My Lords, before the commencement of business, I take the opportunity to inform the House that I am to undertake a meeting with the Prime Minister and other members of the Cabinet at Chequers on Monday, 27th January. Accordingly, I trust that the House will grant me leave of absence for Monday, 27th January.

asked Her Majesty's Government:

My Lords, the European Commission is due to present its assessments of each country's application to join the EU immediately after the IGC has finished in June. The Council will then decide later this year which are ready to begin accession negotiations. These should start in the first half of 1998 at the latest; incidentally, during the UK presidency.

My Lords, I thank the Minister for that Answer. Does he agree that the countries mentioned in my Question, together with Slovenia, are essentially and historically part of the European family? Will Her Majesty's Government work towards their earliest possible admission, their access to European Union markets on favourable terms and for long transitional periods?

My Lords, we welcome the progress which Poland, Hungary, the Czech Republic and Slovakia are making in preparing for EU membership. The Council will decide which are ready to begin negotiations on the basis of the Commission's opinions. We should not forget that they are only four out of 10 central European countries which have applied for EU membership. Until negotiations begin, we cannot predict the type and length of any transitional periods. Those will depend on individual circumstances, but they must not be so long as to create second-class membership.

My Lords, is my noble friend aware that the prospect of further enlargement of the Community makes it imperative that the Rome treaty should be revised, especially with regard to the possibility of integration and the so-called harmonisation of laws?

My Lords, it is true that the EU, as well as the countries which are applying, needs to prepare for enlargement. Any specifics which need to be included are for discussion and negotiation.

My Lords, is the Minister aware that it will be impossible for the countries named in the Question to join the European Community so long as the common agricultural policy as it now is remains in existence? Will the Government, after 20 or 25 years, make some effort to change radically the whole of the disastrous common agricultural policy?

My Lords, as I said in answer to my noble friend Lord Renton, the EU, too, needs to prepare for enlargement. The common agricultural policy is already overdue for further reform and the prospect of enlargement makes that all the more vital. In addition, the structural and cohesion funds need revision to make enlargement affordable and sustainable. I am delighted that on this matter I am in total accord with the noble Lord, Lord Bruce.

My Lords, does my noble friend agree that even on the most optimistic prediction it will be some years, if ever, before these countries are admitted to the European Union? In the interim, will Her Majesty's Government press the other members of the Union to give access to their markets, which they could do immediately, since it is what those countries and their people most want at the moment?

My Lords, the point is under discussion and it is desirable. However, we must also consider any possible implications under GATT.

My Lords, when considering the applications from the eastern European countries and others which are not mentioned in the Question, will the European Commission consider asking the High Commissioner for National Minorities of the OSCE to give it a report on each of those countries from the point of view of treatment of ethnic and religious minorities?

My Lords, I believe that the Commission may well be looking at that matter in forming its opinions. It might help the House to know that all the applicants are being measured against the criteria set out in the conclusions of the Copenhagen Council in June 1993. Those conditions are set out very clearly. It is against those criteria that the Commission will be forming its opinions.

My Lords, will my noble friend tell the House whether the accession of new members of the European Union will involve derogation of the current custom whereby each member has a representative on the Commission?

My Lords, that is all part of the negotiations which are taking place at present.

My Lords, while I accept that there is a considerable need for changes to the common agricultural policy, will the Minister agree that in order to achieve that it will be necessary, or certainly helpful, to change the qualified majority voting system?

My Lords, I believe that we are going slightly wide of the Question on the Order Paper.

My Lords, does my noble friend agree that the common agricultural policy requires a majority of 62 votes in order to change it; and so, further to the answer that he gave to the noble Lord, Lord Bruce of Donington, can he explain how that will be possible when the majority of voters on the common agricultural policy are recipients of its largesse?

My Lords, I refer my noble friend to my previous answer.

My Lords, is the noble Lord aware that we on this side of the House agree entirely both that enlargement of the Community is desirable and that it should take place as soon as can be reasonably devised? I wonder whether the noble Lord does not consider, as I do from time to time, that in view of what is said in this House by, for example, two of the noble Lords who have just spoken about the European Union, it is passing strange that no fewer than 10 countries are hammering on the door.

My Lords, I am delighted to agree with the noble Lord, Lord Richard, on that. I should just make it clear that our vision is of a wider European Union which extends security and prosperity across Europe and which is outward looking, free trading and democratic.

asked Her Majesty's Government:

My Lords, contract negotiations for the provision of the first two secure training centres are in their final stages. Contracts will be signed as soon as the terms of the contractual agreement have been settled. Bids for the provision of a third secure training centre at Onley, Northamptonshire, were received on 30th April 1996 and those are currently being assessed. Invitations to negotiate for the other two sites will be issued once outline planning permission is obtained.

My Lords, I thank the Minister for that characteristically informative reply. I have certainly no wish to add to this week's list of problems for my old department. Nevertheless, one recalls the urgency which the Government attached to the legislation which provided those centres for 12 to 14 year-old persistent offenders. In view of that, is it not perhaps a little surprising that more than two years after the date of Royal Assent, as far as I understand it, not a single brick has been laid; only one planning consent has been obtained; and the prospects of completing the programme do not seem to be in sight? Might it not have been better to have devoted resources to developing further local authority secure units, given that their standards of care, education and safety are a good deal better than is sometimes supposed?

My Lords, the noble Lord's hostility to this policy is well known. It would not be the best use of resources to discontinue the policy. We are very anxious to continue it. There are two main reasons for the delay. One reason is the complexity of the contracts. I am sure that the noble Lord will agree that we want to make sure that the centres are not just built well but that they are managed well. That adds to the complexity of the contract.

The other side of the matter and the other cause for delay is the hostility of Labour councils with which we have to deal. Many of them are being particularly difficult as regards negotiations for planning permission and the details of follow-up planning permission after outline planning permission is granted. If we had received more co-operation from them, we should have made much quicker progress.

The final point to make to the noble Lord is that the secure training centres will provide a highly disciplined educational training programme for persistent young offenders. That is not provided in the secure places which are managed by social services.

My Lords, looking ahead and not backwards—and I am not addressing that remark particularly to the Minister—does she not feel that the availability of those important new centres is so urgent that the Government should reconsider their previous refusal to allow them to be developed locally, not instead of the central bodies when they are set up but pending the setting up of those bodies? Meanwhile, the courts continue their work without the availability of those very important new centres given to them by Parliament. Does the Minister think that it is right to go on without bringing some centres into use?

My Lords, I understand the point that my noble friend makes. First, we believe that the new centres are imminent. We are about to sign two contracts and we hope that it will not be too long before we sign the third. We expect two and possibly three centres to be up and running by next summer. Therefore, my advice is that we should get on with it and get the places operational.

As regards facilities close to home, there will be five centres spread geographically around the country. There will be two kinds of parents of those children. There will be co-operative and very concerned parents. I believe that they will be grateful that an opportunity is taken for highly disciplined educational training programmes which will help to return those young people to more law-abiding ways. Then there will be unco-operative parents. Quite frankly, I believe that any opportunity should be taken to help the children of such parents, whether or not the centre is close to home.

An absolutely key part of the management of the programmes is that not only will there be a structured programme for those young people but that there should be communication with their families. That is all built into the management of those training programmes. For some of those young children, being away from home might actually be good for them.

My Lords, it is disappointing that the Minister thought it necessary to pass off the responsibility for the delays on to local authorities. Will she not acknowledge that when the legislation was being considered, we warned the Government as to exactly what would happen? It is nothing to do with local authorities. It is bound to take this length of time to negotiate those complicated contracts. Will the Minister also acknowledge, bearing in mind the second question of the noble Lord, Lord Allen of Abbeydale, that we said at that time, and we still say, that the opportunity for expansion of local authority secure accommodation was there and has been missed by this misguided policy?

My Lords, the opportunity has not been missed. We have 170 new places. More than half are up and running and almost all the remaining half will be up and running by June. The noble Lord opposed this policy in a very hostile way. His colleagues in local government oppose it. Perhaps I may give the noble Lord an example. In Medomsley, which is the site for one of the proposed centres, the local authority would simply not make the decision on planning permission within the required time. That has caused enormous delays while we have tried to further that particular application. In the meantime, the site for the unit, where there was a former detention centre—and it has been empty for five or six years—has been subject to the most incredible vandalism. If that had been a responsible council, it would have welcomed the development of that site, which would provide an opportunity to turn very persistent young offenders into more law-abiding citizens. We should have welcomed the noble Lord's support but we know that he and the party opposite are not supporting that policy.

My Lords, will the Minister confirm that the centres will be run by private companies? If so, can she explain how you make a profit out of locking up children of 12 years of age?

My Lords, it is about the centres being well run. Within the Prison Service, prisons are being run more economically in financial terms and certainly as efficiently and in some cases more efficiently. It can be done. There will be an operations manual which will be made public for all your Lordships to see as soon as the contracts are signed. The noble Lord will be able to judge for himself, but we have every confidence that the centres will be well run, economically effective and, more important, that they will be operationally effective.

My Lords, during the period when only the first two centres are operating, can the Minister say whether they will take young offenders just from their regions or from all over England and Wales, thereby causing grave difficulties for families and local social workers?

My Lords, perhaps I may suggest that these families are experiencing grave difficulties anyway. I must spell out to the noble Lord the fact that we are talking about 12 to 14 year-old young offenders. They will have to have been convicted for three or more imprisonable offences; they will have to have previously proved either unable or unwilling to comply with the requirements of a supervision order in the community; and the nature or seriousness of the offending must require custody in line with the criteria contained in Section 1 of the Criminal Justice Act 1991.

Therefore, such young people and their families are having grave troubles at present. It is true that it will be a national facility. Therefore, when such centres are up and running, the facility will be available to take children from across the country; and, indeed from Wales. I must point out again that we believe this facility will benefit those young people. We should welcome that fact.

asked Her Majesty's Government:

My Lords, as I informed the House on 14th January, I expect a decision on the review of Gurkha terms and conditions of service to be announced within four weeks or so. My noble friend will be able to judge the content of the announcement then.

My Lords, I thank my noble friend the Minister for that reply. However, I am afraid that he has not answered my Question. My understanding is that this has already been decided in the Ministry of Defence and that the entitlement of Gurkhas stationed in this country to married quarters will be on a lesser scale than that which they have always enjoyed. Can my noble friend say whether that decision can be reviewed? As Gurkhas stationed in Britain are to be attached to British battalions to make up the shortfall in the number of our own troops, surely it is not unreasonable that they should be treated more generously than in the past.

My Lords, naturally I understand my noble friend's close interest in such matters. I can assure him that his concerns have been noted and that they will be taken into account. However, as he will appreciate, what I cannot do is pre-empt the announcement on Gurkha terms and conditions which we expect to make next month.

My Lords, can the Minister tell the House whether difficulties are being experienced in providing married accommodation for the Gurkhas because the Armed Services have recently sold off all their married quarters?

My Lords, I should point out to the noble Lord that we have also leased back the majority of the married quarters to accommodate those entitled to them. I can assure him that, if accompanied service in the UK is something that we decide to offer to Gurkhas, there will be sufficient married quarters to accommodate those families so entitled.

asked Her Majesty's Government:

My Lords, Her Majesty's Government co-operate with Russia in organisations of which Russia is a member, such as the Council of Europe and the International Monetary Fund, and support Russia's closer engagement with others such as the Organisation for Economic Co-operation and Development. In addition to encouraging Russia to play a full part in the North Atlantic Co-operation Council and Partnership for Peace, NATO is willing to build a new relationship with Russia which reflects her essential role in European security. This could include the establishment of a joint body overseeing political consultation and military co-operation, perhaps enshrined in a charter.

My Lords, I thank the Minister for that Answer. However, as I am sure the noble Lord is aware, Mr. Solana, the Secretary-General of NATO, has, within the last week, been talking about a relationship with Russia which involves a permanent Russian mission within NATO headquarters and a permanent NATO mission in association with Russian defence—in effect, country membership of NATO. That seems to be in the business of transforming NATO into a European security organisation. As I understand it—and the Minister may be able to help me—we are talking about the same sort of relationship with the Ukraine. Do the British Government accept that we are in the business of changing the whole nature of NATO as we make these arrangements with the Russians, the Ukrainians and other non-members?

My Lords, there is no question of negotiation with Russia about NATO enlargement. However, it is right not to ignore Russian security concerns. NATO does need a close and trusting relationship with Russia.

My Lords, can the Minister say whether there has been any discussion to the possible end that Russia itself should acquire membership of NATO? Would that be acceptable to NATO? Further, has the matter been considered by Russia?

My Lords, at present Russia continues with an anti-enlargement line in public. However, the Russians now seem willing to work with NATO on developing some form of relationship. I do not believe that we are anywhere near the situation where it would be considered appropriate by this Government, or indeed by Russia, that Russia should become a full member of NATO.

My Lords, will my noble friend the Minister agree that the raison d'etre of an alliance is a common enemy; indeed, something to be against? Surely the obvious candidate is China, the last one of the three great mass murdering despotisms of the 20th century. Has not Russia as great an interest as the existing members of NATO—perhaps a greater one—in standing up firmly to Chinese aggression and preparing for it?

My Lords, that is a matter for Russia rather than for us. We continue to observe what is going on all around the world.

My Lords, does the Minister agree that the Government and NATO have their priorities wrong? Should they not give priority to establishing a satisfactory security relationship with Russia over the enlargement of NATO?

My Lords, I thank the noble and gallant Lord for that question. However, I do not think I agree with him in this situation.

My Lords, following the question by the noble and gallant Lord, can the Minister say whether the Government support invitations to the Czech Republic, Hungary and Poland to join NATO, which I understand are likely to be made at the NATO summit in Madrid this summer? Can the noble Lord say whether the Government support such invitations, despite Russian concern? Further, can the noble Lord tell the House what the implications of their membership would be for the defence budget? For example, would the additional costs be covered by the defence budget or would other programmes have to be cut in order to accommodate them?

My Lords, it is too early to be discussing individual countries which may or may not receive such an invitation as a result of discussions at a meeting which is to take place on 8th and 9th July in Madrid. Therefore, to pre-suppose whether certain countries will receive an invitation is wrong. Finally, I do not have details on the costings involved, but I shall write to the noble Baroness in that respect.

My Lords, can the Minister say how a close relationship with Russia can be established without negotiation?

My Lords, I have not suggested that there is no negotiation; indeed, negotiations are going on with Russia and the Secretary-General of NATO at present. However, they are not negotiating whether Russia will be joining NATO.

My Lords, can my noble friend the Minister say whether the project to enlarge NATO eastwards will be overshadowed by the different national interests of Germany and Russia, particularly the Oder-Neisse Line?

No, my Lords; I do not believe that that is an appropriate question for today.

My Lords, can the Minister say to what extent Her Majesty's Government have been able to evaluate the extent to which vast amounts of Russian armaments are under the direct control of the Russian Government? Is the Minister satisfied that negotiations can proceed on a satisfactory basis without such an evaluation being made, particularly in the light of press reports? I do not know the accuracy of such reports but the noble Lord probably does. Such reports suggest that there are very considerable amounts of armaments in Russia which are being sold abroad without the apparent consent of the Russian Government.

My Lords, I do not have details with me on the latest situation regarding armaments within Russia. I suppose that a response might be that if such items are being sold abroad without Russian Government knowledge—and I have no knowledge whether they are—it is unlikely that we would be receiving such information. However, it also means that there are less arms in Russia.

My Lords, the Minister mentioned a framework for co-operation with Russia. Will the noble Lord accept that one of the first tasks for such a body should be to provide help for clearing obsolete Russian nuclear submarines adjoining the Arctic Ocean?

My Lords, it is for Russia to ask for help on that matter if she wishes. We cannot force help onto Russia.

My Lords, does my noble friend agree that NATO has been a hugely successful organisation—certainly more successful than the European Union? Can he say whether NATO has ever had to resort to the qualified majority vote to achieve any of its decisions, and whether it is likely to have to do so in the Question as posed?

My Lords, that, again, is wide of the mark. However, I am not privy to decisions made within NATO.

My Lords, is the noble Lord aware that the latest NATO review contained an opinion poll on American attitudes to NATO enlargement which indicated that 52 per cent. are in favour of NATO enlargement to Russia, and a rather larger proportion say they are in favour of enlargement to several other central and east European countries? Does the noble Lord also agree that NATO works differently from the European Union because the Americans run NATO and tell us all what to do, and that is perhaps not the way we wish to do things in the European Union?

My Lords, I am not sure I agree that NATO jumps when America decides what it wants it to do; but there is no US influence on the EU.

My Lords, does the noble Lord accept that the enlargement of European institutions, both NATO and the European Union, is just as important a question as integration in monetary affairs and monetary union? Why do the political parties and the Government not take a lead in informing public opinion on their position in these matters?

My Lords, there is a little confusion whether we are talking about the EU or NATO. We are talking about NATO and not the EU, which was the subject of the first Question. However, considerable overlap between membership of the two bodies is likely. It would be totally wrong to insist that countries must be members of both the EU and NATO, or of neither. That would risk creating exactly the new dividing lines that we are trying so hard to avoid.

business of the House: Debate this Day

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

Moved, That the debate on the Motion in the name of the Earl of Gowrie set down for today shall be limited to 3½ hours and that in the name of the Lord Campbell of Alloway to 2½ hours.— (Viscount Cranborne.)

rose to call attention to the economic value of the international work of the City of London and to the case for City firms establishing systems of corporate governance which can maintain confidence throughout the world; and to move for Papers.

My Lords, the whole House is grateful to the noble Earl, Lord Gowrie, for having introduced this important debate. The prosperity and success of the financial services industry in this country are a vital component of the prosperity and success of the British economy as a whole. And the continuing success of the financial services industry rests to a degree greater than in any other industry on its reputation—not just the reputation of individual firms, but of the industry as a whole. A few bad apples can indeed spoil the whole crop.

That is why there is a clear collective interest within the industry, and an equally clear public interest in prudential management, transparency and accountability, whether it be in investor protection, in the maintenance of confidence, in the integrity of markets or, most important of all, in the management of systemic risk.

Today we are faced by a considerable challenge, for the very factors which are behind the enormous success of much of the financial services industry over the past decade are exactly the same factors which pose the greatest threats to its future prosperity.

Liberalisation at home and abroad has resulted in a veritable avalanche of financial innovations: old boundaries have been broken down; the distinctions between markets, institutions and products have become blurred and even disappeared. Today highly geared derivative instruments blend product markets and national markets which were previously totally distinct. Markets are more integrated, and yet at the same time more varied and more complex. While that has occurred, the scale and speed of trading have grown exponentially.

These changes have created great opportunities and the City of London has been highly effective in grasping those opportunities. They have also created massive risks. In intensely competitive markets in which the pace of innovation is swift and accelerating, the fear of being left behind can easily undermine even the best prudential practice.

As familiar markets stagnate and old products wilt, the fear of being left behind can easily undermine even the best prudential practice. As familiar markets stagnate and old products wilt there is an insistent demand to move into new, unfamiliar territory. The more rapid the process, the more likely it is that the maintenance of high standards will be lost in the quest for high performance. Ill-judged risks will seem to be necessities in the struggle to keep ahead.

Sir Andrew Large, chairman of the SIB, argued in a speech last October that firms competing in such an environment can suffer what he calls cultural dislocation. The ethical principles that permeate good firms can come under extreme pressure in the pursuit of good performance.

We all know what can happen: astronomic salaries for so-called "stars" that end in the creation of perverse incentives to behave in a manner that is ultimately damaging to the long run interest of the firm; rushes into high-performing funds which result in the discovery that they are indeed "too good to be true"; and commitments made to individuals who claim the Midas touch, with little understanding on the part of the management of the true risks involved.

So in today's rapidly changing financial world more than ever there is a vital industry interest, and a clear public interest, in the maintenance of good practice. That is why an effective and flexible system of regulation is vital to the future success of the financial services industry.

But regulation is the second line of prudential defence, not the first. It is the management of the firms themselves which has prime responsibility for ensuring that proper practices are maintained. It is indeed striking that some of the most spectacular problems in recent years have involved management failure as well as regulatory failure. In the case of Barings, for example, the management did not understand, perhaps did not even care, what was happening in its own business; and the Bank of England did not understand the business that it was supposed to be regulating. In the disgraceful and terribly sad case of the mis-selling of pensions, irresponsible management was egged on by an irresponsible Tory Government.

Sound corporate practice and effective regulation should be two parts of the same seamless process. We may say that corporate governance and effective regulation are the two pillars on which the strength of the financial services industry is built. If management is irresponsible, if it is not transparent, and is imprudent, then of necessity regulatory processes become intrusive, prescriptive, rigid and expensive. If management sees its role as working with the regulatory authorities in an open and responsible manner, then regulation can be flexible and can contain a modicum of sound judgment rather than mechanical rules and regulations.

The need for a ceaseless dialogue demands that a clear and well-defined balance be maintained between the responsibilities of the regulators and the responsibilities and interests of the regulated. I believe that everyone would agree that one of the great strengths of the regulatory system that has evolved under the terms of the Financial Services Act has been practitioner involvement. The expertise and commitment of practitioner-regulators has played a vital role in developing regulatory expertise and spreading best practice.

However, I do not believe that there is any benefit in maintaining the present distinction between the SIB and the SROs. The regulator should not be a membership organisation operating by contract. Instead, the SIB should be directly responsible for the regulatory system covered by the 1986 Act.

Within the reformed structure the SIB should continue to be a free-standing agency, established by statute. And it is vital that the blend of public interest and practitioner influence should be retained on its board, and on the boards responsible for particular parts of the industry. These evolutionary changes will enable Britain's regulatory system to adapt more effectively to new market structures, eliminate duplication and provide the simplified structure of regulation for which the industry has called.

In a rapidly changing world, an efficient regulatory system should be flexible, non-discriminatory, and deliver value for money. As I have said, that is possible only if the industry itself is committed to supporting the regulatory regime, and also if the regulator is well informed and up to date.

If the regulator is to be capable of exercising judgment and not simply applying mechanical rules, regulatory staff must be of the highest quality: they, like practitioners, must be at the cutting edge. They, perhaps even more than the practitioners, must understand the dimensions of market and systemic risk involved in the latest innovations.

That is a tall order when many chief executives have considerable difficulty in keeping up with what is happening in their companies. The notion that we can have the very best staff in regulatory organisations is difficult to achieve. However, a proposal of considerable benefit might be for it to become customary for high-flying staff to spend periods on secondment to the regulatory authorities. In other words, a period working for the regulator should be regarded as part of the normal career pattern of the very best in the industry.

The obvious objection to that proposal is that it will be expensive; that the best talents should be making money for themselves and their firms, rather than playing gamekeeper. But consider the cost to the industry of a regulator staffed with other than the best; consider the cost in consumer confidence, in market integrity and even systemic risk. The mutuality of interest demands a mutuality of commitment.

Ultimately, the reputation and success of the financial services industry depend on creating an open, accountable culture of good corporate governance, allied with a knowledgeable, flexible, highly skilled and creative regulatory structure. Neither is possible without the other.

My Lords, the day of my introduction to this House was one of the most remarkable experiences of my life. I felt a sense of real humility being among so many noble and learned Lords who have contributed so much to our society. I hope that in turn I can make a small contribution to the deliberations in this House on those issues of which I have some experience.

I should like to use this opportunity to say how conscious I am of the many kindnesses already shown to me by officers of the House and by noble Lords. I am very grateful for the advice and encouragement that I have received, which is helping me to overcome my natural nervousness when making this, my maiden speech.

I know that my remarks should not be particularly contentious or controversial. I cannot promise that any contributions I may make on industry and the economy in the future will always follow that precedent.

As some noble Lords may know, I have recently been given responsibility in connection with the other Lord's in an area of great importance to our country, if on a somewhat different level from this House. I have been appointed chairman of the newly formed England and Wales Cricket Board. I am sure your Lordships will join with me in wishing our team every good fortune in the forthcoming Test series in New Zealand. I can assure cricket lovers present that I intend dedicating a great deal of energy in the future to both "Lords'".

My noble friend Lord Gowrie has chosen for debate an issue that is crucial to our international reputation and economic wellbeing; namely, that of the economic value of the City of London and the integrity of the people who hold power within the City.

In recent months there has been much discussion on the issue of corporate governance. The Cadbury, Greenbury and Hempel Committees have worked to examine the issue in a thoughtful way. I do not want to dwell too much on their work now. I merely observe that we must be careful to ensure that we do not draft overly-bureaucratic procedures which create too much paperwork and prove counter-productive.

I know that my own company has benefited considerably from avoiding too much bureaucracy. It is, of course, all a question of the right balance. We need flexibility. The best of British industry manages to combine flexibility with accountability and corporate governance. My experience at Tesco and as a non-executive director of the National Westminster Bank, Guinness, Vodafone and Enterprise Oil makes me believe that it can be achieved and has been achieved by many companies.

The skills of British retailers now create economic value throughout the world. Tesco, the company with which I have spent most of my adult life and of which I am chairman until June of this year, now also operates stores in Hungary, Poland, the Slovak and Czech republics, as well as in France. Such expansion would not have been possible without the combination of flexibility, accountability and good corporate governance.

I believe that we need light but effective regulation, driven by those at the top of an organisation. As so often in life, responsibility must rest at the top; that includes chairmen and chief executives and, of course, non-executive directors.

I believe the role of all directors, including non-executive directors, to be very important to good governance. Well informed and well resourced non-executives can, and do, add real value to companies. I believe that they perform a similar role in City institutions. It is, of course, important that there is transparency of appointment. Non-executive directors should not be appointed on the basis of old friendships; they must be qualified for the job in hand.

Well resourced and well informed non-executive directors help to foster understanding between sectors and emphasise that much of our industry is a chain. Economic value can be created by this interdependency. I have always encouraged colleagues to take on other directorships. If those appointments are in the public sector or perhaps in a small business, so much the better.

I believe that such an approach will help to confirm Britain's position as the enterprise centre of Europe, which is a goal that I hope we can all share. I believe that the City of London has already played a real role in helping to bring this to reality and that non-executive directors have a role to play now and perhaps an even greater role to play in the future. Those at the top of organisations have a responsibility to make sure that good corporate governance is strongly reinforced.

My Lords, perhaps I may, on behalf of the whole House, congratulate the noble Lord, Lord MacLaurin, on his thoughtful maiden speech. What he said demonstrated not only his successful business career but an important business career. He joined Tesco in 1959 when it was a modest business and spent his working life building it up to the major international business that it is today. I am sure that all noble Lords will join me in welcoming this breadth of experience to your Lordships' House. We look forward to hearing the noble Lord in the future, perhaps when we are debating the important matter of cricket!

Today we are debating the Motion of the noble Earl, Lord Gowrie. Perhaps I may also welcome the conversion of the noble Earl to the cause of corporate governance. I congratulate him on introducing this debate. It has always seemed to me that the City consists of two sectors. One provides business and industry worldwide with valuable and important banking, insurance and financial services and an orderly market for shares, currencies, shipping and commodities and managing risk; the other is the facility which the City provides for speculation and gambling. I certainly join the noble Earl in applauding the first sector; and I am glad that he joins me in condemning the damage inflicted on business, industry and society by the errors and excesses of the second. The line between risk and speculation is a fine one; good corporate governance helps to control the risk and to avoid the speculation.

The noble Earl, Lord Gowrie, spoke of corporate governance being about vigilance. I believe that corporate governance must also be concerned with encouraging companies to be competitive in today's markets. Businesses should be about building and creating, not just about accounting and short-term profits. Corporate governance must encourage creativity and innovation; it must encourage businesses to invest in people, markets and technology. Directors must build up long-term relationships with employees, investors, suppliers and customers and the society within which they operate. In short, they should create what the RSA recently referred to as the inclusive company.

