asked Her Majesty's Government:

My Lords, we have no diplomatic relations with Iraq. Iraq maintains an Interests Section at the Jordanian Embassy in London. British interests in Iraq are looked after by the Russian Embassy, although UK officials from the British Embassy in Oman periodically visit for routine administrative purposes. UK policy is to press for the implementation of all Security Council resolutions, including No. 1284 about weapons inspections and No. 1382 concerning the control of military and WMD-related goods to Iraq while liberalising trade.

My Lords, I thank the Minister for that reply. As regards Iraq, should not our most important objective be to secure the return to Iraq of the United Nations inspectors who have not been in that country since 1998, during which time Saddam Hussein has no doubt been busy trying to build up his stocks of weapons of mass destruction?

On 1st January, the Foreign Secretary said:

"There is a clear agenda for Iraq laid down in UN resolutions. We look to them to implement them".

In case Saddam Hussein is not swayed by that plea, are the Government examining other means of putting pressure on Iraq to secure the observance of the United Nations resolutions? Has the Prime Minister spoken to President Putin, for example, urging him to encourage Saddam Hussein to admit inspectors again, bearing in mind that Russia has been close to Iraq and is a member of the coalition against terrorism?

My Lords, I agree with the noble Lord that one of the absolute priorities is to secure the return of the inspectors looking for weapons of mass destruction. We know that the UN weapons inspectors were unable to account for some 4,000 tonnes of so-called precursor chemicals used in the production of weapons; 610 tonnes of precursor chemicals used in the production of VX gas; and 31,000 chemical weapons munitions. So, yes, there is a great deal to look for, not to mention the fact that we know that Iraq has been doing its best to secure some nuclear weaponry as well.

As I made clear in my initial Answer, we pursue the issue through pressing for the implementation of UNSCR 1284. I am pleased to say that meanwhile there has been unanimous agreement to press ahead with UNSCR 1382, which was passed at the end of November and which we hope will come into force at the end of May this year.

My Lords, will the Government take steps to ensure that sanctions are as closely targeted as possible on Saddam Hussein, his Ministers, his government and his associates? Secondly, will they try to ensure that the proportion of the oil-for-food money which is due to the Kurdish autonomous regions reaches there and is effectively spent?

My Lords, indeed. I should tell the noble Lord, Lord Hylton, that Security Council Resolution 1382 looks to implement what is called a "goods review list". That will change controls on Iraq from the current situation in which all exports to Iraq are prohibited unless specifically approved by the United Nations to one in which all goods are automatically allowed, except for the most focused list of goods in the GRL, which are those concerned with the production of weapons, including weapons of mass destruction.

It is important that money goes to where it is needed in Iraq. We believe that sanctions have been very important in securing that end and in denying to Saddam Hussein the ability to spend his oil revenues on whatever he pleases, including weapons. Instead, that money has been directed at food and humanitarian goods needed by the people of Iraq.

My Lords, is the Minister aware that the Washington Administration has had a number of contacts with the exiled Iraqi national congress? They have been controversial contacts, but they have been at a very high level. Have we had the same kind of contacts here in London, too?

My Lords, we have kept in contact with the opposition elements in Iraq. As the noble Lord will know, there has been considerable worry not only about the production of weapons of mass destruction but the humanitarian situation in Iraq and the denial of human rights arid cruel punishments within Iraq. They have been the source of a great deal of anxiety for some time. Since the ghastly events of September 11th, the focus on international terrorism has increased. The noble Lord can rest assured that we are keeping in touch not only with those in Iraq who are able to tell us what is going on but also with our allies and their forces, which may be independent of ours.

My Lords, is not the real reason why the rogue regime has been allowed to survive the fact that since the Iraqi war the democratic American Administration has allowed Iraq totally illegally to export oil to Turkey in the north by road and to Dubai in the south by barge? Is it not correct that the revenues from those illicit oil sales, about which the Americans were repeatedly told by many Members of Parliament visiting Washington, have funded that rogue regime throughout the period and that we now look to another Administration in America to sort the problem out once and for all?

My Lords, there have indeed been concerns about illicit trading to Turkey and other areas in the Gulf region, as the noble Lord knows. We in the United Kingdom have made representations to the governments concerned. I cannot comment in detail about what the noble Lord claims is complicit action on behalf of the United States. I have no knowledge that there has been specific complicit action in the way the noble Lord describes and, to be frank, I would be very surprised indeed if solid evidence to that effect could be produced.

My Lords, does the noble Baroness agree that if Iraq persists in its refusal to allow the international community to monitor its programmes for the development and deployment of weapons of mass destruction, it would be entirely within the exclusive competence of the Security Council to decide what further measures would be required? Does she further agree that any individual action taken by particular members of the Security Council is to be wholly deplored?

My Lords, the United Kingdom has made it clear that we would prefer to proceed through actions taken by the United Nations. That is why we undertook such an active role in pursuing United Nations Security Council Resolution 1284 in the first place and, indeed, why we have taken an equally active role in pursuing the latest UNSCR 1382. We very much hope that the resolution, which was unanimously agreed but with a forward date of 30th May, will be implemented. That resolution should demonstrate unequivocally that our argument is with a regime that wishes to secure weapons, in particular weapons of mass destruction, rather than with the people of Iraq who badly need food and medicines.

asked Her Majesty's Government:

When they expect to receive the report from Ernst & Young on the public private partnership plan for the London Underground and whether, in making their subsequent decision, they will have in mind the need for responsibilities to be clearly allocated.

My Lords, London Underground is carrying out a thorough evaluation of bids for the Tube modernisation contracts, considering all aspects of value for money. My right honourable friend the Secretary of State for Transport, Local Government and the Regions has taken on Ernst & Young to give him an independent opinion on the robustness of London Underground's conclusions. The Government will receive and publish Ernst & Young's report before any decisions are taken on whether to sign the contracts.

