt. We are in a situation of increasing unemployment which diminishes the limits of people's tolerance, not only financially but in every ether way. This Bill has the very miserable effect of increasing the disfigurement of poverty in our society, of decreasing the efforts made by many of us on all sides of the House towards a greater degree of social justice. It is I believe an indication of the Government's total failure to come to terms with the economic problems of this country or to bring any element of compassion and social justice into their policies.

My Lords, with the leave of the House, I shall now repeat a Statement being made in another place by my right honourable friend the Secretary of State for Scotland. The Statement is as follows:

"With permission, I wish to make a statement about the closure of the British Aluminium Company's smelter at Invergordon.

"Towards the end of last year the company told the Government that the very large losses it was incurring at Invergordon had reached the point at which the survival of the whole group was seriously and immediately threatened; it was therefore proposing to close the smelter by the end of 1981. The Government nevertheless decided that our first priority should be to try to keep the smelter in operation, and urgent discussions took place with the company in search of a basis on which the smelter could continue.

"To enable it to continue in operation the company would have required the disputed charges of £47 million due to the North of Scotland Hydro-Electric Board to be written off and electricity charges to be reduced to a level which would have caused the board to make annual losses on the power contract of around £16 million a year, continuing at that level, and possibly increasing, until the year 2000. The Government therefore concluded with great reluctance that such commitments in respect of one company would be an unacceptable burden to the taxpayer and that the closure would have to proceed. The company then entered into discussions with the board about the termination of its power contract. Because these discussions were still in progress, the Government were not in a position to make any announcement to the House before the beginning of the Recess.

"Under the terms of the settlement reached between the company and the board, the company's rights under the contract to electricity supplies from Hunterston B to the year 2000 were valued at £79.328 million. From this sum the board deducted £47.049 million in settlement of disputed power charges. At the date of termination of the contract the outstanding balance of the Government loans to the company, including interest due, totalled £33.527 million. Because it was the Government's intention that there should be an equitable settlement which would reduce the threat to the company's other activities caused by the continuing losses at the smelter, my right honourable friend the Secretary of State for Industry did not insist, as he was entitled to do, that the whole of the remainder should go towards repayment of the outstanding balances of the company's loans. Of the remaining £32.279 million the company paid £4.488 million to the board in settlement of current debts for electricity supplied and £12.279 million to my right honourable friend in part repayment of the loan, and received £15.512 million.

"The payment of £12.279 million was sufficient to repay the principal and interest of the 1975 loan in full (£6.547 million) and the interest due and part of the principal of the 1968 loan (£5.732 million). With the approval of the Treasury, the remainder of the principal of the 1968 loan, amounting to £21.248 million, was waived. The European Commission are being notified.

"As I said on the day the closure was announced, the Government regard it as a profound disaster for the area. We fully understand the serious consequences which it will have for Invergordon, and the wider Moray Firth area, both in terms of jobs lost and its effect on the local economy.

"The company has undertaken to maintain the smelter in a usable condition for a period of six months and to co-operate with the Highlands and Islands Development Board in its efforts to find a new operator for the plant. We are already working with the Highlands and Islands Development Board and Locate in Scotland to ensure that every effort is being made to find a new operator. We are ready to assist the North of Scotland Hydro-Electric Board and any potential new operator in their negotiations.

" In the event that no new operator comes forward every effort will be made to try to attract new jobs to the area. The Government have agreed to provide a special extra allocation of funds, amounting to up to £10 million over the next three years, to enable the Highlands and Islands Development Board to undertake special measures to provide new employment opportunities. My department, the Highlands and Islands Development Board and the Scottish Development Agency will give the highest priority to finding new projects which may be established in the area."

My Lords, one of the outstanding features of this closure is the brutal sudden-ness with which it was announced and the speed with which it is being effected. In any other area of Scotland (or of the United Kingdom, for that matter) the loss of 890 jobs would be serious: in this particular area it is really shattering—a disaster of major proportions. Can the Minister, who we thank for repeating this Statement, tell us when the negotiations in fact started? Can he tell us whether Ministers were personally involved in these negotiations; and, if so, which Ministers? Did the Government at any time offer a package to BACO, the British Aluminium Company, which would have allowed them to carry on operations at Invergordon? Altogether, how long did the negotiations last from start to finish, to the point where the Government (and I stress this) informed the British Aluminium Company that termination was the only way?

On the terms of what is a complex and complicated financial settlement, can the Government tell us why there would appear to be very considerable generosity to the company? The workers get nothing out of this; and all that the local authorities which have been involved with the Scottish Office in building up the infrastructure over a period at a cost of millions get out of it is losses. But it would appear to me that we have been fairly generous to the company. In particular, I should like to know why the £21 million repayment of the original loan was waived. Had it anything to do with the smelter at all?

What is the position now? Who owns the plant? Is it the British Aluminium Company? Bearing in mind what the Minister has said about seeking anxiously to get a new operator, I think we must be careful not to mislead people or raise hopes here. What can the Government offer to a new operator in order to encourage it to come in and operate this smelter that they failed to offer BACO to continue its operation? Are BACO now in a position (because I presume the answer to my previous question is that they own the smelter and the site) to veto any new operator coming in? Have the Government any guarantees about scrap value, say, for the smelter and sites if someone does want to take it over?

Further, do the Government appreciate that not only are the 890 jobs in the smelter directly affected here but that there are a lot more affected in transport and British Railways? The British Steel Corporation, I believe, have just announced the closure of a plant in the centre of Scotland which was directly related to the smelter. So the knock-on effect is very considerable, and we shall probably have to double the number that we have already suggested here. The Government say that they are anxiously seeking new jobs. Remember, of course—the North will remember—that it was the Government who turned down the gas-gathering project, on which many hopes had been pinned in respect of new jobs, not necessarily only in this area but in other parts of Scotland.

Lastly, can the noble Earl tell me what are the special measures that the Highlands and Islands Board have in mind, or the Government have in mind? I do not think that at the moment the Highlands and Islands Board are short of money for any viable project that they can get, and this £10 million over three years is a bit of financial windowdressing, but it will deceive no one in the Highlands. It is a sad day, and certainly it is a sad day for me, too. I can remember the competition that there was for aluminium companies to get Invergordon. There were other companies as well; and it is sad that they have reached this particular stage. I wish the Government well in their efforts to attract new industry, but I fear it will be a long time before we get anything employing that number of people. This really was the linchpin of the Highlands development project, and it has gone.

My Lords, from these Benches we, too, wish to thank the Minister for his Statement, his first in the New Year, and would wish to repeat what was said to the families of the workforce there. The message that the Statement contains will bring no joy to the New Year in that district and far beyond it. I will not repeat the questions already raised and to which we shall be interested to hear the answers. I have three questions for the Minister. I cannot understand how calculations can have gone so far out of kilter as to create a sudden closure of the smelter. Smelters operate with hydro-electric plants because one can forecast the cost of electricity for many years ahead. It is not related to OPEC prices. The first question is this. How do other smelters with their costs of electricity manage to continue, and how does the North of Scotland Hydro-Electric Board base its charge for hydro-electricity? Is it on a cost-plus basis; or has the company tried to relate the cost of electricity to the consumer to OPEC prices?

Secondly, can the noble Earl explain to the House, if the North of Scotland Hydro-Electric Board is to lose £16 million a year due to not having adequate charges paid to it for its electricity, who is going to consume the extra electricity of approximately 200 megawatts? If no one is to consume it then the North of Scotland Hydro-Electric Board will receive a nil return for their electricity generation costs. Is it not better for them to get something rather than nothing for their electricity, as apparently they are going to get at the moment? Can the Minister give the House any information of any new industrial complex which is going to come to the area—and I hope it will—with the encouragement of the Government? We wish the Minister well in his efforts to attract it.

My Lords, I should like to thank both noble Lords for their reaction to this Statement. So far as suddenness is concerned, I understand that British Aluminium losses were by September running at half a million pounds a week and it was in those circumstances, when the company apparently decided that its whole viability as a group was coming under threat, that matters started to move. There were considerable and very urgent negotiations thereafter. The noble Lord, Lord Ross, asked who has taken part, I think, on the part of the Government. Many officials from different departments in the Scottish Office started the process off, particularly in the Scottish Economic Planning Department, but as things developed my honourable friend Mr. Fletcher and subsequently my right honourable friend the Secretary of State were both consistently and to a large extent of their time involved in these negotiations. The negotiations took place with representatives of British Aluminium, among others.

A number of points were put forward on the part of the company upon which they would need to be satisfied before they would continue to operate this plant. I do not intend to go into the details of them all now, but in the end the matter came back to the question of the disputed charges as between the company and the North of Scotland Hydro-Electric Board and the continuing losses which would be made by the board if the company was to continue in operation at an energy cost which was satisfactory to itself. It was in those circumstances that eventually the question became as stark as I have illustrated and the Government, with great reluctance, had to come to the conclusion that the cost of £16 million—which represented something like £16,000 a job, which would escalate as the year 2000 approached—was not in the public interest.

The noble Lord, Lord Ross, asked in effect, why the Government behaved generously—I think that was the word he used—to British Aluminium in the matter of the £20 million with which it has been left. I have to go back to the original encouragement which the Government—when I think the noble Lord was Secretary of State for Scotland in the late 1960s—gave to British Aluminium in the first place. There was what was described as a letter of comfort sent from the Minister of State of the Board of Trade, then Mr. Edmund Dell, to the company. That letter, and the sentiment, played some part in the Government's thinking now.

Furthermore, in view of the very serious situation in which the whole group found itself, and particularly because the Government had in mind the continued operation of the smelters at Lochaber and Kinlochleven and the continued operation of the company's other plants, for instance, at Falkirk and Burntisland, the Government wanted to see the settlement—and it was a settlement—equitable and one which would enable the company to close Invergordon without further heavy losses and which would enable it to carry on these other plants. Out of the £20 million, the company has had to meet all closure and redundancy costs and has already met a bill of £4·9 million in respect of its December electricity.

I am replying at length because of the number and detail of the questions which the noble Lord, Lord Ross, quite properly asked. He asked who owns the plant. The plant is owned by British Aluminium, as I think the noble Lord realises. He asked what offers would be made to any other company or undertaking which might show an interest. That would depend upon the commercial judgment of any potential purchaser, and I have no doubt that his judgment would depend upon the terms of any power contract which could be negotiated with the electricity board. The Government obviously will want to discuss any proposal made with the board. I cannot offer any commitment at this stage, but we would consider carefully any proposals which came forward.

The noble Lord asked what special measures the Highlands Board is taking apart from the £10 million, which the noble Lord rather dismissed with the phrase " window dressing ", which it has been given to help it in its work. There is at the moment an urgent study being carried out between the Scottish Economic Planning Department and the Highlands and Islands Development Board to see what are the best ways of urgently carrying out this extremely important and vital work to attract new industry into the area even if a buyer cannot be found for the whole undertaking. Finally, I think the noble Lord asked about the scrap value and any guarantees. The answer is that the Government at the moment are negotiating with British Aluminium on this point.

The noble Lord, Lord Tanlaw, also asked about the sudden closure. I hope that I dealt adequately with that. He also asked about other smelters. Of course, the other two that I mentioned at Lochaber and Kinlochleven have old but nevertheless serviceable and extremely valuable private hydro-electric generating machines which supply their electricity; and therefore their costs are very much less than that which the unfortunate undertaking at Invergordon had to face. It is a long and complicated story of how this came about. Basically, British Aluminium bought a slice of the Hunterston " B " nuclear generating undertaking. In return they were to be given a very large amount of electricity, lasting until the year 2000, at the cost of production. Unfortunately, the cost of production, and also measures which have been rendered necessary by safety considerations, have escalated those on-going costs. That is the reason why all this trouble ensued over the years. I hope that I have answered the noble Lord, Lord Tanlaw, sufficiently. As I have said, it is a long and extremely complicated history.

My Lords, in view of the noble Earl's reply, in which he referred to the cost of electricity, can he tell us whether the closing down at Invergordon is going to add substantially to the surplus of productive capacity in Scotland for electricity? If so, why are we continuing with building a nuclear power station?

My Lords, it is not possible at the moment to predict future electrical demand. The real point of the noble Lord's question is: Why are we continuing to build the nuclear station at Torness? The answer is three-fold. First, arrangements for the building and the equipment which has been ordered are at a very advanced stage. To cancel them now would cost a very great deal of money indeed. Of special importance is the fact that we estimate that if we cancel them we would lose 2,000 jobs. That must bear very heavily on any decision that a Government makes.

Thirdly, Governments have always been castigated in the past because they have underestimated the amount of electricity that would be needed by industry. We are in the midst of a very deep and severe recession. I believe that as we pick up and leave it we shall need in the future all the electricity that we can supply. Electricity is going to be increasingly important to us in the future because it will take the place of hydrocarbon fuels, particularly oil.

My Lords, I think the Minister is right in stressing that we may need all the electricity that we have on-stream at the moment. We also may need the aluminium smelting capacity. From the point of view of the economic wellbeing of the country I hope that he will continue his efforts to try and find someone who is prepared to do it and that he will he a little bit more forthcoming to them than he has been in respect of British Aluminium there.

Has any estimate been made of the cost to the Government and the country of the actual losses involved? This is not just the loss of jobs, the cost of unemployment, but the loss to the North of Scotland Hydro-Electricity Board of the contract, of the take up of electricity, but the loss to the Inland Revenue in respect of the tax that perhaps over 1,000 men would have been paying. I hope these matters were taken into the equation before the Government made their decision. There is also the cost of any new industry going in. That could be very high indeed. I hope the Government took that into account.

My Lords, in so far as these matters which the noble Lord raised are quantifiable—and some which the noble Lord illustrated are not and others which he did not mention are—the Government took all these into account in so far as they could.

My Lords, with the leave of the House, I beg leave to repeat a Statement which is being made in another place by my right honourable friend the Secretary of State for Transport. The Statement reads as follows:

" Before Christmas I told the House that I was not prepared to legislate to let the GLC go back to their unbalanced transport policies which placed such huge burdens on ratepayers.

" I said, however, that I was willing to see the GLC leader anytime if they had problems. Since then Mr. Livingstone and other GLC leaders have come to see me and explain their problems.

" In immediate response to these the Government are prepared to act in two respects.

" First, although the GLC have powers under the Local Government Act 1972 to spend up to the product of a 2p rate which could be used to finance concessionary fares for the elderly, it is clear that they are not in a position to continue relying on these powers alone. Nor are the London boroughs able to get a concessionary fares scheme worked up in time.

" I have, therefore, stated the Government's willingness to legislate to give to the GLC the same powers as other local authorities have, to operate a concessionary fares scheme.

" Second, the high cost and low fares policies of recent months have led to a large accumulated deficit. I have said that we would be prepared to legislate to let LT pay this off over a reasonable period.

" Regrettably the GLC has had to raise fares 100 per cent. not just to get back to 1980 levels but to pay for the heavy costs of inefficiencies imposed on LT in recent months.

" But in the Government's view there is no need for further large increases in 1982. Talk of this, or of large scale redundancies, is raising thoroughly unnecessary alarm.

" The GLC leaders have indicated their wish to come for further talks on the future of London's transport system in the longer term. I welcome these as providing an opportunity for constructive discussion on the needs of the public in London and how these can be best met and financed ".

My Lords, I thank the noble Lord for repeating the Statement made by his friend in the other place. The Statement is grossly inadequate to meet the problems of transport not only in London but elsewhere which have been thrown up by the Law Lords' judgment. Naturally, it is not appropriate for this Statement to discuss that judgment.

The first and last paragraphs of the Statement are, in my view, related. I welcome the readiness of the Secretary of State to meet the GLC leaders to discuss further the needs of the public in London. I should like to ask whether this will include discussion on how far subsidies can be paid to meet the judgment. As the judgment laid down no criteria whatever on that matter, how will this be determined by the Secretary of State? Does this not indicate that there is need for wider legislation to clarify this most important matter, particularly as there seems to be general agreement that the judgment has brought chaos into the financing of public transport? Also, the GLC believed that they were following what was intended when the London Transport Act of 1969 was introduced.

What is the meaning of the reference in the Statement to the heavy costs of inefficiencies? Has not London Transport shown an increased productivity? Has not the " fair fares " policy led to an 11 per cent. additional use of London's buses and a 7 per cent. additional use of London's Underground? Is that not rather an unfair charge to make against both London Transport and the GLC? I welcome the decision to introduce legislation to clarify the position regarding concessionary fares for the elderly. Incidentally, one notes that there is another piece of legislation which is apparently in need of clarification. When is this legislation to be introduced? It is a very urgent matter. Undoubtedly, the GLC and other authorities will need to take this matter into consideration for its budget for the next year.

Will the necessity for the GLC to increase fares in general mean an increase in the cost of this concession scheme? If so, how much will be entailed and will that be set against the rate support grant? It would seem to be unfair if that is to be the case. Finally, has there been any consultation with the Secretary of State for the Environment regarding the restoration of the £110 million penalty by the cut in the rate support grant to the GLC, in view of the proposals now being made by the GLC to comply with the terms of the Law Lords' judgment?

My Lords, we on these Benches thank the noble Minister for repeating the Statement. However, we have considerable doubts as to whether the contents of the Statement will be either welcomed or understood by the ratepayers of the GLC. Could the noble Minister explain to the House whether the Government intend to give a grant to Mr. Livingstone and the GLC which in net terms is either less or more than before the " fares fair " policy came into operation?

Secondly, could the noble Minister come out into the open and tell us whether Her Majesty's Government really approve of public transport and wish to encourage it, certainly in the capital city of this country? I believe that the general public now are confused and worried as well as being inconvenienced by the inefficiencies of London Transport and the lack of capital replacement that has taken place. Will the noble Minister explain the term " cost of inefficiencies "? Is that a reference to equipment of an advanced and modern type, of computer and television systems that have remained unused by London Transport, or does it mean inefficiencies of operation or the inability of London Transport or the Government to deal competently with the unions in operating the transport system?

Finally, would the noble Minister not agree that the London Transport system is now years behind those of other European cities? Is it not about time that it was updated in capital terms and that the ratepayers of Greater London were given some indication and some hopes for the future so that they may be encouraged to travel on London Transport in comfort?

My Lords, I thank both noble Lords for their observations on the Statement. The noble Lord, Lord Underhill, asked whether the discussions to which I referred will result in some subsidies which would help to meet deficiencies. He also referred to the need for wider legislation. I think that these and the other questions he asked have to be borne in mind against the background of what caused the situation in the first place; and the fact is that, as a result of the policies that the new GLC administration (if I can call it that) imposed, the increase to London ratepayers, including the loss of grant, was 10 times—I repeat 10 times—what the cost was before. Quite clearly there were tremendous burdens upon those ratepayers, and that is what led to the whole situation. What we are now saying is that we have listened to the representations made by the GLC leaders, and the Statement says that we will continue to have discussions with them to try to help them, if you like, to restore to some reasonable level a situation which clearly has gone dramatically out of balance. It is the need to fix a proper balance between what ratepayers should pay and what transport users should pay that is the nub of this particular problem.

The noble Lord, Lord Underhill, asked when legislation would be introduced regarding concessionary fares and he also asked whether there would be subsidies. I think what he was asking was whether they would enable the authority then to meet those fares. I cannot tell him exactly when the legislation will be introduced, but I very much take his point that clearly there is a need for some urgency in this whole matter.

As to his question about any consultation with the DoE regarding the restoration of penalties, I am not aware of any such discussions. Whether or not that is something that goes on to the table as a result of what may be decided will have to be seen when the discussions take place, I presume.

The noble Lord, Lord Tanlaw, asked whether the Statement would be understood by ratepayers. My Lords, the ratepayers certainly understand the effect of the judgment on what they will be called upon to pay by way of supplementary rates. There is no doubt about that: they know that. He asked whether it would mean more grant. I would think that would depend on the discussions, as I have already tried to indicate in answer to the noble Lord, Lord Underhill.

As regards whether the Government approve of public transport, I would remind your Lordships that we are subsidising it to the extent of £1·2 billion this year. But of course there will always be a dilemma: how much is enough? That is a debate that can go on for ever, I should have thought.

As to the point about the inefficiencies to which the Statement refers, different people will have their own ideas about that subject; but some may think that, when the GLC inherited an 8 per cent. pay settlement, for example, and then instructed London Transport to reopen negotiations to give an additional 3 per cent., that was a contribution. And some may think that that, when they added several hundred extra staff upon taking office, that was also something that contributed to the situation. When they added 6 million extra bus miles to the routes, you could argue that that was an inefficiency or an addition to service, depending on what happened. But there is little evidence to show that they in fact did, despite what the noble Lord, Lord Underhill, mentioned by way of his figures, achieve a great deal of what was the declared objective of this exercise. However, I do not think it advances us very much today to go into that. The fact is that we are today concerned about what is to he done about a very serious situation for London Transport, and I think that the Statement illustrates the Government's willingness to try, jointly with them, to help to get them out of a position into which they have put themselves.

My Lords, in view of what my noble friend has just said and the sorry story he has told of the handling of this matter, not only in the immediate chaos but for some period back, is not one forced to the inevitable conclusion that London Transport should be removed from the control of the GLC and put again under the Ministry of Transport?

My Lords, hear what my noble friend says and I am sure that there are many who would feel as he does, but clearly that is part of the wider issue, and today I am not in a position, as I think he knows, to comment upon it.

My Lords, is it not a fact that, whatever Government have been in office this last quarter of a century, the problem of the co-ordination of road, rail and bus transport is of paramount importance, and that the judges' decision has created chaos in the minds of many people? Is the noble Lord further aware that it is no good running down British transport alone? Those of us who have knocked around the world at rush-hour periods anywhere can see this problem and I think some Governments should face it with courage, even if they use part of the defence programme to make road and rail strategically valuable.

My Lords, with respect, it is not the Government's decision which is creating chaos: it is the GLC's decision that created chaos where previously it did not exist.

My Lords, may I declare a double interest? I am on the one hand a ratepayer of Camden and, on the other hand, by a very nice piece of timing, I am about to become an old age pensioner next month. Is it really fair and is it possible to continue in these days to hold that the transport system of a capital city is really able to hold its own without subsidy in view of what happens in the capital cities of other countries? Is it also right that in a capital city such as ours, where a great many of the people who take advantage of that transport come from many other parts of the country right outside the London ratepayers' area and are indeed visitors from many foreign countries, all these people should benefit at the expense of the London ratepayers?

My Lords, the whole problem is this: what is a reasonable level of subsidy? Of course, it is not unreasonable that there should be a subsidy. Other capital cities help with subsidies, and there is no suggestion that there should not be a subsidy in the case of London Transport. The whole issue is: what should be that level of subsidy, how should it equate and, as I said before, how should it balance between the ratepayers, the taxpayers and the users of the transport?