All companies, not just City firms, should practise that kind of corporate behaviour because it creates good companies which are the building blocks of our competitive economy. By providing financial services and helping to manage risk, the City contributes towards those building blocks, and that I applaud. The speculative sector of the City contributes towards the destruction of those building blocks by encouraging dishonesty, sharp practice and incompetence, and that I denounce.

The noble Earl mentioned Rachman. A more modern example is pensions. Providing and managing pensions is of great value in creating inclusive companies and organisations; mis-selling pensions by cowboy and opportunistic behaviour helps to destroy them.

Another example is the London Metal Exchange. I was under the impression that the purpose of the metal exchange was to provide an ordinary market in basic metals; but obviously that has become corrupted into a market for speculating in metals. The laxity of control in the market is such that one trader was able to lose 2.6 billion dollars in unauthorised trading. The irrelevance of the exchange to the real economy is surely proved by the fact that those huge losses remained undiscovered for several years. Indeed many actual producers and users of metals in the real economy trade outside the exchange.

The recent SIB report on the London Metal Exchange makes it clear that the concept of corporate governance is entirely alien to the board. Virtually all board members had a conflict of interest; they allowed themselves excessive credit, light regulation and obviously little supervision. That was partly explained in the name of self-regulation. The Prime Minister was obviously not entirely unhappy with that as the chairman of the exchange was honoured in the New Year's honours' list. I also look forward to welcoming him to your Lordships' House.

I agree with the noble Earl, Lord Gowrie. Good corporate governance would have made all the difference. Good corporate governance requires not only that there should be outside non-executive directors but also independent non-executive directors. There is a difference, as the noble Earl and the noble Lord, Lord MacLaurin, pointed out.

There should be an audit committee made up of those directors who, together with the accountants, keep a sharp eye on the internal financial controls and pay special attention to the risk of clients losing money due to speculation. The accountants and all the directors—executive and non-executive, independent and those with a conflict of interest—should be scrutinised not only from the point of view of what they do but also from the point of view of what they fail to do.

Perhaps I may say in passing that I am encouraged by how, in recent years, I have come across some firms of accountants and some company secretaries who do an excellent job of advising and assisting audit committees by making them aware of, and helping them to carry out, those responsibilities. That is of even greater importance when there is self-regulation.

The ethos of corporate governance needs to be established in the many markets within the City: the currency market, the Stock Exchange, the commodities markets and most especially the derivatives market. Those markets seem to operate in a world of their own away from the real economy, and it is the real economy that matters.

So I congratulate the noble Earl, Lord Gowrie, and join him in calling attention to the economic value of the City of London when it is working in co-operation and partnership and sharing risks with the real economy. Good corporate governance will only enhance that.

My Lords, I ought to begin by declaring some interests. In recent years I have found myself in certain different roles which enable me to come to this subject from a number of different angles. Wearing one hat, I am chairman of the audit committee of an international bank; I am also a member of the Securities and Investments Board; and a few years ago I was the Minister responsible for introducing the Banking Act and the Building Societies Act in another place.

I think it is unquestioned that London is and remains the leading financial centre in Europe and one of the leading financial centres—if not the leading financial centre—in the world. Equally, I have no doubt that that is very substantially due to the fact that it is an open marketplace. It is not shackled by unnecessary restrictions and is not hampered by unnecessary distortions of free market processes. I see no reason why that should not continue, provided that we have the balance between regulation and flexibility in the markets as they change and continue even now to change so rapidly.

There is no question but that a formal structure of regulation and supervision needs to be in place in financial markets. I have no doubt of that, either as a regulator or a practitioner. When one looks at what happened at Lloyd's, where there was an inability to identify a conflict of interest, let alone deal with it, one realises that unrestricted self-regulation is no longer appropriate in today's financial world.

But it is also important that regulation and supervision should not be too intrusive. I very much agreed with my noble friend Lord MacLaurin when he said in his excellent maiden speech that regulation must not become too bureaucratic. If regulators and supervisors feel drawn into concentrating on detail, the chances are that they will give insufficient attention to the overall quality of governance and accountability of companies in the field. They must satisfy themselves that businesses are properly run. I agree very much—I was pleased to note that the noble Lord, Lord Eatwell, endorsed it—that regulation and supervision must involve a blend of practitioners' experience and professionals exercising the public interest.

But that is not an easy balance to achieve. We need to be constantly vigilant about how it is done. I believe that there will be a need for some revision of the legislation before too long. That is no criticism of what was put in place 10 years ago because the markets have changed dramatically in that time. It is one reason why the law needs to set out general principles and not become too detailed about specific requirements. I know that your Lordships sometimes become uneasy about Henry VIII clauses. But if it is impossible to update legislation with secondary legislation when there are changes—when new derivatives are invented and structural changes occur in the market place—and do it quickly and one has to resort to primary legislation all the time, the processes will be hindered.

But the general framework needs to concentrate in particular on the way in which companies are run. It is not the role of regulators or supervisors to tell companies what to do and in effect try to take commercial decisions by proxy. It is their duty to see that companies are properly run and that their governance is effective and suitable for the type of business that they conduct. That is the natural bridge to the other part of this argument, which is the responsibility of management itself. Any substantial company needs to have lines of accountability clearly understood within the organisation. Responsibilities need to be carefully defined and high level controls need to be put in place and monitored by the board and by the audit committee as well.

I regard the greater prominence of audit committees which has followed the Cadbury recommendations as one of the major developments in corporate governance in recent years. It is absolutely essential and is working reasonably well in practice in most cases. As chairman of an audit committee, I can say that it has greatly increased the degree of responsibility and the amount of time which needs to be devoted to the tasks, but it is essential.

We have to ensure that non-executive directors, who generally should carry out those tasks, remain independent but at the same time do not separate themselves from their Companies Act responsibilities to ensure that the companies on whose boards they sit are effective commercial enterprises. Unless a business is successful and profitable, it does not have the financial stability which is one of the great protections against systemic problems and, indeed, against abuse of process with customers.

I believe that the greater prominence of non-executive directors is not without problems. The people required to do those tasks need to be very experienced and if they are very experienced, they are likely to be very busy. Whether in fact there is a sufficient supply yet—it is a process which has only been developing over the past five years or so—I am not convinced at the moment. I believe that non-executive directors have a fundamental role in ensuring that processes of corporate governance are correctly established. They will thereby undoubtedly make a contribution to the profitability of the enterprises. If bad organisation exists or if controls are inadequate, the first intelligent, dishonest person who reaches any position of responsibility in that organisation will take advantage of that laxity. Therefore, the contribution of those who ensure that controls and processes are properly exercised makes a positive contribution to the business itself.

My last word on this matter will be that we have to be not only vigilant within the processes of regulation and supervision and in running companies but vigilant and flexible in the way in which in Parliament we address these issues and keep the framework up to date. For example, in the Financial Services Act, the Securities and Investments Board is not given all the powers that it needs to carry out its overall responsibility for the regulatory system. Anomalies of that kind have become apparent as that Act has been seen to work in practice. But, generally, I believe that it is the right foundation on which to build.

I conclude by thanking my noble friend Lord Gowrie for having raised this extremely important subject at a very topical time.

My Lords, I congratulate and thank my noble friend Lord Gowrie for introducing this debate. I have felt for a long time—I am sure that some of your Lordships will agree with me—that the City is sometimes overlooked in regard to our economy. The City and invisibles are just as important as manufacture trading abroad. In 1993 invisibles from the City amounted to £2.7 billion. This past year, the figure is likely to be £12 billion. That shows the scope and the increased value of the City in relation to our economy.

As my noble friend Lord Stewartby has just said, we are an international centre. Thirty-six per cent. of world foreign exchange dealings are conducted in the City—more than in New York and Tokyo put together. I do not intend to say much about the single currency but we must keep it at the back of our minds that trading in European foreign exchange amounts to only 4 per cent. of our foreign exchange dealings. The red herring of the single currency should be put into perspective.

My noble friend Lord Gowrie referred to the assets in the City. He mentioned Lloyd's. Some time ago there was controversy as to whether Lloyd's was trading properly. I can tell your Lordships that the finance committee of another place initiated an independent inquiry into Lloyd's under the chairmanship of Sir David Walker. I happened to be a member of that committee. Many of your Lordships will have read the report. The committee found that there was no question of criminal activity and its recommendations were immediately implemented by the Lloyd's Council.

In the City, we have legal expertise, accountancy expertise and financial consultancy expertise. Those are some of the reasons why there is so much inward investment into this country. There was some £23 billion of inward investment last year. That is a tribute to our expertise in the City. Why should this country, through the City's expertise and so on, attract so much European inward investment? We get investment from the United States, from the Far East and from the European Union. One must realise that 98 of the 100 top companies in the world are in this country. That is the extent of the confidence foreign investors have in Britain.

Why do these foreign investors come to this country? I am sure your Lordships will agree with me that the labour on costs in this country are much lower, our corporation tax is far lower and personal taxation at the moment is much lower. Dealings in domestic equity are three times as high as they are in Paris and Frankfurt. One must not overlook the fact that there is a certain amount of envy on the part of Paris and Frankfurt of the City of London. We have to guard against trying to blacken the name of the City. The City's name for integrity and so on must be paramount.

My noble friend Lord MacLaurin referred in his excellent maiden speech to regulation. I was in another place, as were many of your Lordships, when the Financial Services Act was passed in 1986. Some of us sounded the alarm bells that we had to avoid over-regulation of the City. Let us consider the amount of regulation. There is FIMBRA, LAUTRO, IMRO, the SIB and the PIA. Many of those organisations overlap and that overlapping means that in some cases compliance costs are penal. I happen to be a consultant to the Life Assurance Association. It is pressing for a financial services council so that organisations such as the SIB, the PIA and so on can come together and try to work as a unified body.

I remind the House that some years ago the Stock Exchange abolished the unquoted securities market. The market provided capital for small but growing companies. When the USM was being abolished a committee was set up in the City. It was called CISCO. As a result of the activities of CISCO we got the alternative investment market. I must declare an interest as president of CISCO.

Our competitors would like a share of the world trading carried out in the City. What we have to do—I am sure your Lordships will agree with me—is to speak of the City's achievements, because the City is the jewel in Britain's economy.

My Lords, the Motion states:

"To call attention to the economic value of the international work of the City of London".

I am grateful to my noble friend Lord Clark, who concentrated on just that aspect. The first four speakers, with the honourable exception of my noble friend Lord MacLaurin, who made an excellent maiden speech, seemed to concentrate on the areas of our failures. There is a tendency in this country to concentrate on our failures. We fall into the trap of concentrating on bad news all the time. Perhaps I may make a few salient points to try to lift the tenor of the debate.

First, no fewer than 500 overseas banks have thought fit to establish themselves in the City of London. If we were seen as a failure-oriented country, I am sure that would not happen. Secondly, there is a massive turnover in the City of London. It brings huge earnings to the economy. The figures are so mind boggling that they are measured in trillions, although I am not quite sure what a trillion is. Thirdly, perhaps I may share with the House a little gem of information. The London International Financial Futures Exchange—LIFFE—has a greater share of the German bond market than Frankfurt. The banking and financial services in the City are world leaders. There is also the insurance industry, which is regarded as a City of London institution. When we talk about the European single market, I sometimes wonder whether we realise that there is no such thing as a European single market, because our insurance industry is still prohibited from playing a proper active role in the European insurance market. With its great expertise, I guess that if it played that role it would probably meet great resistance from the insurance markets of other European countries, which would suffer in the comparison.

I fell into something of a trap when I was preparing my notes for this debate by concentrating all the time on corporate governance. I wish to make three points. First, the City works remarkably well. That is not to say that there have not been problems from time to time, but, on balance, the culture of good practice is there. For centuries the City has operated on the slogan, "My word is my bond". That works. In any organisation, be it a company, a university or a local authority, there will always be the recalcitrants. However, whatever draconian measures of regulation, surveillance and monitoring are suggested to deal with such miscreants, the occasional unacceptable situation will arise. That is what we have to accept. It is human life.

Secondly, I firmly believe that the regulatory processes in place, albeit for the most part self-regulatory, with non-statutory codes of conduct or acceptance of 19 of the 20 Cadbury recommendations, should be allowed time to settle down, to become accepted practice and, in effect, to become second nature to all involved in the running of the City until we overload still further with more regulation.

Just as an aside, the adoption of the Cadbury recommendations has spawned a whole new industry of consultants offering all types of advice; lawyers running corporate governance seminars; acres of printed matter purporting to give advice to chairmen, executive directors and non-executive directors, company secretaries and legal advisers all of whom have been getting huge mail bags telling them how to do it.

What I am sure business and the City do not want is an increase in all this activity. Any such increase could lead to really massive indigestion and also tend to take the eyes of the operators off the goal that they should be fixed on; namely, to increase our activity trading both in the City and elsewhere and particularly on the international financial markets.

My third and final point is this. I have already referred to the fact that there will always be some who will misbehave anywhere. But if that should happen, may I make a plea that the subsequent investigations are speedy. Any delay brings a huge area of uncertainty.

It causes reputations to fall. In fact, it is a great opportunity for the press to castigate both institutions and individuals. With the City's position as a leader in the world of international finance we really cannot afford that. It is quite unacceptable that an investigation into a certain well-known case involving City institutions started in December 1986. I believe that the investigation has been completed, but certainly the results have not been published. During that period all the uncertainty has been compounded. That is not good.

To recap: self-regulation is working. It has engendered a culture of the recognition of the need for compliance. Let us not forget that the City is a very worthwhile economic feature in this nation. It has a huge international reputation and let us not sell it down the river.

My Lords, this is a broadly drafted Motion on which it would be all too easy to speak for 20 minutes. It is peculiarly difficult to speak for eight minutes. There is also the ever present danger that one may be only repeating what has already been said by previous speakers. I should like to add my congratulations to the noble Lord, Lord MacLaurin, on an admirable maiden speech. Perhaps I may also congratulate the noble Earl, Lord Gowrie, with whose speech I found very little to disagree.

I also found a great deal to agree with in the speech of the noble Lord, Lord Eatwell. I am sorry that he is no longer in his place because there was something that I was extremely sorry to hear him say. He did in fact cast what I thought was a most unworthy aspersion on the management of Barings in saying that he was not aware whether it actually even cared about the business. I stopped being chairman of Barings seven years ago or so. I remained a non-executive director but ceased being one some time before the disaster happened. I can assure him and other noble Lords that I do not believe there was a management in the City of London that cared more strongly about the sort of business it did than the management of Barings.

The danger of trying to cover too much ground is particularly great for somebody like me who spent the best part of 40 years in the merchant banking world, and who was for a time particularly involved in the setting up of the arrangements for what became colloquially known as Big Bang. The House also has the opportunity of hearing from a number of individuals who have been involved, or who are still involved, in the affairs of the City whose views are by definition much more up to date than mine.

At the time I first became involved in the City few would have confidently foretold that the earnings of their activities collectively would become such an enormous asset to this country. But it has so become and it is perhaps worth a glance to see why. I believe that the consensus has it that London has provided a particularly attractive environment for international financial activity. Its legal system, as it relates to commercial activity, has proved to be better than those of other places and particularly adapted to international trade. We work of course in English, which largely because of its use by the USA and the ex-Commonwealth countries, is widely accepted nowadays as most people's second language. And shaming it is to compare the linguistic ability of most British people with the idiomatic fluency that one now encounters in others. We are neatly placed between Far Eastern and American time zones and we had, and still have, a relatively lightly regulated financial system. It is too light, I hear, in the eyes of some. I was interested in the noble Lord, Lord Haskel, trying to make a distinction between speculative and legitimate activity. I tried during all my life in the City to discern where the dividing line was. I do not believe that it is actually discernible.

Some of these advantages, it seems to me, will endure. The legal system, the language, the time zone even if its utility is somewhat eroded by the breakneck advances in global IT. Of course, London remains at least as pleasant and safe a place to live for expatriates as any of its competitors.

But there is no guarantee that in such a fast changing world as we now inhabit the economic asset that the City represents will remain uneroded. If we want it to survive—and I suggest that it would be sensible, nationally, to want that—there is probably little that we can do in respect of what one might term cataclysmic events—fundamental changes probably affecting financial activities worldwide. But against the more foreseeable threats I believe that we can be vigilant.

There is always a danger, particularly to those who are critical of the way financial markets operate, that those of us who have City backgrounds can sound far too uncritical. The City certainly has its blemishes. There is always room for improvement and to pretend otherwise is stupid and it can be offensive.

But what are the imperfections and blemishes and how big a threat do they represent? I do not propose to waste time on the question of very high earnings. Organisations which over-pay the wrong people soon find out and pay the price. There is a high degree of self-correction built into the system, as there is in the equally highly paid world of pop stars and top athletes. The subject nevertheless seems on occasion to obsess the media as do the shenanigans of those particularly highly paid when they lose their jobs. I regard the latter as being part and parcel of the trivial concern with personalities, which seems increasingly to obtrude in the press.

I do believe, however, that the regulatory regime is important. I also believe the effectiveness of the legal system in dealing with those who commit fraudulent acts has to be a part of any self-respecting financial system.

Because we believed it worked, we strove so far as possible in my day to maintain a self-regulatory system. It has since been refined and made a great deal more comprehensive. It clearly has shortcomings and I have always believed that the likelihood was that we would in the end, eventually, be pushed into a statutory system if only because of an increasing tendency to litigation.

I have no doubt that the City would live with such a system and it would certainly be different. But the big doubt in my mind is whether it would be better. It would certainly raise costs of doing business and slow activity down. It would certainly give a further boost to the legal profession and some would say it would be visibly more just. I wish that I was sure, but those who are still involved in the City will have clearer views.

As far as fraud prosecution is concerned, all I can say is that I do not believe that the present position seems adequate. It is not for me to say whether the fact that so few of the prosecutions are successful is right or wrong, though I am amazed at the results. But the system does not seem to work consistently as between one case and another and reversals on appeal seem to make that aspect even worse. I should be very sorry to be told that things cannot be improved as I feel that it is important.

The last matter on which I want to touch is the importance of our membership—or otherwise—of economic and monetary union. I do not believe that the issue of whether we join EMU at the first opportunity is a matter of huge moment for the continued prosperity of the City. As I have said before in this House, the important thing is how we conduct our part in the setting up of that momentous step. It is, in my view, vital that we should not carp and that we should wish well those who decide to participate. However, if EMU comes into being and if its disciplines do not prove too difficult and divisive politically for its members and we continue to remain outside, I believe that the City's position would start to be eroded—and quite possibly very quickly.

I leave your Lordships with these three points: what I hope to see is the most pragmatic possible regulatory system; the swiftest possible bringing to book of those who commit fraud; and, finally, if EMU really takes off and succeeds, we must be a part of it.

My Lords, it goes without saying that the economic value of the international work of the City of London is immense for this country and one only has to look at the record of invisible earnings and those attributed to the City of London to know that that must be the case. My noble friend Lord Clark of Kempston discussed just that. But the debate calls for a discussion of the case for City firms establishing systems for corporate governance which will maintain confidence throughout the world and this in turn calls for a view as to whether the immense strides taken in this area have, in the first case, been adopted by responsible companies in the City of London and also whether they are in themselves adequate.

I believe that a further issue lies behind this discussion—this has been mentioned by enough noble Lords for me to be confirmed in my view—which is that people are concerned about whether the much publicised financial accidents of the past few years would have happened had corporate governance and best practices been more stringently observed or more emphatically stated. It is for that reason that I wanted to say a few words in this debate.

First of all, I believe that the financial services area of the City has welcomed and responded positively to the many recommendations both in the Cadbury report in 1992 and in the Greenbury report in 1995. As we all know there are many further initiatives which have also been welcomed in the main by the City of London and acted upon.

The unwritten question about whether financial accidents would have been prevented with a stricter code is somewhat more complex. One thing that a bank can never do is to protect itself 100 per cent. from fraud. The only thing that can be said is that the earlier that this fraud is detected the better, but that is an obvious platitude. If a dealer in the sophisticated range of financial instruments now available takes a view and is proved wrong and he compounds that view by hiding it from his superiors, if he is adroit he can enter into a series of transactions which increase the exposure of his employers to protect himself or, rather, to justify his judgment. If after the first transaction or even the second he had explained to his superiors what he had done and cut his losses, he would not have needed to embark on this dangerous path. Seldom are those actions taken for personal gain; they are nearly always a reflection of his conviction that his view of the market is right and that the market has got it wrong. Of course, some involve fraud for personal gain; but these acts are usually rarer than those I have described.

Would corporate governance, even if it were far more complex than we have today, have identified these problems earlier? I very much doubt it. There is a strong argument that the success of the City of London has been very largely due to the arrangements for self-regulation and the imposition of extremely tight and legally binding rules would dampen and ultimately damage the entrepreneurial and flexible management of companies within the financial sector. I would argue personally very strongly this case. That does not mean that I do not support and appreciate the changes which have been made.

The audit committee of a company and especially of those companies operating in financial services—Cadbury recommended that such a committee should be chaired by an independent, non-executive director—should be independently minded and able to take action supported by the executive management of the concern. I do not think that in the financial field there are people who still doubt the adoption of best practices and sound corporate governance in the case of UK financial institutions and I think at this stage to attempt to bring in more stringent and complex requirements might defeat the object. It would seem that a period of consolidation is called for.

I base my judgment on these matters on 40 years' experience as a banker—the same 40 years as those spent by my friend the noble Lord, Lord Ashburton—and the six and a half years that I was a member of the Board of Banking Supervision at the Bank of England. Those six and a half years covered both the collapse of BCCI and the tragic failures in Barings. It is always the job of senior management to be alert to things which are going wrong and they cannot unfortunately—or fortunately—escape the responsibility but, in the case of the Barings situation, not enough attention was paid by the top management to the grotesque level of profits alleged to have been made in one offshore office. It was believed by management in London that those profits were being made from what was described as "risk-free arbitrage". There is no such thing as risk-free arbitrage. What might have been relatively risk-free would have not been so profitable—indeed, might have been barely worth doing for a very small return. Management in London should have been deeply suspicious of such profits and should have paid more heed to the recommendations of its own audit committee to separate the functions of the front and back offices in that offshore branch. But this is only a part of the story.

The City of London will have great opportunities whether or not this country joins the single currency mechanism and should be helped to take advantage of these rather than be shackled with even further controls of corporate governance. I felt it important that these points were made in this interesting and worthwhile discussion which my noble friend Lord Gowrie has introduced at such a timely moment.

My Lords, it is with great pleasure that I follow my noble friend Lord Swaythling. I had the privilege of being a director of his family merchant bank for many years—sadly, after he had left. Many there wished that he had never left and I feel sure that we would have done better had he remained.

I remember looking with envy at the family bank of the noble Lord, Lord Ashburton. We admired it as a bank of utter credibility with a remarkable range of customers and great loyalty. I pay tribute to the services of the noble Lord in helping to promote the interests of the United Kingdom way outside the banking world.

I have had to say "Plus ga change" to myself in connection with this debate, because many years ago I had the privilege of moving a similar Motion to that moved today by my noble friend Lord Gowrie but on the subject of invisibles. My noble friend Lord Limerick was the Minister who replied to that debate. I think also of the remarkable man who was chairman of my noble friend's bank. I refer to Sir Cyril Kleinwort, who effectively started the Committee on Invisible Exports, and was the first to focus attention on the potential of the City of London as a foreign exchange earner.

One of the comments that one always heard when attending such meetings was, "We must always concentrate upon our integrity. Our image for honesty and integrity is far above any financial manipulation". I remember my pride when I was a member of the board of an accepting house. I remember also the nervousness that one felt at the possibility of being questioned by one's colleagues, or even the partners, about whether a particular company that one had taken on as a new client was the right sort of company for the bank to have as a customer. I remember with pride being introduced one day as a "financier"—we somehow thought that financiers were people who sailed too close to the wind. We thought that they were of doubtful origin.

My noble friends will recall that not so many years ago similar situations arose, with major bankruptcies occurring only a moment or so after the publication of the auditors' report or the annual report. I refer to Metal Traders, to Rolls-Royce and to the numerous scandals with investment funds. As I said, "Plus ça change". The problem was unfortunate. We suffered from success.

I have had the privilege of working for two merchant banks and for one of our clearing banks. The internal controls were positively frightening. Many of us thought that we could never have any growth business ever again. Those internal controls were good; and we were brought up to believe that there was one principle of banking, which was, "Know thy customer", and if you had the wrong customer that was your fault. If you had the chance of being a customer of a good bank, you would be proud if you were a customer of an accepting house. People were judged by the company they kept.

Now I fear, with regret, that the merging and the loss of accepting houses, the merging of brokers and the acquisitions by foreign banks have all reduced standards, not necessarily in the rush for growth, but because the changes are there and the morality has gone. The lawyers used to come in long after a deal had been consummated because we knew that we could not afford to pay for them; we still cannot afford to pay for them. But what worries me is not the success of the City of London, but the growing concern about liability.

I come to the question of corporate governance. It was right that one should know one's customer and, if one had a bad customer, one would be responsible for having taken him on. He too would be taken on by a stockbroker and an accountant and a lawyer. If a stockbroker resigned because he was not happy with a company, usually the shares would go down and there would almost be an internal investigation, asking what was wrong and wether there were adequate controls. Suddenly, people said, "You must have outside directors to control things". When I was in the banking world we were not allowed to be outside directors; we were not allowed to have an account outside the bank; we were not allowed to buy or sell a share other than within the bank. We were watched almost day and night, although I have to say that the days were much shorter than they are now. Perhaps when Big Bang came and internationalisation and the globalisation took place, it was not possible to control or to watch people 24 hours a day. However, I still believe that an employee has a responsibility to his employer and an employer has a responsibility to his employee.

These remarkable changes of units moving from one bank to another, solely in the cause of greed, gain and glory, are worrying. Glory? Many years ago public relations was not a major event of hitting the front page. In fact, if your bank was in the newspapers at all it was a matter for concern, and sometimes grave concern, because you were meant to be quiet and respectable.

The changes that have occurred lead me to wonder about what, if I remember rightly, Galbraith said—that banking may be a career from which no man really recovers. I have been and still am a director of public companies. I worry rather when I am on a supervisory board of a bank and I find that no foreigner wants to be a director of a big British company. They are worried about the liabilities. It is interesting, too, that an awful lot of retired civil servants do not want to be a director of a public company.

The remarkable speech of my noble friend Lord MacLaurin makes me think about a comment I heard the other day asking what is a non-executive director? Basically, I was advised that he is really a supermarket trolley that gets pushed in the direction the chairman wishes to go, occasionally going off course. One advantage, of course, is that he can hold more food and drink and another is that he will be blamed for the faults of others.

Today, a worry that I have concerns the liabilities that are facing accountants, lawyers, non-executive directors and all forms of adviser, in particular those in partnerships who have to incorporate within the costs or the fees that they charge not only over-expensive office buildings but the personal liabilities that can follow. Although it is undoubtedly a good idea to encourage the growth of the supervisory role of the non-executive director, as my noble friends and others have pointed out, one of his roles is to help expand the business in a respectable way. It is extraordinarily difficult to be able to keep an eye on all aspects of a company, not just the financial aspect or the remuneration committee, but on contracts which they may take which may suddenly go wrong. A bridge may collapse on the bus of a football team and the following litigation is out of all proportion to the damage caused.

It is a worrying time and I believe that, while growth in business is such that some form of greater control is necessary, I wonder very much about the trend that there is at the moment of trying to place too much responsibility upon the individual, who often lacks adequate protection.

My Lords, I am grateful to the noble Earl, Lord Gowrie, for introducing this debate on the City. Enough has probably been said about the dominant position of the City internationally, and that is to the great benefit of our country.