My Lords, can the noble and learned Lord give a categoric assurance that the Ernst & Young review of London Underground's assessment of the value-for-money aspects of its proposals under the PPP will, to quote the words of the Secretary of State, focus on the overall robustness of the conclusions reached? Is the noble and learned Lord aware of the anxiety that contacts—there will always be such contacts—between the Secretary of State or someone acting on his behalf and Ernst & Young may possibly have led to a diminution of that focus, from which could follow a review which would fall short of that which the Secretary of State has promised, and which users of the London Underground very much expect?

My Lords, I believe that I can give such an assurance. The purpose of instructing Ernst & Young is so that the company can evaluate the robustness of the conclusions that London Underground and PricewaterhouseCoopers come to as regards the value-for-money aspects of the three PPP contracts. The evaluation made by Ernst & Young, which is to test the robustness of the conclusions reached by London Underground and PricewaterhouseCoopers, will he published before any final decision is taken. In answer to the specific question put to me by the noble Lord, yes, it will focus on the precise issue identified by the noble Lord and, furthermore, it will be made available before a final decision is reached.

My Lords, has any thought been given to the irreconcilable responsibilities of the Mayor of London, who wants to run the Underground for 24 hours a day, and the infrastructure companies which need to occupy the Underground for far longer than is now possible in order to put right all the defects in the system? Such irreconcilable objectives were neglected at the time of the privatisation of the "big" railway and we are now paying the price for that. I am sure that we do not want to have to do that again in the case of London Underground.

My Lords, deep consideration has been given to such issues, but the nature of the PPPs in relation to London Underground is totally different from the nature of the privatisation undertaken in relation to Railtrack. In particular, London Underground remains responsible for the whole of the Underground service, including safety—unlike Railtrack, which remains responsible only for the track. The PPPs concern the letting out of three contracts to undertake maintenance work. In response to the specific question put to me, yes, consideration has been given, but the analogy drawn by the noble Lord between Railtrack on the one hand arid the PPP's on the other is not accurate.

My Lords, what is the remit of the Mayor of London in this affair?

My Lords, the Mayor of London is responsible for Transport for London. After the PPP has been put in place, London Underground will be transferred to Transport for London.

My Lords, to whom is he really responsible?

My Lords, to the electorate.

My Lords, if the PPP for the London Underground fails in whole or in part to meet the value-for-money test, is an alternative plan being worked on in the department which could possibly involve Transport for London taking over some of the Underground lines?

My Lords, I believe that I have made it clear that at the moment we are concentrating on the proposals in relation to the PPP. It would be unwise for there not to be contingency plans were the PPP not to go ahead, but we believe that the PPP will go ahead. So far as concerns contingency planning, it must involve Transport for London.

My Lords, I welcome the Minister's commitment to publish the Ernst & Young report. No doubt the noble and learned Lord is enormously relieved at the return of his right honourable friend the Secretary of State because he has no doubt had to hold the fort over the Christmas and New Year period as regards transport issues. In welcoming the publication of the report, does the noble and learned Lord agree that, since 1997, average investment in London Underground has been lower than it was during the preceding five years under the Conservative government?

My Lords, as regards the past four or five years, covering the period of the Labour Government, the noble Viscount will know that almost £1 billion more in grant was provided than was planned by the Tories. That was enough to allow average investment in the core of the Underground network of around £530 million for each year. One must compare that investment with that made during the whole of the Tory period—that is, 1979 to 1997—which amounted to £395 million. The noble Viscount, being an expert in figures, selected a period when the figure happened, as a matter of averages, to be lower. That is not very convincing.

My Lords, my noble and learned friend stated that the Mayor is responsible for the safety of the Tube. How does that affect the PPP infrastructure people who have to maintain a safe infrastructure? Given the problems experienced by Railtrack in maintaining a safe infrastructure, who will pay when it is discovered that the track is worse than it was thought to be and that extra safety costs are applicable to the system?

My Lords, obviously London Underground remains responsible for safety and is subject to the views of the HSE. Safety is a paramount concern. The contracts provide for a particular outcome from the PPP contractors. If the PPP contracts go ahead, it will be for the PPP contractors to deliver standards that meet the safety requirements.

My Lords, do these exchanges mean that the full contents of the letter written by Ernst & Young on 4th October, a copy of which is in the Library, still stand? It is very important.

My Lords, I do not have the whole letter in front of me. I do not want to give an answer that may be inaccurate, so perhaps I may write to the noble Lord. The assurance I have given him is that it focuses on the robustness of the assessment by London Underground and PricewaterhouseCoopers and that it will be published before final decisions are made. I shall write to the noble Lord about the detail of the letter.

My Lords, how do you focus on a robustness?

My Lords, I am sure that Ernst & Young will know how to.

asked Her Majesty's Government:

Whether they intend to act upon all the recommendations on disability equipment services in the report of the Audit Commission, published in 2000, Fully Equipped: The provision of equipment to older or disabled people by the National Health Service and Social Services in England and Wales.

My Lords, from 2001 to 2004, £105 million is being provided to the NHS to modernise community equipment services, along with funding for local authorities to contribute their share. Four million pounds is being invested in prosthetic services and siliconecosmesis. In the next financial year, access to digital hearing aids will be extended. Work to improve orthotics and wheelchair services will take account of relevant recommendations in the Audit Commission report.

My Lords, I thank the Minister for that Answer. Does he agree that this was another excellent report by the Audit Commission on a disablement subject? Does he accept that disabled people, even in this century and even in this country, still experience needless difficulties caused by ignorance or lack of imagination?

My Lords, while I am sure that the House will agree with the noble Lord's general sentiments, I do believe that in a number of ways the Government have developed policies and actions to try to overcome some of that ignorance. So far as concerns the Audit Commission report, I agree that it was very helpful. It highlighted achievements and shortcomings in current services. We are making progress and I hope that, over the next few years, disabled people will feel that the services they receive have been radically improved.

My Lords, does the Minister agree that, overall, the report was damning? Its main thrust was that matters were carrying on as normal. It was not about resources but about the way the system worked. Can the Minister give an assurance that matters such as allowing young people who need prostheses to have sports limbs will be taken into account, if only on the grounds that the long-term cost savings in regard to their general health will more than compensate for the initial outlay?