My Lords, is the noble Lord aware that an additional, very serious, issue at stake here is that for many people the Fares Fair programme seemed to be eminently satisfactory? It has already made a contribution to enabling more people to use London Transport. The abolition of the concessionary fares for pensioners is giving great concern. But the point that I want to put to the noble Lord is this. In so far as the legal advisers, the lawyers to the largest local government council in the world, gave them legal advice that they could proceed with what they had put into their manifesto, and it was another branch of lawyers who said that what they had done was illegal, what we have to do is this: the threat seems to be a threat against democracy in local government, so when will the Government change the Act concerned, even to make it permissible for the GLC to introduce a Fares Fair programme, so that that can then be judged not by any form of judiciary but by people at a subsequent election?

My Lords, I am in no position, any more than, with respect, is, I think, the noble Lord, to pass an opinion upon the opinions of the lawyers who gave advice to the GLC, or, indeed, with great respect, upon those who gave a contrary view, and I certainly do not intend today to embark upon that. When the noble Lord says that the Fares Fair policy was satisfactory, he means from his point of view and from the point of view of those who feel likewise. I can assure him that it was very unsatisfactory from the point of view of many other people, and I think he would agree to that. I am pleased to say—and I am glad that the noble Lord raised the point—that the pensioners do not have any need to he concerned that their interests are, and will be, taken care of.

My Lords, I have no desire to detain the House unduly, but the noble Lord has not replied to the question I asked about who will determine the criteria, and how they will be determined, for the rate of subsidy. The noble Lord made two statements in reply to questions, and I paraphrase what he said. He said that the main issue is how to determine the balance between transport costs and the burden to be borne by the ratepayers. Then, in reply to another question, he asked: what is a reasonable level of subsidy? That is the very question that I asked, because the Law Lords' judgment did not say what is a reasonable level. When does £80 million become a reasonable level of subsidy and when does £130 million become an unreasonable level of subsidy? Therefore, this question of criteria is very important.

My Lords, I think the noble Lord would concede very quickly that he asked me a very great number of questions, which I tried like mad—if I may put it in that way—to write down. If I did not cover them all, I apologise to him. I know that he will understand; he always does. He asked: what is the right rate of subsidy? What is a reasonable level? How do you retain a balance? I cannot tell him today what is the right level. That will depend, I assume, upon how one defines a fair and reasonable balance. What I do know is that the Law Lords felt that the existing level was certainly not the right level. One would have to read the judgment very closely, as I have done, and as I am sure the noble Lord has done—and, I would respectfully suggest, to read it more than once—to decide what view one would take as an individual. However, at the end of the day, of course, it is for the GLC themselves to decide in the light of the ruling, in the light of their interpretation of what was said in the judgment and in the light of the new situation in which they now find themselves.

My Lords, perhaps the House may now return to considering the Social Security (Contributions) Bill. I should like to begin by thanking the noble Lord, Lord Elton, for his very thorough explanation of the contents of this Bill. As he stated, the Bill increases the employee's contribution from next April by 1 per cent. and reduces the Treasury supplement from 14½ per cent. to 13 per cent. of total contributions. There is no increase in the employer's contribution rate. Last year, a similar increase of 1 per cent. was imposed on employees and the year before a quarter of 1 per cent. So, since the Government took office the employee's contribution has increased from 6½ per cent. to 8¾ per cent. That is an increase in the percentage rate itself of 34·6 per cent. We have to remember, as the noble Baroness, Lady Jeger, pointed out, that national insurance contributions are much more regressive than income tax, having a lower threshold, and because once you pass the top limit in earnings the contributions which you make to national insurance become an increasingly smaller proportion of your earnings.

The employer's contribution to national insurance has risen from 10 per cent. to 10·2 per cent. That is a percentage increase in the rate of 2 per cent. So that is a 34·6 per cent. increase for employees and a 2 per cent. increase for employers, and we on these Benches disagree with increasing the employees' contributions without an appropriate increase in the employers' contributions. We appreciate that employers are hard-pressed at the present time because of the recession and as a result of some of the policies pursued by the Government. But we believe that the way to help them is by a reduction in the 3½ per cent. national insurance surcharge, which is pure taxation and does not go to national insurance at all.

The employees' contributions have gone up in real value, while some national insurance benefits have been declining in real value; and, as the noble Baroness, Lady Jeger, pointed out, earnings related supplements, except in relation to the retirement pension, are being abolished. So far as short-term benefits are concerned, the 5 per cent. abatement was followed by the 2 per cent. under-estimate, so that Pay More and Receive Less would seem to be the Government's policy for employees.

The noble Lord, Lord Elton, pointed out that the increase of 1 per cent. to be paid by employees is to be allocated 10 per cent. to the National Health Service and 35 per cent. to employment protection, and I share some of the views expressed about that by the noble Baroness, Lady Jeger. The question is raised as to whether employees should be expected to finance their own redundancy payments. Redundancy payments have been regarded in the past as compensation for loss of job and it is not customary for victims to be asked to contribute to their own compensation. Twenty-five per cent. of the increase goes to offset the reduction in the Treasury supplement and 30 per cent. towards balancing the national insurance fund. The Government Actuary has pointed out that the additional contribution receipts of the national insurance fund in 1982–83 are estimated to amount to £776 million and, as the noble Baroness, Lady Jeger, has emphasised, £261 million of that is necessary to offset the reduction in the Treasury supplement.

The Government's argument for reducing the Treasury supplement again and raising employees' contributions to offset it was put again this afternoon by the noble Lord, Lord Elton. It is that expenditure on social security, met from general taxation and including the Treasury supplement, has increased from 37 per cent. to 45 per cent. since 1975–76. It is important to remember that expenditure on noncontributory benefits is only 33 per cent. of the total and not 45 per cent., because the 45 per cent. includes the Treasury supplement which helps to finance contributory benefits through the national insurance fund. So non-contributory benefits do not represent so large a percentage of the whole as might at first be thought.

But of course I do not question that there has been an increase in the percentage of total social security expenditure represented by non-contributory benefits. That has increased from something like 24 per cent. in 1975–76 to 33 per cent. in 1980–81. However, the introduction of child benefit to replace family allowances, which was partly paid for by the elimination of income tax relief for children, was the major factor in this increase. The increase in the cost of child benefit in 1980–81 over the cost of family allowances in 1975–76 nearly equals the cost of the income tax allowances in 1975–76. So it is not really an additional cost for the Government to bear.

The second major factor is the increase in supplementary benefit allowances, due very largely to the increase in unemployment owing to the recession and due in part to policies pursued by the Government. If we take the cost of the increase in child benefit over family allowances and the cost of the increase in supplementary benefit allowances over the period we have just been thinking about, we find that they account for two-thirds of the increase in non-contributory expenditure. In other words, two-thirds of the expenditure increase in non-contributory benefits, the grounds on which the Government say that national insurance contributors must pay more, is caused by the replacement of the cost of allowances against tax by expenditure on a positive cash benefit and by Government economic policies, resulting in higher unemployment.

Why should employees be asked to pay more for national insurance benefits on those grounds? Further-more, while it is technically true that employees are being asked to pay more for contributory benefits derived from the national insurance fund, they are in effect, in my view, being asked to pay towards the cost of non-contributory benefits. So long as we have a contributory system I believe that that is wrong. I say " so long as we have a contributory system " because I hope that we shall move to a tax credit system which would replace the contributory system completely. I was encouraged by the remarks made by the noble Baroness, Lady Jeger, about the need for a thorough review of the whole working of our social security system. I hope that she will become an enthusiastic supporter, too, of the concept of a tax credit system.

To turn to one other aspect of the uprating, during the Second Reading debate on this Bill in another place on 15th December the Chief Secretary to the Treasury said, reported in Hansard at col. 225:

" If hon. Members consider the extra expenditure that we seek to finance, they will see that the overwhelming balance of that money will be spent on increased expenditure on retirement pensions. That is what we are talking about. The figures show that of a total increase in benefit expenditure between 1981–82 and 1982–83 of £1,632 million, about £1,450 million extra will be spent on retirement pensions ".

Further on the Chief Secretary to the Treasury said:

" The overwhelming balance of the money that we seek to raise will be spent on retirement pensions ".

It seems to me that these remarks are more than a little misleading because they appear to suggest that contributions are being increased, at least in part, to meet the increased cost of pensions. Yet the prediction for expenditure on retirement pensions for 1981–82 made by the Government Actuary in December 1981 was almost exactly the same as he made in November 1980—slightly less, in fact. But the prediction for unemployment benefit was £537 million more. If the assumption about unemployment had not had to be corrected in this way and if the Treasury supplement had been maintained, no increase in contributions would have been necessary to meet expenditure from the national insurance fund.

No problems of a serious nature arise with regard to pensions at this stage. That problems will arise in the early part of the next century seems inevitable. Future generations are expected to pay for the pensioners of their day more than we are prepared to pay for our pensioners today, but that is a problem which will arise in the future. The cost of pensions at the present time, although it is by far the largest single item in the national insurance fund expenditure, cannot be claimed as a reason for this year's increase in employee contributions.

For reasons which I hope I have made clear in the course of my remarks, my right honourable and honourable friends in another place voted against the Bill. According to custom, we shall not oppose it this afternoon, but we on these Benches certainly cannot express any support for it.

My Lords, although in the economic situation which faces our country today it may well be that a measure of this kind is needed, I am bound to say that no one who has been associated with social security administration for any length of time is likely to welcome it with uncritical enthusiasm.

The noble Baroness, Lady Jeger—I am glad to be able to agree with her for a moment because I shall have one or two observations to offer to your Lordships about other parts of her speech—said one thing with which I agree: that this is a Treasury Bill. It is appropriate that a Treasury Minister—indeed, if he will allow me to say so, the best goalkeeper in this House—my noble friend Lord Cockfield is to wind up at the end of the debate. Although I have been an admirer of the noble Baroness both in another place and here for many years, I hope she will allow me to say that I was extremely disappointed with her speech. To begin with, to speak, as she did at the start of her speech, about the Government seeking deliberately to impoverish large sections of the community is claptrap. The noble Baroness must know that. She is entitled to argue that the effect of Government measures may adversely affect some sections of the community. It is difficult to envisage Government measures which do not have some such effect. But to say of a Government in the 1980s, in a Parliamentary democracy such as ours, that they have set out deliberately to impoverish large sections of the community simply confuses counsel and does not, with respect, help the careful analysis which this Bill requires and which one might have hoped that it would receive from that Box.

Perhaps I may just follow up a point which was made by the noble Baroness, Lady Jeger, which I do not think history will bear out. She said that no changes had been sought to be made in the general structure of national insurance since Beveridge. Only that natural modesty which is one of my more distressing failings prevents me from reminding her that in the National Insurance Act 1959 the significant step was taken of moving over from a system of flat rate contributons and benefits to a graduated system in respect of both. Although the measure in which that was embodied was of modest dimensions, it did in fact mark not only the result of some very hard thinking in the then Ministry of Pensions and National Insurance, but also was followed by successive Governments of all parties and has very much changed the structure of our scheme. Therefore, it is not really fair to suggest that those successively charged with responsibilities in this area have simply gone on repeating Beveridge up to this day.

Having said that, I should also like to follow up what was said by the noble Baroness when she suggested that instead of the increases in contributions which this Bill will effect, there should have been increases made in income tax. I do not want to widen this into a general economic debate but it is on the whole pretty well known that income tax above a certain level has a most damaging effect on enterprise, on savings, and on incentives. There are some of us who believe that to claim off any part of a man's earnings more than 50 per cent. of what he is earning is downright confiscation.

To follow that point a little further, the noble Baroness sought to contrast the proportion of the income of a man earning £35,000 a year and a man on £140 a week, and demonstrated to her own satisfaction that whereas the lower paid man paid (I think her figure was) a little over 8 per cent. in national insurance contributions, the higher paid man was having only some 2·2 per cent. extracted. That is the kind of statement which, although undoubtedly true, if confined to that is misleading, because the £35,000 a year man is paying not 8 per cent. but 60 per cent. of his earnings above certain levels. It is not possible to make a fair comparison unless the national insurance contribution and income tax are put together and the total impact on that man demonstrated. This is how the person concerned feels it, whether he is on £35,000 a year or £35 a week, because in practically every case both the national insurance contribution and income tax are deducted at source from his wage packet, be it weekly, monthly or three-monthly. When the income tax system, heavily graduated as it is, and still very heavy on the higher earnings, is taken into account, the picture really is totally different. It really is misleading to the House to make straight comparisons of national insurance contributions while excluding what is already deducted in respect of income tax.

My Lords, if I may interrupt the noble Lord, Lord Boyd-Carpenter, am I correct in saying he advocates that national insurance contributions should be added to income tax to calculate the total burden on a taxpayer? Then the noble Lord talked about very high rates of tax on those earning high incomes. Did he not leave out of his calculation that national insurance contributions are only payable up to one and a half times average earnings, whereas the very high income tax rates only come into force for incomes which are more than one and a half times average earnings—perhaps three times or four times the average?

My Lords, the noble Lord, Lord Wells-Pestell, is only repeating what the noble Baroness has said; that national insurance contributions only fell—I will not say in the lower tranches of income because I believe that I am right in saying that they now go up to £220 a week, which are substantial earnings even these days. The noble Lord is only saying what the noble Baroness has said. I am glad he agrees with me that the crucial figures are the cumulative effect of the two. As the noble Lord himself said, it is a fact that on the higher tranches of income—leaving national insurance contributions aside altogether because those drop off, as he said earlier—60 per cent. and not 8 per cent. is taken in taxation. It is really not good enough, with respect, to deal with one while wholly ignoring the other.

I have one other remark to make about the noble Baroness and then I will have done with her. She referred in very critical terms to the provision in the Bill—one of the few parts of the Bill with which, on the whole, I agree—under which some small part of the employee's national insurance contribution should go to help to finance the redundancy funds. The noble Baroness made a remarkable observation, which I took down. She said: "No worker sacks his mates." I ask the noble Baroness to think again. Is that not precisely what many workers in British Leyland have done? Is it not precisely what many workers in British Steel have done? Indeed, is it not what some people in ASLEF are doing at this moment? It is really quite misleading to suggest that the responsibility for redundancies is solely that of employers. A trade union which by its strike action disrupts the working of a company or firm, perhaps sometimes to the point of bankrupting it—

My Lords, if I might interrupt—

My Lords, may I just finish my sentence, and then I will give way with the greatest of pleasure? No trade union which disrupts the work of a company and perhaps bankrupts it, and no set of workers who extract as a result of certain action excessively high rates of pay so that others have to be dismissed can shrug their shoulders with regard to responsibility for dismissing their mates.

My Lords, the noble Lord is very fair-minded, as I remember almost with affection from the other place. Would he apply what he was just saying to what has happened to the workers at Invergordon? Surely it was not the fault of any trade union activities at Ivergordon that we had the Statement we heard this afternoon.

My Lords, I am so sorry about the "almost" and I hope that upon reflection the noble Baroness will have that removed from Hansard. On Invergordon, I do not know enough of the facts of that situation, although it rather looks as if it is as the noble Baroness has said. It was not I who said that in every case the worker sacked his mates; it was the noble Baroness who made the generalisation, " No worker sacks his mates ". The examples which I quoted, and they are examples involving very considerable numbers, do show that that statement is invalid. No one would go to the same extreme in reverse as the noble Baroness has done and say that there is no other cause. There are many other causes, alas, in the present state of our economy—but plainly it is wrong to say that " No worker sacks his mates."

Now let us come back quickly to the main structure of the Bill. Its theme is fairly clear. It is not to make a reduction of public expenditure, although it would have, from the Chancellor of the Exchequer's point of view, the attraction of reducing certain sums of money required to be voted in the Estimates. But the expenditure is maintained, and maintained simply by putting a larger share of the cost of maintaining our enormous national insurance scheme onto the contributors.

That includes the employers. I am extremely sorry to see, from the Financial Memorandum to the Bill, that the Bill will have the effect of increasing the employers' national insurance contribution by £47 million. Several of us have complained about this levy, originally imposed I think by the Party opposite, as being a tax on employment, which is precisely what it is. It is almost as bad as the Selective Employment Tax—I was going to say imposed on the advice of the noble Lord opposite; it was imposed, as I understand it, on the advice of the noble Lord who was opposite a minute or two ago—and of course was a disaster. It really is not sense at this moment increasingly to tax the provision of employment.

I know it is difficult for my noble friend at this stage of the year, but I hope he can give us some indication that, although the Government feel bound in this Bill indirectly to increase by £47 million the national insurance contribution levied on employers, there is some hope in the forthcoming Budget that that process will be reversed. He knows that the Confederation of British Industry put this highest of all in their priorities for tax reduction. And surely it does not need the CBI, or the arguments of noble Lords in this House, to say that when you wish to encourage employ- ment, as we all desperately do, to impose high and increasing taxation simply on the provision of jobs really does not make sense.

I am sorry, too, that the Bill increases by a substantial sum the contribution made from national insurance contributions to the National Health Service. I concede at once that there has always been some such contribution. That indeed does go back to Beveridge. I suppose it is a residual trace of the old National Health Scheme, which itself goes back to that very remote age when we actually had Liberal Governments; that little residuum survived the Beveridge analysis. But it is quite illogical. The National Health Service is not an insurance benefit. There would have been a good deal to have been said if it had been made so, and I understand that the Labour Government in 1945 considered that but the late Mr. Aneuran Bevan did not like the idea. If it were an insurance benefit we would be able freely to charge foreigners who have not contributed to our national insurance funds, unless there were reciprocal agreements with their countries.

There would be much to be said for making the health service an insurance benefit. But simply to take a fairly small sum out of the national insurance fund and transfer it in release of the Treasury for payment to the National Health Service is not making it a contributory fund. It is simply introducing what in other circumstances the Treasury dislike, hypothecated taxation, which is exactly what it is. So that, and the reduction of the Exchequer contribution, which I am happy to think Social Security Ministers of my era would not have been disposed to accept, is another feature of this Bill about which I feel rather sad.

The noble Baroness referred to the insurance concept. A little more than 20 years ago when I was responsible for these things we attached great importance to the insurance concept, that people felt they were getting good value for their contributions. We did raise very large sums of money, with, I think, a great deal less pain and discomfort and difficulty than involved in raising any other sums of taxation, because people felt that this was a true insurance scheme. The trouble is that Bills like this, with relatively small changes against the whole vast expenditure of the scheme, carried on cumulatively year after year, nibble away at and erode the insurance concept. Possibly the abolition of the stamp and the deduction of National Insurance Class 1 contributions through the Inland Revenue helped also to do that. I do fear today that the insurance concept has gone, and this seems to me socially a great pity and one likely to add to the practical administrative problems of the Government.

Therefore, it seems to me, in view of the difficulties—and they are real ones—in view of the unhappiness which I myself and I suspect others feel at some aspects of this Bill, it is up to the Government to demonstrate that it is really necessary. I know my noble friend will say, and will be right to say, that the actual and prospective expenditure on social benefit is now enormous, that it has to be maintained, and in those circumstances this Government or any Government are driven to all sorts of shifts and expedients to secure the funds. But I hope my noble friend will accept that what a lawyer would call the onus of proof lies on him, and that to effect these changes in the national insurance scheme at this stage of its development is a matter tha causes—I will not say hostility but a certain measure of concern among many people, including, I suspect, some people who sit with him on this side of the House.

My Lords, this is a Bill about which we can have little enthusiasm. We understand the difficulties. The noble Lord, Lord Elton, referred to the changing and difficult economic conditions of our time, which we do not dispute. We understand that something in the region of £30 billion will have to be found in 1982–83 for social security benefits, of which about £13½ billion will go on retirement pensions. It is all too clear that the redundancy fund will also require additional finance. But we very much question the way the Government have gone about finding this money.

The Bill has two main prongs. The first is provision for an additional 1 per cent. levy on Class 1 contributions between the new lower and upper earnings limits of £29·50 and £220 respectively. The second—and I find this amazing—is a reduction in the Treasury contributions from 14½ per cent. to 13 per cent., which as far as I can discover is the lowest it has ever stood at since the inception of the national insurance fund in 1949. The noble Baroness, Lady Jeger, raised this point, and I am glad to hear that our homework came up with the same results.

If I may turn first to the employed person's contribution, the additional 1 per cent. is to be divided up as follows: 0.1 per cent. is for the National Health Service; 0.25 per cent. is to compensate for the reduction in the Treasury supplement, to which I shall return; 0.3 per cent. is to keep the national insurance fund broadly in balance; and 0.35 per cent, the largest proportion of all, is to go into the redundancy fund. Thus, employees, ordinary working people, are being asked, nay forced, for the first time ever to contribute a very large sum, in the region of £350 million, to the cost of their fellows' or indeed their own imminent redundancies, while the allocation from the employers' contribution for this purpose remains fixed at 0.2 per cent.

Of course, it is perfectly understandable that the Secretary of State should not want to saddle employers with any more charges. But again I ask, is this the way to go about finding the money that he needs?

From now on, if this Bill becomes law, those in work earning more than £29.50 per week will be contributing 8.75 per cent. of their earnings—and this means, of course, all their earnings, because there is no threshold—at a time when the value of short-term contributory benefits, and some long-term ones, is actually falling. One leg of the tripartite funding of the national insurance principle—employer, employee and Treasury—and of course I refer to the Treasury leg, is being so dangerously weakened that the original Beveridge scheme is in danger of collapse. Unemployment benefit was increased by 5 per cent. less than the rate of inflation last time round, and earnings-related supplement is being phased out. Despite the Government's undertaking to pensioners, retirement pensions are running currently about 3 per cent. behind inflation owing to the Government's clawback of 1 per cent. and underestimate of 2 per cent. for the current financial year. I know that the Government have undertaken to make this good next November, but it will be of little help to those pensioners who have died in the meantime.

I will not weary your Lordships with other instances, but it is hard to detect behind the Government's measures in this field since they came to power any principle other than that contributions should go up and benefits should fall. No insurance principle that I know of—and I worked in insurance for a brief period in my life—says that higher premiums mean lower benefits. The truth of the matter is that the social security system is simply being used as an additional tax gathering agency. Most people see this quite clearly. They are not fooled by the use of the word " contribution rather than " tax Indeed, the noble Baroness, Lady Jeger, made this point. The great objection to this is that it is an extremely regressive form of tax-gathering, as the noble Lord, Lord Banks, pointed out. It does not take a higher proportion from people with higher incomes, as progressive taxation does; it hits the lowest paid hardest of all. It simply clobbers the poor.

During the Second Reading debate in another place the Secretary of State spoke with some pride of having raised the upper earnings limit from £200 to £220. He said that it would be regressive to hold the upper earnings limit at its present level, as this would place a disproportionately greater burden on the lower paid. But, my Lords, this modest adjustment upwards of the upper earnings limit does precious little to change the essentially regressive nature of the additional 1 per cent. Can it possibly be right that someone on (let us say) half average earnings who gets a modest rise will have 38·75p deducted from every additional £1 that he receives, while anyone earning over £220, getting a rise, will only have 30p deducted from every additional £1? I fail to see how this can be just. It cannot, of course, be seen in isolation either. For just as the contributions have risen, the income tax threshold has shrunk from 45 per cent. of the average wage in 1979 to 38 per cent. today, bringing 1¼ million lower paid workers into tax. At the same time, higher earners have been given a £½ billion bonus.