Having said that, one has to say that the competitive pressures are increasing. Hitherto, Paris and Frankfurt have not mounted any serious challenge to the position of the City, but Maastricht and the preparations for a single currency have spurred them to greater competitiveness. Yesterday I attended a conference organised by the Bank of England to discuss the preparations that the City has to make ahead of the introduction of the euro, whether the UK is in or out. It became quite clear that enormous work will be required for the City to be competitive in the future euro markets that are likely to develop. The representatives from the City were quietly confident that they were prepared, but they were under no illusion but that there was significant competition ahead.

The position of the City is not helped in that by some of the failures that have occurred over the past few years. I remember going to Spain on behalf of British invisibles with Peter Baring to promote the City of London in the Spanish markets. We had a very good reception, but three weeks later the Barings collapse occurred, and I have no doubt that that was a thousand times more damaging than any promotional effect that we had.

If one looks at the collapse it is natural to look at the regulator and point to regulatory failures, but that is not where the root of the problem lay. My noble friend Lord Eatwell was absolutely right to point the finger at the management and the management structure. The top people did not know their business. The noble Lord, Lord Swaythling, made the point that top management should have known that they could not make those enormous profits from the activities that were supposedly going on in the Far East. That was simple ignorance, and it is ignorance which is not excusable.

There is the additional point that the structure of the Barings equity arrangements created incentives for that collapse to happen: the bulk of the equity was owned in a non-voting form. Top management received a large part of their rewards in the form of bonuses. Their incentive was less concerned with looking after the future of the bank than with those large bonuses. I am not saying that people were consciously doing that, but the structure was such as to encourage poor management throughout the organisation, throughout the bank. Internal politics within the bank did not help.

Barings was an unusual case, but I have no doubt that similar problems, less acute, lie elsewhere. Management structures must be appropriately tightened and the auditory function enhanced in order to ensure that these difficulties do not arise. Management has to be enhanced. To plug a local interest of mine, management education in the City also has to be enhanced.

There was one element in the opening speech of the noble Earl, Lord Gowrie, with which I profoundly disagree. He suggested that the "Ken and Eddie show" should have come to the rescue in the Barings case, perhaps waving some taxpayers' money to rescue Barings.

My Lords, I did not say that.

My Lords, I apologise if that was not said.

My Lords, as we are in time, perhaps I may correct the noble Lord. My point was that the individuals and the disaster could not or should not be rescued by taxpayers' money, but that there should have been pressure on and incentives for the clearing banks to take it over.

My Lords, I apologise to the noble Earl for misunderstanding his point. I certainly agree that the leading City institutions should have been encouraged and should have moved in. Had they done so, if it was so critical to the interests of the City, they would have shown the leadership that was appropriate.

In terms of regulation, it should be light-handed, but it must also be effective. In emphasising the management aspects, we should not underplay the regulatory framework. I believe that the debate so far has made it clear that the regulatory landscape which has grown up is unsatisfactory. It is a patchwork quilt. Regulatory bodies and responsibilities overlap in an unusual way which few fully understand. One trading house explained to me that in trading a repo of below £5 million one regulatory body had responsibility, but if it were above £5 million then a different regulatory body had responsibility. That is not an arrangement that makes sense when those two trades go over the same desk. We need to rationalise that.

It was correct to make the point, as the noble Lord, Lord Stewartby, did, that the SIB lacks the powers over the self-regulatory organisations that it needs. It does not have sufficient powers in those areas; it needs them. The structure needs to be overhauled. We need to find a way in which the regulatory structures can focus on controlling systemic risk in wholesale markets and in retail markets emphasise customer protection. We do not have a rational structure that corresponds to the functions of regulation. We need to put that in place.

In an international world, we also need to think about the relationship between European regulatory bodies and international ones. The challenge will be to foster high quality and efficient management and a better informed and more discerning public. I repeat that we cannot expect too much of regulation in a world where one can move risk. The risk profile of an organisation can be shifted in seconds through a single trade. Monitoring is not the answer. The right structures and the right incentives are the way to regulate. That requires and depends upon the quality of management. If that is in place, the City will flourish. However, we need to be cautious to ensure that scandals of mismanagement and criminality do not place that reputation at risk to the disadvantage of us all.

My Lords, I am delighted to be following a few speakers on from my noble friend Lord MacLaurin whose maiden speech we heard today. I hope that we can regard it as a loss leader, with future products with an extremely long shelf life.

My contribution to this valuable and timely offering by my noble friend Lord Gowrie will be extremely brief. For the moment I am accepting his focus on the City of London as a catch-all for the financial community. But it is a bit of a tabloid shorthand, as he has already agreed. From the granite authority of the Edinburgh establishment, through some of our northern cities, where I believe up to 10 per cent. of the workforce is in financial services, the mesh of the markets is as pervasive and immediate as the weather.

Two huge evolutionary processes have occurred while the present Government have been in power. The first is the total capitulation of the world's markets to electronic systems. A result of that, years ago, was that the time-scales of the markets far outpaced the time-scales of any political response. When a whole country can be altogether taken out of play by market sentiment in an hour's trading, it is quaint of politicians to pretend to their electorates that they can even delay, let alone block, the process.

One of the few logic-based arguments for European financial unification is that the firepower of a whole continent's currency could deter the aggression of all but the most buccaneering of market manipulators. I say only "could"—and not in the teeth of the whole market collectively.

The second deep change which has taken place while this Government have presided is much closer to home and has had a huge and positive effect on the City's standing and wealth, which it is almost impossible to overstate, and that is the principle of privatisation. I should like to think that the Treasury's strategists had planned that beneficial consequence, but, as we now know, the political ideology, as well as the need for a bit of extra cash in the kitty, was largely met with scepticism by the upper reaches of the Civil Service. I do not believe that anyone foretold that the whole world would watch the process in this country and latch on to the idea that what worked for the UK would work for it too.

There has been something purely Darwinian in the way that the agile, flexible, commercial creatures of a demand economy have replaced the lumbering beasts of a command economy. The process has been more or less painful, depending upon the historic political cultures of the country in question. In some cases, the dinosaurs have fought back or just disguised themselves for a while. The privatisation evolution is completely irreversible on a world view, and Britain's banks—the merchant banks in particular—found out how to do it first. They cut the template which every privatisation episode everywhere has largely followed. One City name alone has, for instance, been involved in 32 such exercises in Latin America.

I need to draw the distinction between relationship banking and transaction banking. In that context one would broadly rank privatisation deals as relationship banking. A direct consequence of that is that the Government and the Treasury bosses have made the effort over the past decade to understand the way the City works. That effort has been rewarded in that a deeper understanding now exists than could have been predicted in a political culture where the politicians themselves have become more professional in the pursuit of their trade. The consequence of that, as well as a supportive ideology, is that political restrictions in other parts of the world have opened major opportunities for the London operators. Just one example is sufficient: the position of the Eurobond market here which would probably not have migrated so successfully if the Swiss had not imposed a turnover tax of 1.25 per cent.

The message is clear. A government who offer a sympathetic environment to the financial markets and to the people who work in them find themselves with a whole flock of golden geese in their backyard. Of course a government wedded to ever more complicated tax regulations in a perverse way add to City income as specialists proliferate to cope.

This is not the time or the place to blitz your Lordships with numbers. The actual value to the UK economy is enormous, incessant and critical, but it is not a divine right of this or any other regime. The golden geese must be cared for and every vigorous financial sector in the world—some very close to home—look with greedy eyes at London.

In the second strand of his Motion my noble friend airs the case for systems of corporate governance for the purpose of maintaining confidence. Who could disagree with such a proposition? However, in defence of the financial sector as a whole, and, in particular, the innovation drivers in London, the principle of compliance is already taken seriously. From my observation it is not a charade or an empty activity. Perhaps while the regulatory structures were settling down in the early days some fish wriggled through the nets. They always will, but very few as the regulatory authorities themselves grow in professionalism and sheer knowledge of the territory.

One hears that we need an authority such as the SEC—but there may be less to that body than meets the eye, at least in usefulness. In London, for instance, if something is not working we can change the listing rules in six months. Because the SEC is a unitary body, it is obliged to consult universally—a process which can take up to three years. I cannot see how an ideal transparency can yet be imposed on the City of London. After all, the impetus for transparency in quoted companies has come primarily from the need to protect shareholder rights. This means a lot less when ownership is outside the UK or private. We do not need to be told that these, too, have their dangers.

To what extent will the sense of progress be jeopardised by recent City scandals? Is a system of corporate governance necessary for the City to retain its place at the forefront of the investment world? To make the point is to heighten awareness of what is at risk in terms of lost reputation, but perhaps also to obscure the process of surveillance and controls which are already in place.

Managers now live in a climate of great rigour, where analysis and recommendation must be traced to source; where dealing processes need to be seen to be accurate and honest; and where penalties are genuinely punitive. I believe we are getting it about right. Please note that the ultimate market test is there for anybody to see. Companies and the people who give them validity are voting with their feet and the nation is the richer for it.

My Lords, I thank my noble friend Lord Gowrie for giving us the opportunity to discuss this subject and to hear the extraordinarily good and memorable maiden speech of my noble friend Lord MacLaurin.

I may offend my noble friend Lady O'Cathain by concentrating on the unglamorous side. She referred to one or two failures. I may flicker over them, but I shall attempt to put a gloss on the defensive side, which is the subject of the second half of my noble friend's Motion. Usually I am the tail-end Charlie in such debates as this, but today I am somewhat higher up the batting order and there is a particularly distinguished list of speakers to follow who will be able to outline the enormous advantages of London and the City and what the Americans call the "can do attitude".

I believe that the three advantages of London and, as my noble friend Lord Gowrie pointed out, Edinburgh, are, first, the English language, secondly, the time zone and, thirdly, a concept of flexibility. The third advantage is the key point, but like all wonderful buzzwords and concepts it introduces various items such as derivatives, packages and strips, which I have read about in the Financial Times but have not taken too much notice of. I believe that they are connected with income. They are far from my chartered accountant training in the late 1960s.

That is the glamorous side of the City of London, but I should like to reflect on the unglamorous side; on what I call "the back office". Often, the back office is seen as a euphemism for, "No. It is disallowed. It is dull. It is unimaginative". However, almost all today's speakers have pointed out that if the City of London does not improve, insist upon and update its high standards on control and vigilance there are plenty of other financial centres in Europe and elsewhere which will be keen to seize its business.

In my little office within the precincts of your Lordships' House are six or seven fairly large and heavy tomes. They decorate one of the shelves and go under the name of Department of Trade and Industry Inspectors' Reports. They are fascinating, but there are two sides to them. The first is the boring, red-tape explanation of why the reports were published and why the circumstances reached such a pitch. Usually it starts with a tiny detail either from the Companies Act, the Yellow Book or the Takeover Code which was missed. That leads to another compounding error and soon an increasing amount of time is spent putting management on the defensive and on the back foot. That leads to a DTI report or, far worse, criminal proceedings.

There is a second side and a fascinating aspect to many of the reports. It is the unexpected benefits; the story of what has gone right with the City and what is unique to it, in particular as compared with other financial centres such as Tokyo. I refer to the success, flexibility and speed of controls. When something goes wrong it is put right very quickly. I have been greatly impressed with the success of the audit committees and the controls as regards the financial scene in the City.

This week your Lordships' House has discussed various pieces of legislation. It is relevant to sound a note of caution; that is, the more rules, regulations and complications there are, the more difficult are the controls and the more time management must spend on defensive duties rather than on the constructive side of its work. I am lucky to have sitting next to me my noble friend Lord Rockley. I remember reading in a 1990 DTI report, in which he was mentioned, that things happen very fast in the City and that one must take quick action. We shall hear from my noble friend later, but it has been said of him that "he has got his knees brown".

He has 35 or 40 years' experience of the City and the DTI report to which I have referred shows that he got it right. I do not believe that compliance is dull or sinister. I believe that of all the speakers in today's debate I am unique. I do not have enormous experience of the City but I have 10 years experience of "the back office"; that is, the Whip's Benches in front of your Lordships. Working as a Whip in your Lordships' House is greatly akin to being a top class auditor and a top class back-office operator. One must know what is going on at all times, as must any good back-office operator in the City, as my noble friend Lord Ashburton will know. I hope that my noble friend Lord Gowrie will grant me some forgiveness. I remember one glitch in 1976 when we worked together, but I think we got it entirely right. That experience marked me and has given me great admiration for the back-office operators.

In conclusion, I draw your Lordships' attention to a recent interesting debate initiated by the noble and learned Lord, Lord Hoffmann, on takeovers. Paragraph 125 of the report of the European Communities Committee of your Lordships' House made one or two startling comments about the 13th directive and its possible impact on the controls and what we are delighted to see are the benefits of the City of London. Without the controls to which I have referred, which work extraordinarily well, all those benefits and others mentioned by my noble friend Lord Gowrie will be worthless.

My Lords, I add my congratulations to those of other noble Lords to the noble Lord, Lord MacLaurin, on the excellence of his maiden speech. Having known him for a few years now, I look forward to the noble Lord's next intervention when he will feel free to be controversial.

The noble Earl, Lord Gowrie, in his very welcome Motion today, lays stress on the need to maintain confidence in the City of London throughout the world. To my mind, that is extremely important in terms of invisible earnings, as many noble Lords have said, and, indeed, for the economic well-being generally of this country.

I ask myself how confidence in the City is to be maintained and, if possible, enhanced. I believe that it requires that firms and institutions in the City should be efficient, competent, stable, well managed, and to follow the noble Lord, Lord Selsdon, have a reputation for scrupulous honesty and the highest standards of ethical behaviour, for—and I use this one word for my several—the principle of integrity.

Perhaps I may say, in parenthesis, that those qualities are essential to maintain confidence in the City not only throughout the world, but among the people of this country. The misselling of some 2 million private pension schemes by UK companies to UK citizens is as much a shameful failure of the City as those scandals of international significance, such as Norton Warburg in the 1980s and BCCI in the 1990s.

But, to return to what is needed for international confidence to be maintained, I want to emphasise first the value of ensuring that markets are competitive.

As in other markets, fair competition between rival firms in the various markets for investments and investment advice is the key effective spur to efficiency and competence. We cannot expect confidence in the City if competition is restricted or distorted.

In the late 1970s and early 1980s, the Stock Exchange in the City was in great danger of losing business abroad, particularly to the New York Stock Exchange. This was because our Stock Exchange was riddled with restrictive practices, particularly the rule that fixed commissions must be charged. Member firms could not compete on price. Following the pressure put upon the Stock Exchange by litigation, it was pushed into agreeing reluctantly to abandon these practices. I believe that the City's operations and reputation in the world would have been seriously in jeopardy had it failed to give up the old ways of the London Stock Exchange.

But—and this is a very big 'but'—the more competitive environment in the City arising from these events and others to which noble Lords have referred, such as the ending of exchange controls and globalisation generally, involved the growth of financial conglomerates and the arrival in the City of outsiders from the US, Japan, the Continent of Europe and so on inevitably had the consequence, as night follows day, that the old club-like atmosphere of the City that might have been relied on to combat, by way of peer group pressure, misbehaviour and conflicts of interest and to temper other excesses of the competitive spirit, disappeared.

Hence, as we all know, there was the need for the Financial Services Act 1986, to which many noble Lords referred. It has a complex web of practitioner-based regulation, and, in addition, we have had the three angels—Cadbury, Greenbury and Hempel—who followed up with detailed provisions for codes of practice on corporate governance.

The philosophy of the Financial Services Act, to my mind, is that, while competition is certainly necessary to ensure that firms are efficient and competent, in itself, that is not enough. At present, there are regulations to require high levels of staff training, transparency of costs and other information to clients and high standards of ethical behaviour, and to satisfy prudential requirements and provide for the security of one's investment. We have a great deal of regulation under the Financial Services Act and the SIB and the self-regulatory organisations have achieved much in their efforts to maintain standards in the City, although they have not always succeeded.

One problem arises that regulations designed to achieve high standards can go too far. The imposition of standards that are higher than necessary for the protection of the investor can work to the investor's detriment, because potential new entrants to the market can be discouraged and kept out by an overwhelming amount of regulation. One must always ensure that regulation does not go over the top. It is as well that the Office of Fair Trading has a statutory duty to monitor Conduct of Business Regulations and other regulations, and to report to the Treasury as to whether they unduly restrict competition. Trust and confidence in the City require a proper balance between regulation and reliance on the market. Regulation must not go over the top so that it strangles business, imposes undue costs or damages the very interests of the business and private clients it is meant to protect.

Ten years on from the Financial Services Act, it is time to review our complex regulatory structure. There is confusion on the part of the public and even within the City. This afternoon a noble Lord referred to FIMBRA. There is obviously confusion in that regard, because it no longer exists. But some rationalisation is needed. After the General Election, I do not expect the new government to wish to go back to square one and revise the whole of the Act, with its 212 sections and 17 schedules. I doubt whether a new government would give priority to such a huge task. But Mike O'Brien, Labour's Treasury spokesman in another place, spoke in October about making the Securities and Investments Board a statutory body and said that the various self regulatory organisations should be—and I like the phrase—"folded into" the SIB. He sparked off a useful debate in which the regulators and the Deputy Governor of the Bank of England have had their say. It is a timely debate, just as is the debate we are having in this House today.

My Lords, I stand in awe of the maiden speech of my noble friend Lord MacLaurin. I am sure that his will be a valuable addition to the collective wisdom that is your Lordships' House.

I thank my noble friend Lord Gowrie for giving us the opportunity to debate this very important subject. I must declare an interest. I am a non-executive director in a securities house and have spent close to 40 years in the City.

The pre-eminence of the financial institutions of the City of London in world markets has been a feature of our national economic life for many years. What is laudable and should be highlighted in any debate on those matters is the manner in which the City has increased its market share as capital markets have developed in mainland Europe and the Far East. Of course, that is against the background of intense competition. It should be remembered that our large participation in the growth of the Japanese and neighbouring markets which started in the 1960s was achieved by skill and not by the weight of capital, any lack of capital being more than compensated for by the recognition of one of our greatest strengths—integrity. The motto "My word is my bond" today raises a smile but not so long ago, it was our greatest asset.

If today's debate is to achieve anything, it must recognise that corporate governance, regulation and related matters are not just abstract concepts for they have to exist in the real corporate world, which has no boundaries of time, nation or moral culture. The deregulation of the London Stock Exchange in 1986, which came with fundamental changes in its rule book, brought about a situation whereby the whole financial services industry would require a new regulatory regime. Unfortunately, those changes coincided with a major change in the political and economic culture. They were soon to provide their own caricature but their damage to the system is still with us.

Big Bang in 1986 introduced not only new market members, but also brought with it a clash of working cultures. I am sure that one of the prominent scandals of that time was, in part, due to this culture clash. That the City has been able not only to maintain but also to increase its share of financial trade during the past decade, despite very fundamental changes to its former working practice, shows that we have in it a national asset which must be encouraged and not overburdened with unnecessary—and I repeat the word "unnecessary"—regulation.

The City's international reputation does not exist in isolation to its domestic business which, in turn, relies on the confidence of our nation in its financial institutions. The multiplicity of SROs without common standards works against a coherent and viable system. Their number must be reduced. The current debate among practitioners in the industry on the structure of regulation in the United Kingdom is: should there be a "Twin Peaks" approach? That is to say, two commissions established on functional lines: one for capital adequacy and the other for the conduct of business and the care of customer issues. Others favour a "super SIB", with all the current SROs being merged into an SIB operating through two divisions, wholesale and retail.

A merger of IMRO and the SFA would also find favour. The present system is too expensive to operate and let us not forget that the customer pays. Any new regulatory body needs to be closer to the marketplace. That point was mentioned by the noble Lord, Lord Eatwell, who suggested that more senior members of the City institutions should be brought into the regulatory bodies.

Reports in the press that Lloyd's of London would like to join an external regulatory system, if true, would I understand require primary legislation and allow the whole question of regulation to be revisited. The quasi judicial nature of the SROs needs to be re-examined for, let us not forget, the system requires not only the confidence of the customer but also that of the practitioner.

When an investigation leads to criminal proceedings, all evidence should continue to be available to the prosecuting authorities. But where an investigation, occasioned, say, through a lack of due diligence or best practice, leads to a fine or other disciplinary action such evidence should not be available in subsequent civil proceedings. If practitioners are to have confidence in the workings of an SRO system, they must not be subject to a risk of double jeopardy. Evidence should not be available for a civil court because of membership of an SRO. At least one legal system requires the victim's family to pay for the executioner's bullet. It is not a system that I recommend.

The introduction of order-driven trading as opposed to quote-driven trading in the most liquid stocks will bring our practice into line with the main exchanges in most overseas markets. The United States and European investment houses have long said that such a change would encourage even greater use of London as a financial centre by overseas investors. There are concerns within the City that if the UK does not participate in the single currency it could be discriminated against by those who do. Non-participation may also have an impact on the very sizeable values of business which the City undertakes in foreign exchange.

If the City is to continue to prosper, some sanity must be restored to the application of EU directives. It has been shown to be the case that, in applying certain directives—I give as examples the Investment Services Directive and the Capital Adequacy Directive—our regulators have taken a "super-equivalent" stance and have made use of the implementation of such directives to enhance their requirements, thus placing an increasing burden on UK-based companies in contrast to their mainland European competitors.

Let us not only praise the work of the City of London; let us also do all that we can to enhance its position. Let us reconsider the whole structure of regulation. One important point that I should like to raise and which I do not believe has been covered in today's debate is that of education. Nearly all our citizens have an interest in financial matters, whether it is through savings or as contributors to pension funds. Surely it is time for some education in such matters to be brought into the national curriculum. Today's young people are tomorrow's savers and they are the providers for their own old age.

My Lords, I must first add my congratulations to those already expressed by other speakers to my noble friend Lord MacLaurin on his maiden speech—my only problem being that the quality of his speech makes me somewhat nervous about my own contribution. However, I am equally delighted to have the opportunity to participate in this debate on corporate governance with a particular emphasis on the City of London.

Corporate governance has, I believe, become a rather loose expression and is regarded in some quarters as a panacea for all evils. But we know that it is much more complex than that. At its basic level, I believe it means that we ensure that a business is run by and through its board and that that board is properly accountable to its shareholders for its actions. The installation of structures/mechanisms will not create a well-managed business—the converse is undoubtedly true. There are problems in the installation of controls in international service businesses.

In a financial service business the most important feature is its people and their attitudes. The cult of the individual and the super-stars is to my mind an exceedingly unhealthy development. It is vital that the firm and its values are bigger than the person.

I have spent most of my working life in the City. A great many changes have happened during that time; indeed, it is almost unrecognisable from the place where I started some 30 odd years ago. Not all of the changes have been for the good, but they were inevitable if London was to maintain its position in the financial world. It has undoubtedly done so; in fact, it has enhanced it, as witnessed by the size of the market, the number of international participants and the business done. That has happened through the perceived efficiencies of London, its transparency, the regulatory environment and the confidence of participants to deal there.

So the City has done something right. But, regrettably, fraud and dishonesty are fellow travellers within the financial world and have been since time immemorial. If anything, London's success has increased its exposure. Its expansion has meant that there are potentially more rotten apples in the barrel. The position of the City, its connotations and its international scope mean that, whenever there is a sensation, the City always has an involvement—peripheral or otherwise—and it is always in the public eye.

Therefore, it goes without saying that it is vital for firms operating outside the City of London to be seen to conduct their affairs to the highest possible standards in their own market. In that respect, it is very healthy if disciplinary actions are well publicised. They have an unfortunate spin-off for the firms concerned. There is adverse publicity at the time and there may even be criticism from the regulator which, if the firm itself unearthed the transgression and dealt with it internally, may seem marginally unfair. That is corporate governance at work. That is the way it goes.

The regulatory system and its environment are vital. The regulators set the scene. They occasionally blow the whistle; but, fundamentally, it is the companies which create the tone and reputation of a marketplace and obviously of their own firms within it. A City firm has three major assets—its capital, its people and its reputation. Those are the tools with which management has to work for the shareholders. Capital is perfectly straightforward and we can all see whether or not it is there. But people and reputation are much more delicate subjects. The cult of loyalty is something that does not sit very readily in the international financial world of today.

Self-importance of individuals knows no bounds, and they seem to forget how they developed their skills, who taught them those skills and why they have those skills today. There is no shortage of management effort to try to promote that feeling of loyalty throughout every firm in the City, of that I am sure. Whenever there is what one might term a disaster, every management will re-examine its physical procedures and controls to see what it can improve. It will ask itself: could it possibly happen here?

As a result of those reviews, I am equally sure that every firm tightens up some aspect of its controls and processes. But the fact is that what went wrong in the first place was a fundamental breach of trust and an organised cover-up by others, be it within the organisation or externally. That is the case with all those well publicised sensations in recent years, whether they have emanated from Tokyo, New York, London or other centres. In the final analysis many systems are only as good as the people who operate them.

One can speculate why individuals go off the rails. It has been suggested only this afternoon that it is not necessarily for personal financial gain. With that I concur. I think that in many cases it is a question of prestige with their peers, of being important in the community and of appearing important in themselves. When that is the case, it is much more difficult for a management to detect. Technology is a wonderful thing; it is how the business is run. It is how the derivatives work. They have almost become a dirty word these days, but they produce cheaper funds for industry. But, equally, that technology can be manipulated for malpractice. Given the size of the marketplace and a period of non-detection, when those misdemeanours are uncovered they can be spectacular.

I refer noble Lords to a chairman's nightmare. However confident one is in one's firm's structures and its people, there is always a nagging worry that some link in the chain, somewhere along the line, is being surreptitiously weakened. There is only one way that that can be countered, and that is through the vigilance of management, using not only the controls but also the human touch of experience. In the modern competitive world everyone is striving for super-performance—when that occurs everyone is delighted—but there will be many instances where success against the trend will make management's tentacles twitch in considering whether it has found the Holy Grail or whether there are other reasons. It is for management to achieve this difficult task of control. I believe the responsible City managements are only too well aware that their own livelihoods depend on getting it right.

My Lords, I join other noble Lords in congratulating the noble Lord, Lord MacLaurin, on his excellent maiden speech. We look forward to hearing many more of his speeches in this House, but we shall entirely understand if his work at the other Lord's, which is very important, keeps him away now and then. We want our cricket team to achieve as much success as the noble Lord has achieved at Tesco's. That would be the day to celebrate!

I am almost one of the last speakers in the debate and unfortunately almost everything that I wanted to say has been said. However, there is one point that has been mentioned by many people which I wish to emphasise; namely, that the City is the only seriously competitive global level industry we have. It has been a global level, top-class performer for about 250 years. That is something to note. It has withstood many shocks and many innovations and has adapted and grown. As it has grown, problems have arisen. As new products and new innovations emerge, so do new opportunities for fraud. That is a sort of dialectical process. As these processes occur, one has to invent new forms of regulation. I do not think there will ever be a time when we shall have perfectly accident-proof financial markets, any more than we shall ever have risk-free arbitrage. It is inevitable that a fast-growing, innovative industry will occasionally experience these problems. Regulatory organisations will always be a little behind in catching up because many of these cases consist of shutting stable doors after the horse has bolted. However, that is part of the process.

As many noble Lords have already said, the choice we face today is to look at the patchwork quilt of self-regulatory organisations and some statutory bodies and to decide whether there are gaps now, or that we can anticipate in the light of forthcoming innovations, which ought to be filled. Should they be filled by self-regulatory organisations spontaneously arising in the City, or should we appoint a co-ordinated, overarching body? That body can either be a statutory or a non-statutory one. There are delicate questions of advantage and disadvantage on either side. I am not sufficiently expert on that matter to make up my mind about it. Some people like the model of the SEC, whereas other people have pointed out that it is somewhat slow in its operation. I used to be much more sceptical of the SROs, but their performance in the past year or so has improved considerably. Much learning is taking place. As my noble friend Lord Borrie pointed out, if we established a statutory body by means of a vast piece of legislation, how quickly could we change it when the next innovation emerges? How could we allow room for that regulatory body to adapt, change and grow? Those are important questions.