My Lords, the Government are giving urgent consideration to that matter. As to the noble Lord's general points, I agree that the Audit Commission report raised a number of serious shortcomings in the way that services were provided. I also agree that while resource is important—and we are putting extra resources into these five services—much of the Audit Commission report concerned organisation and the way in which services were being run. We are keen to ensure that the NHS—and, where appropriate, local government—improves the commissioning of future services. We are working with users and the national procurement service within the NHS to develop specifications and contracts which will lead to improvements in the areas identified by the noble Lord.

My Lords, does my noble friend agree that the Audit Commission report not only identified shortcomings but was scathing about the five services which are so vital to disabled people? It recommended that each service should be scrutinised separately. Can my noble friend tell the House whether the progress made so far has been satisfactory or disappointing for each of the five services? Can he also tell the House which target dates have been set for which service?

My Lords, my noble friend is right—the Audit Commission was not entirely complimentary about the state of the services it discovered. He is also right to suggest that we need to look at the five services separately, although lessons can be learnt in terms of proper organisation which can apply to most of those services. I do not say that, in the months since the report was published in March 2000, everything has been put right, but we have made steady progress. As I have said, we are putting extra resources into those services and we are involving users in the planning and commissioning of those services for the future. With the national procurement agency working alongside users of services, we will be in a position to produce better specifications in the future and there will be a better integrated approach to commissioning at local level.

My Lords, in relation to the cost of treatments or appliances, does the same division arise between NHS provided services and social services provided services? Are some means tested and others not? What is the situation?

My Lords, I suspect that the noble Baroness is referring to community equipment services. The Audit Commission report suggested that they should be brought together between health authorities and local authorities, and we agree with that. We have set targets for community equipment services to be integrated by 2004. As to charges, only a small amount of social services expenditure on equipment is recovered through charges. We will ensure that local councils retain the right to charge for disability equipment because it is within their current powers so to do, but we would also ask them to consider whether it would be cost effective to do so within the new integrated community equipment services. I take the noble Baroness's point, but, ultimately, it will be for individual local authorities to decide.

asked Her Majesty's Government:

By what date they expect to set up the successor company to Railtrack.

My Lords, it is for the administrator to put a proposal for a transfer scheme before my right honourable friend the Secretary of State based on any propositions he receives. The timetable for this process is a matter for the administrator. He shares the Government's view that it should be completed as quickly as possible.

It is in everyone's interest that at least one viable bid is submitted to the administrator for him to judge alongside any other serious bids that are made. To this end, a bid team has been established under the sponsorship of the Strategic Rail Authority to develop a robust proposal for a company limited by guarantee. The bid team is up and running under the leadership of Mr Iain McAllister.

My Lords, I have no doubt that, the decision has indeed been delayed by the absence of the Minister's right honourable friend the Secretary of State. Are not the actions of his right honourable friend in robbing so many people of their savings both ill considered and, indeed, immoral? Does the noble and learned Lord consider that the fact that so many of the people affected are railway workers may well have had an effect on the current situation on the railways?

My Lords, "No" to the first part of the question. There was no such delay caused by the Secretary of State's holiday. "No" as regards the implication that the shareholders were "robbed". The placing of Railtrack into administration was a necessary and sensible act done in the interests of rail users; and "No" to the third part of the question.

My Lords, who is ensuring that the people maintaining the railway at present—that is, the contractors who are contracted to the administrator—are actually delivering any sort of value for money? We keep hearing about the need to spend large sums of money on the railway; we have no measure whatever of whether we are getting any return for taxpayers or railway users in terms of value.

My Lords, the responsibility for ensuring value for money on those contracts obviously lies with Railtrack. Railtrack is presently in the hands of the administrator. The administrator has appointed Mr John Armitt, who commands widespread respect as the chief executive. His job, among others, will be to ensure that the vital value for money to which the noble Lord refers is being obtained.

My Lords, by what date does the noble and learned Lord expect a result in this situation? Can he say whether we shall have a solution in weeks or months?

My Lords, it will not be weeks. This matter will take a considerable time. I cannot say precisely how long it will take. It will involve a process of selecting a long-term future for what is currently Railtrack. I do not think it would be right simply to give an answer that would provide some spurious deadline when these matters take time—and it is right that they should.

My Lords, does the Minister agree that the successor company to Railtrack must pay proper heed to the network licence under which the original company operated; namely, that it operates safely, looks after its assets and pays due heed to the interests of its customers and its regulator? Is he aware that virtually every train operating company, virtually every maintenance contractor, every passenger group and every other organisation that dealt with Railtrack felt that the contemptuous way in which that company dealt with them contributed enormously to its destruction and that many of its problems were self-inflicted?

My Lords, I agree with the first part of the question; namely, that those matters to which regard should be had are certainly matters to which those operating the track should have regard. As to the precise role of Railtrack in terms of contributing to its being placed into administration, I do not want to comment at the present time. The right thing to do is to look forward.

My Lords, does the noble and learned Lord remember that when the Secretary of State put Railtrack into administration he said that the process might take three to six months? It has now taken three months and we have heard from his department in the past few days that the process might take between nine months and a year. If that is the case, will the noble and learned Lord give the House an assurance? In order for the private sector to have an opportunity to bid, when will the Government announce what public sector funding will be available to the railway industry?

My Lords, as to the first part of the question regarding the timing, yes, I recall the remarks referred to by the noble Viscount. The time that these matters take is very difficult to estimate, and I believe that everyone in the House recognises that. I am quite sure that the right thing to do is to ensure that a proper period of time is taken in order to ensure that the correct answer is reached. Rushing into things may not necessarily be the right course in a situation such as this.

Secondly, so far as concerns the process, it is for the administrator to decide on the basic process to be adopted. It is for the administrator ultimately to come forward with a specific proposal on which the Secretary of State will then express his consent or riot. So far as concerns government funding in the future, to some extent that will depend on what proposals come forward.