There is, of course, a philosophy behind this. It is the supply-side or " trickle-down " philosophy, according to which additional incentives to the higher paid encourage investment and initiative with a beneficial spin-off effect on the jobs and living standards of the large majority. This, in fact, is the case which was advocated by the noble Lord, Lord Boyd-Carpenter. However, this approach is not working even in the United States, where Mr. David Stockman has had the honesty to admit to its failure. And it certainly is not working here, where some of the Government's other policies are in direct conflict with it.

No, my Lords, this is not the way to go about it. Getting the relatively poor to pay for the very poor is not the right way out of our difficulties—or rather, I should say, of getting the Treasury out of the mess it has got itself into. There are better ways I can think of to spread this national burden—the burden of our old and sick and unemployed—more fairly and more evenly through society. In the first place, the Treasury contribution should not be cut from 14½ per cent. to 13 per cent. At this of all times it should have been maintained, or if anything restored to something like 17 or 18 per cent. where it stood in, I think, 1975. In this way general taxation would properly relieve the lowest paid workers of some, if not all, of this burden.

If, on the other hand, the Government remain determined to raise additional revenue through a so-called national insurance contribution, then I cannot for the life of me see why the upper earnings limit should be pegged between 6½ per cent. and 7½ per cent. of the basic pension rate. I realise of course that this is the requirement of current legislation—the Social Security Pensions Act 1975—but there is no earthly reason why this should remain sacrosanct for all time. Why should the contribution of those earning above £11,000 per year suddenly flatten out on to a plateau where it remains up to any income you care to name? Why on earth should those earning £30,000, £40,000, £50,000 or even £100,000 a year make relatively less—I should say progressively less—sacrifice than those struggling to get by on £30, £40, £50 or £100 a week?

If the Government will undertake to introduce a Bill to right this injustice I—and I hope to carry my noble friends with me—will undertake to support it. Perhaps the noble Lord, Lord Cockfield, when he comes to wind up will tell me whether the Government will consider this, and if not, why not? And to take up the point which the noble Lord, Lord Boyd-Carpenter, made that the higher taxpayers are already shouldering a large part of the burden, it is surely the case that their tax liability has been decreased while that of the lower paid has been progressively increased.

Finally, I am left with the feeling that always afflicts me after each and every of our debates on social security questions; namely, that our system which was the finest in the world and the envy of many other nations is breaking down, and possibly reaching a stage beyond repair. I am certainly not alone in this feeling. Time and again I noted from the Second Reading and Committee stage debates in another place that Members referred to the national insurance fund as a " farce ". This word and the adjective " farcical " occurred again and again. And it came from all political parties. In fact, it was a Conservative Back-Bencher—I paraphrase him of course—who pleaded urgently for the reform of a system that was getting worse and more opaque and more complex and more unpopular as the years went by.

The Conservatives themselves have been responsible for some good reformist thinking in the not so far distant past. If I am not wrong, it was from the Bow Group stable that the negative income tax idea emerged in the early 1970s. I believe that the noble Lord, Lord Cockfield, had something to do with that. But now all that has been forgotten and we are faced with the present sorry spectacle of the Government scraping the barrel and coming up with a large slice of the earnings of the very lowest paid workers in our society.

In the Explanatory and Financial Memorandum to the Bill the Government set out the financial effects of the Bill on the Treasury's book-keeping. What is not pointed out with such clarity is the financial effect on the ordinary people which is, if my arithmetic is correct, to take something over £700 million—I think that the noble Baroness, Lady Jeger, said £760 million—out of the pockets of people who are already very hard pressed indeed.

It is therefore some consolation to me that our Liberal allies appear to attach very considerable importance to their tax credit scheme—which was mentioned by the noble Lord, Lord Banks, who is, of course, a great expert on it—which would go a long way to removing some of these appalling anomalies and righting these injustices. I was also delighted that our party's spokesman in another place stressed the importance of considering the questions of poverty, social security, pensions and taxation together as a coherent whole and not in the piecemeal fashion in which we are obliged to swallow the Government's measures in this field. I look forward to the day when a genuinely reforming Government will, as a matter of high priority, address the task of bringing both sense and sensibility to this very important realm of public policy, which is in my view one of the principal tests, if not the principal test, of a civilised society.

My Lords, I think that most of us accept the fact that all of the 22½ million people still in work should contribute a bit more towards the three million who are out of work. In that 22½ million still in work there are very nearly 2 million self-employed people. I was very pleased to hear the Minister say that the Government realise that they must still offer incentives to small businesses and that therefore they have not increased the contributions for the self-employed by possibly the full rates that they should have done actuarially.

But the self-employed have a grievance. They believe that they are being seriously discriminated against by the present system of national insurance contributions. All of the self-employed pay a Class 2 contribution which is a flat rate of, at the moment, £3·40 a week which will rise to £3·75 a week. The only people employed who may not have to pay that contribution are those with incomes of, at the moment, less than £1,475 a year rising to £1,600 a year under this Bill. But, of course, if those people do claim an exception not to pay their contributions, they are missing out on the establishment of contributions towards their pensions. Therefore, it is not really advantageous to them not to pay their contributions, even if their incomes are as low as those limits. However, I think that we all accept that the Class 2 contribution is fair and should be paid.

It is when we come to the Class 4 contribution that the self-employed raise their objections. The Class 4 contribution is assessed in arrears on the taxable profits of the self-employed's business between the lower limit of, at the moment, £3,150, which will rise to £3,450, and an upper limit of £10,000 a year, which will rise to £11,000 a year. At the moment those contributions are assessed at the rate of 5·75 per cent., which will increase to 6 per cent. Therefore, as soon as the self-employed, starting their businesses, find themselves earning taxable profits of more than £3,450, to look into the future, they will find themselves being assessed to this additional tax.

They complain about it for two reasons. First, it is a pure tax. No insurance benefits are offered for paying it. It is just like the national insurance surcharge on employers; it has to be paid and they get nothing out of it. But even more so, they complain because they are not allowed to charge it to tax when it is assessed, whereas all employers can charge their element of the Class 1 contribution to tax and have it deducted before the tax is assessed. In the self-employeds' situation the tax is assessed on their profits and they are not allowed to deduct that assessment from the profits before they pay.

The problem here is not only this discrimination, but rather more than that. An employer can recoup his increased Class 1 contribution by increasing his prices and he still charges it against tax, and that is that. The customer has to pay. However, if the self-employed does a similar thing and raises his prices—and he cannot charge it against tax—to the extent that he is successful in persuading people to pay those higher prices, he is increasing his taxable profit and, therefore, he is increasing the amount of Class 4 contribution that he will have to pay, and he is also increasing the amount of income tax that he will have to pay. So there is a very serious discrimination here about which the self-employed are very unhappy.

A year ago, when I raised these points, the noble Lord the Minister who is to reply today sought to draw my attention to a discussion document issued by the Department of Health and Social Security in October 1980 called, The Self-Employed and National Insurance. In that document the Minister asked for proposals for other ways of dealing with the self-employed and asked that those proposals should be sent in by 31st March 1981. Nine months later I want to draw the Minister's attention to that same document and ask him what has happened about it. Has any progress been made? Are useful discussions being held to help the self-employed get away from this feeling of discrimination?

First, I should like to see the Class 4 contribution abolished altogether. I understand that that is most unlikely to happen in the near future. But what about allowing the self-employed to contract out of the insurance scheme and make their own arrangements? I believe that they would be very pleased to be allowed to do that, and I think that it is a possibility. If not, what about allowing them to charge the Class 4 contribution against tax?—so that they can deduct it from the tax that they pay rather than pay it in addition to the tax that they have to pay. Finally, in order to help those unemployed people who may start up new businesses and thus become self-employed, what about giving them a tax holiday from the Class 4 insurance contribution for the first three or five years, or something like that?

It is a great blow to anyone who has made a modest profit of, say, £5,000—and a profit of £3,450 is less than £70 a week net pay—suddenly to find that he is assessed at 6 per cent. on the difference between £5,000 and £3,450. It comes out of the blue, in arrears, and he has to pay it with his income tax. I hope that the Minister will ask his colleagues to consider the special plight of the self-employed.

My Lords, when I looked at the list of speakers at 2.30 p.m. to see which noble Lords were to participate in this Second Reading debate I came to the conclusion that by the time it was my turn to speak there would be nothing to say, because it is the first time for a long time that I have seen a list in which each Member of your Lordships' House down to speak has a recognised competence in this particular field.

It was my intention to say very little, but the intervention of the noble Lord, Lord Boyd-Carpenter, gave me something of a blood pressure. That being the case, I do not think that I can sit down quite so soon as I intended. Sometimes it is a great pity when the noble Lord—who has unrivalled experience in this field in this House—gets up and spends a disproportionate time defending, the Government, when he acknowledges, as he did at the very beginning today, that he has reservations—my word rather than his. I hope that he does not think I am being too presumptuous when I say that, with his unrivalled experience, I think he would serve this House and his own party much better if he went for his party, in the nicest possible way, and pointed out to them from time to time the error of their ways. As he acknowledged, they have an excellent goalkeeper; of course, he has a shocking team in front of him so he needs to be a good goalkeeper. I think that the goalkeeper to whom he referred is very capable of dealing with any points that arise.

I had a sense of satisfaction when I saw that the noble Lord, Lord Cockfield, was down to speak, because it led me to believe that the Government had a guilty conscience about this particular Bill, and therefore, had imported the one person—and they have imported him on more than one occasion into various debates, and I am not thinking of when he attends this House in his official capacity as a Minister from the Treasury—who is so plausible (and I use that term in the best possbile sense). " Plausible " means persuasive, and the noble Lord is a persuasive speaker, but it is backed, as we all know, with a great deal of knowledge, even if we sometimes disagree with his economic approaches. There are other economically able noble Lords in this House who also disagree with him.

The noble Lord, Lord Boyd-Carpenter, took exception to my noble friend on the Front Bench saying, or implying, that the Government deliberately do this. Most of us on this side of your Lordships' House are balanced, integrated persons. We do not blow hot and cold. We do not go up and down. But we have been forced into the situation in the last two and a half years of believing that this Government have deliberately set about the lower earning group. There have been abundant examples of it: the abatement in the unemployment benefit and in other social security benefits; the shortfalls in the retirement pension. Is it not deliberate? If they did this, was it not a deliberate act on their part? Does it not affect only a particular section of the community? The noble Lord expects—and I say this kindly; he knows I am not cross—

I am.

One must not get cross in that sense. Angry, yes. The noble Lord expects us to have a certain amount of sympathy for the poor individual earning £35,000 a year who he says is subject to 60 per cent. taxation. Of course, it leaves the £35,000 a year man with only £300 a week to live on. Poor soul! Does the noble Lord really think that that group of people earning that amount of money and more are having a lower standard than the people who are now to be asked to pay 8¾. per cent. of their earnings up to £220 by way of national insurance? Of course they do not.

My Lords, would the noble Lord allow me? I am so glad to hear that he is not cross. Would the noble Lord address his mind to this aspect of the matter? Does he not accept that experience has shown that very high levels of taxation on persons whose earnings are apparently high because they are regarded as valuable people has resulted again and again in one of two things happening? Either they have gone abroad and we have lost their services, or alternatively the incentive and the vigour that they ought to be putting into leading our economy and the rest of us into prosperity has been weakened. Surely if there is anything to be learned from the experience of the Governments which the noble Lord supported it is that, and it has a great deal to do with the mess they left the country in.

My Lords, I thought they were the patriots who support the Conservative Party. Is the noble Lord really saying that they arc doing this? If this is so, then we can do without them, and we are in a bad way if we cannot. If that is their idea of patriotism and of supporting the country, then, as I say, we can do without them. But I want to get back, because I want to ask the noble Lord for some help in this particular matter. We are asking a very substantial number, millions, of men and women who are working in this country to pay 8¾ per cent. of their earnings up to £220 a week. They already represent a declining labour force, and as things are going at the moment they are going to get less and less and less. Are they always going to be expected to carry the burden of those who are unemployed and those who, through no fault of their own, have to go for social security benefits?

I know that the noble Lord will say, " Yes, this is all very well, but it does not all come from national insurance; it comes from taxation as well ". But they too are taxpayers, and here we are, a group of people who earn up to £220 a week, paying 8¾ per cent. They are the very people who are suffering from the effects of inflation and, if I may say so, the group to which the noble Lord, Lord Boyd-Carpenter, referred have got far more money left to meet inflation than the group that we are talking about today.

Furthermore, they are men and women who, although inflation stands at something like 12 per cent., are also denied a reasonable increase in wages to meet that 12 per cent., and consequently—I do not think that anybody is going to deny this—for the last three years their standard of living has fallen. Now we are going to impose an added burden upon them. What I do not understand—and this is probably entirely due to ignorance on my part; I believe there are other ignorant people in the House as well, from an aside I overheard—is why cannot those earning more than £220 a week be expected to pay 8¾ per cent. of what they earn?

It seems to the uninitiated, the uninformed, like myself, grossly unfair to say to one man that when you reach £220 a week you pay 8¾ per cent. all the way up, but when you get to £320 and £420 you will still pay the same amount of national insurance as the £220 a week person will pay. There must be an answer to this, and I hope that the noble Lord will feel able to give me one. Would it not be possible to band the earnings of those earning above £220 so that the higher up they go they pay more than they are doing at the present moment and more than they will do under this Bill?

I want to refer to some remarks made by the Secretary of State for Social Services in another place on 15th December last when he introduced this Bill at Second Reading. He said:

" Of this, about 19 billion will come from the national insurance fund and the rest from general taxation.

" Of the estimated spending from the national insurance fund of about £19 billion, £13½ billion will be spent on the retirement pension—about £1½ billion more than this year. This will enable us to fulfil our pledge to pensioners that their pensions will keep up with the cost of living. It recognises our obligation to the pensioners which The Times set out fairly in a recent editorial when it said:

'The elderly contain the largest single area of poverty and sickness in Britain. They lack the strength and mobility to adjust to the inflationary gale '.".

I think most of your Lordships—certainly a large number of us on this side, who perhaps have a great deal more contact with the elderly in one way or another—realise what a tremendous burden is placed upon them. They find making ends meet rather difficult.

In recent weeks I have been appalled at the conditions of some of the elderly people in the area of Oxford where I live. I know it has been an unusual period, but I have been appalled to find how some of them are having to live. A large number of them live in one room and there is no possibility of their buying even one cwt. of coal; it is difficult to get and if they are able to purchase one cwt. of coal there is nowhere to put it.

It may surprise your Lordships to hear that I live in a small house, which has not been built many years, and there is not a single place where I could keep one cwt. of coal. True I have central heating, but an open fire is nice from time to time. I have to go out and do exactly the same as the old age pensioner, which is to buy a bag of 44 lbs. of coal. That coal gives off an awful lot of smoke, but I do not live in a smokeless zone. That bag of 44 lbs. costs £2·6, which works out at £123 a tonne. If I want to buy fuel which does not not give off smoke, I can buy 22 lb. bags of smokeless fuel for £1·65, which works out at £165·50 a tonne. Anyone who can afford to buy a tonne of fuel—while the people about whom I am speaking have nowhere to put it, many people have places—can obtain smokeless for £122 a tonne, whereas buying it by the bag works out at £165. Smoking coal can be bought for £90 a tonne, whereas buying it by the bag costs £123 a tonne.

I do not know whether the Government have any control over coal prices, or indeed if they have ever looked into the matter of the cost of coal. I sincerely ask them to look into it. It seems perfectly scandalous that elderly people, because they live in one room and have nowhere to keep coal, should have to pay 50 per cent. more for their fuel, be it smokeless or not. Some pensioners have told me that a 44 lb. bag of smoking coal or a 22 lb. bag of smokeless can be made to last three or four days provided it is not burnt for more than three of four hours a day.

If the Government want to do something to help the elderly—I gather that the Secretary of State has shown grave concern about the issue—I hope they will inquire into the whole question of coal prices. I know the Government want to do something to help with additional fuel bills. That I understand and appreciate, but it does not alter the fact that for the remainder of the winter (for every winter, for that matter) these people are paying a disproportionate amount. We on this side of the House feel that a substantial section of the community obtain a disproportionate consideration compared with those who receive and earn a great deal more, and that is why I am in complete agreement with my noble friend Lady Jeger and the noble Lords, Lord Banks and Lord Kilmarnock. Noble Lords opposite have not yet come to grips with the conditions in which a large section of people in this country live. The sooner they do so, the more charitable they will be towards them.

My Lords, having read the Official Report of the debates in the other place on the Bill and having listened to the debate today in your Lordships' House, I—and any fair-minded person—must come to the conclusion that in the view of the majority of those who have contributed there is very little to find in favour of the Bill. The question which must therefore be posed is why the measure has been introduced, and in my view the answer is simple. It is that the Conservative Party have always hated the concept of the welfare state. When the National Health Service was introduced in the other place they voted against it tooth and nail at every stage. The principle of decent and compassionate welfare has been accepted by them only because the mass of ordinary people have the vote and want it to continue.

As a result of that, we have a very strange attitude on the part of noble Lords opposite, an attitude which I thought was exemplified by the noble Lord, Lord Elton, who was frightened by the increase in longevity among our fellow citizens. He pointed out that it would mean more and more pensioners. I should have thought that was a good thing, because it would also mean that before becoming pensioners they would have lived long enough to make a contribution to the economy. Unfortunately, we are now in the position when even upon leaving school people are not able to make a contribution to the economy. It is clear where the finger is pointing; Saatchi and Saatchi did not know what they were doing with their fake advert. The Conservative attitude to the youth of the country is to tell them to join the dole queues, and because they are not contributing the Government are having to look at ways of saving money, and they save it by introducing nasty little measures like the one before the House today.

The noble Lord, Lord Elton, went on to say in effect that we should overcome the fact that one great party in this nation favours the workers and the other great party favours the employers. That is no longer the case, at least so far as the Conservatives are concerned; they have no time either for the workers or the employers. The rate of bankruptcies and the ever-increasing length of the dole queues prove that beyond peradventure.

In view of the way in which the noble Lord, Lord Boyd-Carpenter, with his great experience and ability expressed what I thought was some grave apprehension about what is proposed in the Bill, that should be a sign to the Government. There are not many among the extinct volcanoes in the other place who can compare for knowledge and ability with Lord Boyd-Carpenter. I hope the Government have taken careful note of what he said. The only criticism I would make of the noble Lord's speech was when he tried to draw some analogy between a family living on £25 a week and a family on £20,000 a year. I ask noble Lords to imagine for a moment trying to live on 25 quid a week. Even the thought could almost cause a few heart attacks. To try to put that in juxtaposition with someone on £20,000 a year is almost too ludicrous to contemplate.

I would say this, too, if I may, to the noble Lord, Lord Boyd-Carpenter. He makes contributions in this House that I always enjoy. However, the noble Lord always seems to get worked up whenever he talks about trade unions on the one hand and employers on the other. So I would say to him and to the Front Bench Opposite that if only we could garner the billions over which the rich cheat in not paying their income tax, there would he no need for this Bill. I would hope that the Government might entertain this idea. They could have a mind as shrewd as that of the noble Lord, Lord Cockfield, to look into this, and I should love to help him. I am quite sure that he has the ability and the earnestness to block some of the gaps which allow the extraordinarily rich in this country to take full advantage in not paying their way. These are the people on whom we ought to concentrate, not the broad mass of the working men and women in this country who belong to trade unions.

The fact of the matter is that the extra payments are required because of the Government's economic policy. This point was illustrated not in any extreme, left-wing socialist journal, but in the " Thunderer " itself, in The Times of 15th December. I quote what The Times had to say:

" The plight of the unemployed is the worst it has been in the past decade ".

Consider those few words, my Lords. Think what the situation means to the family of those who are unemployed. If we could take a cross-section of them, even the Front Bench opposite would not merely heed the words of the noble Lord, Lord Boyd-Carpenter, and of my noble friend Lady Jeger, and indeed of myself, but would join with us in seeing that this evil little measure was done away with.

What has happened is that all benefits were cut last year—even unemployment and invalidity benefits. So the philosophy seems to be this: you shall be punished for being sick and out of work. Are we going to approve that in your Lordships' House? I do not believe that we can. Long-term supplementary benefits have been slashed and so, too, have injury benefits, child benefits, and even mobility allowances. I hope that we shall recognise the ploy of the Government in the statistics that we were given this afternoon and which were given in the other place to justify this measure. I would sum them up by describing them as arid statistics, designed to strangle compassion.

I should also like your Lordships to understand that the Bill affects millions of our fellow citizens. It is not a bit of use members on the Front Bench opposite talking about Government spending. It is a fact—we have always said it—that it is the people who are doing the spending. I. should have thought that the average British citizen does not mind giving up some of his money so that those who have nothing shall have something and can spend, so that mothers can spend, and so that those on the dole can spend. As Keynes pointed out in the 'thirties, even by simply spending they are making a contribution towards easing the economic difficulties now facing us.

If the disabled could not buy all the aids that they require, if the 3 million people on the dole could not buy food and clothing for themselves and their children—if they could not do that from Social Security and other benefits, then there would be less produced, there would be more unemployment, and round and round we would go. Indeed, this measure itself could make a contribution to increasing unemployment.

There is so much that I should like to say about this measure arising from personal experience of 13 or 14 years in local government and a similar number of years in another place. visiting people, talking to them at our surgeries, meeting them in times of distress, and understanding the anguish and the agony that they go through. I know, too, of the same kind of agony and anguish that the small businessman goes through when he is forced to become bankrupt. All these things concern the human attitudes that I believe it behoves us in your Lordships' House to take note of.

I wish very briefly to turn to a suggestion that I should like to make concerning the Department of Health and Social Security and local government. It seems to me that under successive Governments we have never really tackled this particular problem, and, if I may, I shall explain to your Lordships what I think it is. It causes irritation among ordinary people, and I would ask the noble Lord, Lord Cockfield, to take it on board. I do not ask him necessarily to answer the point at the end of this debate, but I am sure that he will be prepared to consider it. There is a need for much closer-knit liaison between local government at perhaps borough level and the local DHSS office. So many people are not quite sure where they have to go. Very often the town hall is a mile or two away from the Department of Health and Social Security office. The civil servant has to say, " I am afraid that this is a local government problem, you will have to go to the town hall ", or, conversely, the town hall official has to say, " You will have to go to the office of the DHSS ". I should have thought that it would not be beyond the wit of administration to have some form of liaison so that that kind of situation could be entirely avoided, or so that ordinary people could at least be saved much trouble, tribulation and trudging, particularly in weather such as we are at present experiencing. I hope that that idea might be looked at.