As my noble friend Lord Borrie also pointed out, a debate has already started on this matter. There ought to be a systematic formal response to that debate from practitioners in the City. Do they think that they can create a co-ordinated body of inter-connected, self-regulating organisations which would reassure retail consumers and those who worry about systemic risk that if problems arise they will be quickly taken care of; or is it the case that practitioners themselves think that in the light of all the problems we have experienced, and in the light of the European climate which is much more formally legislative than self-regulatory, we shall have to adapt ourselves to that sort of culture? That is an open question. We need to have much more discussion on that than we have had so far.

I now wish to discuss a matter which worries me much more than either corporate governance or regulation, and that is the level of competence in both management personnel and regulatory personnel. As the noble Lord, Lord Ashburton, said, I am sure that the management of Barings cared immensely about its business. I do not doubt that. What I doubt is that it knew what the business was all about. An age gap arises as financial innovations take place and as "rocket" scientists deal with derivatives and new products. Do the members of top management, who come from a different generation, understand the nature of the business they are in? Have they been retrained? Have they returned to the London Business School, where my noble friend Lord Currie could teach them a thing or two about the latest innovations? We should insist that top management occasionally retrain in this fast-changing business. Although it may appear that money makes money, money makes money in different ways nowadays than it did in the past. I am sure that as regards Barings and other companies which traded in derivatives there was serious misunderstanding about what they were doing and they could not unwind the deals. They could not understand the nature of the business.

I am not surprised at that. I work in the quieter field of academia but I need constantly to retrain. Even the quiet world of economics changes. At seminars I find that someone gives a paper which I do not understand because I have been out of touch for the past two years.

From the report of the Treasury Committee in another place on the Barings issue published last month, I am not clear that at the crucial weekend the Bank of England knew precisely what was going on. I am not sure that our regulatory personnel knew the nature of the exposure to which Leeson had subjected the bank, or whether the liabilities were unlimited or could be capped. There were all sorts of rumours.

I conclude by referring to this serious point. Our top management and top regulatory personnel need continual retraining. We must insist that that be done.

My Lords, the Motion of my noble friend Lord Gowrie is timely in both its parts. It is timely in drawing attention to the past and present contribution of the City of London to our economy. It is timely in drawing attention to the reinforcement, the basis of trust upon which its success must depend.

I declare an interest, which is more past than present. A greater part of my working life, starting 43 years ago, was spent in and around the City: first, in accountancy, then substantially in merchant banking and latterly in fund management. During that time I was able to take a broader view from two perspectives. There is nothing like seeing yourself as others see you. For two years in the early 1970s, I was a Minister in the DTI, having responsibility for company law from which time I bear the scars of two notorious insurance company collapses—Maxwell-Pergamon, "Mark I", and others. From around 1980 I was chairman of the British Overseas Trade Board and, until 1991, of British Invisibles. I was charged with selling internationally the excellence of British goods, and latterly especially of British services.

It is upon success in trading in services, mainly financial, that the prosperity of the City of London depends; and with it a good part of our overall national prosperity. The numbers have moved onwards and upwards since I had them at my fingertips, but the headlines are worth remembering and highlighting.

However, first, I have a historical reflection. The City of London grew and prospered as British trade followed the flag around the growing Empire around the world. Some might say that it was the flag which followed trade. But it was based on the foundation of the Industrial Revolution from the heart of England.

Let us consider the remarkable transformation that we have seen in the wake of two world wars. As late as 1939, the UK share of world trade was still approaching 30 per cent., and, correspondingly, about 30 per cent. of world trade was financed in sterling—a burden to which manifestly a currency as small as ours could not aspire nowadays. This country now accounts for only around 6 per cent. of world trade in goods, and yet the part which the City of London plays in its share of those international services has been maintained and in some parts enhanced.

During that time the City of London exercised imagination and energy, increasing its market share in financial services as the underlying trade shrank relatively. I mention the example of the eurodollar market in the wake of the US interest equalisation tax in the early 1960s; our retention of the lion's share of international markets in insurance, foreign exchange, equity trading, ship and aircraft broking and external bank lending; and the development of new techniques for which an international demand is discerned.

Where do we stand in the markets on the most recent figures? We have 28 per cent. of marine insurance premiums globally, with 38 per cent. of aviation risks. We have the largest share of external bank lending. Our foreign exchange turnover (to which I have already referred) exceeds that of Japan and the United States combined. We have around half the fixtures in marine and aviation for charters on the Baltic Exchange; we have the contribution of Lloyd's List and international consultancies, and almost 60 per cent. of the world turnover in foreign equities. That adds up to a contribution from UK financial institutions exceeding £20 billion a year, and is still growing.

There is no questioning the national importance of these activities. What are the threats to the continuation of that success? I am not too worried by the looming single currency, whatever may be claimed in Frankfurt. The risks, I believe, are rather more internal than external. That success depends upon our reputation for fair as well as for efficient dealing. That in turn rests on confidence to sustain the reputation for fairness; and confidence is a tender plant.

As I see it, threats will include these matters. Technology was referred to by my noble friend Lord Birdwood. The dominant share that we have in the forex markets, and, alongside it, forward markets, derivatives, caps, collars, options and the rest, are a useful and valid means of avoiding or minimising risk for traders. But they also offer opportunities for speculation. Indeed, they offer invitation to speculators and opportunities for abuses. One has only to reflect that the turnover in the foreign exchange market globally is a multiple of—I understand that it is currently in excess of 20 times—the turnover in underlying trade. So an awful lot of buying and selling of foreign exchange is going on which is not used for the fundamental and obvious purposes of paying for goods and services. The sheer volume of money that moves around and the speed with which it can move can lead to destabilisation.

Technology in good part contributed also to the post-Big Bang problems of the late 1980s. Too much capital was injected with too little strategic thought into an overpriced sector at the end of a 14-year bull market.

The last risk to which I refer is greed, both corporate and personal. I refer to the cult of the star, the star salaries, and especially the large bonuses which follow.

Every man is a debtor to his profession and there is a loyalty which should attach to that. I am very much in sympathy with the comments made by my noble friend and colleague Lord Rockley on that subject, and, I have to say, a little less sanguine than the view expressed by the noble Lord, Lord Ashburton.

I am clear that over-regulation would clip the wings, if not actually kill, the golden goose, and would cause certain golden goslings to refrain from coming from overseas to nest in London.

I am also clear that the answer must lie in the only form of discipline that works; namely, self-discipline. There are systems that have been developed which should be followed and which help that process. But self-discipline it has to be. It is incumbent upon those who run City institutions to introduce, monitor and insist upon, in detail, codes of conduct which ensure the high standards upon which the great name of the City was built and on which its future prosperity must depend.

My Lords, I am grateful to my noble friend Lord Gowrie for the chance to talk about my part of the City, the London insurance market, of which, I suggest, some 70 per cent. of the premium comes from abroad. It has a good track record in terms of balance of payments. The latest figures I have seen suggest that in 1993 it produced £5 billion; in 1994 £4 billion; and in 1995 £6 billion. If I understood my noble friend correctly, that is the sixth part of the £20 billion he mentioned, or 30 per cent. of the invisibles. The split of that £6 billion in 1995 was some £4.1 billion in respect of investments of one sort or another, including overseas trading; £1.1 billion to the brokers in terms of commissions and fees; and only £0.8 billion in respect of underwriting, which was split roughly 50: 50 between the insurance companies and Lloyd's.

The position of Lloyd's is quite interesting historically. Despite the crisis between Lloyd's and the capital providers—its Names—the capital deployed across the years has remained remarkably stable. I find for 1988 the highest number of Names ever—around 32,500. That may be compared with 1996, when the number was down to 12,800; but there are also 168 corporate vehicles. The capacity between those two years is almost identical. The premium income—significantly, because premium varies according to whether rates are high or low—was less in 1988 than it was in 1996. Lloyd's reputation for never failing to pay a claim remains untarnished. But, sadly, its reputation for financial strength is probably lost for ever. That is partly a result of the gradual demise of unlimited liability and partly because Names, although many had good reason, walked away from their losses and imperilled cash flow. The regulators, advisers and sophisticated clients of the world will be checking Lloyd's financial position evermore.

However, this was not just a Lloyd's problem; it merely seemed that way from the publicity. During the same period (since 1989), although nobody seems to realise it, 17 insurance companies have failed.

The settlement at Lloyd's has been an enormous relief to all those of us who want to see the City flourish. Lloyd's is the hub for a very tight-packed market where face-to-face negotiations in respect of large or complex risks are not just in the opinion of most of us essential, but differentiate us from so many of the other markets around the world which try to deal by telephone.

In 1994 the London insurance market accepted £15 billion of premium income, which demonstrates what an important employer it is. It is believed that the City of London, Camden and Tower Hamlets between them currently employ some 37,500 people directly involved in insurance. It is estimated that there are another 15,000 employed elsewhere around the UK who are employed only as a result of the existence of the London insurance market.

I turn to corporate governance. As we have heard many times today, no news is good news. We have had too much news of the bad variety recently. Like others, I should like to start at the bottom. Although I have been retired for five years now, I have retained my copy of my company's Group Operating Policies. I turn to that document. On page 1, I find, "Our Business Principles", dated July 1986 (over 10 years ago). It states:

"Our success depends on our ability to command the confidence of our clients and our markets. This confidence must be earned"—

simple Anglo-Saxon words of not more than three syllables. It continues:

"Specifically we must strive to … Understand our clients and their needs … represent them properly in the marketplace … treat underwriters fairly and develop long term relationships with them … ensure the highest order of technical back up … maintain highest standards of communication—external/internal".

That was not just "apple pie"—it was followed by 20 pages of more detailed advice.

For most of my working life I have been regulated by the Insurance Brokers Registration Council. It has a code of conduct which begins:

"Insurance brokers shall at all times conduct their business with utmost good faith and integrity. They shall place the interests of their clients before all other considerations. Subject to this, they shall have proper regard to others".

That is marvellous stuff. I note that the insurance brokers' interests very properly come last.

The Insurance Brokers Registration Council regulates all brokers; but there is one terrible flaw in its activities. If you do not like the disciplinary committee, if you find the cost too great or the rules too onerous, you simply leave. The only penalty is that you can no longer call yourself a broker—so you call yourself an intermediary, and any insurance company will deal with you. Brokers have been trying to get legislation to close that gap for years but no government ever have time to pay attention to them.

I should like to refer briefly to practice at Lloyd's. The Lloyd's by-laws include a comment that, "failure to comply with the Lloyd's code of conduct is not in itself a disciplinary offence but may be taken into account by any disciplinary committee". That is sensible. Governance requires discretionary powers, flexibility to take account of character, attitude and track record. I am not ashamed to use the word "flexibility" for the umpteenth time this afternoon.

A recent article in the Financial Times interested me. It stated that foreigners take the long-term view and accept lower profits than the UK. UK governance is held to be short-term and risk adverse. We perhaps need to think about that.

I received a letter from Barclays, as I dare say did other noble Lords. It was very brief and very sensible. It stated that corporate governance develops and matures through the development of best practice, not through regulatory and legislative change. I agree, as I believe do many other Members of this House.

The Association of British Insurers (ABI) reminds me that it represents 440 companies which manage £550 billion of funds. It has played significant roles in Cadbury, Greenbury and Hampel. It has published guidelines on areas such as composition of board directors, service contracts, share options and long-term incentive schemes. It established IVIS, which monitors resolutions by the top 800 companies and advises ABI members if they are inconsistent with Cadbury et al. Last year, it organised the first international conference on corporate governance; 21 companies came to London to participate. It is much involved in this year's conference in Paris.

So let the individual be taught high standards and be monitored by his company. Internal audit is valuable as a tool to improve company efficiency as well as to keep up standards. Let the company proclaim its standards and be monitored by the market regulator; and let that regulator use his nose and make unscheduled visits, rather than the forward advised routines that are usually practised. Let the law take a back seat and act only with care and restraint.

My Lords, we have reached the stage in the debate when we may start to sum up the important points made. We are particularly indebted to the noble Earl, Lord Gowrie, for having so effectively introduced it. The debate has been remarkably well-informed. Every noble Lord who spoke brought to bear on the subject his own personal experience, be it from banking services or academia, as in the case of the noble Lord, Lord Desai. It has been a contemplative debate of the sort at which this House excels.

We have been able on all sides of the House to take a dispassionate view of the situation which relates to the remarkable success story achieved by the City of London; and it is a remarkable story. As the noble Lord, Lord Desai, reminded us, it goes back 250 years. It started with the sense of innovation and has continued with it. Indeed the greatest era of innovation has been in recent times.

The noble Earl, Lord Limerick—whom I am glad to see here because I served with him for many years on the British Overseas Trade Board—itemised some of the great achievements of the City leading up to the present massive earning of £20 billion per annum and rising. Had it not been for the earnings from the City, from financial services and investments abroad, we should be in dire straits in terms of our balance of payments. I need hardly remind your Lordships that since 1983 our visibles balance—for various reasons which we have debated elsewhere and which I shall not go into—has been in serious deficit. That has been made good by the remarkable achievements of the City.

What is important in the context of our debate is how we can ensure that this great achievement is maintained in the future and see what are the problems, challenges and difficulties which we might meet ahead. I should like to refer to a few of those as they emerged in the course of the debate.

The question of confidence in the City was raised. The City was built on a sense of confidence, a shake of the hand being all that was required in the most important financial transactions. That confidence is of prime importance in dealing with the kinds of products with which the City is concerned. It has unfortunately been somewhat shaken by a limited number of cases that have arisen in the recent past. I emphasise that it is a limited number. Nonetheless they have done some harm to that feeling of confidence. It has been important that those few cases have been very carefully inquired into.

It has emerged in those cases—I refer particularly to the derivatives and fund management cases—that there was a confusion, if not a weakness, of management controls, particularly at the higher level. That seems to have emerged from the reports that I have looked at.

That raises the question to which the second part of the Motion relates—namely, the question of corporate governance. It is sometimes felt that, because the City is regulated, corporate governance should not be a necessary feature of its operations. But, as the noble Lord, Lord Eatwell, pointed out, corporate governance almost comes first and is possibly almost more important than regulation. The noble Earl, Lord Gowrie, is to be congratulated on having linked his Motion with the concept of corporate governance.

I very much hope that there will be a determined effort to ensure that, where the principles of corporate governance are not yet fully applied in City firms, they will be applied.

The concept of corporate governance is being reviewed by the Hampel Committee. I hope that that review will be on a wide-ranging basis. I have had experience of what happens on the Continent, having for some years been on the supervisory board of a Dutch company. I have also been a non-executive director of British companies and am therefore able to compare the roles of the two. Speaking from the point of view of the Dutch company, the benefits that I saw from their regime are as follows. First, the role of the non-executive directors was absolutely clear; there was no doubt about it. You were on the supervisory board; there was a chairman of the supervisory board; there was the management board, the chairman of which was effectively the chief executive of the company. The positions were clearly defined. When board meetings, which were presided over by the chairman of the supervisory board, took place the non-executives sat on one side and the executives on the other. The meetings always started with a report from the chief executive officer and the other executives which was debated and then we jointly discussed financial matters, strategy, and so on. We had our own meetings when it was appropriate and we met jointly with the executives when that was appropriate. At the annual general meeting it was the chairman of the supervisory board who presided and who was regarded as responsible to the shareholders for seeing that the company was properly managed.

That system is not a panacea; no system of that sort can be. Companies run into difficulties for all kinds of reasons. This particular company ran into difficulties because it carried out capital projects abroad during the boom years for which it had difficulty later in obtaining payment when there were sovereign debt problems. However, the benefit that the Dutch regime introduced was that we found out about the problems earlier than we might otherwise have done; and, secondly, we were able to deal more effectively with the consortium of banks which provided the facilities we operated on than might otherwise have been the case.

I do not suggest that we adopt that system here. However, I have found in the literature that the idea of a two-tier board, as recently in a CBI document, is pushed on one side in a rather cavalier fashion. I believe that we should look seriously at this option as we examine the structure of companies.

The question of regulation has been referred to. I believe that there is a consensus here that we should review the regulatory regime. I was surprised to learn that there are 20 bodies which report to the SIB. Some are big, some are small. It seems to me that that is a very large number of regulatory bodies to be operating in the financial services sector. If for no other reason than that, I believe that the regime ought to be reviewed. It is now 10 years since the Financial Services Act. I hope that before long there will be such a review, in which the practitioners must, of course, play a leading role.

Finally, I should like to refer briefly to the prospect of a single currency and the euro. Whether we are in or out, it is of vital importance that the City of London should remain the leading centre for trading in the euro, as it is now in the dollar, the yen and other world currencies. I applaud the initiative taken by the Bank of England in ensuring that financial institutions are kept fully aware of what is going on and prepare themselves for that eventuality.

In conclusion, I believe that this has been an extremely useful debate. We are agreed on the remarkable achievements of the City. I believe we are also agreed that it is very important that we should take steps to ensure that those achievements multiply in the years ahead and acknowledge that there are certain problems which must be addressed in order to achieve that.

My Lords, I start by adding my thanks to the noble Earl, Lord Gowrie, for his introduction of today's debate and for his wide-ranging and stimulating opening remarks, demonstrating once more his claim to be Renaissance Man. His noble friend Lord MacLaurin, on whose maiden speech I congratulate him, has an outstanding record as a businessman. Your Lordships' House should therefore welcome him and look forward to his future contributions, even if they do from time to time coincide with the policies of the party to which he belongs.

Like other noble Lords, I should declare an interest as a director of a small investment banking firm pursuing corporate finance advisory work and private equity investment, both in the domestic sphere and internationally. For many years I was no doubt an exasperating pupil of the noble Lord, Lord Rockley, and the noble Earl, Lord Limerick, whose speeches I enjoyed and to whom, as an author would say in his foreword to a book, all credit should flow for what I have learned and no responsibility should be attached for my mistakes, which are my own. I have also served on the board of the International Swaps and Derivatives Association in New York and remain a strong believer that derivatives, for all the new risks that they present, represent the most significant and broadly valuable development of the financial markets in the past two decades. That is a subject to which I shall return.

I have also been a non-executive director of several public companies, in one of which I recently tested to destruction the role of a non-executive director in trying to enforce good corporate governance. One interesting point emerged from that experience. Despite considerable publicity attached to my resignation and that of a better known fellow non-executive director, not one institutional investor in the company concerned made any attempt to discuss our concerns with either of us. So much for institutions' diligence. Perhaps the recommendations of the business commission in this field have a great deal of merit.

I reiterate the support of these Benches for the City of London, its work, domestic and international, and for the employment and earnings that it generates. It was no coincidence that my right honourable friend the Leader of the Opposition chose to make one of his keynote statements on the Labour Party's economic policy last year at the lecture sponsored by the Corporation of London and the London International Financial Futures Exchange. Perhaps I should not have reminded your Lordships of that, for fear of provoking the Deputy Prime Minister for the time being into labelling those bodies also and their members stooges of the Labour Party.

We should protect and enhance the position of the City of London and cherish the international earnings within it, so long as in doing so we do not jeopardise or neglect the other interests, even stakeholders, of our economy and our society. For that reason, notwithstanding the carefully explained focus on the international value of the City by the noble Earl, Lord Gowrie, I find that I cannot avoid considering some domestic issues at the same time, for they are two sides of the same coin. However, I do not intend to add much to the debate about regulation, other than to support most strongly the comments of my noble friend Lord Eatwell.

The danger of a subject such as the one we are debating and at least a partial mitigation of its merits is that it risks over-emphasising the City of London's role as an end in itself. I am, as a quintessential member of New Labour, nonetheless unrepentant in my belief that financial markets and centres are a means to an end and not an end in themselves. They are the servant of every other branch of the economy and the community, domestic and global, and not their master. To believe that is not for one moment to undervalue or undermine the direct benefits to employment, prosperity and the balance of payments derived from the City. It is merely to acknowledge that there is a delicate and complex balance between the various roles and functions of the City. In vigorously defending it, we should not allow any one aspect of it to be disproportionately weighted.

I was delighted that the noble Earl, Lord Gowrie, linked the success of the City to a past Labour Government. As I have argued, a future one will protect and build on that established success. Even the late Lord Wilson of Rievaulx would have acknowledged, I suspect, that Britain's imperial history and, until the Great War, its role as a dominant exporter of capital to every other continent of the world were useful starting points. Moreover, it was during the first government of the late Lord Wilson that the pioneering innovations of Sir Sigmund Warburg in the Eurobond market established London's central role in that huge market. By the mid-1970s, the removal of interest equalisation tax in the United States led to barely a moment's pause in the development of the international money and capital markets in London. While the differing tax and regulatory regimes on opposite sides of the Atlantic contributed to the emergence of London's pre-eminence, we should not underestimate the importance of the innovative intellectual contribution by the pioneers of the international capital markets, like Sir Sigmund.

While the current skills in the City remain considerable, we should not be complacent about whether the innovatory cutting edge that existed in the 1970s and 1980s remains unblunted. It is striking that the driving force of the derivatives market and the state of the art trading techniques and technology are overwhelmingly derived from the United States and from American or American-trained individuals. We should worry that the education of the leaders of British merchant banks—in many notable cases in the Gymnasium of pre-war Germany—has been overtaken by that prevailing in the gymnasiums attached to the trading floors of Chicago and New York.

The overriding commitment on these Benches to the long-term improvement of education and training is as relevant to the City as to other areas of industry and commerce. Whatever established advantages London enjoys, which noble Lords have listed—location, time zone, language and supporting services—they will inexorably and inevitably be eroded by an under-educated and inadequately trained workforce in the next century. The PhDs that man the trading desks of the US banks are known as "rocket scientists". We should beware that our rocket scientists do more than grow a fancy sort of lettuce.

If the international activities of the City could be threatened in the longer term by under-investment in education and the intensified global competition to which my noble friend Lord Currie referred, are there grounds for concern that currently the strong commitment to the development of international business is at the expense of any of the market's domestic obligations? In the short time available, I should like to suggest to your Lordships that there is at least one area where there seems to be an unsatisfactory imbalance. London has been enormously successful in channelling investment funds into emerging markets—from Russia to Vietnam, from Peru to Zimbabwe—but there remains an undeniable failure to provide venture capital funds to hi-tech and other early stage enterprises within the UK and indeed the entire European economy. In marked contrast, the United States has a vibrant and expert venture capital industry, with a strong but discriminating appetite for risk, as well in the over-the-counter NASDAQ equities market, which is another huge source of risk capital for hi-tech and high growth companies.

This is not a peripheral issue. In the period from 1980 to 1995, 25 million net new jobs were created in the United States, a growth of 1.6 per cent. per annum; whereas in the same period, the comparable net job creation in Europe was a mere 4 million, a paltry growth rate of 0.2 per cent. per annum. While there are obvious factors, such as labour market regulation and mobility, which in part explain that disparity, there is strong evidence, as produced by the American economist Horace Brock, that the dynamism of the equity markets is at least as important a factor. In that regard, writes Professor Brock, perhaps the most important lesson to be learned from the US experience is the importance of taking seriously the dreams and ambitions of young people, regardless of their economic or social background, and taking those dreams seriously entails both sociological encouragement, such as role models, and funding.

This is not something the Government can legislate for. Nor do I believe that tax concessions are effective, as demonstrated by the consistent failure of business start-up, business enterprise and enterprise investment schemes to fund productive, innovative investment, not least because investors attracted by tax shelters are throughout the world fundamentally risk averse. What is needed is a cultural change, achieved perhaps by self-starting, not just self-regulation, on the part of the City, that instils the same willingness to take risks in Newbury and Newcastle as in Lima and Lagos.

I hope therefore that, as the leaders of the City gird themselves for the fight over the coming years to maintain an increased London share of international capital market business, they will direct the same energy, commitment and risk capital to the financing of the new industries to be created by the creative and technologically skilled generation of young people. Only then can we be confident that the employment and prosperity enjoyed by those in the City is replicated throughout the United Kingdom and European economy.

My Lords, this has been a most interesting debate initiated by my noble friend Lord Gowrie. The collective expertise of all the speakers is an eloquent reminder to us of the wide range of experience found in your Lordships' House. It was Ernest Bevin who, in a different context, said that he did not want to go naked into the conference chamber. I feel a little naked of non-executive directorships, chairmanships, consultancies and the like in this present company. But that is probably just as well as perhaps the noble and learned Lord, Lord Nolan, might have something to say about it.

We particularly welcome the maiden speech of my noble friend Lord MacLaurin. My noble friend started with Tesco in 1959. Since 1985 he has been its chairman, and in one guise or another has presided over that company's steady climb through the supermarket league to its position today as one of its leaders. I am not surprised. He shares his surname, which is not a common one, with a certain Colin MacLaurin. Indeed, I think he is quite fortunate. He must be the first "Mac" to have got into your Lordships' House for a long time who has not been a member of the clan Mackay. Colin MacLaurin was born at the end of the 17th century. My noble friend may be aware of this; in fact, he may well be related. He was raised in the Manse of the Kirk at Kilmodan in a place called Glendaruel. Some of your Lordships may have heard of it. At the age of 11 he left the glen and went to the University of Glasgow to study mathematics. By 19 he was the professor of mathematics at Aberdeen and at 22 became professor of mathematics at Edinburgh. Those noble Lords who managed to hold on to mathematics for a little time in their school careers may remember that he gives his name to one of the fundamental theorems in calculus. His success in academia in the 18th century has been well echoed by his fellow clansman in business today. We very much look forward to other speeches from him, which perhaps will be a little more controversial than his maiden speech today, on all matters concerning business and commerce and the prosperity of our country.

Perhaps I may stick to the Celtic fringe for a little time because I feel that I cannot allow the debate to conclude without saying that there is a little more to this than just the Square Mile. Many other parts of our country have excellent and profitable financial businesses. For example, Scotland—I cannot think why I draw it to your Lordships' attention—is a financial services centre of international standing. It employs 200,000 people and accounts for 15 per cent. of Scotland's GDP. Its success story is terrific and it has been the fastest growing sector in the Scottish economy over the past decade.

It has important clearing banks. Two operate internationally. Assets have increased from £26 billion in 1986 to £85 billion in 1994. Scottish insurance companies have well-established markets overseas and Standard Life is the largest mutual life company in Europe. Funds under management in 1995 were almost £94 billion. Scotland ranks third in the European Union after London and Paris and 14th in the world in terms of institutional equity funds under management.

Many of the Scots I meet in London when I go about my business wearing my other hat as Minister responsible for pensions in the Department of Social Security are in the pension management field, which is a tribute to Scottish education, particularly mathematics, if I may revert to Colin MacLaurin, and underlines the importance of the Union for our countries.

There is one ominous and threatening cloud on the horizon. I wondered how I was going to get this in because politics have been very much absent from the debate, but I knew I could rely on the noble Viscount, Lord Chandos, to introduce some party politics. I have to say to my noble friends Lord Rockley and Lord Limerick that, while I am sure they taught the noble Viscount banking well, they somehow missed out on the political education.

One threat to the Scottish position is the impact of Labour's plans for a Scottish Assembly with separate tax raising powers. Any increase in taxation arising from a "tartan tax" would make it more difficult for those important companies which operate north of the Border. In this highly competitive world, with the majority of customers living in England or indeed overseas, we could easily become uncompetitive and all those excellent jobs could simply migrate south of the Border or elsewhere.