My Lords, will my noble and learned friend give the House an assurance that the organisation of Mr John Armitt—whom we all welcome as chief executive of Railtrack plc and whose job it is to keep the network going—is now completely separate from that of the Railtrack group headed by Mr Robinson and Mr Marshall—who appear to be continuing to plough their furrow to look after shareholders' interests, which at the moment is diametrically opposed to running the railway?

My Lords, Mr Armitt's job as chief executive is to run the Railtrack part of the business. It has nothing to do with the Railtrack group, which owns various properties and has various property rights, and which is entirely separate from what Railtrack is doing.

My Lords, is the Minister content, in view of the sad history of the past few months, that private money will be given to the new successor company?

My Lords, 1 am content that the arrangements that will be made will be such as to attract private money. As to what they are, that is a matter to be developed in the next few months.

My Lords, I beg to introduce a Bill to abolish the common law offence of blasphemy and certain other offences and create an offence of religious hatred. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.—(Lord Avebury.)

On Question, Bill read a first time, and to be printed.

My Lords, I beg to introduce a Bill to amend the Disability Discrimination Act 1995 and the Disability Rights Commission Act 1999. I beg to move that this Bill be now read a first time.

Moved, That the Bill be now read a first time.—(Lord Ashley of Stoke.)

On Question, Bill read a first time, and to be printed.

My Lords, I beg to move that this Bill be now read a second time.

In recent years there has been growing concern at the perceived level of electoral malpractice in Northern Ireland. It is apparent that some individuals and groups have been abusing their right to vote and defrauding the poll.

Since the Belfast agreement, people have seen more than ever that peace and prosperity in Northern Ireland must lie with the political process. Therefore, we cannot allow the Northern Ireland electorate to become disillusioned with the political process because they may feel that elections are not fair. If there is a high level of electoral abuse—or even if it is only that people fear that there is such a high level—the democratic process in Northern Ireland will be under threat.

However, we have tried to bear in mind that any measures intended to prevent electoral fraud must be set against the effect they will have on legitimate voters. It would not be right in our judgment to impose unreasonable burdens on the majority of the electorate in Northern Ireland, who simply want—rightly—to exercise their franchise as their entitlement.

The Bill gives effect to the proposals in the White Paper, Combating Electoral Fraud in Northern Ireland, which was published in March last year. It provides the Chief Electoral Officer for Northern Ireland with additional powers to address the problem of electoral fraud.

The Bill builds on the work carried out in recent years by the Northern Ireland Affairs Select Committee, the Northern Ireland Forum committee on electoral malpractice and the Northern Ireland Office review of electoral administration. I want to pay tribute to the work of the former chairman of the Select Committee, the noble Lord, Lord Brooke of Sutton Mandeville, both on that committee and for his significant continuing contributions to the search for peace and prosperity in Northern Ireland.

We have tried to think through the Bill carefully and to produce proportionate remedies. If there are any suggested improvements to the Bill which are consistent with its purpose and policy, I shall personally be more than happy to give them careful scrutiny.

First, the Bill enables the Chief Electoral Officer for Northern Ireland to collect additional identifying information from voters at the point registration. Those applying for registration will be required in future to state their date of birth and to sign the form for the annual canvass, as well as giving their name and address as at present.

This information will not appear on the published version of the electoral register but will be used at the electoral office for the purpose of making checks against the name of an elector when he or she applies for a postal vote or to vote by proxy, and at polling stations when electors attend to obtain a ballot paper.

We continue to reflect on the suggestions made that national insurance numbers be used in the registration process. We are exploring too possible ways in which data held by other organisations might further be used to combat electoral fraud. The chief electoral officer may use his discretion to dispense with the requirement for a voter to supply a signature in certain circumstances, such as physical incapacity, illiteracy, and so forth.

The Bill also empowers a presiding officer to ask a third question, namely: "What is your date of birth?" He may do this if he has reasonable doubt that the person's date of birth provided at registration does not correspond with that on the prescribed document, or with his or her apparent age. If the voter does not answer to the satisfaction of the presiding officer, he can refuse the voter a ballot paper.

Clause 3 of the Bill amends provisions which have effect only in Northern Ireland and which relate to absent voting—that is, voting by post or by proxy. Such applications to vote must be signed and state the date of birth of the applicant. The signature and the date of birth on the application must correspond with the signature provided to the chief electoral officer on registration. He may refuse to grant an absent vote application if he is not satisfied that the signature or date of birth on the application corresponds with the signature and date of birth held on his records.

It is important that the chief electoral officer "may" refuse an application rather than "shall" refuse one to ensure that legitimate voters, such as the elderly who may have difficulty signing consistently, are not denied their vote. It is proper that the CEO can carry out checks, such as speaking to the individual, so that he takes a decision on the basis of the full facts. Similarly, a postal ballot paper shall not be deemed to be duly returned unless the declaration of identity accompanying it has been signed by, and states the date of birth of, an elector and the signature and date of birth correspond with those supplied by the elector on registration—unless there are exceptional circumstances that justify the registration officer in dispensing with the requirement of a signature.

Clause 4 is an important feature of the Bill. It provides for a photographic electoral identity card to be issued free of charge to those persons entitled to vote but who might not otherwise have satisfactory proof of identity. It is proposed, in due time, to replace all the non-photographic identification on the list of specified documents acceptable at the polling station in Northern Ireland. Our target date for this is May 2003, the date of the next Assembly elections—

My Lords, I am sorry to intervene, but is this not a very good example of where the introduction of proper national identity cards would be extremely useful and avoid much unnecessary administration? Indeed, is this not precisely the argument that one would use for their introduction?

That may be so, my Lords. However, it is outside the ambit of the Bill. As some noble Lords will already have noted in Clause 4, it is most important to remember that this is not a mandatory identification requirement providing the only possibility to vote in Northern Ireland. It is not therefore the same as an identity card.

As I was saying, by 2003 it is proposed to have the scheme in place. Clause 4 enables a person to apply to be issued with an electoral identity card, in accordance with any requirements prescribed by regulations. The electoral identity card must show the elector's full name and date of birth, his or her photograph, and the card's expiry date. The card will be valid for 10 years and will he added to the list of specified documents that voters may use—the point I made in answer to my noble friend Lord Campbell-Savours—for the purposes of identification at polling stations in Northern Ireland.