I find the situation of the lower paid and the poorer people terribly distressing. With this Bill we are behaving in the way that the nations behave one to another: the richer nations are becoming richer, and the poorer nations are becoming poorer. This measure will mean that the poor of our country will become poorer, and if we do not do anything about tax evasion, the rich will become richer. As I have already said—it is worth reiterating—I should like to see someone such as the noble Lord, Lord Cockfield, given the particular task of closing all the loopholes of tax evasion—I am quite sure that a number of noble Lords on this side would love to aid him—and then there would be no need for this measure.

The Government must have a brand-new policy overall if they are to avoid stooping to implementing this distasteful, nasty, little measure. The Government need a brand-new policy. I do not want to use the term " U-turn ", but there is nothing wrong in the Government saying bluntly, " Our policies have not turned out as they ought to have turned out. It is time to change them ". That would show courage and, what is more, it would be beneficial to the nation. The Government themselves claim to be a Government of businessmen, but all they will do with measures such as this will be to put their customers out of business.

The 1908 Act was bitterly opposed in this Chamber. That Act marked the laying of the foundations by Lloyd George of the great welfare state, which the world has since admired, and in these terribly difficult times in which we live surely it is this principle above all that we must hang on to. I noted that in regard to the introduction of the 1908 Act, which was bitterly opposed in both places, a noble Lord said that the scheme was so prodigal of expenditure that it might be dealing a mortal blow to the Empire; and other noble Lords went on to say that it would weaken the moral fibre of this country. We all know what a lot of rubbish that was. We all know of the gallant efforts of those who were not even born then, in 1908, to save this nation from the evil clutches of fascism. What is more, we saw our chidren becoming healthier and healthier; they, in turn, became healthier and better parents; and, consequently, the nation was enriched.

I hope that this debate in your Lordships' House will make Her Majesty's Government think again. If I could appeal to Lord Cockfield, I hope that at least he will take back to the Government some of the views and some of the ideas that have been expressed on both sides of this House; because, if I may say this in conclusion, the real answer to all the problems that we face—and it will stop measures like this having to be brought before us—is a return to full employment, so as to build up our economic strength, from which we can succour the less fortunate.

My Lords, I think few of us would dissent from the view which has just been expressed by my noble friend Lord Molloy that, in general, this Bill is not one (to put it mildly) that has aroused any profound enthusiasm in your Lordships' House. Indeed, speaker after speaker has got up and made very valid points that go right to the root of the Bill's validity. My noble friend Lady Jeger has already covered in detail much of the ground that was put forward with great clarity by the noble Lord, Lord Elton; and she has therefore made it unnecessary for me to cover it again. I prefer, with your Lordships' permission, to deal with some of the matters that have been raised in the course of this debate itself.

I am bound to say that I hope the noble Lord, Lord Cockfield, when he comes to reply, will be able to deal fairly and succinctly with what the House may consider to be the excellent contributions from the noble Lord, Lord Banks, and the noble Lord, Lord Kilmarnock, as well as with the points that were made in regard to the self-employed by the noble Lord, Lord Spens, whom I was very tempted to ask, when he was pursuing his taxation questions, whether he would be in support of individual employees being entitled to deduct their National Insurance contributions from their gross income before assessment for tax. I still wonder what his answer would he to that. Then, as usual, we had a very moving speech, indeed, from my noble friend Lord Wells-Pestell, who, as always, brings these matters into the human perspective and draws so much on his very rich experience in the fields about which he talks.

Last but not least, there was the contribution of the noble Lord, Lord Boyd-Carpenter, which brings me to the theme of my speech to your Lordships this evening. He said, " This is a Treasury Bill "; and he also said that it was fairly replete with what he described as shifts and expedients. I could not have put it better myself, although (to use a cricketing as against a football metaphor) he allowed himself a long-stop in what he was going to say by half expressing the hope that his noble friend Lord Cockfield would act as an effective goalkeeper. I gather he had misgivings himself but that he hoped that, in so far as his misgivings were shared by the House, the noble Lord, Lord Cockfield, would be able to dispose of them when he came to reply.

My Lords, it will be within the recollection of your Lordships' House that the noble Lord, Lord Cockfield, very often speaks last as well as first, when of course he cannot be answered; and I would remind him that on this occasion there is a Committee stage to follow. If his observations this evening have the usual mechanistic quality which has become associated with many of his replies of a mathematical nature, then they can at any rate be reviewed in Committee. One issues that by way of warning to the noble Lord in case we have the very slick answer this evening that all the sums are absolutely correct, the principles are right, QED and that is the end of the matter. As I say, these matters will be subject to review in Committee.

My Lords, one thing which emerges from this squalid little measure, which one hopes the Government may still see fit to withdraw before it goes any further, is, of course, that it takes away from the poor for the sake of saving the rich. My noble friend Lord Molloy made that point, I thought, very well. But if there is any doubt about it in its generality, let me say this. The noble Lord, Lord Boyd-Carpenter, himself posed the question when he said that an employee's contributions by way of income tax and by way of national insurance should be taken together. Fortunately, the sums have been done for us in the other place by an Answer to a Written Question on 21st December, at columns 301 and 302, where the whole array of increases in the proportions of net incomes at various levels—half of the average income, three-quarters of the average income, average income, one-and-a-half times average income and twice average income—has been set out in taxation categories, which should commend itself to the noble Lord, Lord Cockfield.

He will find, as the House will find, that, in every grade and at every level of the incomes that I have mentioned, the proportion of income paid out by employees in that category, taking taxation and national insurance combined, has increased, and in some cases has increased significantly. This, of course, is what one would expect, because your Lordships will remember that, in a fit of optimism which has now frittered away into despair, the Government established a new taxes and prices index on August 29th, 1979, which according to them was to be a much more reliable indicator than the retail price index, and as we all know—and I do not need to remind the noble Lord—the taxes and prices index has now gone very much above the ordinary retail price index. What is more, that in itself has gone up by an unconscionable amount since, notwithstanding anything that the noble Lord said—and he will recall that when, about three months ago, he said that the rate of inflation was going down, I ventured to query it and gave him a warning—the inflation rate is still running at 12 per cent., or above what it was when the Government took office.

All that this miserable little Bill does is once again to put an extra burden on the employees generally in this country, on those whom we will call, broadly speaking, the workers of this country. That is all it does. This is a little odd because the whole story at the time of the general election—and it is enshrined in all Conservative philosophy—was that people ought to have more money in their pockets and that they ought to have much more incentives. This lay at the whole base of it: that taxation was going to be reduced and that all kinds of things would happen so that the amount of money left in a person's pocket was going to be more and would fructify and give the necessary incentives. In fact, what has happened since this miserable Administration took office is that the ordinary worker in this country has a less proportion of his earned income in his pocket than ever he has had before.

I am afraid that the noble Lord will not be able to get round this one—no matter with what mathematical dexterity or quirk of what he would term logic he may care to answer. This is the truth. But the Government will say that, really, this is nothing to do with them at all; that it is all part of the working of the national insurance scheme, that the reduction in the Government's own contribution to the national insurance fund is not deliberate—just to make the point of the noble Lord, Lord Boyd-Carpenter, who seems to think that the Government may occasionally act by accident—but it was all because of the necessity of maintaining a balance in the national insurance fund. And to that, with your Lordships' permission, I should like to turn, because there arc one or two things that mystify me about it.

The noble Baroness, Lady Wooton, in the course of her speech ventured to query the existence at all of the national insurance fund. I have no doubt that the noble Lord will be able to prove that it existed. Well, in due course we shall see whether it exists or not. I should like to draw your Lordships' attention to the fact that, according to the Government Actuary's Department, apparently the balance of the fund at 31st March 1981 was of the order of £5,000 million. That point struck me as a little odd; because " of the order of " implies a lack of precision, that they did not know quite how much it was but that it was of the order of £5 billion.

Where does that £5 billion come from? If it exists at all, surely it must have come about because of an excess of income into the fund over the expenditure. One has instances of this phenomenon on page 6 of the Actuary's report where it shows a deficit of £153-million for 1981–82 and a deficit for 1982–83 amounting to £9 million. Yet here is that figure of £5,000 million. If one also refers to page 6 one comes, in the income column, to investment income of £570 million in 1981–82 and £595 million estimated for 1982–83. As it says " income from investments it means that the fund holds investments. One would like to know what the investments are that make up this £5,000 million.

I am bound to say that on the basis of the investment income yields disclosed for 1981–82 and projected for 1982–83 and on the assumption that the whole of the £5,000 million is invested, as distinct from lying about somewhat amorphously in the Consolidated Fund, the projected income represents about an 11 per cent. return in both cases. The interest rates in this country have been running at between 14 per ent. and 15 per cent. for a year. If there is £5,000 million in the fund, would they not have done better to leave it on deposit? There would have been sufficient in it then to have avoided the contribution by the workers of this country into the redundancy fund; because that would be about the extra amount of money that would be available if the money had been put on deposit.

Or perhaps the money does not exist at all. Perhaps it is merely another form of bookkeeping entry. Perhaps the investment income is an assumed figure of an amount that the Consolidated Fund is deemed to have paid into the insurance fund by reasons of the book-keeping accumulated surplus over the years. These are all things on which the noble Lord, Lord Cockfield, doubtless can expatiate at some length. But it will be interesting to know. Also one sees—and I am surprised to find this in the estimate and income of the national insurance fund—an item called, under " Outgoings ", " other outgo " amounting to £3 million for 1981–82 and £4 million for 1982–83. What is " other outgo "?

On the whole, I am bound to say that the nature of the accounts presented to us today, which is supposed to be explanatory, is something which, if a company laid it before its shareholders or if a company tried to get a quotation on the Stock Exchange on the basis of it, it would never get past first base. In short, all that has really happened is that the Government Actuary has been told what the Government want to do and—no doubt very accurately on the basis of his expertise in his profession and taking into account the expectation of life of the individuals involved, particularly on the retirement pensions side and the other assumptions he was given—he has produced an answer.

A Parliamentary Question was asked in another place as to what assumptions had been given to the Government Actuary? On 21st December Mr. Ray Powell asked the Chancellor of the Exchequer what criteria he had used in making the working assumptions of the level of unemployment in 1981–82 and in 1982–83 which were used by the Government Actuary in drawing up his report on the financial provisions of the Social Security (Contributions) Bill 1981— (Cmnd. 8443). Mr. Brittan replied and his reply must commend itself to all who believe in frank answers to questions and in open government. His reply was:

" As usual, the working assumptions took account of recent trends in unemployment ".

This is frankness taken to an embarrassing extreme. Fortunately, the Actuary stated the assumptions upon which the calculations were made.

The House will be interested to learn the assumptions on which he was instructed to work: the number of unemployed, including school-leavers, was 2,600,000 in 1981–82 and 2,900,000 in 1982–83. We already know now that the working assumptions on which the Actuary was instructed to work predicted the rise in unemployment which has already been adumbrated in other parts of the country by other economists who at the time when they made their predictions of over 3 million or 3½ million unemployed were called " dismal Jimmies " and were repudiated at the time.

The other assumption upon which the paper was drawn up was that average in earnings in the tax year 1981–82 are 11.3 per cent. higher, and the average in the tax year 1982–83, 7½ per cent. higher. In other words, the Government Actuary was told to assume that there would be a cut in the standard of life of the ordinary working-class during these two periods, because the rate of inflation, owing to the miserable and asinine policies of the Government, has maintained itself steadily around 12 per cent. as distinct from the 10·3 per cent. when they took it over.

The noble Lord, Lord Boyd-Carpenter, took exception to the use of the word " deliberate " by my noble friend in regard to the Government's action. The Government are composed of the wonderful people, the people who are really expert in every field, and who were going to put things right. It would be unjust to them to say that they do anything by accident. It is all carefully calculated, as no doubt the noble Lord, Lord Cockfield, will prove when he replies.

One must assume that those that will the means, will the ends. The fact of the matter is that all this Bill does—this miserable little Bill—is to put an extra burden on people who can least afford to bear it.

My Lords, perhaps I may start by giving the noble Lord, Lord Bruce of Donington, a measure of reassurance on one point. The Government have no intention whatever of withdrawing this Bill, which they regard as right, necessary and proper. The noble Lord will therefore be able to look forward to the Committee stage when we will debate with him many of the points which have been raised today which in fact are essentially Committee stage rather than Second Reading points.

The debate has ranged very widely indeed. The Bill itself is a very limited one, dealing with the level of contributions. It does not deal with the price of coal. I realise that the noble Lord, Lord Wells-Pestell, has very strong feelings on this matter. I think it is only right when he gives expression to those feelings that he should also bear in mind the heating allowances which have been provided to help people in that situation.

Nor does the Bill deal with the general state of the economy, although a very great deal was said about that. I listened of course to all the points that were made with very great interest. I listened in particular to the speech of the noble Baroness, Lady Jeger. If I may say so with respect, never have I heard a speech in which so many fallacies were so elegantly woven together to form a skein of such elegance, sincerity and lack of substance. The noble Baroness referred to the Government's policy as being one of impoverishing large sections of the community. This point was dealt with very completely in a speech of great force by my noble friend Lord Boyd-Carpenter. I do not wish to add very much to what he said. It has never been the policy of this Government or any previous Government to set out to impoverish large sections of the community.

My Lords, will the noble Lord allow me to intervene? He said that he did not wish to add to what the noble Lord, Lord Boyd-Carpenter, said, but I do. What is it other than deliberate impoverishment when we know that the unemployment pay has not kept pace with inflation and that retirement pensions on the Government's own admission are below what they should be and the Government have agreed that these should be increased to take care of this mistake? I do not think that the word " deliberate " is amiss in that context.

My Lords, the noble Baroness had ample opportunity to make her point; but as she raises it again, may I deal with it? The same point was also raised by the noble Lord, Lord Wells-Pestell. If both of them care to search their memories they will remember that in the time of the Labour Government a change was made in the basis on which retirement pensions were uprated. The change was from a past basis to a future forecast basis. The effect of that change, if I may dare use the noble Baroness's own phraseology, was to impoverish the pensioners by the sum of £500 million. The next thing that happened—again in the lifetime of the Labour Government—and I hate to mention these things and, unless provoked, I never do—was that in all good faith at the end of their term of office they underestimated the rate of inflation. One of the first things that we did was to make good that shortfall in the retirement pension. A similar underestimate occurred this time. These are estimates made by both Governments in perfectly good faith. We have made it abundantly clear that so far as the retirement pension is concerned that shortfall will be made good next year. That disposes altogether of that point.

My Lords, will the noble Lord give way?

My Lords, the noble Lord has had ample opportunity; we cannot go on all night on this matter.

My Lords, if the noble Lord wants to attack this side, let him do so; but let us remind him that only a short time ago pensions were increased after 54 weeks and not 52, and the pensioners were robbed of two weeks' increase of pension as a result.

This Government, my Lords, have behaved towards the pensioners with perfect propriety and perfect fairness. The noble Lord is accusing me of attacking noble Lords opposite. Nothing is further from my thoughts. It is quite unnecessary for me to do so. They stand convicted out of their own mouths. I only expanded on this point because the noble Baroness herself intervened and I felt that out of all courtesy it was therefore necessary for me to reply to her intervention.

The next point that I want to make is this: we entirely reject the accusation that the present difficulties of the British economy are entirely or primarily the result of Government policy. On the contrary, this is the first Government which have had the courage to tackle these deep-seated problems. Those noble Lords opposite who listened to the speeches of their noble friend Lord Kaldor will realise how deep-seated these problems are. The 3 million unemployed is due to the increasing uncompetitiveness of the British economy which have been building up over a long period of time. At each successive turn of the trade cycle noble Lords will find that the levels of unemployment and the levels in inflation were higher than they had been in the previous turn of the trade cycle.

We propose facing up to these deep-seated problems. We propose to tackle them and to persist with our measures until they reach ultimate success. I simply do not accept the pessimistic view put forward by the noble Lord, Lord Wells-Pestell, in which he talked of an ever-decreasing number of people shouldering these great burdens. We must as a country look forward to the time when, in common with the other industrial nations of the world, we come out of the present recession—which has been a great contributory cause of the problems that we now face—and when employment in this country expands once again. I know there is a phrase which appears, I think, in Dante:

" Abandon hope all ye who enter here ".

That may be the policy of the Labour Party but it is certainly not the policy of Her Majesty's Government, who look forward to the opportunities rather than bewail the troubles.

Now, may I take the next point. The Bill was represented by the noble Baroness, Lady Jeger, with the support, I am sorry to say, of my noble friend Lord Boyd-Carpenter, as a Treasury Bill. This is not the position at all. It is perfectly plain—the figures are set down in the Government Actuary's report—that, of the increase of 1 per cent., 65 of 1 percentage point is a direct reflection of the rising level of unemployment. And 1 per cent., making a total of three-quarters of 1 per cent., is the additional contribution to the National Health Service; and we have increased expenditure on the National Health Service in real terms, as my noble friend Lord Elton pointed out. It is only the one-quarter of 1 per cent. which is a reduction in the Treasury supplement.

The amount of the Treasury supplement has fluctuated very greatly from one year to another. In the early years of the present scheme—that is after 1948—the Treasury supplement was at a very high level because the people who came into the scheme without a complete contribution record were drawing benefits substantially greater than those they had contributed to, and the Treasury came in and made good the deficit. As the years went by the amount of the Treasury supplement was adjusted, and in 1975 it was in fact fixed at 18 per cent. But there is nothing sacrosanct about that figure. It needs to be reviewed in the light of circumstances, and the circumstances are these. In 1975–76 non-contributory benefits accounted for 24 per cent. of total benefits; last year the figure was 35 per cent., and this coming year it will increase still further to 37 per cent. The share of the total cost of all benefits, contributory and non-contributory, borne by the Treasury was 37 per cent. in 1975–76, 45 per cent. this year, despite the reduction that was made last year in the amount of the Treasury contribution, and this coming year it will still be approximately 45 per cent. despite the further reduction proposed in the Bill.

The noble Lord, Lord Banks, suggested that the change from child tax allowances to child benefit was a major factor in this change. It was a factor but not the major factor. May I draw his attention to two points? First, of course, the child benefit went much more widely than the old child tax allowances and indeed one of the purposes of introducing the child benefit was to give support to families with children who were not income tax payers. So that in fact was a genuine expansion of the non-contributory benefit; and our record on child benefit, I may say, is an extremely good one and does not in any way justify the strictures expressed by the noble Lord, Lord Molloy. The other point is that a very large part of the increase in benefits is the increase in supplementary benefit and that goes not only to the unemployed but also of course to the elderly.

My Lords, I wonder whether the noble Lord could give the comparative figures. It would be most helpful if he could. He said that while child benefit was a factor it was not the main factor. Would he not agree that it was a factor of something around £1,700 million and that perhaps the supplementary benefit was somewhere around £480 million? Would that not suggest that the child benefit was a major factor?

My Lords, the child benefit was a factor. I will certainly see whether the figures can be obtained and I will send them to the noble Lord. But in addition to the child benefit there was a whole range of other non-contributory benefits introduced in this period. I think it is also relevant to point out to the noble Lord, as I did earlier, that part of the cost of the child benefit is itself a non-contributory benefit. It is not just a replacement of the child tax allowance.

One of the major themes that ran through the speech of the noble Baroness, Lady Jeger, was a desire to abandon the principle of insurance and to change over to financing the scheme entirely through taxation. I was sorry to see that in this respect she was joined by the noble Lord, Lord Banks, who now wishes to cast aside the only tattered remnant of the heritage the Liberal Party has received from Mr. Lloyd George. We believe ourselves that the contributory principle is an important one. The Bill reinforces that principle—it does not abandon it. This, of course, is a major issue on which people are perfectly entitled to hold different views. We note the fact that the official Labour Party view is now that national insurance as such should be abandoned and that it should be financed entirely out of taxation. We do not accept that such a view is valid. The noble Baroness spoke as though the only difference between the two was that the income tax would fall upon people with investment income while the National Insurance contribution fell upon the workers.

I am sorry, my Lords, I must interrupt because I did not use the words " investment income " in my contribution at all.

My Lords, I am grateful to the noble Baroness. I was merely trying to help her to marshal her thoughts in an understandable fashion. If it does not fall on investment income and does not fall on earned income, perhaps at some stage she could explain to me what it is she is endeavouring to tax. The fact of the matter is, of course, that the income tax does fall, for example, on the incomes of the elderly and the retired. I hope the noble Baroness is not seriously suggesting that we ought to tax the retired in order to provide benefits for those in work, because if that is her proposition it seems to me to be a most extraordinary one. The noble Baroness and others also suggested that the upper earnings limit, as it is described, should be removed altogether. To do so would obviously weaken the contributory nature of the scheme, because benefits are also linked to the upper earnings limit. The abolition of the upper earnings limit would also have a serious effect in increasing still further the contributions paid by employers.

May I deal very briefly with that point? There was objection raised by a number of noble Lords opposite—by the noble Lord, Lord Banks, in particular—to the way in which the increase in contributions has been charged on employees and not on employers. Perhaps I may remind the noble Lord that for many years the contributions paid by employers and employees were approximately equal, and that remained the position right up until 1974. In 1974 and 1976, a dramatic change was made and the ratio of employer to employee increased from approximate parity to 1 to 1½ times. After the change that we have made this year, the employer will still pay rather more than the employee; in fact, the ratio is 1·09 to 1. So we have done no more than move part of the way back to what had been the position accepted over a long period of years. That is the first point.

The other point is this. If one looks at the way in which incomes and profits have moved over the last four years, there has been a substantial increase in net disposable incomes in the personal sector. There has correspondingly been a very large reduction in the level of the profits of industry. One of the major problems that this country faces is the low level of profitability: and we shall get adequate investment in this country, leading to the creation of new employment opportunities, only when there is an improvement in the level of industrial profitability. This, therefore, would be the worst possible time at which substantially to increase burdens on employers, so we have done everything we can in this Bill to avoid such an increase occurring.

It was impossible to do this—if I may say this in reply to my noble friend Lord Boyd-Carpenter—in relation to the employer's contribution as a result of the increase in the upper earnings limit. If we were to reduce, or not to increase, the upper earnings limit, it would have a depressing and downward effect on the amount of pension that people would be earning under the state pension scheme, and I am sure that that is something which none of us would want to see—

My Lords, would my noble friend allow me to intervene at this point? It would, would it not, have been perfectly possible, as an alternative, simply to have reduced the rate of the surcharge on the employer's national insurance contribution?

My Lords, I am grateful to my noble friend for his intervention, because he has raised the next point that I proposed dealing with in my reply. The question of the national insurance surcharge is entirely a budgetary matter, and, as a former distinguished Treasury Minister—perhaps I may rephrase that and say, as a distinguished former Treasury Minister—my noble friend will realise that on matters of that kind I can make no comment at this time of the year—

I can take a hint.