Although this debate has concentrated on financial services—banking, investment and securities services and insurance—considerable earnings are generated from many other services, not least tourism and transport. My noble friend Lord Limerick drew particular attention to this with regard to the maritime sector. The UK maritime sector's contribution to our balance of payments has been estimated as at least £2.5 billion. The Baltic Exchange is the only organised market for ship broking in the world, handling half the world's ship sales and purchases.

The work of the City encompasses business directly transacted in and through the City. As my noble friend Lord Birdwood rightly reminded us, during the past 20 years we have seen a major expansion in the equity markets through privatisation, which was led in this country, and indeed around the world, by my noble friend Lady Thatcher, who I am pleased to see in her place today.

The work of the City also includes the business of subsidiaries and affiliates abroad. Its prosperity depends not only on the prosperity of this country and the markets here but also on the markets and performance of international firms operating around the world. In this context it is important to emphasise that it is not the origin or ownership of firms which counts but their ability to do profitable business here. The more profitable the business, the better for everyone.

My noble friend Lady O'Cathain suggested that we should not dwell just on some of the difficulties that the City has had in recent years but should look at its success. As I have marginally longer to speak than most of your Lordships, I should like to put on record as quickly as I can what that success shows in terms of earnings for this country. In 1985 the net overseas earnings of the UK financial sector were £10 billion. By 1995 those net earnings had doubled to £20 billion, equivalent to 3 per cent. of GDP. The figures essentially comprise earnings from the export of services and investment income from overseas assets. The banks were responsible for £6 billion of that; securities dealers for £1.7 billion; commodity traders for £500 million; and insurance institutions for £6 billion. My noble friend Lord Chelmsford drew our attention to that, as he has done in speeches on the Social Security (Recovery of Benefits) Bill, which successfully passed its final stages in your Lordships' House last evening. The pension funds have earnings of £2 billion and funds in trusts have earnings of £1.5 billion. This is big money, and a remarkable success story for the City.

These international activities create significant employment opportunities. The City Research Project commissioned by the Corporation of the City of London and carried out by the London Business School estimated in 1995 that international wholesale activities employed some 150,000 people. These figures underpin the City's justifiable claim to be the world's leading financial centre. New York and Tokyo owe their positions partly to the size of their domestic markets. The important distinguishing feature of the City is the size and range of its international business. It is the world's largest centre for the trading of international securities, with more foreign companies—530 out of 2,800—listed on the London Stock Exchange than on any other exchange. As my noble friend Lord Clark of Kempston pointed out, the City is the leading global foreign exchange market, with an average daily trading volume of £291 billion, almost twice that in New York and almost three times that in Tokyo, and representing 30 per cent. of the world's foreign exchange deals. It has more foreign banks than any other city in the world, including New York and Tokyo. It is the largest international insurance market, as my noble friend Lord Chelmsford pointed out, and its business continues to grow.

Perhaps I may turn to one point made by my noble friend Lord Gowrie. I do not believe that his fears that we may be losing markets to Luxembourg and Dublin are justified. The tax position of UK retail collective investment vehicles, which invest in the shares and securities of UK companies, compares very favourably with that of a UK equity fund established in either Dublin or Luxembourg. We actually changed the rules for authorising unit trusts in 1994 to provide the facility for them to pay distributions in the form of interest to overseas investors without the deduction of UK tax. That facility will also be available to open-ended investment companies. The noble Lord, Lord Eatwell, who has debated these matters with me, will recall that we decided to call them "OEICs", which is rather an unfortunate name. They will come on stream shortly and should provide a major plus to the marketing of such schemes. We have a huge success story here and we must not be fearful of trumpeting it both in this country and around the world.

There is always a need to keep up with the game. Ten years ago Big Bang brought in tremendous changes, but the pace of change continues. The Stock Exchange continues to evolve. The City of tomorrow needs to develop institutions have to be one step ahead of the game. They have to be innovative in developing new products and new markets as well as responding to changes in existing ones. The noble Lord, Lord Ashburton, with his long experience, drew attention to the size of the change and, just as important, to the speed of change. Whether we are in or out of EMU—and I am not going to debate that tonight because I have many other opportunities to do so—I am confident that the City will respond positively and successfully. I am sure that the same will be true of the City's response to technological change in all its forms mentioned by my noble friends Lord Birdwood and Lord Limerick.

For their part, the Government have to ensure that tax and regulatory structures are effective and flexible and that they can adapt to rapid global change and to new products being developed while continuing to provide the right level of investor protection, prudential supervision and limitations on anti-competitive practice.

I now turn to regulation, which formed one of the main themes of almost every speech made by your Lordships. Regulation is about many things. It is about improving investor protection, promoting market efficiency and fair competition, so lowering the cost of raising finance for investment, and about encouraging high standards among practitioners, thus bolstering the reputation of the financial sector and promoting confidence among customers and clients.

The regime introduced by the Financial Services Act involved the least possible change from the previous regime. The chief regulators, the Bank and the SFA, deal largely with professionals who are familiar with the business in hand and, moreover, have access to specialist advice. That has made it possible to go for a relatively light regulatory touch, which a number of noble Lords, including my noble friend Lord Swaythling, with his considerable experience, highlighted as one of the important factors of success in the City.

I believe that the noble Lord, Lord Eatwell, had an interesting point when he suggested that there was a danger that the people who staffed the regulators would be second rate—I do not believe that he used those words, but I paraphrase them for the sake of speed. I know he will forgive me when he hears the rest of what I have to say—and the people who are really top class will go off to be high fliers and earn the kind of salaries that we read about and which I at least envy. He suggested that perhaps secondment of some of these high fliers would be a good idea. I shall certainly draw that to the attention of my right honourable friends in the Treasury who look at these matters. I am sure that other people and, hopefully, some of the companies involved employing such people might read what we say and contemplate the good sense of that arrangement.

My noble friend Lord Stewartby and the noble Lord, Lord Ezra, both suggested that there was a need to update the 1986 legislation and that we needed to keep up to date. My noble friend Lord Stewartby also suggested that perhaps we should concentrate on principles in primary legislation and leave the details to secondary legislation. I know that that does not usually meet with the agreement of the noble Earl, Lord Russell, but I believe that in this case there is an argument because in that way the legislative framework can keep up with change in a very fast-changing world without the need to find time for primary legislation.

I believe that the noble Lord, Lord Currie of Marylebone, agreed with the need for that kind of approach. I also believe that he wanted to go a bit further in bringing together the various regulatory bodies. But he emphasised again the need for good, informed management. I am not entirely sure whether he was beginning to edge towards statutory regulation. The noble Lord, Lord Ashburton, posed some questions about statutory regulation which I found interesting. He asked whether it would work; whether it would be more costly and would it slow up business—that is a point which my noble friend Lord MacLaurin made—and, lastly, whether it would boost the legal profession. I do not know about the last point. Sometimes I believe that we are only here to do that by passing laws to keep the lawyers in business. We have to guard against that.

It is important that regulation is seen to work. As a number of your Lordships have said, we have not experienced more problems than other people. When we have experienced them we have put them right and we have not tried to hide them away. We have also learnt lessons from what has happened and that is very important. My noble friend Lord St. Davids made some points about the regulatory system. I know that he has a deep interest in that. I say to him that we have no plans to change it. The twin peaks approach which he mentioned, like other proposals for change, has some merit, but, like other proposals for radical change, it needs to be balanced against the disruption it would bring to industry, consumers and to the regulators.

The noble Lords, Lord Borrie and Lord Haskel, mentioned pension mis-selling. There is no disagreement between us on that. The damage that has been done has been caused not just to individuals, but also to the case for people taking out their own pension provision. That is a point that my noble friend Lord St. Davids underlined. I am pleased to see in the press that the PIA is pushing hard for these issues to be settled.

It was a little interesting that noble Lords did not mention the Maxwell pension scandal, although my noble friend Lord Limerick reminded us of his involvement as a Minister when, as he called it, the Maxwell-Pergamon Mark I business took place. I have always been very puzzled as to how, after that, the second affair was ever allowed to happen, but somebody may be able to explain it to me one day.

My noble friend Lord Cuckney deserves all our thanks for the success of the Maxwell pension unit. The pension Act should go a long way towards preventing abuse. I often wonder how Maxwell did it, because it was not just the pension funds but the governance of the companies as well. I believe that it was quite simple: he had politicians for his friends, newspapers for his mouthpiece and lawyers for his writs. I am happy to think that he cannot give me a writ now.

Despite these high profile cases, as the noble Lord, Lord Desai, mentioned, the City, if it is actually to do its business, cannot be entirely safe. Indeed, I believe that the noble Lord was actually echoing a point made by Allan Greenspan, the president of the Federal Reserve Board, who said,

"We should not forget that the basic economic function of these regulated entities [the banks] is to take risk. If we eliminate risk taking in order to reduce failure rates to zero, we will, by definition, have eliminated the purpose of the banking system".

A number of points were made about corporate governance. I thought that the most interesting one was by my noble friend Lord Lyell, who compared the Whips' Office in your Lordships' House with the back office of a City firm. Those who work there have to have an eye on everything and know about everything. To paraphrase, my noble friend may say that from his position now, but I do not believe that I could possibly comment from the Front Bench.

Undoubtedly, the responsibility for managing companies is firmly on the shoulders of the managers of those companies—that is a self-evident statement—the board of directors, the chairman, the non-executive directors and the like. Their responsibilities are underpinned by legislation through the Banking Act 1987 and the Companies Act 1985, which respectively define the duties of directors of banks specifically and directors of companies generally. That reflects the seriousness with which all governments of all parties have taken these matters.

The essence of corporate governance is to make sure that companies are managed and run in a way that meets the objectives of their owners and of the Acts. My noble friend Lord Chelmsford read out some interesting extracts and my noble friend Lord Rockley underlined the importance of structures, controls and management—all of which are most important. My noble friend Lord Swayfhling, from his great experience, welcomed the reports of both Cadbury and Greenbury, who looked carefully into such matters. We are now consulting on amendments to the Companies Acts to bring the disclosure requirements into line with Greenbury's recommendations to provide a measure of statutory underpinning and to avoid the unnecessary overlapping of requirements. We very much welcome the announcement of the new committee on corporate governance, chaired by Sir Ronald Hampel.

Good systems of corporate governance are crucial. My noble friend Lord MacLaurin spoke about how he encouraged his directors to be non-executive directors of other companies. That is most important. My noble friend Lord Gowrie explained how he had persuaded companies of which he was a non-executive director to pay for an outsider to give him reports about the financial information with which he had to deal. As always, my noble friend Lord Selsdon cautioned us against expecting too much from non-executive directors and from other professionals.

The motto of the London Stock Exchange is, "My word is my bond". That old motto is as valid for the City as a whole as for the London Stock Exchange. It signals the confidence with which people from around the world can come and do profitable business in the City. They have done so for hundreds of years. I am sure they will continue to do so for hundreds more. Technological advances will only add to that business. But underlying it all will be the people who work in the City, whose skills, commitments and talents are the envy of the world. They make a significant contribution to the prosperity of this country.

Given the enormous volumes of business being transacted, there is bound to be some dealing which is not done to the highest standards of integrity. Where problems arise, the causes are rigorously examined and steps are taken to ensure that they cannot and do not arise again. But, as many noble Lords have pointed out, the City knows that its reputation, and therefore its future, rests on high standards of knowledge, professionalism and competence. The City itself therefore has a strong internal interest in reacting positively to these problems. Each firm will say to itself, "Could that happen here, and how can I ensure it does not?"

We are all grateful to my noble friend Lord Gowrie for introducing a debate on this important asset to our country. We in the Government are committed to encouraging the City by freeing up enterprise at home and overseas to ensure that the City remains in the big league by being attractive to international business; that it continues to make its contribution to national and European prosperity—for the City is a European asset—and that it remains the safest and soundest of market places in which to do business.

My Lords, I sought a thoughtful and ecumenical debate—I must say to the noble Viscount, Lord Chandos, that although I did indeed give a bouquet to the late Lord Wilson, I positively showered them on my noble friend Lady Thatcher—which in the build-up to an inevitably charged political atmosphere did not risk the health of what my noble friend Lord Birdwood called "the golden geese".

I sought the maintenance of an open and liberal system of regulation with legislative underpinning but principally self-governing.

Lastly, I sought for indications that no one should take the success of our financial industries, and all the benefits that that brings, for granted. My only quarrel with the otherwise admirable speech of the noble Lord, Lord Desai, is that the City is not our only industry with international dominance. We have another—it is called "the arts". We should cherish that as well.

I was reassured on all those important questions by nearly all the remarks made by those who took part. I thank them and beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.

rose to call attention to the effect on the community of any excessive or disproportionate industrial action taken by trade unions without the consent of the majority of members entitled to vote; and to move for Papers.

My Lords, sadly, during the 1960s and 1970s we had a history of industrial disputes in this country which created a "them and us" attitude. This was an important factor leading to our poor competitiveness.

When she became Prime Minister, a distinguished Member of your Lordships' House—I am delighted that she is in the Chamber—decided that something had to be done if British industry was to regain its competitive edge. Contrary to popular belief, at first she encouraged unions and management to work together. But after a few years this even-handedness was disregarded.

Managements were pampered and labour unions reviled. The result was that labour was squeezed and management awarded themselves higher rewards. Predictably, this produced a return to the "them and us" society, worse industrial performance and a more severe recession than that suffered elsewhere.

In my opinion, good relationships between management and employees cannot be created by legislation. New legislation will create new problems and so, although I congratulate the noble Lord, Lord Campbell of Alloway, on introducing this Motion, I do not welcome it. An attack on the right to strike is a charter for the bad employer. I know, because I come from a family business and we believe that we must all work together for the betterment of British industry and British society.

Industry today operates in an environment of intense competition. Trade unionists know that employer and employee are both subject to this pressure. Employees also need to know the aims and rules of a business in order fully to identify with it. Motivation and action require clarity of purpose. That is what managers are struggling to achieve and if it is absent there is no point in penalising the employees.

We should be looking at how to get rid of the need to strike, not the right to strike. That can be done only by building relationships at work based on partnership and trust. People expect to be treated fairly and to have a say over matters that concern them at work. Good management is about fostering co-operation, not confrontation. Lawyers have no role here. That is why most disputes are settled by negotiation. If there is a feeling of fairness and unity of purpose with the company, everybody wants to work. Therefore, in practice, the circumstances of the Motion would hardly arise. In an establishment where there is a dispute, no union would embark on industrial action if fewer than half its members had not participated in a ballot.

When Ian Lang introduced his Green Paper on industrial relations in another place on 19th November 1996, he introduced the concept that abstention would count as a "No" vote. Obviously, the noble Lord, Lord Campbell of Alloway, agrees with this. In exactly the same way, it is equally impractical to assume that a trade unionist will consider an abstention as a "Yes" vote.

In any industrial relations, the way to deal with disputes is not to try to brow beat people into a docile state of mind. It is to identify a community of interest. This is why the key words in modern industrial relations are "empowerment", "involvement" and "commitment".

For our businesses to be more competitive in today's commercial world, employees have to understand what is going on in a company, so that they can become involved in its progress and use their own initiative to encourage and achieve this. Staff have to be empowered because companies can no longer afford detailed supervision. People have to be trusted to get on with their work. They need to become better skilled and educated to handle new technology and deal more intelligently with problems and decisions as they arise. This is what is required to compete in business today, and it can be achieved only in an atmosphere of perceived fairness.

The Government's Green Paper contributes little towards achieving this. The Green Paper seems to be designed to feed the prejudices of noble Lords opposite about industrial relations, and thereby perhaps the Government seek to acquire some advantage in the forthcoming election. This only reflects the Government's incompetence at managing people, which they have demonstrated time and time again.

If there is a real problem, it could be in the regulated and sheltered service industries. But these do not reflect the British economy as a whole. Recent disputes in these organisations, such as the Post Office and London Underground, have had a lot to do with employees' frustration at lack of progress, lack of investment, and lack of perceived fairness in these organisations. Legislation will not solve these problems. Management, investment and competition will.

My Lords, may I ask the noble Lord to give way? He has a minute left, could he possibly condescend to give us a hint of Labour Party policy?

My Lords, it would be difficult to give Labour Party policy in one minute. The Labour Party wants to have good relations with business and industry.

It could well be that the unrest in these service monopolies is caused by a feeling of job insecurity. The way to deal with this is to tackle the insecurity and not the balloting rules for industrial action. These companies had a tradition of lifetime employment, but today employees have to make a difficult transition from a job in an industry where there was little change, to a new job in a new industry requiring higher and different skills and abilities. Nothing less than a re-employment system is required, because it is the individual who is at risk.

If the noble Lord wishes to protect the community from industrial action—however it is voted on—the law is a poor instrument. The real way to protect the community is to improve the quality of the staff working in the businesses which service it, and help people to improve themselves.

This has been the message from industry for many years now. People can earn a satisfactory living, and get job satisfaction, if they have the encouragement and opportunity to improve their skills, knowledge and education to tackle the new challenges which are bound to come.

My Lords, it is a pleasure to follow the noble Lord, Lord Paul, with his industrial experience. I believe that, like me, he is fond of cricket—but that, I suppose, is another story.

I am glad that the noble Lord, Lord Campbell of Alloway, has, by introducing today's debate, remedied an omission in our proceedings, for when on 19th November last the Secretary of State made his Statement in another place on the Government's Green Paper on industrial action it was not repeated in this House.

However, as the noble Lord knows, I am sorry that the Motion is worded as it is, for what the Government are now proposing is not to make it unlawful for trade unions to call for industrial action which has disproportionate or excessive effects unless it has the support of the majority of union members entitled to vote. They are proposing to make such action unlawful, irrespective of whether it has that support.

On a number of occasions since 1979 my noble friends and I have found ourselves in broad agreement with the Government's step-by-step approach to the reform of industrial relations law. Indeed, in at least one instance—namely, in seeking to extend the use by trade unions of secret ballots—we were ahead of the Government. In this case, however, I do not feel able to support the Government.

The noble and learned Lord, Lord Fraser of Carmyllie, will know that in the light of responses to the 1981 Green Paper on trade union immunities the Government decided that they should not then seek to restrict the right of workers in essential industries to strike. But now they are contemplating legislation which could have even wider effects.

As Liberal Democrats, my noble friends and I are naturally predisposed to safeguard the right of individuals in the last resort to withdraw their labour. But apart from the question of principle—and I do not forget that the community, too, is dependent for its protection on the law—as someone who has had first-hand experience of handling industrial relations in a large company, I am concerned about the practicality of what the Government now have in mind.

First, there are problems of definition; in particular, what is to constitute a strike which has, in the words of the Green Paper, "disproportionate or excessive effects".

The consultative document attempts to deal with that problem by listing a great range of factors that the courts would have to take into account. It is claimed that these legal criteria would allow a judgment to be made as to whether in a particular instance industrial action had, or was likely to have, unreasonable effect. But the Government cannot deny that such judgments might be difficult to reach. Indeed, the Green Paper concedes at paragraph 2.8 that in determining these matters:

"there would inevitably be some initial uncertainty, but this should reduce as case law builds up".

Judges have made it plain enough in the past that they do not relish getting embroiled in the minutiae of industrial disputes, and although, understandably, none of them is taking part in the debate, the initial reactions of industrial lawyers to the Green Paper suggests that the judiciary are unlikely to welcome participating in the Government's proposals.

However that may be, as I see it, the main danger in what the Government now have in mind receives only scant attention in the Green Paper. Paragraph 2.32 rightly argues against taking action to ban specific strikes in selected areas, thereby avoiding, as the document puts it,

"the problems of definition and targeting inherent in any general approach".

I wish to ask a question because, frankly, I am uncertain of the answer. If those groups had no assets, could the individuals comprising them be brought to court and their property seized? If so, one wonders whether the Government have taken sufficient account of the findings of the Donovan Commission in 1968 on unofficial action and of how, four years later, the Government's face was saved in the infamous case of the dockers who were rescued from imprisonment only by the intervention of the Official Solicitor.

I know it will be said that any worker who strikes can be sacked and could, in theory, be sued by his employer for breach of contract. But as the Government acknowledge in Section 2.25 of the Green Paper:

"In practice this never happens because even when the employer does not reinstate sacked employees it is not worth while to sue them".

Then it is proposed that the period of notice of strike action after a lawful ballot should be doubled from seven to 14 days; that such action should be legal only when a majority of those entitled to vote are in favour, rather than a majority of those voting, a point emphasised by the noble Lord, Lord Campbell; and that strikes, once started, should be subject to fresh ballots at intervals of two or three months. But these changes would tilt the balance even further than at present in favour of employers.

That point is referred to in paragraph 2.26 of the Green Paper, which discusses the case for partial removal of immunity to allow trade unions to be sued for damages caused by any industrial action which they induce. In dismissing such a step, the Government say:

"It would fundamentally shift the balance of power towards employers".

The trouble is that there are differing views as to where that point of balance should lie. A further proposal is to end the right of officials of recognised trade unions to take time off for union activities and to be given information for purposes of collective bargaining.

In the past, I have argued, particularly in debate on what became the Employment Act 1982, that it is in the interest of employers to consult and provide employees or their representatives with adequate information on matters affecting them. I am sure that the noble Lord, Lord Campbell of Alloway, will recall the discussions that took place at that time and the sympathy he then expressed for the amendment that I put forward which formed the basis of what ultimately became Section 1 of the Act. This requires companies employing more than 150 people to include in their annual reports a statement describing the action taken during the financial year to develop arrangements aimed at involving employees in the company's performance in a number of specified ways.

I suggest it is significant that that section forms part of an act concerning industrial relations. I have given notice to the Minister that I should be grateful if, in replying to the debate, he would give a general indication—I realise it cannot be much more than that—of how during the past 15 years companies have responded to this statutory requirement.

The Green Paper does not appear to take any account of such a positive approach to the problem with which it is concerned. I simply do not understand why the proposals it contains are put forward now, except perhaps as a populist measure in contemplation of the forthcoming general election. It might be that they will do nothing to improve this country's industrial relations.

I can compliment the Government on one point: that their proposals appear in a Green Paper rather than in a White Paper and in the precipitate legislation which was threatened at the time of the last Conservative Party Conference. This at least permits the canvassing of alternative ways of dealing with what I acknowledge is a serious problem.

Perhaps I may give an example of one such alternative. In its initial reaction to the Green Paper, the Institute of Personnel and Development suggested that managers and unions should be encouraged to reach no-strike agreements and commit themselves to arbitration if no common ground could be found. This voluntary approach to arbitration receives some support in paragraph 2.30 of the Green Paper. In the view of the institute, only if a union were to reject such a framework or submit to it only to embark on industrial action in the face of an arbitrator's decision should remedies like those now proposed by the Government be brought into play. This, it was said, would put employers just as much as unions on the spot, for under the scrutiny of independent arbitrators they, too, would have to ensure the integrity of every decision made in their dealings with trade unions.

I do not say that that is necessarily the course which the Government should now follow. I quote it as only one example of how, in the view of managers having wide practical experience of industrial relations, the Government's proposals might at least be modified. In conclusion, I urge the Government to think long and hard before committing themselves to the action proposed in the Green Paper.

My Lords, I wish to join in thanking the noble Lord, Lord Campbell of Alloway, for initiating this broad debate on the future of trade union law. However, at the outset I confess to a certain lack of zest in taking part. I thought hard about that. I believe that it is due to more than advancing years and general degeneration. In the first place, even in this House in the past all the debates that I can recall on trade union powers have generated a great deal of party political heat from which it is well known that we innocents on the Cross-Benches shrink in some horror. Either we have never been in the kitchen or we have retired here to recover from the burns.

I am afraid that it is even worse in my case because I must tell your Lordships that the noble Lord, Lord Wedderburn, and I are both old scholarship boys of Queens' College, Cambridge, where we arrived in 1945 from our respective grammar schools and spent the next two or three years in endless undergraduate debate. It is one of my great personal sadnesses that the intervening half century has not brought us much closer together except on the unmentionable issue of Europe.

Another reason for my lack of enthusiasm is that, much as I go along with Her Majesty's Government on the next steps on union reform outlined in Mr. Lang's Green Paper, I fear that the coming election is likely to deprive the Tories of the power to carry them into effect, although the noble Lord, Lord Paul, thinks that they would be politically popular and are really for the purpose of the forthcoming election. My old friend the noble Lord, Lord Wedderburn, may therefore have the last laugh, at least for the time being, until, perhaps, new Labour comes round to stealing this further remnant of Tory clothing. It is true that the winter of discontent is fading from public memory but I believe that the next postal or underground strike is likely to revive in acute form public support for removing the wrecking power from union militants invariably lurking in the woodwork.

However reluctant I was to join in the debate, I overcame my hesitation at the pressing invitation of the noble Lord, Lord Campbell of Alloway, with whom I share an ashtray in the corner of the Library, much, it is believed, to the disapproval of the noble Baroness, Lady Blackstone. The noble Lord was very persuasive, although I emphasise that no cash changed hands, not even a pipeful of our favourite Three Nuns tobacco. The noble Lord merely drew my attention to the Green Paper and suggested artlessly that I should read it. That did it. At once memories came flooding back of the early 1980s. Indeed, it was highly nostalgic. Soon after I came to this House in 1979 there was a succession of Bills to withdraw immunities from strikes; to enforce closed shops; to contest union demarcation; to engage in secondary action, and so on. Although those Bills were advanced in this House by the most amiable and emollient noble Earl, Lord Gowrie, who was here a few moments ago, they were bitterly opposed tooth and nail by old Labour. Indeed, the noble Lords, Lord Wedderburn, and Lord McCarthy, vied with each other in denouncing those measures as unjust, vindictive, unworkable and all that.

And yet, so far from a future Labour Government promising to restore the full panoply of union immunities, I gather that Mr. Blair and his more moderate colleagues know that reversing the major Thatcher reforms in this and other respects would tear the mask from new Labour and render it again unelectable.

Therefore I find it difficult to know how seriously to take Labour's opposition to the Green Paper. After all, it was the noble Baroness, Lady Castle, some 30 years ago, who first discovered with great surprise, which she announced, that if unions are left with wrecking powers, even the most moderate union leaders will not always be able to prevent them being deployed by shop floor militants. I remember her great speech about power having passed to the shop floor. Why leave those dangerous weapons lying around as a temptation to the militants? Indeed, I believe that was the point of In Place of Strife, on which I shall not dwell to save the embarrassment of those on the Labour Benches.

My view is that strikes are always and everywhere a crude and iniquitous weapon. The power to inflict indiscriminate hardship, damage and danger on the community has no necessary correlation with the merits of any particular dispute. As we saw with the railway signalmen some time ago and the postmen and tube train drivers, the threat of disruption is invariably deployed to defend out-dated working rules and other Spanish practices.

The question is what can be done to protect the vulnerable public interest? A ballot may serve as a trip wire against wholly frivolous strikes. But I believe that the Government deserve backing for their proposal to require a majority of 50 per cent. of all members rather than 50 per cent. of those who take the trouble to vote. I also approve of the notion of periodic reballoting.

As a lifelong market economist, I rejoice that we now have a wider consensus on the link between unit labour costs and unemployment. As a result, again and again we see that where reason prevails, the risk of unemployment itself will check strike blackmail in the cause of preserving old-fashioned practices or demanding unearned wage increases.

But, where strikers supply essential services with strong local or national monopoly power, they may hope to pass the unemployment effects of higher costs on to other workers. In such circumstances a check on unjustified strikes would be in the long-run interests of the employees as well as the employers and the consumers.