Clause 5 introduces a requirement for voters with disabilities to produce a specified document, in the same way as other voters. That has been an inadvertent omission from recent legislation.

I am very pleased to say that, to date, support for this Bill has come from parties across the political spectrum, and from within Northern Ireland. I am grateful for that support. I commend the Bill to the House.

Moved, That the Bill be now read a second time.—(Lord Williams of Mostyn.)

My Lords, I am grateful to the noble and learned Lord the Lord Privy Seal for setting out to your Lordships' House the background to, and the main provisions of, this short Bill. At the outset, I should say that the Bill has the broad support of the Opposition.

Ever since the franchise was extended in the 19th and early 20th centuries, electoral fraud in the form of the "vote early, vote often" tradition and the problems of personation have been an endemic part of political life in Northern Ireland. Indeed, only too often in my childhood, I heard the call, "Vote early and vote often!"

Your Lordships will not be surprised to hear me say that I believe that parties representing the republican tradition have been more adept at exploiting the system for their own electoral advantage than others—certainly in recent years—though it is true that in the past Unionists were not immune from the practice.

In the not too distant past, polling stations without personation agents were known as an "open box" and every attempt was made, in the words of the noble Lord, Lord Fitt, who I am delighted to see in his place today, to "riddle the box" by putting in as many personators as possible. According to McKittrick,

"houses and halls were set aside as 'dressing stations' where personators would sometimes go for a change of clothes".

It was only when Sinn Fein began contesting elections again in the 1980s that the old convention of "doing your own side" was cast aside and vote stealing from the other side began to take place.

As a result of all this, elections in Northern Ireland and, in particular, the identification of voters at polling stations, are already more tightly controlled than in the rest of the United Kingdom. Most recently, the previous Conservative government passed the Elections (Northern Ireland) Act 1985, which made it compulsory for electors to present specified identity documents before being given the ballot paper. However, the Act has failed to stamp out personation and electoral fraud in Northern Ireland. In particular, stories abound about the ease with which some of the documents specified in the Act can be forged, especially by those not carrying a photograph such as a medical card or a book for the payment of allowances, benefits or pensions, or even a driving licence, which, in Northern Ireland, does have a photograph on it.

The current extent of electoral fraud is of course difficult to quantify with precise accuracy, and by and large, elections pass off without incident. I have no doubt that in the vast majority of cases the results reflect the wishes of the electorate. However, I should like at this stage to express my appreciation of the work carried out by the chief electoral officer, his staff, and of all those involved in the running of elections in Northern Ireland who do their jobs meticulously, often in very difficult circumstances.

That said, there is enough anecdotal and statistical evidence around to make it clear that more needs to be done. In 1998, the Northern Ireland Select Committee, to which the noble and learned Lord the Lord Privy Seal referred earlier, reported that,

"there is sufficient evidence of organised voting theft to indicate that the problem of electoral malpractice in Northern Ireland is serious".

Indeed, rather than declining, the evidence appears to suggest that the problem in recent years is on the increase. Indeed, the result of last year's election in Fermanagh and South Tyrone that Sinn Fein won by just 59 votes was challenged in the Election Court in Belfast over allegations that a polling station was allowed to stay open for some time after the 10 p.m. close. I was told—true or not—that the electoral officer was forced by masked men to re-open the station after he had locked the boxes. Fermanagh and South Tyrone is not of course without form in the history of electoral malpractice. Anyone conversant with the results in 1955, or, indeed, in 1981, would be able to testify to that.

Nor is the problem confined to Westminster elections. At local government and Assembly levels the existence of multi-member constituencies and especially the single transferable vote increase the potential for fraud. As the then electoral officer, Mr Bradley, put it in his report for 1998–99:

"The local elections are more susceptible to electoral abuse. A small number of votes can have a significant impact on the election of individual councillors and hence, in the case of marginal councils, in determining the overall control of the council".

Electoral fraud has been the subject of a number of studies and debates in recent years, both in Westminster and in the Northern Ireland Forum, as well as more recently in the Northern Ireland Assembly.

In its 1998 report on electoral fraud, the Northern Ireland Select Committee, under the chairmanship of my noble friend Lord Brooke, whom I am delighted to see in his place today, specifically drew attention to problems relating to registration, absent voting, political presence at polling stations and voter identification. Some of the examples mentioned in the report are staggering. The committee noted evidence provided by the SDLP of 18,000 names appearing more than once on the electoral register for West Belfast, compared with 6,000 on a London register for an area with a large Irish community. No wonder the Select Committee concluded that,

"the evidence exists that there may be a serious level of multiple registration, at least in some parts of Northern Ireland".

The Government's review, Administering Elections in Northern Ireland, concluded:

"there is a level of false registration which is carried out with the express intention of abusing the system".

Because of the electoral system and the sensitivities in the Province, we must use every available means to ensure that elections in Northern Ireland are free and fair.

On the abuse of absent voting, we learn that the chief electoral officer received 10,000 applications just hours before the deadline for the 1997 general election. As the Select Committee noted:

"A large proportion of these were from one political party".

There are no prizes for guessing which party that might have been. It has recently been allocated office space in the Palace of Westminster and administration costs of £500,000 courtesy of Mr Blair.

Again, as the Select Committee noted, the chief electoral officer was,

"satisfied beyond any shadow of a doubt that the problem is extensive".

The Select Committee concluded:

"Absent voting provides a serious threat to the integrity of the electoral system of Northern Ireland".

The Government's review stated that the chief electoral officer believed that up to half of all absent vote applications for the 1997 local government elections were fraudulent.

The Select Committee also drew attention to the weaknesses of the current system of voter identification at polling stations, concluding that,

"the present system of relying on party agents to challenge in cases of personation is unrealistic and provides inadequate protection".