My Lords, we do, of course, note all the opinions that have been expressed on this matter. I am grateful to the noble Lord, Lord Spens, for his expression of appreciation of the way that the Government had endeavoured to temper the wind to the shorn lambs, if he will forgive the use of such a phrase in relation to so vigorous a section of our national economy. So far as the discussion document which was issued in 1980 is concerned, as my noble friend the Secretary of State for Social Services, said in another place, consideration of this issue is still continuing and I understand that he now hopes to make an announcement in the near future.

The noble Lord, Lord Molloy, among many other statements to which I took the strongest possible exception, said that the Conservative Party have always hated the idea of the welfare state. There is no substance at all in that statement. Indeed, over the years the Conservative Party have contributed as much as, or more than, anybody to the development of the welfare state.

There was considerable support expressed in your Lordships' Chamber for the tax credit scheme. As the original author of that scheme, perhaps I may make a very brief comment on it, although, in fact, it has nothing to do with the Bill which is in front of your Lordships. The scheme was, of course, advanced by the Conservative Party, and the people who killed it at the time were the Labour Party. I hope that this will always be remembered to their credit. The problem that we face at present, of course, is that while in the golden days of Conservative rule we could well have afforded the £1,300 million that the scheme would have cost, the cost has now greatly escalated and the financial difficulties that we face are much greater. Of course, the scheme has obvious attractions, but I should not like your Lordships to draw any inference from that beyond that, as the original deviser, as it were, of the scheme, I not unnaturally have a certain affection for it.

There were views expressed in various parts of your Lordships' Chamber that the time had come when a thorough-going review of the whole of the national insurance system was required. I can do no more than note the expression of such opinions. My own experience—and a rather better experience, if I may say so—is of the very great difficulties that beset radical reform, and if radical reform is not possible there is everything to be said for the process, to which my noble friend Lord Boyd-Carpenter referred, of making improvements in an existing system as and when one can.

The noble Baroness also suggested that the national insurance scheme might be brought into line with the income tax scheme and dealt with on an annual basis. I feel some hesitation in having to inform her that many of the great difficulties to which the PAYE scheme gives rise are in fact, the result of its being on an annual basis, and, far from simplifying matters, it would greatly complicate them. The present position is, of course, that the operation of PAYE is not computerised. We are now taking the first step in that direction, but it will be some years yet before the whole of the PAYE scheme is on a computerised basis.

I have spoken for 25 minutes. As I indicated earlier, very many of the detailed points which have been made are essentially Committee stage points. We look forward to debating them in due time. The Government regard this measure as an essential one in present circumstances, to meet the regrettable rise in the cost of providing benefits, most of which is due to the rising level of unemployment. Our policies are directed towards ensuring that the economy is put on a sounder basis in the long term.

Despite the somewhat gloomy prognostications of noble Lords opposite, there are already a number of encouraging signs. Output is increasing. Output for the last quarter of 1981 was, in fact, higher than for the second and third quarters, which suggests that the view that the bottom of the recession was reached in the middle of last year has now some support. The retail price index, which was announced a day or two ago, indicates a stabilisation in the rate of inflation and we look forward in the not too distant future to a resumption of the decline in the level of inflation. These are all encouraging signs from which we all ought to take heart, rather than denigrate them. But, because this is an essential measure to deal with a problem which must be dealt with, I commend it to your Lordships.

My Lords, before the noble Lord sits down—I am sure the whole House will be grateful for the way he has replied to this very full and detailed debate—may I ask him to deal with two points which I raised earlier. I will accept it if he says he will write to me about them. Replies on these two points will help us at the Committee stage. First, may I ask the noble Lord what is to be the social security status of young workers who go into the Government scheme, for which I understand they are to be paid £15 a week. Is there to be any system of crediting or franking their cards so that they come into social insurance? Secondly, when people have paid into redundancy funds and are themselves declared redundant before the end of the two-year period, will it be possible for them to get back their contributions? Will the Government at least give some attention to this point? I shall be quite happy to receive a letter from the noble Lord, but I should like to hear from him before the Committee stage.

My Lords, I am grateful to the noble Baroness. So far as the first point is concerned, the details of the new scheme have not yet been worked out. However, the benefit position of those young people who are at present participating in the Youth Opportunities Programme is not affected by their participation. We expect this to be true of those involved in the new, extended programme. So far as the other point is concerned, I will write to the noble Baroness.

On Question, Bill read a second time and committed to a Committee of the whole House.

My Lords, I beg to move that the Bill be now read a second time. This Bill is straightforward and uncontentious and I shall therefore be brief. It contains three main provisions: to increase the statutory financial limits of the British Airports Authority: to increase and clarify the financial limits of British Airways: and to enact amendments necessary for the consolidation of civil aviation legislation.

Before I come to the detail, I should like to deal briefly with a number of points common to the provisions for increasing the financial limits of British Airways and the British Airports Authority. The first, rather obvious, point is that these provisions do not in themselves increase public expenditure. Neither do they affect external financing limits which limit the new borrowings made by individual industries in any one year for the purposes of controlling the public sector borrowing requirement.

Secondly, I should point out that these provisions require the Secretary of State to seek the approval of another place for any increases in the financial limits over and above the levels initially provided for on enactment. Additionally, Government control over the borrowings of British Airways and the British Airports Authority is retained through existing statutes which require Government approval for specific new borrowings, even within the new financial limits. I should also add that the proposed limits will make no difference to present arrangements for controlling individual major items of capital expenditure. These will continue to require Government approval which will normally be subject to their being expected to achieve a required rate of return.

Finally, although I hope that this is already clear, the Bill and these provisions for increasing the financial limits do not in any way represent a departure from current Government policy. The Government remain determined that British Airways and the British Airports Authority should operate efficiently. The Government will continue to work with the industries to this end by, for example, agreeing suitable performance aims with them. These are important points and I hope that they are useful in clarifying exactly what we are considering in this Bill.

Against this background I should like to turn to the increase in the financial limits of the British Airports Authority. Clause 1 increases the financial limit of the authority to £200 million on enactment and provides for a further increase, subject to the approval of another place, to £300 million. This is intended to provide adequate scope for the borrowings that we expect the British Airports Authority to need for its present medium-term investment plans. These are expected to cost £700 million at outturn prices over the next six to seven years. It is right that the British Airports Authority should be able to supplement internally generated funds with external borrowings to meet the extremely uneven investment profile which characterises large airport developments. The authority's cumulative debts can be expected to increase with the borrowings necessary for this programme from the current level of £62 million to £200 million in 1985. This increase in borrowings should be viewed against the British Airports Authority's capital base of £820 million, £763 million of which are reserves built up as a result of consistent profitability over the 15 years of the authority's existence. Indeed, the authority has been able to finance almost all of its capital expenditure so far without borrowing.

The British Airports Authority's investment plans include work on the fourth terminal at Heathrow which started last year and the continuing programme for improvement and modernisation of existing airport facilities. These also include the development of a second terminal at Gatwick, subject to the outcome of the current planning inquiry. But I must make it clear that the limits proposed in the Bill do not carry implications for whether the Gatwick development will go ahead. My right honourable friends the Secretaries of State for Trade and the Environment are still considering the additional submissions which they invited on that application following the publication of new air traffic forecasts.

Neither, for that matter, do the new limits have any implications for the developments which the authority have proposed at Stansted and which are being considered by the present public inquiry. The decision of my right honourable friends will be taken in the light of the inspector's report on that inquiry, and if this was in favour of the development the authority would still have to submit detailed costed plans for Government approval before any expenditure could be made. I hope I have made it clear that on increase in the authority's financial limits would have been required even if the developments at Stansted and Gatwick had not been proposed.

I should finally touch on one last issue of topical interest concerning the British Airports Authority—that is, user charges. My right honourable friend the Secretary of State for Trade and the British Airports Authority are currently joint defendants in a legal action taken by foreign airlines concerning user charges and the financial target agreed between the Government and the authority. I therefore note, but no more, the British Airports Authority's recent announcement of a freeze in user charges for the next financial year.

I turn now to British Airways. Clause 2 increases the airline's financial limits from the current level of £1,000 million to £1,200 million on enactment of the Bill, with provision for two further increases by order, subject to the approval of another place, to a maximum of £1,600 million, a figure designed to last the airline for another five years or so. The main reason for the increases lies in British Airways' heavy capital investment programme in new, fuel-efficient and quieter aircraft to replace their Tridents. This changeover to fuel-efficient aircraft must be accomplished, despite the present depressed trading conditions, if British Airways are to hold any prospect of competing with other world airlines on an equal footing in the future.

The present depressed conditions of the air transport market will be well known to all. Many major airlines have been reporting heavy losses over the last year and expect similar losses this year. British Airways are no exception. Indeed, the airline's loss last year of £145 million, which led to borrowings of over £300 million, is one of the main reasons why an increase in British Airways' statutory financial limit is necessary so soon after the last increase. However, we can be encouraged by the economy measures which British Airways announced in September last year which showed the management's determination to get the airline into the most streamlined and competitive shape possible to take advantage of the upturn when it occurs. With market conditions still unpredictable, it is impossible for me to say how soon British Airways will have recovered sufficiently to enable us to privatise it, but I can say that the Government remain committed to this objective.

Another reason why British Airways' total borrowings are close to the current financial limit is found in the increase last year in the value of their uncovered foreign borrowings. This increase was beyond the airline's control and was solely the result of exchange rate movements. At the moment, foreign currency borrowings which are not covered by a Treasury exchange risk cover scheme are valued according to day-to-day exchange rates. With the cessation of the Treasury exchange cover scheme in April of last year and the fall in the value of the pound against the dollar, which is a major currency for British Airways foreign loans, the airline's borrowings would have increased in value by about £30 million even if no new borrowings had actually been made. This introduces an element of uncertainty into the assessment of British Airways' position against the financial limit and could even lead to British Airways exceeding the limit as a result of exchange rate movements alone. Clause 3 of the Bill aims to remove this uncertainty by fixing the value of British Airways' uncovered foreign borrowings against the limit.

Finally, I turn to Clause 4 of the Bill, which gives effect to the highly technical amendments and repeals in the two appended schedules. The bulk of civil aviation law has not been consolidated since 1949 and since then of course the law has developed enormously and is now spread over eight or more statutes. It is high time that these scattered provisions were brought together and put in order. A consolidation Bill for this purpose was prepared by the Law Commission and introduced into your Lordships' House on 17th December and, as is customary, will be taken by a Joint Committee of both Houses. The pre-consolidation amendments which we are considering here are necessary to iron out inconsistencies in the details of existing statutes which would otherwise make consolidation difficult. I hope that both sides of your Lordships' House will welcome this long overdue rationalisation of civil aviation legislation.

To conclude, this Bill aims to increase the borrowing powers of British Airways and the British Airports Authority to cover their necessary investment and other needs for at least the next five years—but it leaves parliamentary scrutiny and Government control over those borrowings intact. For their part, the Government are very much aware of the need for both British Airways and the British Airports Authority to operate their services in the most efficient way possible and, indeed, the investment allowed for by this Bill is directed towards this end. We must also recognise the very important contribution that a healthy and efficient British Airways and, likewise, British Airports Authority can make towards the United Kingdom's civil aviation sector. I therefore commend this Bill to your Lordships. I beg to move.

My Lords, may I thank the noble Lord, Lord Trefgarne, for introducing this Bill in a very short, 10-minute speech and I shall certainly try to make certain that in making my remarks I shall not exceed the pattern which he has set us this evening. As the noble Lord has said, this is a very simple and non-controversial Bill to increase the borrowing powers of British Airways and the British Airports Authority and to enable consolidation of earlier civil aviation legislation to take place. However, it does give your Lordships the opportunity to discuss at some length—although in view of the lateness of the hour I hope it will not be at too great a length—some of the problems which affect the civil aviation industry at the present time. I have no doubt that some of the noble Lords who are to speak in this debate will be raising matters which are of particular concern to them.

The Bill is not perhaps as radical a measure as one would have hoped. The increases in the borrowing limits proposed are basically to restore the historic value of those limits. They do not in any way alter the basic concepts on which the financial arrangements for British Airways and the British Airports Authority are based. I have often expressed from this Dispatch Box my concern that today's users of the airports owned by the British Airports Authority are being asked to pay for facilities which are to be used by tomorrow's users. That concern is in no way alleviated by this Bill, although I must say that I am glad to hear that the peak hour landing costs, which remain high at Heathrow, are to be frozen until April 1983. Whether this is the result of resistance shown by airlines to earlier increases or a phasing out of the policy of persuading airlines to switch their operations elsewhere—specifically to Gatwick—one does not know. Certainly one has noted yet again the increased activity by Schipol to be regarded as London's third airport and advertising in this connection. However, this is not really the opportunity, which I am sure we will have in the next session if not in this session, to debate the whole question of airports policy. I do regard this as a matter which is very vital to the prosperity of British Airways and to tourism generally. It is a matter for which I know a number of your Lordships have great concern.

British Airways face many severe problems, some of which are in the competence of this Government to solve. The noble Lord, Lord Trefgarne, in introducing the debate, reaffirmed the Government's insistence on keeping the measure to privatise British Airways on the statute book. This threat has been hanging over British Airways for more than a year. I thought at the time we passed this piece of legislation that it was a waste of time passing it at that point in time because the financial state of the international airline industry was such that the sale of the coporation at that time, and even more so the sale of part of the corporation now, was a forlorn hope. That has proved to be the case. Could not the Government at least remove this fear from British Airways? I fear that the noble Lord, in his introductory remarks, has already removed any hope that that might happen.

As the noble Lord said, the international civil aviation industry is facing a major challenge at the present time. Many operators are finding themselves in dire financial difficulty. Some have had to sell off precious assets to stay alive and others have had tortuously to renegotiate their arrangements with their bankers. These problems have come about as a result of the dual effect of unrestricted competition on the North Atlantic routes and the vast increase in fuel costs, so that an airline such as British Airways finds that almost a third of their costs are on fuel as opposed to a mere 10 per cent. not so long ago. Such a situation is particularly difficult for an airline such as British Airways with such a vast network of routes to contain.

In this sort of situation we must be particularly concerned about the competitive edge of British Airways and of their ability to compete effectively in a very difficult market. The noble Lord has referred to the economy measures which British Airways have achieved. They have managed during the past year to sell surplus planes and property to the value of some £105 million. They have managed to reduce their staff by some 11,000 employees. They have managed to bring into service more fuel-efficient aircraft. They are very much concerned in fact to see that they are effectively operating as an airline. Their levels of punctuality have increased, and in many other spheres they have managed to meet some of this challenge.

One of the areas which we have not discussed at length in your Lordships' House, but which I know British Airways are very concerned about, is that they believe that their profitability could be very much enhanced if they were able to carry out all their international operations from a single terminal in the United Kingdom. I have no doubt that when your Lordships come to discuss airports policy the plea of British Airways for a fifth terminal at Heathrow will be one which your Lordships will want to consider. We do know that in fact many other airlines throughout the world have found very great economies in being able to operate their services from a single terminal and not having them spread over. British Airways are in the position of being not only spread over terminals at Heathrow but also having various operations from Gatwick as well. This is an area which we will have to look at later.

On the final clause of the Bill, concerning consolidation, we of course welcome very much the proposal to combine the earlier statutes into a single Act. This measure of consolidation, which has been going on in various fields, is one which is always welcome. I think the noble Lord, Lord Trefgarne, although he has now moved from the Department of Trade to the Foreign Office, will know that in the field of company legislation it would be even more welcome if we were able very soon to have that particular Bill.

My Lords, I also should like to thank the Minister for taking us through this short amendment Bill. Although short, it does have implications and does raise some questions. We welcome the consolidation aspects, as they should clear away some of the anomalies and confusion which have long plagued the industry. We also welcome the provision of increased borrowing powers of British Airways which we understand should take care of that corporation's needs in that aspect for the next five years. I understand that all but some 25 per cent. of these funds will be allotted to the provision of new more fuel-efficient and less noisy aircraft, and the balance of 25 per cent. will be used mainly to re-equip such technical equipment as engineering computers, and the improvement of sales offices. This relief comes usefully at a very critical time when the corporation is coming close to the successful culmination of an extremely difficult and delicate operation to reduce and reconstruct the corporation to what Mr. Roy Watts, the chief executive, has described as a leaner, more efficient and more competitive airline. Can the Minister assure us that once this Bill is passed there will be no delay in the corporation being able to start to reap the benefits of this so as to proceed at once with their forward planning.

Although these reorganisation plans are still to be completed, I think it right and timely to offer congratulations to the chairman, Sir John King, his chief executive and deputy chairman, Mr. Roy Watts, and their staff, for their valiant work in effecting this reorganisation, and indeed also to the workforce, who are reported to have been most co-operative in the general effort to overcome the considerable problems involved.

We understand that the increase in the borrowing powers to be afforded to the British Airports Authority is to provide that authority's immediate requirements for the improvement of facilities for both users, the airlines and the public, with special reference to Heathrow and Gatwick, to provide finance for the fourth terminal at Heathrow, but not, if I heard the Minister aright, to provide funds for the development of Stansted as it is now planned. As we know, the public inquiry on the Stansted proposition is in full spate and likely to go on for some time, to the end of this year or even longer. The authority is concerned with legal actions taken against it by various airlines on the question of its charges. Even so, there are questions which arise which I want to ask and put on record, despite the possibility that I may be fobbed off with the excuse that matters are now sub judice and cannot be discussed today.

Before going on to my questions, may I take the opportunity to offer congratulations to the authority for the many improvements they have made at both Heathrow and Gatwick in the past year. And as far as Gatwick is concerned we might also include British Rail. In my experience many things are a good deal better there now than they were a year ago. That is not to say that there is not room for considerable improvement. There seem to have been conflicting reports on how the Government are now thinking regarding the proposals to develop Stansted. Can the Minister tell us if the Government still have an open mind on this matter? Further, have the Government finally decided against consideration of the development of the Perry Oak site at Heathrow as an alternative proposition, bearing in mind that, apart from other important considerations, it is estimated that it would cost £324 million, including removal of the sewage farm, as opposed to the estimated cost of £869 million for Stansted, and that the majority of the airlines now using Heathrow would much prefer it to Stansted, notably British Airways, and they are the largest operator at Heathrow?

Has any thought been given to taking a leaf out of the John F. Kennedy book and handing over such a fifth terminal to British Airways for its use and management? I understand the corporation would welcome such an idea. During the last Session (this was a point raised by the noble Lord, Lord Ponsonby of Shulbrede) I asked as a supplementary question if the financing of future capital requirements almost exclusively out of present revenue was not to some extent responsible for the fantastically high charges the authority is levying on the airlines, which in turn impinges on the high air fares now charged at least domestically. I received a somewhat abrupt, " No " as an answer. With respect, I still think that this practice must reflect to a certan extent on the reason for these monstrously high charges, the highest in the world, and as an on-going result the high air fares.

What is the reason why the authority cannot go to the market for at least some of its finance or, as is sometimes done in the United States, go for a bond issue? I have read that in another place it was said that the reason was that it was not contained in the Government's election manifesto. If that is so, it must be that it is a result of some regulation or order, possibly Treasury inspired. But, even so, Treasury inspired or not, cannot such regulation or order be altered, amended or even cancelled? Also, by the same token, is the rigid demand that the authority must achieve a 6 per cent. per annum return on investment still valid in the light of continuing recession in the airline business? Perhaps the Minister will be able to throw some light on these queries.

It is reported that an earlier decision to increase the airport charges by 12 per cent, this year has now been rescinded, but even so the present charges remain the highest in the world. Even if the Minister cannot give an answer today, can he indicate when we may be able to discuss these questions together with the whole set-up of the British Airports Authority and even that startling question asked in another place as to whether the authority in its present shape is really a national requirement? Apart from all that, my colleagues on these Benches will be happy to give the Bill a Second Reading.

My Lords, as the Minister implied, this is a straightforward Bill containing only five clauses. There was no real dissension from this proposition when it was put forward in another place by the Minister and I think that there has been no dissension here today. As the noble Lord, Lord Trefgarne, said, of course, this Bill does increase the borrowing power of the British Airports Authority, and the Secretary of State in another place gave valid reasons as to why that should be done. But there was a considerable amount of discussion about the manner in which the British Airports Authority is financed, and I should like to return to that aspect later in my remarks.

It does seem questionable, to me anyway, that the customers of today should pay for the airports of tomorrow. This was a point which disturbed—I note that the noble Lord, Lord Trefgarne, is shaking his head—the noble Lord, Lord Ponsonby of Shulbrede, and it certainly has disturbed me. I regret that my noble friend, Lord Taylor of Gryfe, is not with us today, because he has knowledge and experience of the financing of public bodies, monopolies and nationalised industries. For myself, speaking as a customer, and as I have just said, I do think it would be much fairer that the customers of tomorrow should pay for the airports of tomorrow. While accepting, as I believe the Minister also said, that the restraint on these matters is the concept of the public sector borrowing requirement, I am going to leave that to the economists and the financial experts. But it does seem to me that this restraint and concept are in need of urgent revision.

Obviously, in the absence of my noble friend Lord Taylor, I have made certain inquiries only to realise more than ever that the financing of nationalised industries is, to use an understatement, most complex if one is not well versed in financial matters. I am sure that the House will know that in December last the 100 Group of chartered accountants published a report on The Financing of State-Owned Industries. Then I found out that we have volumes 1, 2 and 3 of the Eighth Annual Report of the Treasury and Civil Service Committee, which includes submissions from the chairmen of the nationalised industries. Obviously, I could have read extracts from all this invaluable information, but I never think that to read material with which one is not really familiar renders a service either to the House or to the Member concerned. So the House will be spared that, and I am serving notice on my noble friend Lord Taylor of Gryfe that these are all matters for him at our Committee stage.

However, included in any financial consideration must be the aspect of airport charges. It really is nonsense for the Government to imply that these have little effect on air fares. Indeed, the noble Lord, Lord Trefgarne, told us on 26th November last that the cost of airport landing charges does not increase the price of air travel. I should like to know where the noble Lord thinks the airlines get the money from if it is not from their customers.

I am hoping that the Minister will clarify this area for us today, because it really does seem as though those in authority do not know their own mind, or at any rate did not anticipate the opposition that would be provoked. When we rose for the Christmas Recess, existing landing charges were sub judice because of the action brought by airlines in protest at what they had to pay. But I did intend anyway to raise what we thought were to be the proposed new charges. Now we are told that the British Airports Authority is to freeze landing charges until April 1983. I should like to ask the Minister whether other charges are to be frozen too, or will they rise as forecast and, in that case, could we be told the actual figures?

I noticed that when the noble Lord, Lord Trefgarne, was speaking he said that " user charges " were to be frozen. My understanding is—and he certainly should know better than me—that it was the landing charges which were to be frozen. I should have thought that all the others put together were user charges, but perhaps the noble Lord can help us about that when he comes to wind up.

My Lords, I should be very happy to try to do that in a moment. In the meantime, can the noble Baroness explain what she defines as " user charges " in this context?