Therefore, I welcome very warmly the Government's central proposal to withdraw legal immunities from what it calls "industrial action which has disproportionate or excessive effects". Perhaps I may say to the noble Lord, Lord Rochester, that the clinching argument in relation to the legal difficulties which he raised is dealt with, it seems to me, by the annexe to this Green Paper. There we discover that similar restraints or even outright prohibitions are implemented in other advanced countries to maintain public safety and to prevent disruption. A wide variety of measures are listed there, including compulsory arbitration, which the Government rightly reject, forbidding strikes in specific jobs and the conscription of strikers, which I thought rather spirited. In America there are compulsory fact-finding inquiries to set out the rival claims.

The final argument is that familiar case which this Government have made popular and understood and which the Opposition increasingly show glimmerings of understanding; namely, that we face an era of unprecedented change in products, processes, competition and global trade. We all understand that the accommodating adjustments in working arrangements are always unwelcome to mostly conservative workforces. Yet as the noble Lord, Lord Paul, said, lifetime employment is no longer available. Flexibility is indispensable for employment prospects and continued economic and social advance.

What these proposals boil down to for me is the removal of a major remaining obstacle to the necessary erosion of obsolete working practices. We all recall the bad old Fleet Street days of strikes and restrictive practices which gave well-paid, short-term security to printers only at the expense of long-run redundancy. The defeat of SOGAT and NATSOPA removed a major barrier to the redeployment of labour and capital, which the noble Lord, Lord Paul, wanted but for which he would not accept the conditions necessary to exploit new and exciting opportunities. Those opportunities will continue to beckon. They should not be obscured by the threat of union disruption in the service of preserving outdated working practices.

My Lords, it is a long time since I last spoke on industrial relations either in Parliament or indeed outside. I am grateful to my noble friend for introducing today's debate. It has brought to life old memories, as indeed, more vividly still has the sight opposite me of two old opponents in argument. I refer to the noble Lords, Lord McCarthy and Lord Wedderburn of Charlton. Our arguments were sometimes fierce but, speaking for myself, I found them enjoyable.

The vividness of my memories has also been slightly stirred, because it so happens that last week marked no less than the 26th anniversary of having my home bombed by the "Angry Brigade" as part of the violent protest against the Industrial Relations Bill. I merely mention that fact because, after those 26 years, what I most remember about the aftermath of that incident is the fact that among the literally hundreds of letters, telephone calls and telegrams that I received expressing sympathy for me and my family about what had happened, a large proportion of them made clear that those sending such messages were members of the Labour Party and/or members of trade unions. They also made clear that they disliked the policies which I and my government were following but they stood up very strongly indeed against actions of that kind.

I suppose in difficult times that feeling helped keep alive within me, and even perhaps strengthened, a conviction which I have held for a very long time about the importance to society, and indeed to industry itself, of having strong, independent trade unions with large representative membership, provided—and I emphasise the word "provided"—that such unions are controlled in a genuinely democratic way and that both unions and employers operate within a good comprehensive framework of industrial relations law. The great contrast between then and now is that then the great debate was whether there should be a framework of law. It was not about what it should be; it was about whether or not there should be such a framework. That was the main point of contest. However, I am glad to say that the existence of a framework of law and the need for it are generally accepted. The argument is much more about the contents of that legal framework rather than about whether it should exist.

I believe that all of us can now see the benefits of having a framework of law. The law does work. I remember people saying both loudly and clearly in those days, "The law can't work; the law won't work"; and, in the early days of difficulty perhaps saying, "The law doesn't work". But—and it is a very big "but"—what has happened since then supports the belief that I have also always held; namely, that in the long run, while law does not turn bad men into good men, a good framework of law, or any framework, affects for good or for ill the way in which individual men and women and the organisations to which they belong do their business together, the way in which they exert their rights and the way in which they accept their obligations. I believe at last, thank goodness, that that general proposition is held. We are all seeing the benefits of it. Perhaps that basic principle is no longer a matter of deep political controversy within this country.

However, having said that, there are still gaps in the protection which society enjoys. It is not a matter of tilting the balance in favour of the employer or of the union; it is a matter of tilting the balance in favour of the consumer—in other words, the public, the ordinary citizens of this country. That is what we ought to be talking about. Employers and trade unions as such are unimportant in comparison with the interests of the public at large. They have their interests and the public must grant them, but it is the interests of the public which must be put first.

In this day and age when we look at what happened during the past year in only small sections of the employment field—notably perhaps as regards London Underground and the Post Office—the public at large have been subjected to more than a degree of inconvenience simply for the sake of potential advantages to employees, which are minimal compared to the disruption caused. I believe that the Government are right to come forward with further proposals. That is part of the step-by-step process which I believe has rightly been followed over the past 20 years. If I may say so, I very much approve of the spirit in which that has been done. I like the tone and, in general, I like the content of the Green Paper.

I welcome the tone of the Green Paper because the Government are putting forward for open discussion a whole range of proposals and seeking opinion upon them; they are not rushing into action beforehand. But, at the same time, they are making clear their own dislike of some of the more prescriptive and restrictive of the possible actions open to us. I believe that they are right to turn their faces, for example, against measures to ban strikes in certain areas of employment. They also appear to be against compulsory arbitration and against compulsory conciliation—and I emphasise "compulsory". They are also against Ministers making ad hoc judgments on particular strikes. I welcome that because I believe it is the right way in which we should try to take the next step forward. We should do so in a way which, with reasonableness on both sides, can be constructive for the good of everyone in industry as well as the public at large.

I wish to support in principle the broad proposals which the Government are putting forward for our discussion. I welcome the proposal to increase the period of notice. When the public are going to lose basic services—and, of course, this applies also to particular industries—they must be given longer notice than they have often received in the past. I also think that the Government are right to consider the need to qualify the conditions applying to strike ballots. I believe that they may have gone too far in suggesting that there should be a majority of all those entitled to vote. That is very difficult to achieve. This is not quite the same, but I believe I am right in saying that only one government in the whole of this century have taken office with a majority of the electorate behind them.

However, on the other hand, it is equally wrong and much more damaging to the whole country if only a small percentage of those entitled to vote—and a bare majority of a small percentage—can cause a strike to take place. I believe that the Government are proposing to move in the right direction, but I would prefer a prescribed percentage of 70 per cent. of those entitled to vote rather than 100 per cent. If we are not careful, we might bring ballots into disrepute, whereas I believe that they have been gaining in repute in recent years. That is the sort of issue that the Government wish to discuss. I certainly support the proposal in principle. When one thinks of how the public are made to suffer, we must accept the need to reballot in long-drawn-out strikes. How frequently is another matter, but I believe that the Government are right to go for a period every so often rather than leaving it to each occasion when an employer makes a different offer. Nevertheless, in principle, it is the right thing to do.

I also support the concept of applying the principle of disproportionate effect. This is done in a number of other countries. Not being a lawyer I find it difficult to judge how the courts would cope with this, and the practicality of it, but in principle the concept of trying to check action which is totally disproportionate in the damage it does to the community as a whole in relation to the issue at stake is something which we ought strongly to consider bringing into our law.

I warmly welcome this debate and I warmly welcome the direction in which the Government are proposing to move. I trust the Government will continue along the lines they have suggested—as I am sure they will—to put these matters forward for discussion and to listen to what is said before they decide the details of action. I hope they will not in any way resile from the need to act in a way broadly along the lines they propose.

My Lords, I join in welcoming the Motion of the noble Lord, Lord Campbell of Alloway, on the two items which it selects from the Government's Green Paper. On the whole, I shall confine my remarks to those two items which are stated on the Order Paper, rather than follow the will-o'-the-wisp of trawling through the Green Paper, or indeed following the historically bizarre musings of the noble Lord, Lord Harris of High Cross, whom I have known a long time. That is perhaps why, as he progressed through his speech, I said to myself, "Ah, yes, I know it well".

The items in the Green Paper deserve to be discussed in detail. That is another reason I shall confine myself to the matters mentioned on the Order Paper. We are reminded that the Government's step-by-step engine of legislation concerned with the liberty of combinations of work people has not stopped. I mention my next point advisedly because I care about it. No mention is made of the fact that the international organisation's distinguished committee of experts—namely, the International Labour Organisation—in each of its annual reports since 1989 has pronounced upon matters germane to the Green Paper when it has stated that our law has been brought below the standards of the convention on freedom of association. Some noble Lords may not care about that or they may get round that by saying, "It has not been presented to the governing body as a separate issue in a certain procedure". However, the ILO is clear in its statements both in its reports and in its freedom of association committee. This is a matter which should be looked at carefully.

The first of the two items would introduce the doctrine of proportionality into strike law generally. At the moment the doctrine of proportionality finds a place in remedies because if in an interlocutory injunction case, or an interim injunction case in Scotland, the employer or other plaintiff can demonstrate a serious case, the court has to decide what is the balance of convenience. I quote the words of Lord Justice Stuart-Smith in 1989 when he said that account must be taken of,

"the impact on innocent third parties and the economic wellbeing of the nation".

The Government use that concept in their Green Paper as a reason for extending proportionality as a test for substantive liability. However, the position is precisely the opposite. To extend proportionality into substantive liability would make for a test in our courts where either the employer would win every time—instead of often, as now—or where the tests are so uncertain as to be unworkable within the rule of law. One of the first propositions one puts to a student is that what constitutes part of the rule of law is the reasonable predictability of the norms involved.

It is true that a similar test is applied in the German labour courts. That is extremely important. In my submission the Government are wrong in citing the labour law of the Netherlands and of Belgium and their rather different systems. However, in Germany the proportionality principle infuses the entire system of law, based on a wide institutionalised consensus. Professor Weiss of Frankfurt, an authority on labour law, has stated that the,

"proportionality principle…must be observed in the context of the law on dismissal and on industrial action".

Of course that must be the case, because it underlies the whole system. It underlies the institutions of obligatory works councils, of co-determination rights, of constitutional rights to strike and so on. One cannot simply cherry-pick a little bit from another system and bring it home. The noble Lord, Lord Carr, will remember that some of us disagreed with the efforts made in 1971 to import into Britain, as it were with scissors and paste, parts of the American Taft-Hartley law on national emergencies. Rather as in the case of a transplant, the system rejected what was put into it because it was not part—institutionally or in any other logical way—of the system as a whole.

If noble Lords want proportionality, they must have proportionality far beyond unfair dismissal or doctrines of that sort which protect workers. They must introduce it into all sorts of other areas of co-decision. Then we could discuss proportionality. But taking the word "proportionality" from the German as it were—which is what the Green Paper does—is not worth many marks. It is a rather low grade operation after all these years that we have discussed the matter.

The second item in the Motion is what I call the gross majority demand; that is, the demand for the approval of industrial action in strike ballots to come not from a majority of votes cast but from a majority of all the members entitled to vote in a dispute. I cannot understand how anyone can take that seriously. That provision would mean that the right to abstain would be abolished by law. If one abstains, one is considered to be voting no. All absentees, for whatever reason, are probably counted as voting "no", unless a special paragraph is included to cover the situation where people are ill. That provision appears in the same paragraph of the Green Paper which states that industrial action requires substantial support. If one assumes that all those who have not voted have voted no, one is further away from knowing whether the action has substantial support.

The gross majority principle is not a normal part of our law on associations, so why introduce it here? I believe there is a reason for that. The reason has nothing to do with good industrial relations. It cannot possibly have much to do with what has been called the community at large. I wish I had time to discuss that because the phrase "community at large" is probably more misused in debate than any other. Indeed, we have seen that this proposal has little or no support from management. The Government once introduced a gross majority provision in the Employment Act 1982. It was stated there that if a new union membership agreement received a certain percentage of support, it could be valid for certain purposes. The percentage was to be an 80 per cent. majority of those entitled to vote. There was little explanation at the time of that mysterious provision and it was repealed four years later. I suspect that the weak arguments in the Green Paper—of all the bits to pick, this is the weakest argument—may also be seen, quite properly, as proposals to weaken the position of organised work people, from whom, of course, it is always said all ills come: if there is an ill to the community, or to society, or to the Tube, it comes from those who have taken industrial action. I suspect the noble Lord, Lord Carr, would agree that behind every piece of industrial action there is a long history of stoking up the fires on both sides. We do not need the stoking up of fires, but more conciliation and rapid arbitration procedures.

A recent survey of some 559 strike ballots over six months, covering 273,000 workers in 24 unions, disclosed that 81 per cent. resulted in a positive vote for industrial action. Those are probably the best figures that we have at present. But in the positive ballot cases—that is those cases in which approval of industrial action was successful—63 per cent. saw no industrial action followed. One could mount an argument, although I do not, that in certain cases the ballot has a utility in the working out of sharp industrial relations differences. But I suggest to noble Lords that there is no simple answer as to the function of ballots at present. I suspect that there are hawks in the Government, certainly those who wrote the Green Paper, who do not and did not expect this situation to be the result of their complex and sometimes highly unfair legislation. Complex? A solicitor of my acquaintance has 93 points through which he takes his unions. It is remarkable that the unions get through with so few injunctions. The Government did not expect that. Unfair?—yes. It is unfair, for example, to have to give the employer the name, if need be, of those who take part in a dispute. I have never heard anyone defend that in any sensible discussion. It would be useful to have a Green Paper which considered again some of those points.

The party opposite should dust off from its shelves the works of its two great Ministers of Labour, Walter Monckton and Ian Macleod. They both well understood the need of the community at large in industrial relations law not for one-sided legal formulae but for new initiatives in conciliation and arbitration for the rapid settlement of disputes.

My Lords, I join with other noble Lords who have spoken in thanking my noble friend Lord Campbell of Alloway for giving us the opportunity to discuss this important matter.

In December 1953 I arrived at Southampton on the New Zealand shipping company's ship "Rangatiki". The following day I found my photograph in the local news section of The Times. The reason my photograph was in the local news section was that as we tied up in Southampton the dockers went on strike. The heading was "Southampton dockers strike. New Zealanders unload own ship". I have long believed that God looks after those who look after themselves.

Industrial relations is a subject which tends to raise strong emotions and it is therefore heartening that this afternoon this debate has largely avoided recourse to partisan points. A few political points may have been made. I shall try to do likewise but I do not promise to refrain from political points.

In reviewing the current status of industrial relations legislation in this country, I suggest that two words should be paramount. Those two words are balance and dignity. That is balance in the weight that we give to the rights of industry and the community over the rights of the individual; and dignity for the working man and woman.

It has become fashionable these days, and rightly so, to promote the philosophy of total quality management (TQM). I have spoken several times in your Lordships' House on this subject. One of the prime tenets of total quality management is the belief in continuous improvement. That is a belief that there is no institution or organisation which cannot do just a little bit better. It is in the spirit of achieving continuous improvement in our industrial relations legislation in this country that I ask your Lordships to view the Motion this afternoon. Continuous improvement is not an attack on the right to strike. I am sorry that the noble Lord, Lord Paul, is not in his place. I think that he would agree with me on the tenets of that philosophy.

From the time of Edward I to the end of the first quarter of the 19th century, there were more than 30 legal enactments all of which extended the common law to prohibit and prevent the combination of workers for industrial action. With the coming of the Industrial Revolution, and the far reaching industrial changes that took place in the 18th century, a new impetus was given to the establishment of embryo trade unions. This culminated in the 1799 Combination Acts, which rendered illegal the combination of workers for industrial action.

By 1824 the wisdom of such repressive action was beginning to be questioned and a Select Committee of the other place reported that,

"Those laws—had a tendency to produce mutual irritation and distrust between masters and workmen, to give a violent character to the combinations and to render them highly dangerous to the peace of the community".

Following this report, and the resultant Acts of 1824 and 1825, there followed a period of relative immunity for trade union activities until the Trade Union Acts of 1871 and 1876 and the Conspiracy and Protection of Property Act 1875, which made provision for the registration of trade unions and legalised peaceful picketing. Those Acts relieved the unions from certain penalties under the criminal law. The Trades Disputes Act 1906 did the reverse and established the legal immunity of trade unions before the common law. It was followed in the immediate pre-World War I period by a significant increase in industrial unrest.

Perhaps your Lordships will forgive me for giving this brief history. My purpose is only to demonstrate that for more than 200 years we have been striving in our own way for continuous improvement in our industrial relations, or at the very least to achieve the right balance between the needs of the workforce and the wider needs of the community as a whole.

Moving on to the specifics of the Motion, it is important to recognise the dynamics behind the changes that have occurred in industrial relations legislation in this country over the past few decades. I well recall the 1970s, when I spent most of my time travelling the world exporting and promoting the sale of British manufactured engineering products. It is not too strong to say that we had become the laughing stock of the world. It was soul destroying to return to a customer seeking new business when the first thing one had to do was to explain why his last order had not been delivered due to a strike at the works or their suppliers, or by the coal miners or railway workers, or at the docks.

Thanks in part to the far-sighted industrial relations legislation of the 1980s, that position has now been transformed. The Green Paper published last year provides factual evidence not only that the number of working days lost through strikes in the United Kingdom has fallen dramatically since the 1970s, but that our record stands up well compared with other countries in the European Union or the OECD.

This sea change has not been obtained easily. It has been resisted at every step of the way by the trade union establishment. Perhaps that is understandable. They were, after all, defending a well-entrenched position. To quote the words of Ernest Bevin at the Trades Union Congress of 1927:

"The most conservative man in the world is the British Trade Unionist when you try to change him".

So we come right up to the present day and to the proposals which are up for consultation in the Green Paper, one of which is the subject of today's debate; namely to introduce legislation to raise the threshold required for a pre-strike ballot to confer immunity on a trade union only if industrial action is taken by a majority of those entitled to vote.

I am inclined to support such a change as a further step along the road towards continuous improvement of our industrial relations laws and the creation of a total quality environment here in the UK, although I do not for one moment claim that that would be anything more than just one piece in the jigsaw that we must complete if we are to achieve such a challenging total quality goal. It must be pursued in parallel with other equally important initiatives such as the Investors in People standard, the raising of the levels of numeracy and literacy of young people emerging from our educational establishments, continued low inflation, encouragement of inward investment, and many more.

The most important point is that such legislation would target that area where an analysis of the available facts indicates that action is necessary. The analysis in the Green Paper shows that in recent years around 70 per cent. of all working days lost through strikes are in industries where the employers come from the public sector, and often from industries that enjoy a monopoly or near monopoly in the service that they offer.

That highlights the need for balance. Is it right that a relatively small number of postal workers or underground train drivers should be able to inflict hardship on whole communities? I believe that they should certainly be allowed to do so only as a measure of last resort, and only when they are able to demonstrate a strong level of support for the action that is proposed from the majority of their membership. I submit that recent experiences have demonstrated that here we have an example of where the interests of the community as a whole override the sectional interests of a small group of trade unionists.

In conclusion, noble Lords may well think that the concepts of balance and dignity to which I referred in opening are fairly reflected in the relevant proposals in the Green Paper as being essential to the maintenance of a viable economy and as giving comfort to those who wish to invest in the United Kingdom.

My Lords, it is engendered in us to thank the initiator of such debates. However, the wording of this Motion is unfortunate. It shows the lack of understanding of trade unions and industrial relations on the part of the Conservative Party. I shall address these issues and try to redress the flaws in Conservative understanding of the real world.

Noble Lords may ask on what basis I can do that. I can only speak from personal experience. In my time I have been an ordinary trade union member, a shop steward and therefore trade union official, a manager in industry and also chairman of the board of a medium-sized enterprise. So I have seen the whole situation in industry and commerce from top to bottom.

First I point out that trade unions are not distinct and separate from their membership. They are comprised of their members. Without them they have no existence, and can do nothing without their support.

Perhaps I may say a little about industrial relations. One of the problems that we have in this country, partly as a result of the misconceived view that industrial disputes are caused by unions, is that the trade unions and working people generally are effectively excluded from playing a positive role in industrial discussion and decision-taking. They are forced almost, by virtue of their situation, to play a reactive role. In most cases trade unions react to decisions made by managements in which they have had no involvement.

A number of noble Lords referred to recent industrial problems in the postal system and on the London Underground, and suggested that they were all the fault of the workers and that workers should have some sort of penalty imposed upon them. But if we view the matter the other way round we may see that the public lost those valuable services as a result of bad management. We have heard no calls today for the managers who caused those disputes to be surcharged, to pay a penalty—a personal penalty, I suggest—for their actions.

I give just two examples, one that is second-hand, the other from first-hand experience. The second-hand example was recounted to me by a very good manager with whom I had the privilege of working. He had served his apprenticeship at the Ford Motor Company in Dagenham.

In the 1950s in the Ford company at Dagenham the foreman had the power to hire and fire. One of the problems that resulted was that if somebody's face did not fit he could be fired. To counteract that practice, the trade unions evolved a system whereby, if a foreman took unfair action against any of their members, the shop steward would get up on a bench and ring a bell, and everybody would walk out. There was no question of taking a ballot and counting the numbers. It was an instant reaction to an instant problem with which they were faced.

That problem was resolved by the introduction of procedure agreements and by taking that power away from foremen, who had often used it arbitrarily, and bumping it up the management tree, together with the institution of sensible forums for discussion, debate and the resolution of conflicts.

My other example is that of Massey-Ferguson, the company for which I used to work, in the 1970s. The company had introduced a new range of tractors. They started to come off the production line, got into the hands of customers and almost immediately started breaking down. There were flaws in the new design.

The company caused a strike on the shop floor by precipitately changing the procedures that were the well understood custom and practice for the introduction of new models. The management changed those procedures and created a strike which stopped the production line. The company did not want to produce the tractors because the design flaw needed to be sorted out. The strike hit the national headlines. There were references to "Bolshie workers", and all the rest of it. The strike was resolved by management as soon as it started to affect the engineering department. Obviously if it affected that department they would cease to be able to get the work done. The situation was created by management and yet workers were blamed for it.

Industrial disputes erupt as a result of unfairness. The British people are fair. They will not put up with unfairness. The noble Lord, Lord Carr, referred to an incident in his experience where there was an upsurge of resentment at his being treated unfairly, as it was perceived. It was a very vivid example.

Of course we need rules of behaviour, and they are very important, but they should be agreed by all concerned—negotiated, if you like. They should not be imposed. If they are imposed, they will not work.

Speakers on the other side of the Chamber have said that the climate has changed over the past 15 or so years. They attribute that to a large extent to the changes in industrial relations law. The noble Lord, Lord Harris of High Cross, cannot be anything but honest, and he let the cat out of the bag. He effectively said that the reason why there were fewer industrial disputes was because we had mass unemployment; it was used as a weapon against the workers.

My Lords—

My Lords, I may have paraphrased the noble Lord in a way which he does not appreciate; but, put succinctly, that is effectively what he said.

The cost of working days lost due to strikes during the 1960s and 1970s was raised. Conservative politicians take great delight in highlighting the terrible figure for production lost. However, when we look at the number of days of production lost due to 1 million people being unemployed over and above those who were unemployed in the 1960s, 1970s, 1980s and halfway through the 1990s, we can see that the figures are completely different. That puts a very interesting perspective on the situation.

I said that fairness was important, and I think we all agree about that. One of the problems is that we are faced with yet another occasion when the Conservative Party seeks to change the rules. I think we all appreciate that they do not seek to change the rules in order to improve industrial relations; their talk of changing the rules is like a stick to beat the trade unions with, to put them into a corner and suggest that they are bad and need to be controlled. I believe that the British public are waking up to the realisation that they have been conned by the Conservative administration over the past 18 years and I am very hopeful that at the next general election they will mark their ballot papers as if to say: "We are not prepared to be conned any more. We demand fairness in our industrial relations, fairness between management and trade unions, between those who are in a position of power and the ordinary working people whose only way of combating that power is by working together to seek a society in which everyone can be fairly treated."

My Lords, before the noble Lord sits down, I wonder whether he would like to answer a question. In view of all he said about the wickedness of those on this side of the House, why was it that a Labour Government removed from the statute book a provision which I put onto it on behalf of the Heath Government to the effect that all companies above a certain size should have proper joint consultative machinery?

My Lords, one of the difficulties that often arises within companies and industrial relations is that good things may be thrown out as a consequence of a greater bad. I have seen that situation enough times in my experience in industry to realise that good relations between individual managers and the workforce can unfortunately be soured by some bad managers and bad attitudes.

My Lords, I too am grateful to the noble Lord, Lord Campbell of Alloway, for introducing this important debate.

Thirty years ago the playwright and novelist Michael Frayn wrote:

"Public opinion, so far as I can tell, unquestioningly concedes the right of men in a free society to withdraw their labour. It just draws the line at strikes."

It is a good point. Strikes are not the simple, union-engineered issue which the current Government have liked to characterise them as being. They are a complex and serious matter—both more complex and more serious than the Government's latest pre-election Green Paper on strike resolution suggests.

I address your Lordships as someone who before entering this House was for 20 years a trade union official. In that work, the overwhelming amount of my time was spent in resolving, not creating, conflict. Where they work best, trade unions act as a kind of hinge between employers and employees, facilitating their working well and completing their mutual purpose. That constructive, positive role of employees and employers working together in partnership is how we on this side of the House see trade unions: as contributors to the efficient—and, where applicable in the private sector, the profitable—working of business and organisations.

Let us be clear. We on this side of the House do not want to return to the industrial relations of the 1960s and 1970s. So much of the contributions of noble Lords on the other side of the House concentrated on aspects of those unhappy years. My right honourable friend the Leader of the Opposition said only yesterday that, if Labour forms the next government, it has no proposals for changing the bulk of employee relations legislation. That is right. Full membership, decision-making and participation by secret ballot in trade unions and at work has become part of the bedrock of good, stable industrial relations.

However, strikes do occur. In 1981 there was a Civil Service strike which lasted for five months. At that time I saw at first hand the human dimension of what happens when workers strike. I saw the effects of the strike, not on union militants but on ordinary men and women with families who felt that they had no alternative but to strike when their employer had simply torn up a pay agreement which had existed for over 20 years. Strikes are not easy affairs of first resort in employee relations; they are rather the last resort, often a desperate public demonstration of how badly wrong employee relations have become and how much they need to be improved.

Some of the Government's moves in this area have been sensible—balloting before strikes, for example, or for the election of trade union officials. I speak as one who was twice elected as a trade union general secretary under these laws. However, together with these entirely sensible reforms, we have seen other moves which have been either vindictive or irrelevant: repeat ballots on union check-off arrangements, for instance. In what other situation does an individual have to say every three years that he or she really did mean to join an association? Certainly members of political parties do not have to do that. Another move was the creation of the Commissioner for the Rights of Trade Union Members, a government agency so little used that the new commissioner is working his way into his job by asking a range of people and bodies, including the trade unions, if they have any idea what his job is actually supposed to be.

In their latest Green Paper the Government try to deal with the hoary old question of strikes in the so-called essential services. In doing so they have come up with one or two clever little ruses to deal with the serious problems surrounding legislation in this area. However, they are tricks which, even if put into effect, would have little, if any, practical consequence for the improvement of employee relations, organisational performance and overall competitiveness of Britain's economy today.

Since coming to power in 1979 the party opposite has looked with monotonous regularity at the "problem" of strikes in key services. The pattern is a familiar one. Ministers feel the need to do something about a strike and they light again upon the idea of industrial legislation.

I should like to deal with two major points in the Government's latest proposals. The first is the difficulty of defining what is meant by "an essential service" and "excessive or disproportionate" effects. The Green Paper states that it is action which carries risks to life, health or safety; threatens national security; does serious damage to property or the economy; or brings about significant disruption of everyday life or activities in the whole or part of the economy.

On that definition, it would seem that every strike would or could be so defined. But who are essential workers? Perhaps doctors and nurses in the NHS are essential workers but what about hospital porters, the people who work in hospital kitchens, the people who bring food into the hospitals? Instead of theorising, let us look at practical examples. There was a real strike in the Post Office last summer. In practice, that strike was nowhere near so damaging as it was claimed at the time and nowhere near so damaging as it has just been portrayed on the other side of the House. Only this week the chief executive of the Post Office, who had issued near apocalyptic warnings at the time of the strike about the future of postal business in Britain, admitted that the strike had had no effect on the Post Office's business volume, its finances or its profitability. So it is not only the difficulty of defining which strikes could be classed as falling under such legislation, but the difficulty of when the assessment takes place.