There is clearly a need for action. We are justified in criticising Her Majesty's Government for the delay in introducing legislation. Why did it take three years between the publication of the Select Committee report and the White Paper setting out the Government's proposals to combat electoral fraud? As the Select Committee said in its first special report of 2000–01, a year ago:

"When we reported in March 1998, less than a year after the general election, we had a reasonable expectation that rather more progress might have been made before the next general election in tackling the serious problem of electoral malpractice than appears likely to be the case".

That is rather more diplomatic language than I would use to describe the Government's dither and delay in coming up with meaningful proposals. The argument that they lack parliamentary time is unsustainable. They only got round to publishing their White Paper in March and they regularly make time in this House for measures that are much less serious than the one before us today. I shall not accuse the Government, but I suggest that they had a vested interest in not upsetting the republican vote before the last election. As a result of the Government's delay, legislation was not in place for the recent general election.

I do not intend to follow the noble and learned Lord in describing the Bill's proposals in detail. As far as the Opposition are concerned, they make practical common sense as far as they go, but we do not believe that they go far enough. We have further proposals that we hope will have the desired effect in combating what is clearly a serious problem. While we support the Government's proposal to add the voter's date of birth and signature to the register, we shall also table amendments to include national insurance numbers on the register held by the returning officer. The noble and learned Lord said that the Government are still thinking about that. We also support the idea of allowing the presiding officer at the polling station to ask the date of birth of an elector applying for a ballot paper. Furthermore, we want electoral identity cards introduced for those who, in the normal course of events, would not have any other photographic identity.

The management of proxy votes must be improved. We have heard the statistics. The possibility of unknown multiple registrations must be removed from all Northern Ireland elections.

We particularly welcome the move towards phasing out non-photographic forms of identification at polling stations and the introduction of a new photographic electoral card. We urge the Government to proceed with that as quickly as possible, given that it is estimated that it could take as much as 18 months to implement after the legislation is passed.

I give the noble and learned Lord notice now that in Committee and on Report we shall move amendments to tie the Government to their own deadline on the issue. During the Commons debate that deadline was said to be April 2003, but I hear today from the Minister that it has been put back to May. We shall attempt to persuade your Lordships that such an amendment should be passed.

Looking to the longer term, the White Paper Combating Electoral Fraud in Northern Ireland identified the potential for new technology to combat electoral fraud and to ensure that Northern Ireland has a comprehensive and secure electoral identity system. The White Paper suggests that the ultimate aim should be for every voter to be issued with an electoral smartcard bearing a unique identifier. That would prevent anyone registering twice without the knowledge of the chief electoral officer and would make it virtually impossible for anyone to vote twice. The inclusion of a national insurance number on the register is almost as good, although it is not a real substitute. That surely has to be the way forward for electoral processes in Northern Ireland.

My Lords, I thank the Leader of the House for introducing the Second Reading of the Bill and for his readiness to accept opportunities for improvement.

This is a sad Bill. It is sad that we have to make special provision for Northern Ireland. It is also sad that, while the aim of the Bill is to combat multiple voting, in the rest of the United Kingdom we are worrying about how to attract people to vote.

It is very important to safeguard the purity of elections. There are many elements to an election. This House recently managed—eventually—to agree the huge tome that became the Political Parties. Elections and Referendums Act 2000.

There are three elements to the mechanics of an election: registration; the art and act of voting; and counting. I shall deal with them in reverse order. The count appears to be the most transparent. The boxes are opened, the ballot papers trickle out, they are balanced with the register and they are counted—watched by candidates, agents and supporters, with the possibility of making challenges to doubtful papers. There is nothing in the Bill about the count, so we must assume that, even in Northern Ireland, people are reasonably happy about the counting of the ballot papers.

We then come to the act of voting. That is the main focus of the Bill. Clauses 2, 3, 4 and 5 deal with the prevention of personation. Clause 2 paw ides the presiding officer at each polling place with the opportunity to seek proof of a voter's date of birth. However, what advice will be given to presiding officers, and what authority will they have? I think that they will have to be very robust people indeed. I also wonder whether there will be cost implications in addressing those issues.

Clause 3 requires that signatures on applications for postal or proxy votes be matched, and that seems a very reasonable requirement. The provision is particularly important now as particular encouragement is being given to efforts to increase postal voting.

Clause 4 deals with the electoral identity card. In such circumstances, the provision will be very useful for those who do not have a passport or a driving licence. Clause 5 is consequential on the earlier clauses.

I return to the first of the elements: registration. I believe that the purity of the register should be our paramount consideration, and that all other aspects of the voting process flow from an accurate register. Clause 1 requires that a signature and date of birth be provided on the electoral registration form. Although the change should discourage duplicate registrations, I am far from clear as to how the practice can be prevented in many polling districts. Members of your Lordships' House, for example, may seek to register both at a home address and at a London address. Similarly, people in Northern Ireland may have a house in Portrush, for example, and a flat in Belfast. As I understand it, they are entitled to register in both places. However, given the size of Northern Ireland and the initiative to increase postal voting, is there not a case for allowing only one registration? I rather like the clarity of one person, one vote.

I should also like the Northern Ireland registration process to rest not with local authorities, as the Bill proposes, but with the chief electoral officer. I should have thought that, in the computer age, the office of the Northern Ireland chief electoral officer could eradicate multiple applications.

What will be the cost of implementing the provisions? The Explanatory Notes suggest that costs will arise only from implementing the identity card, but I wonder about that. In my 40 years on an electoral register, the local authority's canvasser has never come round to check that I have properly completed the form; perhaps I have never had a visit because I filled in the form properly. However, canvassing will be a much tougher job if the signature and date of birth of each person in a house must be provided. I do not wish to be mean about costs; far from it. I simply want to be certain that the chief electoral officer has the resources to perform the enhanced job that will be necessary for operation of the new registration and voting procedures.

On behalf of these Benches, I welcome the Bill

My Lords, I pay tribute to the Leader of the House for his explanation of the Bill. I am also pleased to see the Second Reading of a Bill dealing with electoral fraud in Northern Ireland. Those of us interested in the Province have waited long enough for this move. I must say, however, that the legislation is rather weak and leaves loopholes for electoral fraudsters to commit their misdemeanours.