Yes, my Lords, I am coming to that. The noble Lord, Lord Trefgarne, will know that there was considerable discussion on airport charges at all stages during the progress of the Bill in another place. The problem of security charges is one of particular relevance to this House. Those of us opposed to the method of raising this money by direct charge on the customer lost by only two votes at the Committee stage on 20th March 1978 when the previous Government were in power. I remain opposed. As the House will know, these charges have been reduced from £1·50 to £1·20—but only for a period of six months and they will then revert to £1·50. On this particular matter, I was glad to note that the Under-Secretary of State in another place said that he would look again at this problem of the security levy and how it is dealt with in other countries. I remember saying, when we discussed the matter on Second Reading, that no other country in the EEC did so in this way. Therefore, we were being a trend-setter in the wrong direction. That was on 9th March 1978, and it now appears, unfortunately, that I was right. So security charges are a user charge, and I shall come on to the others later.

While we sympathise with all airlines, I think that we should emphasise to the Government, as indeed the noble Lord, Lord Ponsonby, did, too, the position of our national airline, British Airways. In a debate which we had on 23rd July 1980, I stressed to the Government the concern of British Airways at the recent demand for a considerable increase in what they termed " Government charges "—namely, route navigation, airport and security charges—which would average 40 per cent. for them in the year ahead. They emphasised that this was an increase of 40 per cent. over the charges paid the year before. British Airways suggested to the British Airports Authority and the Civil Aviation Authority that they should do something about their own productivity improvements and not just say that these total costs should be passed on to the consumer.

The Minister, I am sure, will clarify this area. However, all sorts of figures were bandied about before the Recess and it would be a help to know whether they were right or wrong. For example, there was talk of increases in general of 17 per cent. for Gatwick and Heathrow. There was talk of an increase of 30 per cent. for parking charges at Heathrow during peak hours. There was talk of an increase of 16 per cent., from £52 million to more than £60 million, in the total bill for British Airways from the British Airports Authority.

I was interested, and depressed, to note that British Airways say that their charges and those of other Government-supplied services now represent a significant part of airlines' total costs and that in the case of British Airways the figure is 9 per cent. It does seem a great deal. I understand that the freezing of landing charges will save them some £10 million, but I should be glad if the Minister could clarify some of those other figures.

Airport users, airlines, customers: we all feel, frequently, that we are just brushed aside by Government and Government-appointed agencies, or fobbed off with meaningless answers when we raise this matter. Yet it is not only us. Some of these charges specifically, or the total collectively, will also have an impact on the actual location of flights. We expect and will be glad to receive a detailed and up-to-date picture from the Minister.

This may be a straightforward Bill with only five clauses, but in another place Members found that it gave them an opportunity to raise many topics of general interest in civil aviation. I hope that we shall discover the same opportunity. After all, the whole House wants a healthy civil aviation sector in our economy. Here I should like to congratulate Mr. Roy Watts, the chief executive of British Airways, on his plans—which I expect noble Lords have read—for a consortium of airlines. He wants these to collaborate on the introduction of a European air shuttle service. This he would like to serve at least five capital cities.

Mr. Watts envisages the creation of a single, London-based, international organisation with airlines pooling their aircraft. As the House will he aware, in addition to his position with British Airways, Mr. Watts this year holds office as chairman of the Association of European Airlines. Not resting content with his suggestion that his proposed European air shuttle service should cover London, Paris, Brussels, Amsterdam and Dublin, Mr. Watts is encouraging British Airways in new talks with European airlines in the hope that travellers will see much reduced one-way tourist fares to many European cities.

Before concluding, I want to raise one other aspect, and for today I am leaving aside bucket shops and discount fares. There is uncertainty about the number of future air travellers. There is certainly uncertainty about what the Government really believe and what they intend to do. We all hope for the major growth assumed by airlines, airport authorities and the Government. But forecasts have been altered, with the result that the Government have announced that they are postponing a decision on the Gatwick extension, which had been recommended after a inquiry in 1980.

The muddle in policy becomes even more pronounced when we realise that two nationalised bodies—British Airways and the British Airports Authority—are totally opposed, one to the other, over whether there should be a new airport at Stansted or a fifth terminal at Heathrow. As the House knows, an inquiry is now proceeding into this matter. It is expected to take until at least the end of the summer or early autumn. Following that, informed criticism assumes that it will take at least a further 10 months or so for the Government to rule on the matter and that by then we shall be in the run-up to a general election.

Apart from this apparently endless delay, I am worried about something else, and I do not like what I am worried about and hope that the House will realise the real concern that I have on this matter. It is assumed—I believe correctly—that the two front runners at this inquiry are Stansted and Heathrow. But the Government have said that it is quite definitely their policy that the fifth terminal at Heathrow should not be built. As recently as 13th May last year, the Secretary of State, replying to a Parliamentary Question, reaffirmed the Government's view that a fifth terminal at Heathrow should not be provided. So that no doubt could possibly be left in the Member's mind, the Minister concluded:

" I do not think this can leave you in any doubt about the Government's view on the matter ".

If the noble Lord, Lord Trefgarne, would care for the reference, it is the House of Commons Hansard as recently as 16th November 1981, at column 79.

So I ask, what is this inquiry about? If the Government have decided not to allow a fifth terminal at Heathrow, why are we wasting all this money on an inquiry? Is it simply a smokescreen to cover Government intentions? I should like to make it quite clear to the House that today I am holding no brief either for Stansted or for Heathrow in what I am trying to convey to the House. But I think that the whole procedure has a nasty smell, and that is the best way I can describe my feelings.

My quarrel is with bureaucracy, which seems to exist and to flourish whatever political party is in power. Today I think that we are in danger of being choked by it, but perhaps I may return to the inquiry. On 29th June last, I told the House how I had met this bureaucratic machine over Stansted as long ago as 1968, when I was chairman of the Council on Tribunals. On that occasion we made a special report to the noble and learned Lord the Lord Chancellor under the Tribunals and Inquiries Acts 1958 and 1966. If I may quote just one sentence, at column 62 of Hansard of 29th June last year, I said:

" Stansted has now reared its head again and I would warn the House that we are by no means through that battle ".

Perhaps if we probe enough we may be able to discover what part of the bureaucratic machine, wielding considerable power and intluence—we should never forget that—is determined to have a major airport at Stansted. After all, this is the third attempt.

In common with many other noble Lords, I have been following the evidence given at this inquiry, and what has really shaken me and given rise to what I am trying to convey to the House today is what Mr. Graham Eyre, QC, the independent inspector appointed by the Government, has had to say about evidence given by the Ministry of Agriculture in December last. I should like to interpose here a comment as to the high opinion of Mr. Eyre held by all with whom I have come into contact. What was worrying him about this evidence was that it was too limited and the scope most unsatisfactory. As a result, the Ministry of Agriculture is to make new surveys, the details of which I need not relate to the House.

But the Minister must be aware of all this. When he comes to wind up the debate today, will he tell us what reply the Government make to the comments made by critics last year that the Ministry had limited its evidence deliberately because, although it opposed the expansion of Stansted, it was bound by a Cabinet minute to promote the airport there? The noble Lord, Lord Trefgarne, will find this theme developed by the environment correspondent of The Times, Mr. Hugh Clayton, on 8th January. Having read that, I then read in the paper on 15th January—and I have not had time to check this—that the inspector has had further cause for concern. Perhaps I may just quote this; it is from The Times of 15th January:

" The inspector at the Stansted public inquiry complained yesterday that he had been placed in an intolerable situation by the failure of the Department of Transport and British Rail to produce a proper feasibility study for a new rail link from London to the proposed airport ".

If we are getting insufficient evidence or no evidence from Government departments to bolster this third attempt to have an airport at Stansted, I think that we should all be aware of it and I hope that the noble Lord will give us some information when he comes to reply.

In conclusion, I should like to remind the Minister that I have limited my remarks to three main sections: the financing of the British Airports Authority, airport charges in general and the financing of security charges, or the security levy, in other countries, and the inquiry into a third London airport. I hope that the noble Lord will deal with all three so that we may have a correct picture of the present position. That is the only way to correct misleading impressions, if indeed they be misleading.

My Lords, I do not propose to say one word about airports, but I should like to be allowed for a few minutes to make some remarks concerning British Airways. The background to this increase of borrowing powers, as the Minister said, is world airlines going into the red and each of them trying to avoid a slow slide down to a state of bankruptcy. Every airline is losing money. So appropriate to this Bill is one fundamental question: how far will the exercise of these borrowing powers lift British Airways from being a big loser to a position of solvency, or would the exercise of these powers only increase the risk of raising British Airways' debt, and increase the inevitable crisis from which the corporation is now suffering. I have here the latest issue of British Airways' News. The words of Mr. Roy Watts are:

" The crisis is by no means over ".

It is worth considering whether this will help to restore British Airways to solvency; or might it possibly increase British Airways' indebtedness. Here I should like to associate myself with the noble Lord, Lord Ponsonby of Shulbrede, in his tribute to Mr. Roy Watts and to the organisation of British Airways. It is something to have reduced manpower from 58,000 to 43,000 this June without any great industrial upheaval. It is something to have increased pilot productivity by 12 per cent. It is something to have cut away the thoroughly uneconomic routes. It is something to their credit that new types of aircraft are on oder.

It must be said that British Airways Corporation has done its part in making an effort to try to meet the justified demand for low cost travel, but I say with all the force I can, and after some good many years in aviation, that low cost travel must allow a reasonable return on capital invested and at the present time that is not the position. As the noble Lord, Lord Trefgarne, said, even on the North Atlantic, which should be one of the most profitable routes, the combined airlines last year lost £340 million. British Airways themselves lost approximately £3 million. Here I should like to interpose one sentence. I believe that airlines have brought this very much upon themselves by their past conduct in the fat years. They exploited the public by international agreements, pools, operation of monopolies, and unjustified high levels of fares on closed routes. Now things are different. Even Laker, who did so much to break the high cost levels in the fat days, is now suffering and is in difficulties in maintaining solvency.

Last year British Airways lost, I think it was, £140 million. I think they are budgeting this year for a loss of £100 million. British Airways is responsible for about 80 per cent. of our civil air effort. Another 10 per cent. is represented by British Caledonian. There were £140 million lost last year, £100 million this year, but British Caledonian is still, I believe, just within the profit margin. Why this difference? It needs some examination.

Is the answer that big is not always beautiful in nationalised corporations? We have the example of British Leyland. With hindsight were we right to have followed the Edwards Committee in merging two small enterprises with profitable histories and smaller structures into one vast great organisation? In the air world of those days economic conditions were right for creating one single, grand structure, but unfortunately it has turned out a loser. I think with hindsight those in charge of aviation were right to have done what they did, but it has not worked out as was intended. It is a line of thought worth considering when we are offering borrowing powers for another £200 million.

I hope that the answer to the fundamental question that I asked at the beginning is that British Airways will be restored to solvency and helped materially by this increase in borrowing powers. But the future alone can tell whether that is the positive answer, or some other answer on which I do not wish to dwell at all.

My Lords, I am grateful that this debate has not been too strictly confined within the terms of the Bill before us, for it has thus allowed the Government, in particular myself, an opportunity to hear and note the views of your Lordships on a wide range of topics of interest within the civil aviation sector generally, as well as specific points about British Airways and the British Airports Authority. I shall endeavour to deal with as many points as I can. If time prevents me from dealing with all of them I shall certainly undertake to write to those noble Lords whose points I have not been able to cover, with as full an explanation as I can manage.

I shall run through the speeches broadly in the order in which they were delivered. May I first take up the point made by the noble Lord, Lord Ponsonby, about the privatisation of British Airways. As I said in my opening remarks, it is still most certainly our policy that British Airways should be privatised as soon as is ever possible. The noble Lord referred to this as a threat hanging over British Airways. It is no such thing. It will be a very good thing for British Airways when they eventually come into the private sector, as I hope they will in the not too distant future.

The noble Earl, Lord Amherst, referred first to the Government's position relating to the development of Stansted, and the noble Baroness, Lady Burton, raised this matter as well. The Government's attitude to the Stansted development has been made clear at the inquiry and by my right honourable friend the Prime Minister in a letter to the local Member of Parliament which has, I think, been published. Our preference is that Stansted Airport should be developed to meet the forecast growth of air traffic in the South-East. But other alternative sites have been put forward for consideration by the inquiry and the inspector has been asked to hear the evidence on these too and to take them into account in formulating his recommendations. If, having heard the evidence, he recommends development at another site, other than Stansted we shall of course weigh that advice most carefully before taking the final decision.

Perhaps while on the question of the Stansted inquiry I could cover some of the points, rather out of sequence, made by the noble Baroness, Lady Burton. She described a number of shortcomings, as she thought, with regard to the Government evidence being put forward to that inquiry at Stansted, and I would make two points on that. With regard to the evidence of the Ministry of Agriculture, I am not specifically briefed on the point to which she was referring, but naturally that Ministry will be delighted to provide the inquiry with further assistance when the inspector has called for it, and that, I imagine, is what they are doing. As for the unsatisfactory nature of some of the other evidence that was put forward, if that is what the inspector thinks, then doubtless that view will be reflected in his final report.

My Lords, I interrupt the Minister simply to say that he surely does not think that what he has said is the slightest answer to what I was trying to convey to the House.

I listened carefully to what the noble Baroness said tonight, my Lords, as I always do. She is aware that the inquiry is proceeding at present and I do not think it would be right for me to go into greater detail than I have, because of the nature of the inquiry, of which she is well aware, but I shall return shortly to the other points the noble Baroness made. To revert to the speech of the noble Earl, Lord Amherst, who referred also to the question of the Perry Oak site which might be a site for a fifth terminal at Heathrow, that is of course covered at the Stansted inquiry and if there is merit in that proposal, doubtless, it will come forward in the report which the inspector will prepare.

It might not be entirely appropriate this evening to go into the philosophy behind the British Airports Authority's finances, a matter raised both by the noble Earl, Lord Amherst, and the noble Baroness, Lady Burton, but it is perhaps worth saying—I fear I have said it before to your Lordships—that the mere possibility of BAA borrowing substantially to cover current capital costs would not necessarily have any effect on the current level of charges. A properly conducted business organisation like BAA must depreciate its existing assets in accordance with current values. That is what they do and that is, thus far at least, the source of the majority of their capital funds.

The noble Baroness, Lady Burton, to whose speech I now come, also raised the question of the terminal charges on air fares, and I have discussed this matter with her across the Floor of the House before. It is of course the case that the longer the flight, the smaller proportion of total costs is represented by terminal charges. I do not have the figures in my head, but I shall, if I can discover them and write to the noble Baroness with them. I think that terminal charges on medium and long-haul routes account for about 5 per cent. of the total operating cost, although I would accept that the percentage is rather higher than that on short-range flights, particularly domestic flights within the United Kingdom.

The noble Baroness also asked for details of the freeze which BAA announced recently. The situation regarding BAA's proposals for their user charges is that their original proposal was that their charges, including landing fees, parking fees and passenger charges—we are not here talking of security charges, to which the noble Baroness referred, which are not specifically raised by BAA—should be increased by an average of 12 per cent. They now propose, however, to make no increase in those charges until April 1983 at any of their airports, and the effects on their costs (claimed by British Airways, for example, and I think those were referred to in the debate in the other place) are clearly no longer relevant.

My noble friend Lord Balfour asked particularly about the borrowing powers that we are granting to British Airways and he asked specifically whether I could give an assurance that these borrowing powers would restore British Airways to profitability. British Airways will need to do a number of things to regain profitability. One is to slim down the operation to make sure that their operations are more efficiently conducted than they have been in the past, most specifically with regard to manpower, and as at least one noble Lord said, British Airways have been able very significantly to reduce their manpower in recent months, and they are certainly continuing to do that.

The other arm of their return to profitability must be the acquisition of more efficient aircraft, particularly aircraft which use less fuel, aircraft which make less noise and are thus able to operate for a longer period during the day, and aircraft which carry in many cases more passengers. Among the aircraft which British Airways are in the process of acquiring is, for example, the Boeing 757, and the new borrowing which is being authorised for British Airways by this legislation and any orders which may be made under it will be used largely for those capital purposes, and I hope that reassures my noble friend about the purposes for which the funds will be used.

I hope I have covered the main points that have been raised this evening, maybe not to the total satisfaction at least of the noble Baroness, Lady Burton, who I hope will understand the constraints upon me with regard to the Stansted inquiry and with respect to the legal action to which I referred in my opening remarks. Doubtless there will be an opportunity for further debate of some of these points in Committee on the Bill, but as I said at the beginning of the debate, we are not dealing here with a major policy change. Indeed, the Bill is in itself, uncontentious and its main provisions are necessary and straigthforward. As such, I hope your Lordships will agree that it should now be read a second time. My Lords, I beg to move.

rose to ask Her Majesty's Government whether they agree with the conclusions of the report of the European Communities Committee on Combined Transport (1st Report, H.L. 19), and whether they expect progress on the Common Transport Policy (43rd Report, 1977–78, H.L. 255).

My Lords, I am certain your Lordships will be grateful to the noble Lord, Lord Kings Norton, for asking this Question; for explaining the work of your Lordships' committee and the conclusions arrived at; and for putting them forward (if I may say so with humility) in such a clear way that even a person such as myself can understand fully what is involved in the proposals. It would seem to me that the objectives of the Commission are admirable, but, as the noble Lord has pointed out, at the moment, even in the Community as a whole, only 1 per cent. of all inland freight transport uses combined transport, and even the Commission's own aim is only that it might achieve 5 per cent.

I find that I am in agreement with the committee's view that the overall effect of the proposals as they stand could be to encourage the use of piggy-back lorries and discourage the use of containers. Therefore, the proposed tax reductions, which are the incentives for the development of combined transport, would mean that a British lorry could travel piggy-back on continental rail but not in Britain. I noticed the statement of British Rail—and I quote:

" this island would just become a road delivery and collection area for the piggy-back system in Europe ".

The noble Lord, Lord Kings Norton, has detailed the conclusions of the committee, and without going over them again I would say that, on the report and the evidence presented, in general I not only agree with the conclusions of the committee but I also find myself in general agreement with the proposed amendments that the committee feel should be made to the draft directive. I must say that the committee's view that (and I quote again)

" The actual proposals pale beside those grandiose claims "

which were made in the directive seems to be borne out by the report; and it would appear that so far as the United Kingdom is concerned, it could be much ado about nothing.

I am very grateful to the committee for subjecting the proposals to such detailed consideration and for the way in which they have exposed the weaknesses in the draft directive and have indicated the amendments that should be made if the directive is to be proceeded with. I am particularly pleased that the committee paid such attention to the wording of the draft directive with regard to reduction or exemption of taxation, as this is the incentive for the development of combined transport. The Commission has declared that no member state must give any relief from fuel duty, and as far as the United Kingdom is concerned it can apply only to relief on vehicle excise duty. Therefore, it is important, I believe, as the committee have stressed, that the actual wording of the taxation proposals should be precise.

Another reason is that the European Assembly have proposed that taxation relief should be made compulsory and not discretionary, as is proposed in the draft directive; and also that the directive should include provision for taxation relief for vehicles used only occasionally for road haulage, as defined in the draft directive.

The noble Lord, Lord Kings Norton, referred to the evidence of Mr. Gabert. I noticed that he also supported the proposal that there should be equal treatment for combined transport, whether used for road and rail or for road and inland transport. That was the view of your Lordships' committee, and it is the view which I also support. I must say that in view of the length of the inland waterways that there are in some EEC countries, I have found it rather difficult to understand why help for waterways should be confined to transport of containers. It seems so logical to me that there should have been the extension as proposed by your Lordships' committee.

It seems that the objective of the draft directive appears to have been looked at through continental eyes. There we have long distances and we have the frequent crossing of frontiers, all of which would seem to make combined transport beneficial in those countries. I note that Mr. Gabert claimed that combined transport decongests roads and contributes to the reduction of expenditure on road building and to the protection of the environment, and assists road safety. But when Mr. Gabert was asked whether he thought that combined transport would have a very small effect in reducing road congestion in the United Kingdom, I find that he replied that he could not say what would be the effect in Britain but it would have a strong effect in continental Europe. That seems to bear out what I have said, that it was being seen through continental eyes.

Mr. Gabert also expressed the view that the proposals would be important for Britain with regard to containers. But I note that your Lordships' committee accepts the British Rail criticism that the investment required to secure limited increase in container traffic would not be justified, particularly as tax relief would end after five years. I support the view of your Lordships' committee that the transport of containers must be given comparable advantages to those proposed for piggy-back lorries. From the evidence, I note that the evidence presented by the Road Haulage Association and that by the Union of Industries of the European Community are somewhat similar. They take the view that the use of combined transport should be encouraged on its merits alone and not be specifically used to achieve transfer of freight from road to rail. Nevertheless, they would approve minimal assistance on specific projects to assist the development of combined transport, but would not approve grants or subsidies on actual operations.

I note that the Road Haulage Association pointed out in their evidence that operations in Germany are limited by regulation rather than by market forces, that the number of road permits is severely limited, has not been increased for some years and that this is intentional to protect the German rail system. Then I note Article 4 of the draft directive which states that member states have to ensure that carriage by road as part of combined transport operations shall not be subject to any quota system or other quantitive restriction affecting access to the market. At present the Germans would appear to contravene that particular article.

I thought that the memorandum of the Department of Transport was particularly helpful in explaining the whole of this issue. I thought it an excellent memorandum. Paragraph 8 of that memorandum states that the draft regulation would amend Regulation 1107 of 1970 which provides that member states may give aid during research and development stages of any new transport systems and techniques and that such aid is not in breach of Article 92 of the Rome Treaty. The memorandum also states that adjustment to the 1970 regulations would be absolutely essential if member states are legitimately to continue their support for combined transport.

Then we find British Rail evidence, which I am certain we have heard in other debates, but which I will quote. It says:

" We are the only European rail whose freight business has to be commercial and cover its total costs; every other European rail system is supported by some form of governmental aid, and road haulage is restricted. Neither of these things is present in this country ".

In view of that statement and the known level of governmental aid to rail in most European countries and the similar help given to public transport in most of their capitals, far in excess of that which applies in the United Kingdom, I wondered how all this fits in with the Treaty of Rome. Therefore, in this connection, the second part of the Unstarred Question put down by the noble Lord, Lord Kings Norton, which raises the whole question of the European common transport policy, is important.

So I re-read the 43rd Report which, as the noble Lord has said, was issued in 1978. I find that page 10 sets out a number of EEC articles which deal with the common transport policy and the circumstances in which there might be state intervention in transport and also the provision of state subsidies. I am certain that your Lordships will agree that at this stage it would be wrong to reopen the debate on the 43rd Report which has been debated previously by your Lordships. However, I am sure that it will be interest- ing to learn of the Government's view on the common transport policy. I note that the Committee under the chairmanship of the noble Viscount, Lord Simon, explained that they recognised that what seemed sound in theory often proved in practice difficult to implement.