A second worrying point is the Government's proposal to raise the threshold required for an industrial action ballot to confer immunity on a trade union from the majority of those voting to a majority of those entitled to vote. Where else do we seek to impose such a test? Certainly not on a political party going into government for five years, which is not only able to influence but to legislate on health and safety, able to fashion the national economy and able to affect virtually every part of our lives in this country. When voting for the government of the day, we do not even demand an overall majority of those voting. In the 1992 election, the Conservative Party secured 42.3 per cent. of the vote, but fewer than one third of those eligible to vote voted for the Government. They obtained merely 32.6 per cent. of those eligible to vote.

But it is quite clear that the electoral timetable and the lack of a government majority in the other place mean that there is not only no realistic prospect of legislation going ahead before the election but that there is no prospect at all. So far from being a piece of government business, this document is in fact a piece of Conservative Party business. It is a run-out for an idea to be contained in the Conservative Party election manifesto.

It is not only we on this side of the House who find these proposals so implausible. Take the arguments of Britain's employers: the Confederation of British Industry, the British Chambers of Commerce, the Institute of Management, the Engineering Employers' Federation or the Institute of Personnel and Development. Even the most free market of the employers' groups, the Institute of Directors, is sceptical. Not a single major employers' organisation is in favour.

We on this side of the House take a rather different, more serious and more searching view on strikes than the prejudice dressed up as policies in this document. A new Labour Government would not be about trying to fight once again the long gone battles of the past. We will be about a real agenda facing Britain; about jobs, security, improvement and competitiveness. A new Labour Government would not be about trying to deal with the effects of industrial action, as the Green Paper does explicitly. It would be about dealing with its causes, through fostering new concepts of partnership at work, such as the recent job security agreement freely reached by the leading cement manufacturer, Blue Circle, in painstaking but ultimately rewarding negotiations with its trade union.

A new Labour Government would not go back to the old ways of the 1960s and 1970s. As my honourable friend the Shadow Chancellor rightly showed this week, there will be no yielding to inappropriate and unwarranted demands on public sector pay, however they are backed up. A Labour Government would be tough on strikes, but tough on the causes of strikes as well. More than the dried-up doggerel in this document, that approach will be a real help to our employers, our employees, our economy and our country.

My Lords, there have been nine speeches in this extremely wide-ranging debate. So far as I can see, five of those speeches opposed all and everything in the Green Paper and four speeches said that there was something to be said for the Green Paper. So, in a way, there is a majority but not a gross majority, because nobody has a gross majority. That is what the Government want to impose on the trade union movement.

Even those who spoke in favour of the Government qualified what they said. If I understood him rightly, the noble Lord, Lord Harris of High Cross, said that it did not matter because they would not get a chance to put it into effect because they would not win the next election. He did not know why we were debating this matter at all. I am glad to say that the noble Lord, Lord Carr, came down in the end, against the gross majority rule. He thought it was as silly as I do. In exchange, let me tell him that I agree with him about joint consultation, which dropped through the net when it should not have done. The noble Viscount, Lord Oxfuird, took his time but came round in the end to saying that he thought there was something to be said for the Green Paper.

So I come to the speech of the noble Lord, Lord Campbell of Alloway. I was looking forward to the debate with him. I thought, as did my noble friends Lord Wedderburn and Lady Symons, that the noble Lord wanted to debate a particular aspect of the Green Paper; indeed, something wider than the Green Paper and more relevant: the problem of high turnout. That is a very real problem.

The first version of the noble Lord's Motion, which appeared on 19th December in the Minutes of Proceedings for 22nd January, wanted:

"To call attention to the effect on the community of industrial action taken by trade unions without the consent of the majority of members entitled to vote".

That is all. There was nothing whatever about this nonsense of "excessive or disproportionate industrial action". As I saw the issue, he wanted to debate the very real problem of high turnout. It has been shown to be a problem which derives basically from the abolition of the workplace-based vote.

There is a very distinguished study by Undy and company—I shall not read out all their names—called Managing the Unions. It shows that, with a postal vote, unless there are very good relations with the employer, so that the employer will assist in combating the distancing effect of the postal vote, there will be a lower turnout. It is a very real problem.

Unions, contrary to what many people in this House seem to think, desperately want the highest possible turnout. It tells them what members think and gives them some idea of how people will react. Of course, not to vote means something. Very often it means, "I'll leave it to the rest of you. I don't know what to say or what to think but I'll back what the majority say". That is a very simple and honest way of looking at things. But one would much rather that people thought about the issues and voted. So the trade union movement is very much interested in the problem of high turnout.

Unfortunately, the noble Lord, Lord Campbell of Alloway, muddied the waters. His second Motion on 16th January was:

"To call attention to the effect on the community of any excessive or disproportionate industrial action"—

that is put into his Motion before he goes back to his earlier wording:

"taken by trade unions without the consent of the majority of members entitled to vote".

I do not understand that at all. I hope that he will clarify it when he comes to sum up the debate, if he has the time. There seem to be three possibilities: one, he is not bothered about the consequences of a strike so long as the majority say yes—which seems bizarre to me, but it is one interpretation of his Motion. Two, he is not bothered about how many say yes so long as it has no impact on the community—which is even more ridiculous. Three, some of the words got lost; or maybe the Government persuaded him to widen the Motion—but not particularly effectively. Therefore, I want to focus, first, on what I call the pre-Christmas Motion, because that is the one I like.

My Lords, in case there is not time, no one has persuaded me to do anything.

My Lords, I am not surprised about that either. It was spontaneous intellectual combustion.

I turn to the pre-Christmas Motion. It is important to all parties—the unions, the Government, the community and employers—that there should be high participation rates and high votes. I wish to make four brief points about the problem. First, despite the effects of the withdrawal of facilities, particularly in the public sector, where it is very, very bad, we support the introduction of postal balloting. And, if I may quote from the survey from which my noble friend Lord Wedderburn quoted, the number of votes is holding up well. In the sample taken, the turnout was 60 per cent. on average. It was even higher in recent public sector disputes. It is interesting that several public sector disputes have been quoted in this debate, for example, the London Underground dispute. I would argue that in that dispute the unions passed the new gross majority test. So turnout is holding up well.

Secondly, so is the pro-strike voting, as, again, my noble friend Lord Wedderburn pointed out. In 1995 the number voting pro-strike was 61 per cent. In 1996 it had moved upwards to 81 per cent. So, on the present evidence, we could in many cases even now meet the gross majority rule. Thirdly, as has also been said by my noble friend Lord Wedderburn, the fact that we have these ballots and have this turnout does not mean that the result is strikes. Indeed, in most cases, we do not have the strikes. For the most part, the ballot has become part of the negotiating ploy in industrial relations, and things are none the worse for that.

Finally, I want to give a concrete example of the current position in order to find out what the House thinks. I shall take a concrete example which is frequently talked about—the Royal Mail. In the Royal Mail dispute there were two ballots. There was a ballot in June 1996 and a ballot in October 1996. In the first ballot the turnout was 74 per cent. In the second ballot the turnout was 78 per cent. It was a good turnout on both occasions. In fact, the turnout rose on the second occasion. In the first ballot the affirmative vote was 68.1 per cent. In the second ballot it was 61.5 per cent. There was thus a marginal fall in the affirmative vote. As a result, whereas the first ballot would have passed the gross majority test because it would have represented 50.3 per cent. of the total voting roll, the second ballot fell away by less than 3 per cent. and as a result the majority was 47.4 per cent. So the second strike would have been unlawful.

Does anyone seriously suggest that an insignificant shift of that kind at that time in that dispute would have helped to produce a settlement? It would undoubtedly have led to unofficial action. The union would have been forced to repudiate the strikers and there would have been chaos in the Royal Mail. Everyone knows that. The management knows it, which is why you will not find management in the Royal Mail or the Post Office supporting the Green Paper. There would have been chaos because no one could have said in advance whether a strike would have been lawful or unlawful. If the ballot went the wrong way, those who voted—in favour of a strike by 70 or 75 per cent.—would have considered that they had been betrayed by their union. That is the kind of thing the Government are wanting to encourage.

At this point I wish to say a few words about the second proposal—proportionate non-excessive action. A good deal of this has been debated by my noble friend Lord Wedderburn. The point I wish to make is that we would not be trying to work out whether such a strike had a significant impact upon the economy or was causing serious damage to the economy; or whether part of the country had been affected in some way. Because the employer would be using the injunctive weapon, all the employer would have to show is that there was a "serious case to answer". It would be very difficult for a judge to say that there was not a serious case to answer. If one puts the injunctive remedy on top of what the Government are saying, it becomes much more serious and dangerous. Indeed, it is an attempt to put strikes out of court.

My final point is that if the Government were really making a case for measures of this kind, there would have to be something very funny happening to the strike statistics. The noble Lord, Lord Campbell of Alloway, was very proud of this Government's strike record and of the way the numbers of working days lost had fallen compared with most of our competitors, and of the way they had fallen more in Britain in recent years than in many other European countries. The Government are very proud of that too. Yet they come along with this Green Paper.

It is the first Green Paper I know which has a white cover and if you turn to the back you are told that if you want to get it you have to go to the accredited agents in the Yellow Pages. So it is a very strange paper; it is a sort of Brown Paper really. And if you read it you find that, by massaging the figures with a degree of subtlety, the Government have used August to September 1995-96 and compared that with the average of August to September 1992-95. When you see strike statistics starting in August of one year and ending in September of the next year you know you are being fiddled. On the whole, strikes statistics use calendar years. The Government have done it this way because it helps. There were three large strikes in the summer and 84 per cent. of the increase is caused by those strikes in those three months of the year. Unfortunately, however, after the Government produced the Brown Paper, the Employment Gazette of the Department for Education and Employment, published this month, showed that in October the figures fell away again, and now they are back to the average of the previous three years.

So it is all a statistical fiddle. It is all manipulation. It is all, as my noble friend Lady Symons said, aimed at the general election. We are surprised—mildly surprised—that the noble Lord, Lord Campbell of Alloway, has lent himself to that.

My Lords, I am grateful to the noble Lord, Lord Campbell of Alloway, for initiating this debate and to my noble friends and the noble Lord, Lord Harris, for welcoming the Green Paper which the President of the Board of Trade published some two months ago. Perhaps I may say to my noble friend Lord Carr that I have no doubt that my right honourable friend the President of the Board of Trade will be particularly reassured by what he had to say about the tone of the Green Paper.

Today's debate is timely. It provides a useful opportunity for the Government to hear the considered views of your Lordships. If though what my noble friend hoped he would achieve would be to flush out to what extent and with what conviction New Labour has accepted the industrial relations of this Government in the 1980s and to hear an acceptance of that from the Front Bench, he will have just heard that his hope was a vain one. But I suppose that for the noble Lord, Lord McCarthy, it would indeed have been an impossible pirouette to have asked him to perform. However, I certainly appreciated—

My Lords, I can repeat what my noble friend Lady Symons said. However, it would be easier if I said that I agreed with it because the noble and learned Lord will then have been answered already.

My Lords, I was certainly going to say that the noble Baroness seemed to me to earn Brownie points for the loyalty with which she repeated the words of the Leader of the Opposition. However, what I was saying was that in many respects what we appreciated more was the distant thunder of the old Wedderburn views.

I say to the noble Baroness, Lady Symons, that, with her experience, what she might have addressed more specifically was last summer and autumn when this country did indeed see a resurgence of industrial action on a scale that we have not experienced since the early 1990s. In the year up to November 1996 it is a fact that there were 1.3 million days lost. That is nearly four times more than the corresponding period in the previous year.

The most significant feature of this strike activity was its concentration in the public sector or in companies which were until recently part of the public sector. These sectors have accounted for a growing share of all days lost. In the 1970s, strikes in the public sector and the now privatised utilities usually represented less than 15 per cent. of all days lost. Last year they had risen to around 70 per cent.

In contrast, much of the private sector is now strike-free. Days lost through strikes in this part of the economy remain close to all-time lows. That is a major achievement. It shows how much has changed for the better in our industrial relations. We have also seen some improvements in the public sector's industrial relations, but there the pace of change has been relatively slow. There are many possible reasons for the slower progress in the public sector and in some utilities. One contributory factor is the lack of competition in these sectors. The Government are therefore pursuing their policies of privatisation and increased competition. Meanwhile, it is clear that industrial action in sectors with a monopoly or near-monopoly have the potential to cause substantial disruption or worse. My noble friend Lord Oxfuird asked some searching questions about the position within that area.

We all experienced some disruption last year. Londoners and visitors to the capital suffered when the Underground was closed down. Millions were inconvenienced by the actions of a few workers. Other parts of the country also suffered. For example, rail services were disrupted in Scotland; fire services were withdrawn in Derbyshire and Merseyside; and, of course, virtually everybody in the country must have been affected in some way by the strikes in the Royal Mail.

In formulating the proposals contained in the Green Paper, we were guided by four broad principles and objectives. First, we wanted to ensure that industrial action was taken as a genuine last resort only. Without going as far as the noble Lord, Lord Harris, in describing them as "crude and iniquitous", I would have hoped that on both sides of the Chamber there was a realisation and appreciation that strikes should indeed only be a genuine last resort. It is for that reason that our proposals on balloting, including raising the threshold, are designed to meet that objective.

Secondly, we wanted to ensure that the spill-over effects of industrial action on third parties, including the general public, were minimised. My noble friend Lord Carr identified with acuity exactly how that had been the shift of the focus in the approach that we wanted to take.

Thirdly, and subject to these considerations, we wanted to preserve the freedom of workers to take industrial action. Fourthly, we wanted to build on our previous achievements in extending the democratic rights of union members to control the activities of their unions.

When we drew up the Green Paper, it also made sense to take the opportunity to look again at other aspects of the law on trade unions and industrial relations. In general, we found that much of the existing law was working well. I welcome the approval by the noble Baroness, Lady Symons, that is now bestowed on the reforms that we introduced. However, we did identify a few areas where improvements could be made.

Of course, proposals for reform must be workable. We knew that there were difficulties in developing practicable proposals for reform in this complicated area. Previous attempts to formulate workable proposals had foundered on the apparently insuperable problem of defining the essential services in question. Our proposals therefore avoid the need to specify a list of sectors where strikes should be restricted, although in a number of other countries that is the route that has been followed.

Instead, we propose a different and, I would argue, a better targeted and accordingly a fairer approach. Other countries often outlaw any form of industrial action in sectors regarded as essential. I say to the noble Lord, Lord Wedderburn, that I agree with him that one cannot set about a cherry-picking approach to it. But if we were to adopt the German approach in its entirety I am sure that pre-eminently among your Lordships he would appreciate that large numbers of those who are described as the Beamten are deprived of any right to strike at all. That would include some of those who enjoy the right to strike in the United Kingdom.

My Lords, as the Minister has gone off on the subject of the essential services generally, which I for one was unable to debate because the subject is not in the Motion, will he agree that in many of the countries which he obviously has in mind such as Italy and Spain and to some extent Germany—there are other examples in Western Europe too—it is the case that the law requires the employer and the unions to try to agree on what is an essential service or, in the case of Italy, an indispensable minimum service? Does he not have that in mind?

My Lords, I appreciate that there is a wide variety of models that have been followed through seeking to define what are essential services. The approach that we have taken is that that route is too complicated. It is for that reason that we have spelt out the approach that we have taken in this Green Paper.

As the noble Lord appreciated, under our proposals even in a sensitive area a union can call industrial action provided it acts responsibly and organises that action in a way which avoids the risk of serious damage and disruption to third parties. In some countries that would simply not be permitted even if there were not the risk of serious damage or disruption.

My Lords, this is the last time that I shall interrupt. I thought I heard the noble and learned Lord refer to the right to strike in this country.

If there is a breach of contract one can be dismissed for doing that. There is no right to strike in this country.

My Lords, if the noble Lord wants me to elaborate on that shorthand, I believe that he will appreciate exactly what I mean. For example, if at the present time one works within the Royal Mail and the right procedures are followed through, it is open to one to go on strike. If one happens to be in much the same position in Germany, that is not an opportunity which is open to the worker. That distinction is perfectly obvious to the noble Lord.

The centre part of this debate turns on the issue of the disproportionate or excessive effects. I say again to the noble Lord, Lord Wedderburn, that I am grateful for his acknowledgement that the concept of proportionality is understood in our law, certainly at the stage when one is looking to interim interdictus, as I would describe it, or an interim injunction.

The noble Lord, Lord Rochester, rightly made the point that judges are not much enamoured of becoming embroiled in the details of an industrial dispute. Perhaps I may refer him to paragraph 2.7 of the Green Paper where it is specifically acknowledged that that is an issue. It points out:

"However, the courts would not be required to judge the merits of a dispute. The notion of 'disproportionate or excessive effects' relates to whether the impact on those affected by the industrial action is reasonable, not to any relation between the purpose of the action and its effects".

So that point is readily enough understood in the Green Paper and I believe that we are in agreement on it.

We also spell out in that part of the Green Paper how we believe the legal criteria might be established and how the courts might interpret them. I am bound to say that I do not see, certainly at the stage of seeking an interdict or an injunction, that there would be anything like the difficulties that some have claimed would follow from it. I predict that, were such a change to be introduced, as is the case at the present time, the prospects of anyone following through to the time when damages might be sought would be very limited indeed. If the matter had been resolved at the time of injunction or interdict, I would anticipate that the narrowing of the immunity to exclude actions with disproportionate or excessive effect would mean that actions for damages would continue to be rare.

Another matter that has been raised is the threshold for a ballot majority. It is worth recalling that under the existing legislation those who have to participate in the ballot do not now have any great task to perform. After all, ballot papers are now sent to their homes with a reply-paid envelope. Members have every opportunity to vote. They do not even have to leave their own homes to achieve that level of participation.

The noble Lord, Lord Wedderburn, and others will be aware that there are other examples of thresholds higher than a simple majority in our company law. Perhaps I may take another example which I have no doubt will not appeal to the noble Lord. Nevertheless, he might like to look to the arrangements in the European Parliament where such a weighted majority is required. I accept that that example will not appeal to all Members of your Lordships' House. Indeed, I looked around to see whether my noble friend Lord Pearson was in his place before I dared to make it. My simple point is this: the idea that there has never been any circumstance in which such a majority has been required or is considered desirable is nonsense. It is absurd to describe it as somehow being anti-democratic when it is in fact part of the procedures of the European Parliament. However undesirable one may find that, it is absurd to caricature it as something that no civilised society would ever contemplate.

My Lords, the noble and learned Lord is putting words into our mouths about civilised societies. He mentioned company law, but we are speaking not of a qualified majority of, say, three-quarters or two-thirds; we are speaking of a majority of the electorate or of what I would call the "gross majority". Where in company law can one find that?

My Lords, if the noble Lord looks to what I said, he will see that I did not say that there was such a majority in company law; I said that there were examples of special majorities. I am sure that the noble Lord recognises that I deployed that phrase because it covers a range of circumstances and more than a simple majority of those voting.

My Lords, I wonder about the prospect for government business if the same rules were to apply in this House and if the Government had to secure 600-odd votes to get their business through.

My Lords, I have now made the point rather too clear. It would be a great help if the noble Lord could sometimes listen to just something that is said. As far as I am aware, it is no part of our arrangements that we shall allow for ballot papers and reply-paid envelopes to be delivered to the home of every Member of your Lordships' House. As the noble Lord has not understood that, I am given the opportunity to repeat in the simplest of words how easy it is for any member of a trade union to participate in a strike.

The noble Lord, Lord Rochester, caused my jaw to drop by indicating that he had given me notice of a question. I am afraid that I have not received that notice, but I hope that I can answer his question now. The statutory requirement for company reports to contain a statement describing the actions taken within the financial year to promote various forms of employee involvement has, frankly, generally added little to our knowledge in this area. That is a pity because other evidence shows that British companies have a multitude and a growing number of ways of involving employees. The wealth and diversity of voluntary employee involvement reinforces the Government's view that rigid legislation, such as the works council directive, would be disruptive and damaging if ever applied in the United Kingdom.

Despite what the noble Lord, Lord McCarthy, said about the colour of the cover of the document, I emphasise that it is, indeed, a Green Paper. This is a complex area and we have benefited from listening to the expert and informed opinion of noble Lords. The consultation period on the Green Paper lasts until the end of next month. Once all the responses are in, the Government will consider how to proceed. The President of the Board of Trade has already made it clear that legislative proposals are unlikely to be forthcoming before the election. Anyone with any understanding of parliamentary procedures will recognise the impossibility of achieving such legislation within that period. However, I urge all those who have views to respond to the document.

The noble Baroness, Lady Symons, referred to a number of organisations and their views. I must advise her that at present, not unexpectedly, we have not yet received any significant range of views in the department. However, I anticipate that such views will be received before 28th February.

I rather suspect that we shall see a repeat of what has happened at almost every stage of our gradual approach to the reform of industrial relations. As each step has been taken and after each step has been taken, it has grudgingly been agreed that that step was the right one to take. Once again, it seems that in this debate we have heard the same "A bridge too far" speech which we hear repeatedly from noble Lords on the Opposition Benches.

We believe that there is a strong case for limited and targeted action in this area. Last year's disputes demonstrated all too clearly how intemperate industrial action can disrupt normal activity. Our Green Paper puts forward limited, fair and workable proposals to address the problem. The proposals provide the necessary protections for business and the general public while—and I emphasise this—preserving the essential freedoms of workers to exercise democratic control over their unions.

My Lords, my noble and learned friend has taken a remarkable line which has covered the whole of the argument that I would have wished to address in reply, so all that I wish to do is to thank all noble Lords for having spoken. They have not spoken in vain because it has been demonstrated beyond all peradventure that neither the Labour Party nor the Liberal Party has any policy whatever to deal with this situation. The noble Baroness, Lady Symons, said, "I have had a word with Mr. Blair. He is going to be tough on strikes". That is no good. How does Mr. Blair propose to deal with a situation analogous to that of London Underground or the Royal Mail? That is what we want to know. That is why I put down this debate—to try to find out whether the parties opposite have any policies at all. They have not.

I am obliged to all who have spoken. This has served one purpose that I sought, but I am a little disappointed. I beg leave to withdraw my Motion for Papers.

Motion for Papers, by leave, withdrawn.

rose to ask Her Majesty's Government what are their present relations with Cuba.

My Lords, I thank my noble friend for once again bringing this issue before us and for giving us the opportunity to update our information on the current state of our relations with Cuba. Noble Lords may be aware of my interest in Latin America. In that region, Cuba is now the only country whose people do not enjoy the benefits of a pluralistic democracy and free and open government. Nevertheless, as my noble friend has enumerated, many changes have come about in recent years. In part, that is as a result of the break up of the Soviet Union. The move towards a market economy is very much to be welcomed. I support my noble friend in wishing to encourage Cuba to move further and faster in what we consider to be the right direction.

I, too, deplore the actions of the United States in seeking further to isolate Cuba and to penalise foreign countries doing business inside Cuba. If it is all right to trade with China, why not Cuba? I, too, will be interested to hear from my noble and learned friend the Minister the latest information on the status of the Helms-Burton legislation. As my noble friend said, the so-called temporary waiver brought in before the US elections has been extended for a further six months. It is important to remember that that waiver affects only the implementation of the policy; that is to say, the imposition of penalties and fines.

In the meantime, I understand that the US authorities continue to compile lists—black lists, perhaps we should call them—and on the latest figures I have those consist of some 318 foreign companies reportedly doing business with the Castro regime. They include 147 EU firms, 27 of which are British and include household names such as Fisons, Tate & Lyle, and Glaxo Wellcome. I was talking only this morning in the City to a leading stockbroker who deplored the fact that no member of his firm can go to Cuba at present because of the extent of its business in the US which would be imperilled by that legislation. At the very least, other companies have slowed down or delayed investment there. That must be a tragedy for all those in Cuba who are trying to push change further.

I am pleased that in addition to the unilateral protest from the UK, we have joined our EU partners in protesting, as my noble friend said. In demanding that the WTO declares the Helms-Burton legislation illegal, and contrary to the general principles of international law and the sovereignty of independent states, we are bringing to bear the most important forces. I shall be interested to hear from my noble and learned friend the Minister about the progress of the WTO intervention.

However, I regret hearing from my noble friend that the ECGD does not sufficiently support the trade effort of British companies which are keen to do business in Cuba. In that respect, I hope that the Treasury has not been deterred by the attitude of the United States. I know from my experience of the DTI that considerable support is given to businessmen and that subventions are available for trade missions to other countries in Latin America. A major conference, supported by the joint initiative of the DTI and the Foreign Office, will take place in early February. It will be attended by the presidents of Brazil and Peru and other leading figures from Latin America. It is intended especially to encourage the trade effort between this country and the various Latin American countries. I understand that Cuban representatives will also be attending that conference.

On another front, I am however glad that a second Minister to visit Cuba in 25 years is my honourable friend Tom Sackville, to whom my noble friend referred. He went there last month and was able to sign a Customs and Excise co-operation pact with Cuba as part of an offensive to close down drug smuggling routes through the Caribbean to Britain. I understand that two Scotland Yard officers are due shortly to go to Cuba as part of that effort. That policy affects the UK itself with regard to the five Caribbean dependent territories. I understand that the Foreign Office plans to take on new powers to crack down on money laundering in those territories as part of a joint effort.

Recently there has been even more encouraging information that Cuba is also co-operating—believe it or not!—with the United States on that front, and last month handed over to the US authorities six tonnes of cocaine seized from a Colombian freighter. Those are all welcome signs of progress and openness in Cuba and our relations with Cuba. I hope to hear more from other speakers and from my noble and learned friend the Minister.

My Lords, I am at one with the common desire to bring democracy, freedom and human rights to Cuba. That said, I am totally opposed to the principle of extra-territorial legislation, whatever its source.

I consider myself a friend of the United States and am sensitive to our close bilateral relationship. However, I would like to express certain concerns. Although I recognise that certain provisions of the Helms-Burton Act have been suspended, it is of continuing concern to me that the United States is not a team player.

Policy towards Cuba is only but one example. Development policy both near and far, decertification action against a number of regional states, a disagreeable protectionist attitude and holding out on UN arrears with a "What is in it for us?" approach is being neither statesmanlike nor appropriate as the sole superpower.

The United States could offer a great deal to our global village but is doing little more than being a recalcitrant big brother. It will not have escaped attention that even Canada's Foreign Minister, representing Cuba's leading trade and investment partner, began a state visit to Havana yesterday. It seems to me that Canada, as a co-partner in NAFTA, has proceeded with this visit in spectacular defiance of United States policy.

My fervent hope is that the forthright Secretary of State designate is able to knock some sense, worthy of her reputation, into the foreign policy of the United States and into Senator Helms.

My Lords, the noble Viscount, Lord Waverley, will be pleased to hear that I agree with every word he said. He is totally on the right lines, for once, which is very encouraging.

Hear, hear!

My Lords, I, too, am indebted to my noble friend Lady Young for introducing the debate. She has done sterling work in the past few years in promoting our trade with Cuba. Her chairmanship of Caritag and the Cuba Initiative is well known and is greatly to be commended. I was in Cuba in August. I went to many meetings which concluded in discussion of what my noble friend was to do and how much they were looking forward to her visit. I felt a little like John the Baptist in the context of preparing the way for someone much greater than myself. Long may that continue and I hope that my noble friend will continue with her work.