The new Northern Ireland to which we all aspire—everyone living at ease with each other—cannot be achieved if one section believes that elections, the fundamental basis of democracy, are being misappropriated by a determined and ruthless group. Such behaviour not only devalues the results of an election but brings into question the Good Friday agreement, which underlines that Northern Ireland's position will be determined only by the will of the electors. If there is widespread abuse of the electoral process, many will consider that undertaking to be of no value.

For the new Northern Ireland to succeed, we must eradicate all forms of unfairness and attempts by one section to seek advantage over the other. In the past three years, there has been a skewed and one-sided agenda in Northern Ireland, almost daily causing considerable damage to the concept of human rights. I refer to the activities of the Northern Ireland Human Rights Commission, which a republican cabal seems to consider its plaything. I shall return to that issue on another day.

The Bill is deficient in several respects. It makes no significant provision, for example, to limit multiple voter registration, mentioned by the noble Lord. Lord Glentoran. The issue has caused considerable difficulty in constituencies controlled by Sinn Fein. As the noble Lord said, there were up to 18,000 multiple votes in West Belfast alone. I am delighted to see the noble Lord, Lord Fitt, in the Chamber. He and I have both represented that territory. The way that constituency has gone over the years is, I believe, a considerable regret to both of us. In this high-tech era, surely it must be possible to introduce, if only in Northern Ireland, a smart-card system as suggested by the noble Lord, Lord Glentoran. Such a system would ensure that each elector was identified and able to vote only once.

Although the overall concept of providing new identifiers is welcome in principle, it would prove weak in practice. As it would not be compulsory, the proposed electoral identification card could be easily circumnavigated. Moreover, a requirement to provide signatures as part of the identification process is almost useless as it is not compulsory but at the discretion of electoral officials.

The biggest intimidation-related problem in current Northern Ireland elections is the massive number of postal votes requested in seats with a particularly strong Sinn Fein electoral presence. Despite the rules and regulations being tougher in Northern Ireland than in the rest of the United Kingdom, in some Northern Ireland seats the number of absent voters is five and six times that of an average seat in the rest of the United Kingdom. Two seats won by Sinn Fein in June 2001 had staggering numbers of absent votes. West Tyrone had 5,443, and Fermanagh and South Tyrone 5,784. I believe that the average for a mainland constituency is about 1,000.

Intimidation itself—that crude and debilitating device used by the thug to impose his will on the weak—is not addressed in the Bill. In last June's elections, a policeman and several electors were injured in a shooting incident at St. Mary's primary school, Draperstown, County Londonderry. That creates an atmosphere where it is very hard for electoral officials and others to ensure fair election. Until we remove the concept of widespread intimidation and provide resources where necessary to help electoral officials in their scrutinising and security duties, we are not achieving our goal of a fair and equal society.

Article 3 of the first protocol of the European Convention on Human Rights gives governments a clear duty not only to hold free elections at reasonable intervals by secret ballot, but to do so,

"under conditions which will enable the free expression of opinion of the people in the choice of their legislature".

Clearly, that does not happen in Northern Ireland. Incidentally, it appears to be one of the many topics of little interest to the Northern Ireland Human Rights Commission.

Many of us in your Lordships' House look to the further stages of this Bill when we may be successful in persuading the Government to strengthen and make more effective this long-awaited and much-needed series of measures.

My Lords, I must declare an interest in having served as Chairman of the Northern Ireland Select Committee in the last Parliament in another place, to whose report reference has already been made. I thank the noble and learned Lord the Lord Privy Seal and my noble friend Lord Glentoran for their references to that report.

It is an argument for Select Committees in either House that they have the commendable effect of pressing the organisation being investigated to set up a simultaneous internal review of the activities which are being looked at. That happened in this instance as well.

I declare a mild professional interest as a fellow of the Society of Antiquaries. In that spirit I celebrated my departure from another place by presenting to my constituency agent of 20 years standing a 1743 petition by Westminster electors with their coats of arms against a Westminster election result in that year. Such petitions are not unknown in Northern Ireland.

The Bill reaches your Lordships' House with a pedigree of a well-informed series of debates in another place, not only because of Northern Ireland Members, hut the honourable Member for North East Derbyshire, Mr Harry Barnes, is a powerful advocate of electoral reform and happily has an interest in Northern Ireland as well. The debates were also informed by a Conservative Back-Bencher who had had security forces experience in the Province. He advised the Standing Committee on the Bill that it was unfair to put too much pressure on the official on the spot, such advice being based on his long experience of road blocks in the Province and his having to understand what was being submitted to him in terms of papers at the shortest of notice.

The Bill was well whipped in committee. There was only a single absence of one Member at one committee sitting. That too is a tribute to the nature of the Bill and its importance.

My noble friend Lord Glentoran referred to the familiar cry, "Vote early, vote often". I ask the forgiveness of the House if I interpolate a personal parenthesis from 29th March last year when we debated electoral malpractice in Northern Ireland. At that time I alluded to a debate in another place where we were to be engaged on the business throughout the evening and asked a former private secretary of mine who was in the official box when the Divisions were likely to occur. He replied that there were to be no Divisions in the early stages but a great many later on in the evening, to which I responded that it was a rare case of, "Vote late, vote often".

In that debate the Select Committee held the Government's feet to the fire over the delay to which my noble friend Lord Glentoran referred, between March 1988 and March 2001. I shall not rehearse that argument; it is a matter of the past. I recall asking the late Alan Lennox-Boyd, when he was in charge of affairs in Cyprus, with the naivety of an undergraduate in the 1950s, why a specific decision had been taken by the government in the current year and had not been taken two years earlier. He gave me a perfectly sensible reply: that two years is a hiccup in history. But the fact remains that we pay a price, not only in this instance of an election result in a constituency which can affect larger issues on the wider stage, but also potentially of robbing individual voters of their right to vote. Once the vote has been cast it cannot be cast again.