I noted in paragrah 46 of the report, that that committee while supporting the principle of a non-discriminatory and competitive market, also call for the exercise of common sense and realism in the measures taken to promote it. They believe that at present too much attention is being paid to " fair competition " at the expense of reaching agreements on specific matters such as construction and use regulations. I wonder whether the Government agree with the statement of your Lordships' previous report and whether that is the Government view at present. It is interesting to note that Article 9 of the draft directive proposes that every two years the Commission shall draw up a report on the development of combined transport as far as the application of Community laws is concerned. That will obviously bring up the whole question of the common transport policy, the whole question of the subsidies and the policy which is carried out at the moment by most of the European Community countries in contravention of the articles of the treaty.

Mr. Gabert was asked if he could elaborate on what the United Kingdom Transport Minister had told the European Committee on Transport when it was discussing combined transport. He replied that the British Minister and other Transport Ministers were very much in favour of the directive and the regulation to provide for combined transport. Then, in reply to another question, he said that the British Minister made no reservations. It may be that Mr. Gabert's statement was not in full accord with the facts. But, if it was, then I am surprised, in view of the reservations and the criticism made by witnesses on behalf of the Department of Transport, that our Minister did not make reservations and criticisms when this matter was being discussed in the Transport Committee of the Community.

My last point is on the question of the Channel tunnel raised by the noble Lord, Lord Kings Norton. This matter was drawn attention to by the committee. In their evidence, British Rail point out that their agreement with their French Rail counterparts is for a six-metre tunnel and they suggested that their French partners are luke warm to piggy-back transport generally whereas Germany is extremely enthusiastic. I readily understand the view of both British Rail and French Rail that so long as there is only a single tunnel, even if it is a larger one of seven metres, it would have to be confined to conventional rail traffic. It has been stated elsewhere (not in this report) that a larger tunnel of seven metres, instead of six metres would involve only an additional £75 million in costs.

I have no brief as to whether it should be a 6-metre or a 7-metre tunnel. But I would ask the Government to accept that in view of the possible development of combined transport and the fact that provided there are suitable amendments made to the directive there are possibilities of development, then urgent consideration must be given to the size of the tunnel. This should be considered by the Government, who, I understand, are going to make an early decision on the tunnel. This question should be considered as a matter of urgency alongside the principle of combined transport.

My Lords, I should like to add my thanks to the noble Lord, Lord Kings Norton, for putting down this unstarred Question. He is my successor as chairman of the relevant sub-committee of the Select Committee. I started off this report on combined transport. I handed over to him what I hope was not too poisoned a chalice, and he has brought the report before your Lordships' House.

It is a long time since there was a debate on European transport policy in your Lordships' House. A cynic might say: " This is because there ain't no such animal to discuss ". There is more than a grain of truth in that. In the Treaty of Rome, transport policy covers transport by rail and road and on inland waterways. Sea and air were to be included at the option of the Council. This was a limited start and the preoccupation of most member Governments with the financial subventions needed for their railways was the dominant factor in the formulation—or perhaps one should say the non-formulation—of a common transport policy.

Viewing the situation from a United Kingdom standpoint, the existence of the Channel ensures that, so far as rail and road transport are concerned, the United Kingdom's interest is a special and in some degree a peripheral issue. In the event, the history of the attempt to develop a common transport policy is that of a series of surges instigated by an active commissioner or member of Council followed by a period of reflux in which the problem has merely been tinkered with.

The first surge occurred before United Kingdom membership, when in 1961 the then Commissioner Schaus made a very creditable effort to get a common transport policy going. It led to the adoption of an action programme in 1962. But this petered out and only a few modest directives were agreed. The next surge was a British initiative in 1977, when Mr. William Rodgers, during a United Kingdom presidency, put forward, as chairman of the Transport Committee, a paper, Common Transport Policy Objectives and Priorities. This initiative was translated by the Commission into a communication outlining the priorities for action with an appropriate resolution attached.

However, in the event, the resolution was never adopted and the Council merely took note of the proposal. It was about this time that the Transport Committee of the European Paliament began to put pressure for progress on the Commission and the Council, and it was also at about this time that your Select Committee came on the scene and, in August 1978, produced a report on transport policy. I remember it well, as I joined the sub-committee halfway through the work and was impressed by the very considerable difficulty experienced by the chairman, the noble Viscount, Lord Simon, and the committee in hammering out a report from some pretty unpromising material. This report has been left on the shelf until tonight, when it is on your Lordships' agenda. Eventually the Council approved an improved consultation procedure, exchange of information and the like, relating to transport infrastructure projects. But by and large in the transport field the EEC went back to tinkering with the problem, and their main concern, as the noble Lord, Lord Kings Norton, has pointed out, was in relation to commercial vehicles, road transport, and transport bottlenecks.

A third surge occurred in 1978 when the Irish Commissioner Burke produced a Green Paper on community transport infrastructure. This was followed by discussions in the Commission and the Council. It was the intention of your Select Committee to scrutinise the relevant documents at this time, but, fortunately or unfortunately, the newly-formed transport committee in another place shot your Lordships' fox.

In its report on the Green Paper and on the action in it recommended to the Council, the enthusiasm of the committee in another place was noticeably restrained. On the Green Paper itself, the verdict was, " Though short, it was vague and depressingly difficult to read, and its arguments were tentative and uncertain ". On the basis of it, the Commission proposed yet another action programme and put forward a specific proposal for a financial regulation under which finance could be made available for infrastructure projects which had a " community interest ", though this phrase, " a community interest ", was not very clearly defined. The other place did not think much of this regulation, which as usual applied only to rail, road and inland waterways, and concluded that without its extension to airports, and ferries, it was of little interest or advantage to the United Kingdom.

The committee in another place was principally concerned—perhaps unduly concerned—with calculations as to the immediate financial advantages or disadvantages of various proposals to the United Kingdom—" the nicely calculated less or more "rather than with the importance of a long-range improvement of the European transport infrastructure to the Community as a whole and particularly to the enlarged Community. But in its initial form the regulation was no doubt too restricted and it contained some questionable proposals for assistance to non-Community members in order to assist Greece, which the committee in the other place—quite rightly in my view—advised the Government to resist.

The Ministry of Transport, and some other organisations which gave evidence on that occasion, while agreeing that the regulation needed amendment and that wider coverage was required, were favourably disposed towards the Commission's initiative. However that may be, the outcome of all this palaver was, first, that Her Majesty's Government replied in a White Paper to the report in another place in a positive way and the Commission produced a further report on transport bottlenecks. But today, as I understand it, that financial regulation, after three years, still lies on the table. No proposals for the extension of the resolution to ferries, docks, sea and air transport infrastructure have yet been produced, and the whole initiative on transport infrastructure appears to be stalled. Perhaps the Minister can throw some further light on this matter.

Against this background, last year's directive and regulation on combined transport, the subject of the second report before your Lordships' House this evening, appears to reflect a return to tinkering with the problem. I shall not say much about it. It has been well covered by the noble Lords, Lord Kings Norton and Lord Underhill. So suffice it to say that it has all the hallmarks of earlier initiatives—a preoccupation with rail and road as opposed to sea and, in this case, even inland waterways. Since piggy-back " is widely used on the Continent, it is heavily weighted in favour of " piggy-back " and against container traffic. These difficulties could, as the report points out, be easily overcome by amendment and would make the proposals quite useful, though the scheme would be costly to administer. The whole proposal seems to me to lie at the margin. In any case, as the noble Lord, Lord Kings Norton, has stated, the regulation has apparently been thrown out by the Council, though presumably discussions on the phrasing of the draft directive will continue.

However, it is easy enough to make critical and " knocking " speeches about the EEC's achievements in the formulation of a common transport policy, but the criticism, at least of the Commission, is not perhaps fully deserved. Comparisons are often drawn—the noble Lord, Lord Kings Norton, referred to them—between progress on the common agricultural policy and progress on transport policy, to the detriment of the latter. But, apart from the fact that both cover large areas of national and international policy and share certain exemptions in the Treaty of Rome from the strict doctrine of liberalisation and the free movement of goods, they are not in my view really comparable. We have already seen that the transport provisions in the Treaty of Rome, however extensive, were in effect, weak and restricted; and the Council of Ministers has certainly not felt the incentive to reinforce and liberalise them. Nor has it accepted the Commission's proposals for some Community financial support.

However, some progress at least has been made in certain areas, and if not much advantage has accrued to the United Kingdom this is partly the result of geography. It may be our misfortune that our railway gauge is different from the gauge on the Continent, but that is hardly the rest of Europe's fault. We have, I suggest, to try to take a broader view, as indeed it seems the Ministry of Transport does endeavour to do, and to judge the effect of particular measures on the welfare of the Community as a whole without expecting too much short-term advantage for the United Kingdom. But, as in the case of the present limited proposal under discussion, these measures, to be acceptable, should be non-discriminatory, and applicable to all forms of transport and to all devices for the transport of goods. Your Lordships will be looking forward to the Minister's views on all this.

My Lords, I, too, should like to thank the noble Lord, Lord Kings Norton, for asking his Question and for the manner in which he has presented the opinion and conclusion of the committee. I agree with the opinion of the committee and its conclusion. My remarks will be very brief because most of the arguments which I would have propounded have already been very ably propounded by the noble Lords, Lord Kings Norton, Lord Underhill and Lord Sherfield.

None of your Lordships could complain, I think, that I am not a good European and a supporter of a number of Commission proposals, but in this case I cannot urge the Government to support the directive which we are at present discussing. I am certainly generally and in principle in favour of a common transport policy in the EEC. Indeed, as the noble Lords, Lord Underhill and Lord Sherfield, have said, it is written with limitations into the treaties and therefore there should be a common transport policy just as there is a common agricultural policy, although I see very clearly that they are different. Nonetheless, it was written into the treaties. But, having said that, I cannot support this directive.

In regard to the directive proposal for a system of tax reductions for road vehicles proportionate to the distance for which they are carried by rail and tax exemptions for road vehicles which are solely for road haulage, as defined in the directive, in these cases the difficulties of administering such a system, which may appear to be obvious, seem to me to have been inadequately considered.

Then in so far as combined transport in the United Kingdom is concerned, I should emphasise that this consists mainly in transport by containers, and it would be certainly advantageous to this country if the system could be improved and developed. Greater use of containers would be encouraged if systems of locating them in transit and for reducing delays could be improved. Quality of service is, by common consent, a very important factor in the choice of methods of goods transport.

Finally, I should like to stress the special situation of the United Kingdom in the way in which other noble Lords have already done. This country is in an altogether different position from other EEC countries with the possible exception of Greece, which is not contiguous with any of the other member states. As the noble Lord, Lord Kings Norton, implied, maritime transport in particular should be given full consideration when transport policy is discussed. The fact that British Rail cannot carry lorries by the piggy-back system must also not be forgotten—a point which is especially important in any proposals for encouraging combined transport.

Therefore, while I am in favour overall of an EEC transport policy, I hope that in the Council of Ministers Her Majesty's Government will not support the directive even if perhaps they might, in my view, accept the regulation—a regulation which unfortunately has not been accepted by one particular member state. I hope in consequence that the Commission will be asked by the Council to look at the directive again, taking into consideration the special situation of the United Kingdom. I fully support the opinion and conclusion of the Committee and I congratulate the noble Lord on his presentation of them.

My Lords, as has been pointed out this evening, Article 3 of the Treaty of Rome called for a common policy, first in agriculture, admittedly, but secondly in transport. It made clear that progress towards these objectives was of the essence in building up the Community. So far there has been progress in agriculture but very little in transport, and many feel that the future prospects of the Community are threatened both by the over-emphasis on agriculture—for example, its over-importance in the Community budget—and the failure to evolve any sort of policy on transport.

A study of the Select Committee report on EEC transport policy shows that there have never been any doubts about the economic importance of a transport policy. Indeed, though classed as a service industry, transport is demonstrably a critical element in the whole process of production and distribution which constitute modern economic activity. It is on the political side that failure to agree arises, probably because of the heavy commitments of the Governments themselves in the transport field, where they have vast investments in both roads and railways. I am inclined to think, too, as the noble Lord, Lord Underhill, said, that the commitment of governments in the way of national aids in the transport field is also a stumbling block to progress which will have to be removed. It is doubtful whether any real progress will be made within a reasonable time limit until the principle of unanimity is set aside, presumably in favour of a voting system such as that set out in Article 148 of the Treaty. This procedure is, in fact, already provided for in Article 75(1) of that section of the treaty which deals with transport.

In his evidence to the Select Committee in May 1977, the then Minister of Transport said:

" All discussions on transport policy tend to start, and end, with the railways ".

Historically he may well have been correct, but in this 20th century it cannot be right. Just as the 19th century saw the rise of the railways on cheap coal, so the 20th century saw that of the internal combustion engine on cheap oil. At present within the EEC, road transport dominates the movement of freight, as indeed it does that of passengers. This is particularly so in the United Kingdom, as has been pointed out by other speakers, where out of the 1979 total of ton-miles worked, including coastal shipping, road was responsible for 65 per cent. as against 12·5 per cent. for rail. Road transport is not necessarily cheaper than rail in real terms—indeed, the Armitage Committee found that the average costs per ton-mile by road are five times higher than on railways—but it is far more convenient and thus is seen to be more cost-effective.

But as the 21st century approaches, is this pattern going to continue? The era of cheap and abundant oil is probably nearing its end, and the next century may well be that of electricity which can be generated from various sources, including alternative ones which are now being developed. This process might well change once again the basic economics of transport. Then, again, there are environmental problems arising from congestion and pollution, as a recent report about what is happening to Germany's forests helps to remind us.

This report of the Select Committee on the European Communities makes it abundantly clear that the need for a common transport policy is widely accepted, both in the Commission and in the European Parliament. It refers to the many attempts that have been made to define the objectives, all of which have failed to find acceptance by the Council. Quite rightly, it points out that, because of the political situation, there has been a lack of the instruments through which a policy could be implemented. Instead, there has been a trickle of minor regulations which are generally referred to as " small steps ".

Turning now to the Select Committee's report on combined transport, this arises, as has been said, from proposals put forward by the Commission in the form of a draft directive and a draft regulation, which aim at giving certain economic advantages to various forms of combined transport, of which that known as " piggy-hack "—that is, the trunk haulage of a lorry by rail or inland waterway—is apparently the one most favoured by the Commission. The report points out that the proposed tax rebates would be difficult to administer and probably not very significant in effect.

More importantly for this country, the railway loading gauge—that is, tunnels, bridges, gantries and, to some extent, platforms—precludes piggy-back " for lorries on ordinary flat wagons. Thus, even with a direct rail link to the Continent, increased " piggyback " as far as the Channel might well mean more lorries making their way through Kent by road. To adapt even one rail route to London—and British Rail have three rail routes from the Channel to London—to the continental gauge would cost perhaps £50 million and pro rata beyond London. In general, " piggyback " seems better suited to the very long hauls available in the USA and Canada, where it has become quite significant.

But, in saying that, I am sure that the noble Lord, Lord Underhill, is right in drawing attention to the importance of the loading gauge in the direct rail link Channel Tunnel, in that it would be inexcusably short-sighted to build it to the British Rail loading gauge—the restricted gauge. Seeing that this is a long-term project, we should undoubtedly be condemned as being short-sighted if we did not build it to the full continental gauge. That might raise some problems about funding—I believe that it would add about £100 million to the cost of the single-bore—bu, that would have to be faced as an essential part of the scheme.

However, before leaving combined transport, there are other forms of combined transport that are mentioned in the report which could be very important for this country. British Rail have made considerable progress with containers, and their Freightliner trains and depots now handle some of the less-than-wagon load traffic which has otherwise been lost to road. It is worth pointing out that private road transport has access to Freightliner depots, and indeed 40 per cent. of the traffic carried in that way comes in by private transport. This mode should certainly be encouraged for international traffic, as should the caisse mobile or swap-body, also mentioned in the report, which notes that it is making headway on the Continent.

With respect, I would disagree with what the noble Lord, Lord Kings Norton, said. This is not a trailer. It is a demountable body and, in fact, the last page of the report shows a diagram of a caisse mobile which is capable of being transported over the present British loading gauge. I am sure that it is has great advan- tages because, like most modern lorries, it is capable of being side-loaded with pallets, which of course you cannot do with a container, which is like a box-body. I think that this mode is something which should also be encouraged.

Reference is made in the report to inland waterways, which are very significant in Europe. The phenomenal rise of Rotterdam as a port has been one of the main features of European transport since the war, and the Rhine has played a great part in this. Quite recently I had the opportunity of observing the traffic on the Rhine and the Danube, and also to travel over portions of the great canal which the West Germans are building to connect the two. So far as this country is concerned, the only form of combined transport which would be significant to the waterways would involve a maritime clement, in the form of barge-carrying vessels. These could, for example, connect cities served by the new works on the Trent, which are in progress, with the North Sea and so with Europe.

Probably the most valuable part of these reports is that they draw attention to two important policy matters: the need to facilitate traffic between members of the Community and the suitability of rail transport for this purpose. On the first point, our Minister of Transport is quoted in the 1978 report as saying:

" As regards road freight transport, at present some 94 per cent. of intra-community movements are carried out under bilateral arrangements between the Member States, and only very limited categories are entirely free from quota and authorisation arrangements ".

This is far removed from the more liberal régimes envisaged in the Treaty of Rome and, indeed, already prevailing to a degree on the Rhine and Danube where I have seen for myself the varied national flags being flown by the barge trains.

At page 42 of the report reference is made to what, from experience, I believe to be a major source of restriction and delay in intra-Community transport; namely, customs. Obviously, it is up to the sender to do his homework and ensure that his documentation is correct, but there is still a degree of inflexibility and inertia built into the system which acts as a most unwelcome brake on such traffic. One might perhaps illustrate this by saying that senders often prefer to consign by road simply because a driver travels with the lorry, and it is well-known that they have strong views on delays far from home and forceful ways of expressing them. By contrast, a rail container stuck at a port or frontier point on some technicality can be delayed for a week or very much more. I believe that combined transport by rail could help substantially in easing this situation by making possible through transport to inland depots away from the concentration of traffic so many ports provide.

Finally, reference has been made to the Channel Tunnel. I believe that a study of these reports brings out the relevance and the urgent need for a direct rail link between this country and the Continent. This project has been identified by the Commission as being one of those capable of removing a bottleneck and so of being of great benefit to intra-Community transport. In consultation with the French, the Minister is currently considering several schemes and it is greatly to be hoped that he will come to a decision at an early date. In doing so, he will no doubt take into account that on the evidence of these reports the rail link is the priority element, and on grounds of cost the scheme put forward by British Rail and their associates is by far the cheapest. It also involves no unfamiliar technology and so could be put in hand and completed in the shortest time. International traffic, because it is on average long-haul, is inherently suitable for rail and yet at present, for the lack of a link, only 2 per cent. of all British Rail traffic is in this category as compared with 62.8 per cent. for Italian railways, 38.8 per cent. for French and 22.3 per cent. for German. A cross-Channel rail link would thus enable British Rail to compete for traffic which they can win on cost while at the same time, by the appropriate use of combined transport, retaining the convenience of road transport for collection and delivery. This I believe to be the most important point for this country arising from the debate on these reports.

My Lords, I take part in this debate in the certain knowledge that I cannot be very far from other people's views. Certainly I endorse nearly all that the noble Lord, Lord Underhill, had to say. I, too, agree with the conclusion contained in the report of the Select Committee regarding combined transport. I might go a little further. In paragraph 41 they say that if the proposals were enacted they would be moderately harmful to British Rail. I believe that they would be more than moderately harmful. I believe that they would prove to be totally disadvantageous to British Rail.

The proposals are, of course, laudable in that they seek to reduce the volume of road traffic, to improve safety, to give rise to energy savings and so on. Those are all aspirations which anybody in the transport field wishes to meet. But the reality of the matter seems to me to force a subscription from Community Members to European railway systems, with little or no advantage to the United Kingdom. As has been pointed out, the European countries have less flexibility regarding transport modes and considerably more control as to direction on to State-run railways. We take the opposite view. We take the view that railways should be operationally self-supporting. That they are not so is sad. Nevertheless, we take this view. Our European colleagues take the alternative view, and I can see no justification whatsoever why, by a somewhat indeterminate (at this stage) tax reversion scheme which lasts for only five years, we should support that kind of view.

It seems to me that the general argument laid down in the proposals is very similar to that which has obtained in this country since the end of the First World War—the fact that more traffic must be moved from road to rail. We do not take the view that it must be forced that way. We take the view that there should be equal opportunity for the consumer to choose, and I think that is right. In fact, the evidence in paragraph 75 on page 21 and indeed our own independent report contained in the Armitage Committee Report, suggests that, even were rail able and willing, in this country or in Europe, to accept all the traffic that was available that they would wish to compete for on equal terms and would wish to carry, the net result would be insignificant in terms of meeting the laudable objectives of reducing road transport, improving safety and so on. If we are to get a combined transport system as the Select Committee so describe it, I believe that, first of all, we have to ensure a relaxation in the present permit situation.

It is really ludicrous that, for example, the French and the Germans will for each " piggy-back " transaction undertaking give another free permit. In unparliamentary terms, that is just straight blackmail. That is all that is. That is a situation which looks after one's own. That we do it is because we play cricket by the rules. That is the blunt fact of the matter. We should not subscribe to a system that prevents a free transport system. Some hauliers do indeed subscribe to this " piggy-back equals one extra permit " system, but the delays in delivery—the transhipment delays—are quite appalling. Until the termini, whether they have to be in the United Kingdom or in Europe, are sufficiently equipped with the machinery and the manpower, and have the modern expertise, there is just no point in transhipping. The few occasions when it is worth while are where the service element of delivery falls to a low level. Indeed, it was the noble Viscount, Lord Sidmouth, who made this point about the cost element. The cost element is one part only; it is the service which comes into this all-embracing phrase, " cost effectiveness ". From our point of view, as soon as we accept that the delivery, whether it is by road or rail, is merely an extension of the production line and that we have to get the goods to the market in the fastest time (and not always at the cheapest cost) I believe we shall be able to accept the value of a combined situation.

The haulage industry subscribed to this view, and their evidence is in paragraphs 88 and 89. What we have to do is to remove the current restrictions on permits and, again as the noble Viscount pointed out, the inextricable maze of difficulty, which results in delay, over customs. This really is appalling, and I do recall having the privilege of serving on one of your Lordships' scrutiny committees on trade and treaties some four or five years ago, when we examined the arrangements for customs clearance. We do not seem to have got any further forward on that. In fact, not to put too fine a point on it, the French—and to an extent, the Italians—are past masters at holding up pieces of paper. Normally in your Lordships' House one does not phrase one's expressions quite so bluntly. But one might just as well when looking at draft regulations and a draft directive which would be of a good deal of concern to us. What I am really trying to say is that I believe that the proposals put the cart well before the horse. Herr Gabert's evidence and discussions with the Committee suggest that there is an esoteric hope in the proposals but very little realisation of the effectiveness of them.