I first went to Cuba in 1960 as a senior executive of Shell in order to participate in the reorganisation of that company's affairs in Cuba. I had been involved in Latin America for some years and I hoped that I would stay in Cuba for some time. It is an incredibly beautiful island, filled with hard working, intelligent people. It is richly endowed with an enormous variety of natural resources and it is a veritable tropical Garden of Eden.

Unfortunately, my stay was short lived because by then the revolution was well on its way. It was decided that the foreign oil companies were not required and so I had to leave. Needless to say, I was a little irritated because I thought that my stay would be enjoyable. However, it did not curtail my Latin American activities and I have returned to Cuba many times since. Not only have I returned, but the Shell company, whose service I left more than 35 years ago, is also back there in action. It is looking to the future and not to the past, which is the case with so many companies.

At the time the revolution appeared to be entirely justified because it was replacing a wholly corrupt regime which had been in existence for some time. The Cuban Revolution espoused the notion of creating a pure socialist state, and because of circumstances, the Cubans were much encouraged in that by their subsequent linkage with the Soviet Union. When I was a young man at school, I thought that the notion of a pure socialist state was rather a good idea but many years of working all over the world has taught me that it does not work quite as well as I thought at that time. I have no doubt that the noble Lord, Lord Peston, might agree with that concept.

The Cubans were encouraged in that and to a certain extent had no alternative because the US policy was flawed from the beginning. The embargo that was created gave them no alternative, so that that linkage with the Soviet Union, which appeared to be so beneficial, turned out to be something of a millstone around their necks for so long. Indeed, those of us who visited Cuba in the interim period from time to time trying to do trade found that there was not much that we could do. There was nothing on offer because Cuba had that artificial trading system.

Since the collapse of the Soviet Union and the Soviet system, all that has changed and Cuba now has the option of trading with the whole world. That is what is so exciting and that is why the initiatives that have been taken and followed up by my noble friend Lady Young are so important.

I turn to Helms-Burton because that has been mentioned already and is bound to be mentioned again. That is a scandalous piece of extra-territorial legislation. It is absolutely contrary to the whole concept and idea of the WTO and for the world's leading economic power to conduct itself in that way is absolutely absurd.

I do not know what can be done about it because my understanding is that it is almost impossible to repeal legislation under the US constitutional system. I do not know whether that is correct and I do not know whether my noble and learned friend can answer that. However, perhaps he will inquire from his friends in the Foreign Office as to how the US can possibly repeal that legislation, because the idea that every six months it will be postponed indefinitely is absurd. Nobody can live in that sort of situation. Where do we go from there? How will the US get out of that hole into which it seems to have dug itself? It may be that when the WTO has its next plenary session it should censure the US as regards this matter so that it is forced to do something about it. Let us hope that something happens along those lines.

In the meantime, Cuba is very busy cultivating its new relationships, because obviously it has a great deal of support in those activities from the whole of Latin America and from the NAFTA countries of Mexico and Canada and, indeed, from the whole of the European Community. The United Kingdom has been in the vanguard of all that. We have pioneered the way. There have been missions by my noble friend Lady Young and others and visits by Ministers. As my noble friend Lady Young said, we have a first-class embassy there led by a superb ambassador for whom no praise is too high and who really does understand what is going on.

As a result of all these activities, a good number of very spectacular opportunities have opened up. But what is the result of all those opportunities being opened up? We have pioneered the way, as my noble friend's figures illustrate, but our European partners will reap the rewards because we have no government support. There is no ECGD cover. The French have credits; the Germans have credits; the Italians have credits; the Spanish have credits; and where are we? It is an absolutely deplorable situation.

I hope that my noble and learned friend will say something extremely positive about this. If he cannot give us an affirmative decision this evening, which may well be the case, I hope that he will talk to his colleagues and persuade them that something must be done about it forthwith because otherwise, not only will the opportunity be lost to which my noble friend Lady Young referred, but many other opportunities are also going out of the window. I wonder what is the point of the visits of my noble friend or anybody else if they have no proper back-up.

I turn now to the European Union because in the early part of last year the European Commissioner responsible for international affairs visited Cuba with the idea of negotiating a co-operation agreement but the Cubans did not like the conditions imposed upon them at the time. When I was in Cuba in August, I spent quite a lot of time discussing the matter with them. I pointed out that when there is an international agreement, conditions are always imposed. I remember talking to the Cubans. They said that they had no dealings with either the Inter-American Development Bank or the IMF. They told me that they disliked those two institutions. I told them that many other countries in Latin America and around the world also disliked those institutions but as time developed they found it necessary to make adjustments in order to obtain the benefits. I told them that all international banking and loan arrangements are always subject to conditions. Anybody here who wishes to have a loan is subject to conditions. That is the normal procedure. I believe that the Cubans are beginning to think about the real world in which they now live. Conditions are always imposed in order to obtain benefits. They may not like it initially, but it is something which they must come to accept as a necessity if they are to live in the real world in which they now find themselves.

It is also encouraging to think that at the last meeting of the European Union's economic and finance Ministers—known as ECOFIN—a policy was adopted,

"to encourage a process of transition to pluralist democracy".

That implies that there is now a specific policy towards Cuba in the EU which is a very new development. I hope that that will lead to further visits from the EU Commission so that the co-operation agreement can come back into existence because it would certainly be very beneficial to Cuba; and, indeed, to the EU, of which we are a major and important part.

Before I close, I should like to make one further point. My noble friend Lady Young suggested that Dr. Lage should come on a visit here. I have met Dr. Lage. He is a quite brilliant young man. I believe that it is a splendid idea. Indeed, not only should Dr. Lage come here on an official visit but so should many other Ministers. I hope that my noble and learned friend will not only encourage this but that he will also encourage others to do likewise. The idea of a concept of a deeper, better and more profound relationship with Cuba is something which we must all welcome and to which we must look forward.

My Lords, may I begin by saying how convinced I am, from direct acquaintance with it, that the work being carried out by the noble Baroness, Lady Young, as chairman of the steering committee of the Cuba Initiative is extremely valuable. I count myself very fortunate to be associated with her. In point of fact, I do not believe that I have ever before known of such a body. I think it may be a little atypical.

It is an organisation within which there is a representative of each of the two major parties from this House, the purpose of which is mainly to encourage and give political edge to an interface between government departments and British firms as regards what to do next, and between the bureaucracy of this country and the European bureaucracies. Our voices get heard—at any rate, that of the noble Baroness does. When it is looked at retrospectively by whatever government are in power to see whether it is worth doing, it may be that this form of organisation will be found to be worth expanding for use in other circumstances.

The noble Viscount, Lord Waverley, said much that I would have said if he had not said it. I shall not dwell on the position of the United States in the world. However, I should like to dwell for a moment on the position of Helms-Burton as a political/constitutional phenomenon within the United States. It goes not only against international law, because, as is perfectly obvious—indeed, it has been for I should have thought about eight or nine centuries now—you cannot go charging businessmen of a third country who happen to be in your country because they have been trading with another country which you happen to dislike. The principle is pretty well enshrined. You cannot go excluding businessmen from your territory because they had dealings with another country. All that is completely beyond the pale of international law.

And now a case has arisen in that respect which shows pretty clearly that the Helms-Burton Act is producing results which are unconstitutional in the United States. The case is that of Mr. Tom Johnson who is the President of CNN. Of course, the latter is not known as a great friend of American governments; but, equally, it is not known to be a particular enemy of them. Nevertheless, Mr. Tom Johnson has had an experience which he says beggars comparison with the experience he had with Chinese bureaucracy when he tried to set up a CNN operation in China.

The experience was as follows. Mr. Johnson wanted to set up an operation in Cuba and was informed that in order to do so he must have a licence—presumably under Helms-Burton—a kind of waiver which should ensure that he would not be imprisoned. But he was told that he would not be granted such a licence. If one looks further into the background—Mr. Johnson has said this publicly—one sees that the reason apparently is that the proprietor of the Miami Herald, which is the chosen newspaper of the hundreds of thousands of Right-inclined Cuban refugees in Florida, has kicked up a political storm about the matter. He has said that he wants to keep his monopoly of reporting on Cuban reality to the American people. Such is the weight of the Florida vote that he is winning the day and CNN is to be excluded.

I seem to remember that the American constitution was amended for the first time in the direction of the freedom of the press. This is a direct denial by the American Government of the right enjoyed by one of its citizens to go to another country and report home on what is going on. That in itself is almost as important as the trade shenanigans. Such action is against the first amendment to the American constitution as well as being against the WTO and the rest of it. I hope that under the guidance of the noble Baroness we shall be able to—

Time!

My Lords, we are 17 minutes ahead of time.

My Lords, the noble Lord still has only four minutes in which to speak.

My Lords, I understand that. I utter one hope. Under the guidance of the noble Baroness I hope that we shall be able to play a more active part to get European Union movement in this field, and especially to line up with the European ECGDs.

My Lords, like other noble Lords who have spoken I, too, thank the noble Baroness, Lady Young, for asking this Unstarred Question, and especially for being such a notable ambassador for Britain in expanding trade with Cuba. I was therefore all the more disappointed to hear some of the criticisms she felt she had to make about the response of the Government in terms of ECGD. That was echoed by the noble Viscount, Lord Montgomery. I hope that in due course we shall receive an answer from the Minister on those points.

My own view is that by far the best way to increase our influence in a country such as Cuba is through trade and dialogue. During my many years in politics I have had some experience of sanctions. I started as a sanctions enthusiast, but as the years have gone by I have become more sceptical about them. Sometimes they are no doubt necessary and inevitable, as in the case of Iraq, but they involve the difficulty that they tend to make the poor poorer and powerful politicians more powerful. Ever since the Second World War and ever since the revolution in Cuba we have maintained an embassy and an ambassador there and have maintained a dialogue. I believe that is the better way to proceed in this case. Britain has, of course, historic relations of importance in the Caribbean generally. We have much to gain from encouraging the right sort of developments in Cuba. Cuba is, I suppose, almost the last of the old fashioned Soviet type communist states in the world. If we can do something to encourage a gradual movement towards a more civil society—as the noble Baroness called it—that would be important. It is important to encourage it to join the mainstream of Caribbean democracy.

As has been said, as a byproduct of our efforts in Cuba, there is the useful co-operation in the battle against drugs. I was glad to read that the Cuban Minister, the chairman of the commission, visited this country last year, and Scotland Yard has a team in Cuba at present. As almost every noble Lord has said, for their own domestic and regional reasons the Americans have adopted a different policy towards Cuba over a period of years from that adopted by the United Kingdom and our European and Commonwealth partners. The latest example of that is the notorious Helms-Burton Act. In terms of its results, the American policy seems to leave them in a very solitary situation. I note that the last time there was a resolution at the United Nations on the issue, 137 members of the United Nations voted to persuade America to repeal the Helms-Burton Act, with only two supporters, Israel and Uzbekistan. That is hardly a recipe for successful international diplomacy.

On our side of the Atlantic, not only the Government but the Government in association with its European partners have been wiser and more active in the diplomacy that they have promoted. I listened to what the noble Viscount, Lord Montgomery, said about this. I was interested to see that the European Union recently passed a new regulation to deal with the matter. It seemed to be of a usefully balanced character. It was robust and vigorous in terms of defending the interests of the European Union in international trade if the United States were foolish enough to pursue seriously the Helms-Burton proposals. At the same time, it was equally forthright in its espousal of the need to promote human progress and human rights in Cuba. I believe that it may have helped President Clinton at least to give the further six months suspension of the Helms-Burton Act. I believe that it was a good example of how European Union diplomacy can be effective and can play a useful part.

I believe that the European Union regulation requires a United Kingdom order to implement our responsibilities in respect of that regulation. I should be grateful for information on how that is proceeding. I should also be grateful to hear from the Minister the Government's position about any British companies which feel that they are suffering damage from the effects of the American Act, and what help they can expect if the Americans were to proceed further on that matter.

As other noble Lords have said, the Act is still on the statute book. As the noble Viscount said, it is unsatisfactory that we have to proceed on the basis of hoping for a fresh suspension every six months. I do not know what the constitutional answer is. However, I hope that if the Act cannot be repealed, like many Acts of parliament in many countries it might be allowed to wither on the vine or allowed to rust away and not be put into effect. I believe that the maximum international effort is required through the World Trade Organisation, and in other ways, to ensure if possible that the Act is never put into operation. I hope that Her Majesty's Government will play a leading part in that.

Before I sit down, I should like to say how greatly I admire, not for the first time, both the stamina and the versatility of the noble and learned Lord, Lord Fraser. He has just turned from the intricacies of domestic trade union law to the intricacies of the Helms-Burton Act. When he replies, I hope that he can give a positive response to the complaints made by the noble Baroness, Lady Young, about the trade matter, and reassure us that Her Majesty's Government will do everything possible in association with their partners to deal with the situation created by the Helms-Burton Act.

My Lords, we are indebted to the noble Baroness, Lady Young, for raising the matter before us tonight. I speak as an outsider. Noble Lords are aware that only in the most extreme circumstances do I ever allow myself to cross an international frontier. My speeches never contain sentences such as, "When I was in such-and-such a country". That does not mean that I am not sympathetic on this or on other occasions.

My task is particularly easy. The noble Baroness, Lady Young, and other noble Lords have raised the important points. All I can do is echo and reinforce their remarks.

I start by emphasising that the Cuban people are our friends, and I wish them well. I have no desire to tell them what to do, or to interfere with their freedom to make political and economic choices according to their preferences. That does not mean that I agree with them; nor—following my good friend, the noble Viscount, Lord Montgomery of Alamein—that I regard the command economy in its communist or other forms as desirable or as remotely economically efficient. I had my starry-eyed days, as did the noble Viscount. I was very sad to realise that one has to learn other things. But one does.

For me, as for all other noble Lords, the one-party state is unattractive. However, I take the view that the Cubans themselves must decide the path that they wish to follow and when they wish to follow it. All I say to them is that it is possible to have parliamentary democracy and a free, mixed economy which is both prosperous and able to achieve fair outcomes for all citizens. I do not say that it is easy or guaranteed, or that, for instance, the democracies of the West do not sometimes go backwards as well as forward. However, I am optimistic that, over time, we do move forward and that we know how to rectify evils when they occur. I wish to persuade the Cubans, and for that matter others, of that belief. But I have no desire to threaten them, nor any wish to associate myself with those who do. In that connection—this is the nature of our debate—we do not mean in the military sense. I include economic threats. In the case of the Cubans, such threats are undesirable per se. But they are also undesirable in practice when confronting a proud nation. Here I somewhat echo the remarks of the noble Lord, Lord Thomson of Monifieth.

I am not naive. I do not say that the position in Cuba with regard to human rights, for example, is acceptable. However, I repeat, the Cubans themselves must rectify that situation. I very strongly agree with the noble Lord, Lord Thomson that we must not reinforce the belief of those in Cuba who see the outside world as enemies and seek to justify limitations of expression and other freedoms on the basis of preserving the nation against outside threats.

The relevant comparison is with the totalitarian dictatorships of Eastern Europe. In the end it was the people themselves, coupled with the inexorable power of modern economic forces, that led to the downfall of those regimes. They were not brought down by economic or military threats. Sadly, and it is worrying in the present context, the economic failure of the successors to the former Soviet Union—I hope only for the time being—provides a very poor model to follow. I truly believe that the West failed the Soviet Union in its responsibilities there.

However, there need be no similar failure in Cuba when the time comes and when, as it is already doing, it eventually opens itself up more fully to the rest of the world. The Cubans are right in not wanting to see the return of United States based Mafia corruption, and worse, and all that went before. I hope that they are aware that we agree on that point. There is no inevitability that that will happen if Cuba opens itself up and we trade with that country as friends, not enemies.

The point about threats holds good equally in regard to the relationship between the United States and the European Union, and, from our particular point of view, between the United States and the United Kingdom. The United States and the European Union are of equal importance, and neither should threaten the other. That is my point regarding the Helms-Burton legislation. The United States and United Kingdom are allies of very long standing and, a fortiori, neither should threaten the other. That is what Helms-Burton seems to seek.

Let me say a word on ECGD. I was very upset to hear what the noble Baroness said and I hope that the Minister can reassure us. I am particularly concerned about this matter. It is not entirely my field of expertise, as an economist, but I would have thought that using ECGD in this area should be self-financing and that there should be no public expenditure implications. I should like to know whether that is the problem and whether we are prevented from doing something which is sensible because of the forthcoming election and because no one is allowed to say that they would like to spend money on anything. In this case I do not see that that is the issue. I shall be told to be at least as silent as the Minister is on these matters. It seems to me that this is an example of something sensible which would not place a burden on the public purse. I should like to hear the Minister's view on that.

I believe there is no doubt about the illegality of Helms-Burton and its eventual total ineffectiveness. Essentially it is causing a lot of trouble to no good end. Can the Minister tell us whether United Kingdom companies have already been in touch with his department? There are two dimensions to this. Have they been in touch because, as Lord Thomson said, they have been threatened? More to the point, is there any truth in the rumour that the US has been constructing what I think is called a hit list of companies and is having a go? I am quite confident—and it shows how confident I am that I am able to speak in this context—that, if that is happening, Her Majesty's Government will stand up to this nonsense. It is quite intolerable in the modern world, at the end of this century, after having fought for 200 years for free trade, that, of all countries, the US, the great leaders in our time in matters of free trade, should adopt this kind of policy.

We are all in complete agreement. In this case I am absolutely certain that Her Majesty's Opposition is in complete agreement with Her Majesty's Government, whichever way it turns out we shall be in a few weeks' time.

My Lords, I am delighted that in this important and well-informed debate—unlike in the debate to which I responded about an hour ago—there is clear unanimity of view about how Cuba should be approached. I am grateful to my noble friend Lady Young for giving the House an opportunity to consider our relationship with Cuba. We take that relationship very seriously.

In recent years there has been an extensive exchange of business delegations, Ministers and officials responsible for trade, investment, health, justice and other fields. My ministerial colleague at the DTI, Ian Taylor, paid a very successful visit to Cuba in 1995. In line with our policy towards Cuba, there are currently no plans for an exchange of visits on a purely political level. However, my noble friend may know Mr. Mike Mowlam, the DTI Director for Trade Promotion in the Americas. He will be available to visit Cuba at a suitable time to explore commercial opportunities.

It will come as no surprise to your Lordships to know that our policy towards Cuba, along with our European Union partners, is to encourage that process of transition to pluralist democracy and respect for human rights and fundamental freedoms, as well as a sustainable recovery and improvement in the living standards of the Cuban people. A Common Position to this effect was adopted by the European Union in December last year. The Common Position notes that transition would be most likely to be peaceful if the present regime were itself to initiate or to permit such a process. We believe that constructive engagement is the most effective way of encouraging the reform process in Cuba, as the noble Lord, Lord Thomson, and many other noble Lords indicated.

We hope that our political relations will progress in tandem with our trade and investment links. While we have made some headway in that political relationship, human rights and fundamental freedoms—we must be open about this—remain areas of particular concern.

We have called for an ending of arbitrary detentions and for the release of political prisoners; fair trials with independent courts; freedom of expression; free media; the right of citizens to seek political or public office individually or as members of parties or organisations; publication of legislation; lifting of restrictions on non-governmental organisations; Cuba's accession to the international covenants on civil and political rights and economic, social and cultural rights; and co-operation with the United Nations special rapporteur on human rights. So there are a number of areas where we have our differences, but we have spelt them out openly.

Let me turn to the other main strand in our relationship with Cuba: the development of our trade and economic relations. These have been further strengthened over the last year with, I am glad to say, a substantial increase in two-way trade. The figures to the end of November last year show exports of goods from the United Kingdom to Cuba of £23.1 million. That is an increase of some 33 per cent. on the same period last year and already exceeds those for the whole of 1995 when exports were just some £19 million.

In the other direction, imports from Cuba to the end of November 1996 were £18.5 million compared with £8.2 million for the whole of 1995. I am sure that the visits to Cuba made by my noble friend and others will have played their part in this satisfying increase in trade.

Activities last year which attracted financial support from my department included DTI-sponsored representation at the Havana International Trade Fair. That 1996 fair was the largest ever, with some 36 companies at the fair.

In June there was a DTI-CARITAG trade mission which comprised some 14 companies. I am pleased to say that another trade mission is planned for the coming month of July.

I turn to the Commonwealth Development Corporation. I am sure those who have participated in this debate will probably be aware that the corporation received ministerial authority to commence operations in Cuba in June 1995 and that an agreement was signed for the CDC by my honourable friend Mr. Ian Taylor when he visited Cuba. The CDC has identified four areas in which initially to concentrate its investment activity: the financial sector, mining, agriculture and industry.

I am delighted to be able to tell your Lordships that the first investment by the CDC will be signed on the 5th of next month for a financial sector joint venture. CDC will own 60 per cent. of a company to provide short-term working capital facilities in Cuba and will second a general manager to run the company. The remaining 40 per cent. will be owned by the commercial banking arm of Banco Nacional de Cuba. In line with CDC's private sector focus, the company will provide working capital and lease finance to commercial enterprises in Cuba which are subject to market disciplines. CDC will provide a line of credit of up to 15 million US dollars to the new company.

The Investment Promotion and Protection Agreement between the United Kingdom and Cuba which came into force in May 1995 will, I hope, encourage further investor confidence and investment flows. I should add that the CDC is also a financial intermediary for the European Community Investment Partners Scheme, an EU initiative which the DTI promotes to British companies wishing to create joint ventures in Cuba or indeed in other parts of Latin America.

Financial funding remains a necessary part of our relationship, both for humanitarian purposes and to underpin our efforts to encourage economic reform in Cuba. We contribute significantly to EU aid to Cuba, which was approximately £24 million in 1995, of which our share was about £3.7 million. That covered humanitarian assistance, support via non-governmental organisations and economic reform.

We recently donated some £50,000 to the Red Cross for emergency relief, following the damage caused by Hurricane Lili in October last year; the EU provided £480,000 in addition to that, of which our share was about £81,000. Again to encourage economic reform, there is a British Partnership Scheme through which £150,000 is available per annum for suitable schemes.

Several noble Lords raised the issue of drugs. Certainly drugs and drug-related crime pose the biggest single threat to the security and stability of the Caribbean islands as a whole. Cuba, by virtue of her geographic position, is a particularly attractive target for drug traffickers. Fortunately, the Cuban Government now recognise that threat and recognise also the importance of close international co-operation in that fight.

Our counter-narcotics is increasing and over the past few years the Government have provided assistance bilaterally and also through the United Nations drug co-operation programme in the form of training and equipment for Cuban customs and police. That has been very successful. Indeed, one such course run by Her Majesty's Customs and Excise resulted in a significant seizure of cocaine during the practical part of the course at Havana airport.

I turn to the issue of the ECGD. I shall take a moment or two to spell out the various ways in which we believe we have been extremely helpful in seeking to improve the economic performance and offering various lines where trade and investment might be improved in Cuba. The position on ECGD may not be as encouraging or satisfying to those who have contributed to the debate. ECGD's short-term operations were transferred to the private sector credit agency NCM in 1991 and NCM, as a private sector company, will underwrite business with Cuba—it is a decision for NCM—only if a confirmed letter of credit is in place. The medium cover provided by ECGD was withdrawn in 1983 when Cuba first rescheduled its debt with the Paris Club. I regret that Cuba has allowed substantial arrears to build up under these rescheduling arrangements. Once Cuba has normalised its position with its creditors, ECGD would be prepared to review its cover position with regard to Cuba's readiness for new medium-term credits, but resumption of cover would depend on Cuba being able and willing to service new external debt on commercial terms in a proper manner.

My noble friends Lady Young, Lady Hooper and Lord Montgomery made reference to the approach adopted by other countries. Our information is that ECGD's approach is not out of line with export credit agencies in other countries trading with Cuba. The key issue for most agencies is whether in a given project the payment risk can be externalised. If it can, ECGD would be prepared to consider medium-term cover. I understand that the French credit agency adopts a similar policy view. As my noble friend Lady Young mentioned, the French have provided short-term cover in an arrangement involving sugar bartering. Although that may be the case, it was for short-term cover, and in the United Kingdom that is now in the hands of NCM and not in the hands of ECGD.

My Lords, I am sorry to interrupt my noble and learned friend because what he is saying about ECGD is so extremely important to everyone. I want to make sure that I have understood the position. As I understand it, it is very difficult for Cuba to repay its debt unless it can get better machinery and so on to improve its sugar crop, nickel output and so on. We are in a kind of chicken-and-egg situation whereby we cannot help Cuba to improve its production and therefore it cannot repay its debt. Therefore, I do not quite see how we can get out of this log-jam.

My Lords, I appreciate the real difficulties for Cuba. However, those have arisen because, having come to an agreement with the Paris Club and having secured a rescheduling, Cuba has not allowed that position to be worked through, and substantial arrears have built up. That is why I took some time to try to express to your Lordships the other ways in which opportunities are being opened up with the support of the United Kingdom to allow for investment in Cuba and to allow, through ECGD and others, for lines of credit to be opened up. It is through those routes that we would hope it will prove possible. I do not suggest that it can be achieved overnight, but it would be a way to improve the performance of the Cuban economy.

What is quite clear, but will not help it, is the Helms-Burton legislation. The noble Viscount, Lord Waverley, and, I believe, everybody who contributed to this debate, expressed their concerns about it. Of course we and the United States share a desire to see the democratisation and economic reform of Cuba. However, we have made it very clear that we do not accept that the United States has the right to export its sanctions legislation and to penalise United Kingdom business people for undertaking normal trade.

I believe that it was the noble Lord, Lord Peston, who asked me whether anyone had in fact yet been targeted. Two UK citizens, Sir Patrick Sheehy, who I do not believe is known for having a particularly leftist view of politics, and Mr. Rupert Pennant-Rea, who are both board members of the Canadian mining company Sherritt, have for that reason been excluded from the United States. Otherwise, we are not aware of any United Kingdom companies or citizens being targeted at present, but that is enough. In our view it is quite unacceptable.

The United Kingdom and its EU partners have taken positive action to respond to the unacceptable assertions of jurisdiction by the United States contained in this legislation. We have instituted proceedings in the WTO against the legislation and the EU has also adopted a regulation designed to counter the effects of US legislation on Cuba and indeed on separate US sanctions against Iran and Libya. They came into force on 29th November last year.

These actions demonstrate that the United Kingdom and its EU partners have responded firmly to these unacceptable assertions of jurisdiction. I believe that the views expressed during the course of this debate that the firmness of the EU response has paid off are correct because on 3rd January President Clinton suspended the right to bring actions against alleged traffickers in expropriated US assets for a further six months.

My noble friend Lord Montgomery is absolutely correct to say that endless repetition of these suspensions is no satisfactory conclusion. However, I cannot answer him as to how easy it would be for the United States to repeal this legislation, but ultimately we are quite clear about this: that must be the end goal. We shall persist with our pressure. I hope that the Americans themselves realise that and that the six months' repetition is not suitable.

What we must emphasise is that we consider Helms-Burton to be an international trade issue and not an argument with the United States about the aims of policy towards Cuba. As I have already stated, the goal of promoting political and economic reform in Cuba is one that we share with the United States. However, we differ fundamentally on the means to achieve that.

I have possibly taken a little longer than I ought to, but it is an important relationship with Cuba. I hope that this debate has been helpful to spell out the individual initiatives and activities through which we are taking forward our political and economic relations.

In summary, we need to maintain pressure to improve human and civil rights while engaging in a constructive relationship in which support for the growth of a market economy plays a prominent part. That approach is in the common interest of Britain and Cuba. I can assure your Lordships in a House where there seems to be a keener interest in Cuba than in another place, that the Government will continue to conduct their policy towards Cuba on these principles.

House adjourned at one minute before ten o'clock.