I believe that we should move to a more flexible system of moving goods and people, through the relaxation of permits, customs, and so on and so forth. That will then provide the market demand for additional services. Whether it is " piggy-back ", whether it is " swap-bodies ", whether it is different types of containers is at this time totally immaterial, because the marketplace itself will demand that which shall be supplied. That demand will then put upon the Community the responsibility of finding ways and means of producing the answers to the need. That is what I believe we need to do.

So far as the tax suggestion is concerned—and the Select Committee point this out quite clearly—it is so infinitesimal as to be almost unworthy of further consideration. I believe that the Union of Industries of the European Community in their paper to the committee say it all; I think they sum it up. In their paragraph 2 on page 57 they say:

" However desirable the development of combined transport should be, it should not be regarded as a substitute for conventional road transport, but as the introduction of a set of quite different techniques ".

That I believe to be true. That I believe is what the market will in fact demand, should the market go that way. They say in their paragraph 5:

" The quality of the service provided by the new techniques should at least be equal to that of road haulage (speed, dependability) and so on ".

They say in their final sentence set out on page 58:

" So long as the control of combined rail and road traffic remains a matter of conflict, the whole future of these facilities will be uncertain ".

While it is uncertain commercial enterprises are not going to put their money into it: neither are they going to subscribe to any system of taxation involving the removal of money which they themselves put into their own transport system by way of taxation being syphoned off into systems such as those described in the proposals.

I would finally say something about the EEC transport policy document which comes before us again tonight. In 1961 Ambassador Charles' Memorandum set out what he was really looking for. He said:

" A transport policy applying to the transport of the Community as a whole must, therefore, gradually replace national transport policies ".

I take that certainly out of context. That remains so today. And despite that initiative, despite the 1977 William Rodgers initiative, and despite the 1978 initiative, what has been done? Apart from niggling little harmonisation and regulatory rules, two things only have emerged in all that time: one tachographs—and we had problems there and we do not want to discuss those again tonight; we finally agreed. The other thing is the 40-tonne gross lorry. By far the biggest measure of concord, of agreement in the Community, is the 40-tonnes. Whether in fact the United Kingdom Parliament is going to accept that when we come to it we shall have to wait and see. But at least on that issue the Community has reached agreement. All the rest pales into total insignificance because it is only here, I believe, that we can do anything particularly useful. The noble Lord, Lord Underhill, underlined this point.

One may ask: What should Her Majesty's Government do to pursue a European transport policy? I believe that there are, in fact, only three areas where anything totally useful or totally practicable can be done and that is to get flexibility into the quota system; to get a customs simplification, which means free movement of both goods and people; and I have noted " the universality of the vehicle ". The noble Lord, Lord Underhill, referred to agreement under the construction and use regulations. That falls into two areas; harmonisation on the safety factors—brakes and steering—under the construction and use regula- tions; and the environmental features of noise, smell and so on.

Neither of those two objectives is outside our grasp because they are purely technical. They require only agreement as to the mean and the mean has been found in total weight of 40 tonnes. The mean can quite easily be found in all the other areas because the amount of money involved by virtue of the manufacturers and the retailers is insignificant compared to the whole. A trans-continental rig of 30 or 32 tonnes now costs something around £40,000 to £50,000. A fully equipped continental-going passenger coach is around £70,000. If one added £2,000 for a non-skid braking system it pales into insignificance. These are the areas in which I believe Her Majesty's Government should spend their energies. I think that we should abandon totally all hopes of total uniformity for uniformity's sake. I believe that transport is one of those businesses which excite the interests of the entrepreneur. The entrepreneur is prepared to take the risk. All that is required is a fair chance with all modes and utilising all modes wherever he operates.

My Lords, first I should like to thank the noble Lord, Lord Kings Norton, for giving me the chance to make a speech that I have wanted to make for a long time. We are an island—we are surrounded by the sea, by water. That water is either a barrier which confines us or else it is a high road which takes us to Europe and the world. To neglect or to keep out of consideration the sea is a disadvantage to this country which never ought to be allowed. We have the facility to go anywhere with our ships, at least as far as seaports. One might think that the great continental countries would pay much more attention to land transport, and that, of course, is true in many ways. But it is noticeable that they also understand that you can carry cargoes in great bulk much more cheaply and easily and with much greater fuel economy—I should like to mention the words of the noble Viscount, Lord Sidmouth—on water. Therefore, they have been enlarging their waterways so that they can take a standard vessel which will carry 1,350 tonnes. That is a very big inland waterways vessel indeed. By the time the European system is complete, which will be some years hence but it will come, those vessels will be able to get not only through all Western Europe, but through all Eastern Europe as well, not only down the Danube but down into the Aegean through to Greece and Turkey and even as far as Asiatic Russia. That would be an enormous advantage.

What is more, although those vessels are called inland waterways vessels, they are quite capable of crossing the North Sea which, in their terms, can be regarded as an inland waterway. We should most strongly urge and so arrange matters that the provision by us of such vessels links us across the North Sea to the inland waterways of Europe. That at least would be a good start.

But there is something further that we can do better to link our transport with the rest of the world. I am thinking of the container, but I am thinking of the container possibly in rather different terms from most of your Lordships, because from my knowledge of the inland waterways of our country I remember how our little narrow boats became too narrow usefully to carry cargoes. Their gauge became too small. It will happen to the container. We cannot make containers bigger than a certain size because we cannot get them along the roads, and certainly we cannot load them onto road vehicles and " piggyback " them. But there is a way to make much bigger containers. You make them watertight and put them in the water. What is a good large barge but a floating container?—and it can be much bigger than anything we can put on the roads. What is more, it can be got across to Europe, and in Europe you do not even need to put it on a lorry or anything else; you make it into a raft, you put a tug behind it and push it or them in hundreds. Already in parts of Europe it is possible to push floating container cargoes of 7,000 tonnes. That is a big cargo on anybody's measurement.

What about containers coming to us? You cannot push them across the North Sea; they would not last very long in our normal weather. But you can load them into a barge-carrying ship and, loaded onto a barge-carrying ship, they can then be brought across, unloaded in our major river estuaries and be pushed happily up our canals. I am not talking about the little narrow canals of the Midlands; I am talking about the big cargo canals of which British Waterways has a pretty fair supply and is improving them, and could improve them still further with advantage. That can be done with no great trouble.

There was a very fine scheme called Bacat—Barge Aboard Catamaran—a doubled-hulled vessel with a space up the middle which drew barges up in between it which were then lifted onto its decks and carried across the sea. Those could go up our waterways, be dropped into the Continental great waterways and be made up into rafts of whatever sizes the locks would take—and, as I say, in some cases there could be 7,000 tonne rafts—and be pushed wherever they were required. I regret to say that that scheme was murdered. It was a scheme for one of the finest technological advances that have been seen in transport. It was murdered by a trade union, with the consent of a Government. Everybody on that matter should blush, and blush very hard, because that was a real way of advancing into the future; carrying bigger containers which you will not be able to get on to the roads, but which, with the modern European waterways system and with not much development of our own waterways system would work perfectly happily.

You may call this " piggy-backing " of an aquatic form; you may call it mixed transport. I do not know what you would call it, but it seems to me that with this directive and with all the actions taken so far this whole business has been neglected. I do not know whether it should be a good Tory motto, " Bring back Bacat ". Certainly it would be a fine one. If we could have something like Bacat back again, that would be the finest and cheapest way of providing future style transport for us; not merely today's transport, but tomorrow's transport. That at the moment seems to me to be being almost wholly neglected.

We have ships carrying barges coming across from the States and dropping their barges into the Medway and some of our other big rivers, but it is not the big ship carried barges that we should really be thinking of now, but the slightly smaller Bacat type barge which can be taken to the inland waterways of Europe, dropped there, rafted there, and really take goods from them to us back and forth in quantity and cheaply. Cheaply, not only as a method of transport but cheaply—and here I very much agree—in the matter of fuel; fuel conservation. One pusher-tug pushing a great raft of these things. It is in this direction that I should like to ask the Government whether they could direct their attention more; they should consider that the sea has always been our great advantage; that the North Sea is not that wide, and that this is the direction in which we should really he holding out our hand to Europe.

My Lords, I have listened to the speeches this evening with great interest. It has been a valuable opportunity to discuss not only the rather intricate proposals the Commission has made on combined transport, but also the wider aspects of Community transport policy as a whole. I am grateful to the noble Lord, Lord Kings Norton, for coupling these two subjects in his Question and thus providing an opportunity for a useful debate. I should also like to join with the noble Lord, Lord Underhill, in thanking the noble Lord, Lord Kings Norton, for his comprehensive introduction today, because it has set the problem in a realistic perspective.

The noble Lord asked first whether Her Majesty's Government agree with this report which the Select Committee has prepared on Combined Transport. The Government very much welcome this report. Thorough consideration has obviously been given to this complex topic, and evidence taken from an impressive number of interested parties, including the British Railways Board and representatives of road haulage and inland waterways transport industries. The Government are looking with great care at the conclusions of so thorough a study. I can say at this stage that we agree with many of them.

The Government certainly share the Committee's doubts about the significant impact which the Commission claims its proposals will have. As we have heard, combined transport plays only a comparatively small role in European transport, and even with the benefit of these proposals its contribution could not be great. Despite their general optimism about developing combined transport, the Commission recognise—and we have heard this again this evening—that it is unlikely ever to account for more than about 5 per cent. of freight movement. The Government broadly agree with this assessment and do not expect the proposals under discussion to do more than marginally affect the wider balance of choice available to freight consignors. I shall return in a moment to the specific question of choice between different forms of combined transport.

Because the proposals are so modest, the Government do not consider that they would interfere unacceptably with free competition between the main transport modes. Free competition is a fundamental principle of the Treaty of Rome and one which this Government would certainly not wish to see eroded in the transport sector. This debate has reinforced the committee's view that in encouraging combined transport, the principles of freedom of choice and even-handed treat- ment of different types of transport must still be maintained. The Government share this view and I should now like to develop this point further.

The committee noted that there remained some doubt about whether inland waterways were covered by the scope of these proposals. The Government fully share the committee's view that inland waterways should receive the same treatment in respect of combined transport as other modes. Of course, this is less significant for the United Kingdom than for some other member states, but we will continue to press in our negotiations in Brussels for fair treatment of inland waterways. I hope this House will accept, however, that on a matter such as this, where direct United Kingdom interests are substantially smaller than those of several other countries, there is a limit to the extent to which we can press the point. On the subject of inland waterways, I knew we should get an interesting speech from the noble Viscount, Lord St. Davids, which we did, blessed with his great experience and stimulating ideas, which I assure him we shall look at carefully.

A similar problem of even-handedness arises over maritime transport, which the committee recommends should be brought within the scope of these proposals. The Commission has said it is looking separately at the possibility of encouraging maritime and air combined transport. The question is whether these should be brought within the scope of the present draft directive. The Government agree with the committee's view that the conditions applying to sea crossings may influence the ease with which containers, or indeed lorries, can move easily between member states using combined transport systems. But aviation and maritime matters have traditionally been treated separately in Community legislation. The Community has not so far adopted many shipping measures and its major achievement has been agreement on a common approach to the United Nations work on liner conferences. The Government consider that the Community can play a useful role by acting in concert to support non-protectionist shipping policies.

On civil aviation, there has been less progress than the Government would have liked. Work is in hand in Brussels on inter-regional air services, air fares and a number of other measures. The United Kingdom favours a gradual, controlled liberalisation of civil aviation in Europe and the application to air transport of the competition articles of the Rome Treaty. It is, in any case, hard to see how the specific proposals in the present draft directive could apply to maritime or air transport; they are essentially concerned with aspects of road and rail freight movement and it would be necessary to introduce wholly new provisions into the draft directive, thus greatly increasing both its scope and complexity.

This House has from time to time commented unfavourably on Commission proposals which attempt too much either in scope or in detail. The Government, of course, do not disagree with the committee's view of the importance of maritime frieight links with Europe. We will ask the Commission to clarify their intentions for comparable measures to cover maritime combined transport, but the Government think it would he sensible to continue to limit the present directive to inland transport modes.

The most important aspect of these proposals from a United Kingdom viewpoint is undoubtedly the treatment of containers. This was touched on by most speakers and particularly by the noble Lord, Lord Underhill, and the noble Viscount, Lord Sidmouth. As the committee point out in their report, containers are for us by far the most significant form of combined transport. As the evidence given by the Department of Transport and by British Rail shows, containers account for roughly 12·5 per cent. of rail freight moved in the United Kingdom. About a third of the containers moved by Freightliner are for foreign shipment. The United Kingdom is at the forefront of technical development of containers, and the Freightliner business is important to British Rail.

By contrast, on the Continent there is extensive use of " piggy-back " combined transport, and, as we have heard, the United Kingdom rail loading gauge precludes this. Some British hauliers find it useful to take goods by road and roll on/roll off ferry to the Continent, and then to use the " piggy-back " services. This is particularly useful if road haulage permits are in short supply; and on the very longest hauls, where a substantial rail leg can on balance save time. But because of our far greater interest in container transport, the Government will wish to be sure that the measures that we are now considering do not give undue encouragement to " piggy-back " transport at the possible expense of containers. We must work for a broadly even-handed approach.

On this point there is no need for concern about the draft regulation. Its scope is now such that the discretionary aids which it allows are not limited to " piggy-back " transport, but apply in a fully equal way to containers, where these are moved by more than one mode.

The problem of even-handedness applies essentially to Article 3 of the directive, which concerns relief from taxation for road vehicles engaged in combined transport. There is now a new version of this article which, if it were to be agreed, would in effect make tax concessions by the United Kingdom Government optional, and confine mandatory tax relief for lorries engaged in " piggy-back " to vehicles used wholly on the Continent. I hope that that will in some way satisfy my noble friend Lord Bessborough. Negotiations currently continue, and we cannot yet say whether this version will command general support. Should it do so, the Government would need to consider their attitude carefully, and would of course consult the Scrutiny Committees of both Houses, on the basis of a further explanatory memorandum.

I am, however, able to tell the House that the Commission has accepted the need to specify precisely in Article 3 the taxes that it has in mind. As the noble Lord, Lord Underhill, said, for the United Kingdom the only tax involved is the vehicle excise duty.

My right honourable friend the Secretary of State for Transport will meanwhile keep very closely in mind the committee's strong reservations, which he shares, about the administrative cost-effectiveness of any tax concessions to United Kingdom vehicles engaged in " piggy-back ", and also the committee's still more important point about the need for even-handedness of treatment for United Kingdom interests in different combined transport systems. We cannot, of course, rule out that the text could be still further modified, and this, too, would be reported to both Houses if need arose. But in appraising the need for evenhandedness, we must keep steadily in view the point that the balance between rail container and " piggy-back " traffic is at present decidely in favour of the former. Container traffic also has a healthy recent growth record.

We must look wider than the draft directive, and I should like, for instance, to draw your Lordships' attention to another measure, which the Council, under the United Kingdom presidency, adopted at the end of last year. This was a directive making permanent what had formerly been the only very temporary liberalisation of international rail container traffic from all quota restrictions. This measure, which would otherwise have expired at the end of 1981, constitutes a valuable incentive for the use of containers within the Community. In judging the even-handedness of the Community's attempts to develop combined transport, I hope that this House will agree with the Government's view that we must look at the whole range of relevant measures, and not concentrate simply on one draft measure.

I should now like to move on to the second strand of the Question, the European Community's common transport policy; and here I am sure that the whole House will join with me in saying how much we appreciated the exposé by the noble Lord, Lord Sherfield, of the European Community and his bringing us up-to-date historically since 1961. I have also taken careful note of what the noble Viscount, Lord Sidmouth, said, though much of it, I feel, referred to Brussels rather than to any governmental policy. I also noted what the noble Viscount and the noble Lord, Lord Lucas of Chilworth, said about the customs.

It is now nearly four years since the Select Committee reported on the common transport policy. At the end of that report, the committee said that it hoped that the report would serve as source material for any general debate on the subject. Let me say at once how useful the Department of Transport has found the report. It has been particularly helpful in providing an overall picture of what can appear to be a hopelessly disparate range of issues.

The noble Lord, Lord Kings Norton, asked whether the Government expect progress on the common transport policy. The brief answer is, Yes. It is perhaps more difficult to assess the future speed, or significance, of developments. It is understandable for people to be as disappointed now at the pace of progress as they were four years ago. There is still a large number of proposals unresolved, essentially lying dormant on the table. Some of these are significant measures in which the United Kingdom has taken a major interest, such as the draft directive on the adjustment of national taxation systems, which would give a common basis for taxation of heavy lorries, or such as the draft regulation on aid for transport infrastructure. The former, I am told, has been on the table for 13 years, the latter for seven years.

Having said this, we should not be too ready to belittle what has been achieved. Agreement on major issues such as those I have mentioned is inevitably difficult because of the importance of what is involved. But (using the expression that other noble Lords have used) step by step the Community has made progress with its transport policy, and that progress covers all the main modes of inland transport. In the same way as even-handedness is so clearly important in the case of combined transport, so, too, we have to make steady progress on all modes when it comes to the far wider issues of a common transport policy.

To answer, perhaps, some of the more specific questions of the noble Lord, Lord Kings Norton, to illustrate the progress that is being made and at the same time to answer questions from other noble Lords, it may be helpful if I outline the main points from the most recent meeting of transport Ministers in Brussels. The council was, of course, chaired by my right honourable friend the Secretary of State for Transport. At the December Council, Ministers discussed and agreed a resolution on railways policy, broadly setting out guidelines for the work needed on this topic. It stresses the need to concentrate on improving co-operation between the railways, to improve the economic position of the railways and to examine how best to make use of available railway capacity.

On road haulage, the Council reached agreement in principle on a modest increase in the Community road haulage quota. Although differences of view meant that only a 5 per cent. increase could be agreed for most member states, this represents a small step forward which is particularly welcome to the United Kingdom and to those member states who believe in liberalisation of road transport. The Council also made some useful progress on the draft regulation on aid for transport infrastructure. Ministers discussed what the next steps on this issue should be in the light of the very useful Commission report on the evaluation of Community interest. The discussion resulted in a resolution again charting the way forward, and thus bringing the possibility of agreement a little nearer. But I am afraid I must agree with the noble Lord, Lord Sherfield, when he says that progress on this is depressingly slow. The Government hope that the latest Council resolution will help, but at the end of the day it may be that real progress will not be made until it appears likely that funds can be made available in the Community budget.

The subject of lorry weights was touched on; and, as the House is aware, the Government have published a White Paper giving their response to the Armitage Inquiry and have invited views on their proposals. The next step must be to agree on a policy most suited to the United Kingdom domestic conditions. United Kingdom policy towards European harmonisation will have to be formulated in light of the domestic decisions. I should perhaps like to say something to my noble friend Lord Lucas of Chilworth. I think I should dispel the impression given by the noble Lord that the rest of the Community has reached agreement on the 40-tonne maximum gross weight for lorries. The European Parliament and Commission agreed on this point, but the other member states are widely divided on this issue. This is reflected by the very different legislation on lorry weights in every country.

On balance the meeting of the Council achieved slightly more than other recent Transport Councils, but was perhaps fairly typical of progress in the longer term. Certainly discussions and progress were fairly evenly spread over all main aspects of transport in the Community—a point to which most member states attach importance. I think it can be said that progress has been made fairly evenly over the main areas identified by the Select Committee's report.

On liberalisation of transport services, for instance, the size of the Community quota has increased from 2,835 permits in 1978 to just over 4,000 permits under the latest increase agreed in principle. A series of minor amendments to the first Council Directive of 23rd July 1962 has gradually extended the categories of goods which can move freely. As I said earlier, the road legs of international rail container journeys are now liberalised. These are just some of the measures that take us forward on this point. From a United Kingdom viewpoint, it is not fast enough progress, but we must always recognise the different, but equally strong, priorities of our Community partners.

The second main area identified by the Committee's report was co-operation of infrastructure investment. At the time of the report, Ministers had just adopted a decision setting up a consultation procedure on proposed investment in major transport infrastructure projects. Although this has not been extensively used by member states, the related Transport Infrastructure Committee, established at the same time, has done valuable work on aspects of the draft aid regulation, including the Community interest report I mentioned earlier.

Finally, there is the difficult problem of harmonisation of competitive conditions in transport. The committee points out the dangers inherent in harmonisation for its own sake. There may be valid reasons for some existing disparities. But the Council has agreed a number of sensible harmonising measures, including the introduction of a common format and mutual recognition for Community driving licences. Work is also in hand on the major question of public subsidies to the railways; and the " transparency " of railways' accounts. The Commission put forward in 1981 a new priority programme superseding that of 1977. Whereas in the past the Council had simply taken note of Commission programmes, in March 1981 the Council, after considering the new Commission's proposals, adopted a resolution setting out its own priorities. These cover the same ground as the Commission's. However, they reflect the political judgment of the Ministers of the member states as to what is most important and most practical.

Turning to one direct question asked about the Channel tunnel, the remarks of the noble Lord, Lord Underhill, and the noble Viscount, Lord Sidmouth, will be taken into account. The discussions with the French over possible schemes are still in progress; and not all tunnel schemes would be suitable for " piggy-back ", as British Rail pointed out. But we would expect all tunnel schemes to be suitable for container traffic. The Government will consider all these points at the appropriate time.

The noble Lord, Lord Underhill, mentioned the speech of my right honourable friend the Secretary of State for Transport at the European Parliament. I am not sure which one he had in mind. He may have been quoting from one he made in his capacity as President of the Council of Transport Ministers. He did not, therefore, seek to put forward a purely United Kingdom policy at that time. I assure the House that the Government recognise the importance of container transport to other member states. During the United Kingdom presidency, we did our best to take the Commission's proposals forward while at the same time taking care to protect British interests.

The Government fully recognise the importance of the common transport policy. The need for such a policy is clearly stated in the Treaty of Rome. As I have already said, the United Kingdom would like the policy to be developed more quickly and more effectively. We must also recognise, however, that the size and economic significance of transport in the Community means that progress cannot be easy. Transport accounts for about 6 per cent. of the GDP of all member states. Roughly 6 million people are employed in the transport sector. With so much at stake, we must not be surprised that the Community has tackled the problems cautiously, step by step. Indeed, the many difficulties underlined by many speakers tonight, and particularly by my noble friend Lord Lucas, bear out this approach.

I am sure that this House will have found today's debate useful and informative. It seems to me that the complexities and difficulties raised by the proposals on combined transport in many ways provide a perfect illustration of the problems confronting the common transport policy as a whole. In both cases we are seeking integrated, efficient transport services, which preserve genuine freedom of choice for the user, and free competition between modes. For good commercial and historical reasons, national interests differ, and so progress can only be made by careful and painstaking negotiation and close attention to detail. The House is, as I know the Government are, grateful to the noble Lord, Lord Kings Norton, and to his sub-committee, for the way in which they have brought these items to our attention.