The principle that we are debating this evening is purely one of Second Reading. Malpractice is clearly a sin and I am at one with President Coolidge's preacher of being against sin. Both in the other place and here there is universal support for the principle of the Bill and I do not propose to go into its detail this evening. I make no complaint that the Government have not accepted all the recommendations made by the Select Committee in its 1998 report. A Select Committee should not expect that treatment. The rare case in the 18th century when, after Edmund Burke had made a powerful speech, the next Member up said, "Ditto to Mr Burke", is not something that Select Committee's should expect from governments after they have made recommendations.

I have never read a thesis on the relationship between the Christian doctrine of the individual soul and the democratic responsibility of the individual elector. But I am concerned about the potential two-tier system which the Bill envisages—I imagine we will return to that in Committee. If I may continue for a moment with the interpolation of Christendom into the debate, I was always moved that, while Winston Fields—Ian Smith's predecessor as the leader of the right wing party in southern Rhodesia—was quite clear about the inequality of man, he was equally clear about the equality of man at the communion rail. It is extremely important that the doctrine of individuals being equal in a process like this should be maintained, not least through our legislative process.

Others made reference to the disproportionate absence of voters in Fermanagh and Tyrone in relation to the three seats. Of course one can plead the notable exception of the abstention in person by the inn-keeper Member for Fermanagh in the famous vote on 28th March 1979, which was lost by the government by a single vote. The result would have been changed if he had voted with the Government, having crossed the Irish Sea in order to abstain in person. But that may he said simply to be the exception which proves the rule.

The whole map of Europe has been changed, as Churchill said in 1922,

"but as the deluge subsides and the waters fall short, we see the dreary steeples of Fermanagh and Tyrone emerging once again".

And I have to say to your Lordships' House that this will not be the last time that we legislate on this subject; we will find ourselves returning to it.

I declare an interest in terms of the "dreary steeples". The church at Colebrooke in County Fermanagh stands on a knoll above the prevailing low ground, which is the church where my noble kinsman, Lord Brookebrough, worships. I can endorse that it was accurately judged by a visitor prior to myself who said that most churches are dedicated to the glory of God, but Colebrooke is dedicated to the Brookes.

The Bill was supported in principle by the Commons at large, but less universally in the level of detail. Not too much should be made of the arithmetic. The Government were as generous on the balance of the Standing Committee on the Bill as they were on the Select Committee in the last Parliament, to allow proper Northern Ireland representation. But there were a series of divisions in the Standing Committee which were decided nine to eight in committee, and five parties to one—including the SDLP among the five—in favour of amendments which were being moved against the Bill. I hope that your Lordships' scrutiny of the Bill will be as well informed and as rigorous. That is still ahead of us, but the Government have had recent experience of this House's response to delicate legislation in an area where terrorists exist. I hope that this Bill will receive the same attention. In the meantime we must be grateful that the Government have brought forward a Bill.

One of my favourite graffiti in the Province at the moment depicts a large sign saying. "Ulster says no", under which someone else has written, "But the man from Del Monte says yes". Underneath that someone else has written, "Aye, and he was an Orangeman". I do not know what Del Monte thinks of curates' eggs, but I consider—as I say, I have not dwelt on detail in my remarks—that the Bill is at this juncture a free range, organic, non-stipendiary curate's egg. Although controversy is still prevalent in the Province rather than contentedness, we must be content that we have the opportunity in Committee to improve the curate's egg that we have been offered.

My Lords, I wish to address two specific aspects of the Bill: registration and identification at ballots. However, before I do so, I acknowledge the sterling work of the Northern Ireland Affairs Committee under the chairmanship of the noble Lord, Lord Brooke, who has just spoken. I find it particularly sad that after the committee under his chairmanship reached conclusions which had support right across the political divide, from both constitutional nationalists and constitutional unionists, the Government turned their back on certain of the recommendations contained in the report.

However, unlike the noble Lord, Lord Brooke, I do not believe that the Bill is of such usefulness that it will in its present state resolve the difficulties that are experienced at elections in Northern Ireland. I am invariably disappointed by the level of real resolve that successive governments have displayed in terms of tackling those matters in Northern Ireland that impinge upon and infringe the democratic process, whether they be organised violence, organised crime or electoral abuse. Sometimes I find it difficult not to believe that there is a covert desire to accommodate undemocratic elements—a practice that I feel I have witnessed as an elector, soldier and unionist politician over the past 30 years.

I do not want to give the impression that I am some kind of reactionary. Those who know me know that I support the current process in Northern Ireland which facilitates a transition from violence to democracy. But I do not believe that we can enhance democracy if we accommodate those matters which undermine the confidence of the ordinary decent citizen. My experience in Fermanagh and South Tyrone, having held that seat as the Member of Parliament for 18 years, and having left it with a majority of 14,000, was that the process failed my intended successor. The law imposed certain constraints that perhaps made it difficult for Mr Cooper to prove his case but in the 21 days that he had to bring his case to an electoral court he was able only to deal with an infringement in one polling station where there was organised disruption by a political party involved in the election which ultimately benefited from the result which produced, I believe, a majority of 53. In later days we discovered that similar events had taken place in other polling stations. Therefore, the organised desire of Sinn Fein—let us be specific—to abuse the electoral system for its own ends is evident.

That did not occur only in the constituency of Fermanagh and South Tyrone; it also occurred visibly in the constituency of West Belfast where Joe Hendron was ultimately unseated by the present sitting Member, Gerry Adams of Sinn Fein. One must understand that where this perversion of the electoral process is allowed to occur, a false democracy is created which enables people who do not have a majority at the ballot box to get hold of seats and then to avail themselves of all the benefits that come with being a Member of Parliament for a specific constituency.

I do not want to stray from the business before your Lordships' House but I must say that most people whom I know within both traditions in Northern Ireland are puzzled as to why the Government should facilitate in the Palace of Westminster those Members of Parliament who have no allegiance to the parliamentary process here at Westminster and who have declared that even if the oath of allegiance to Her Majesty were removed it would make no difference to their intention to take their seat and play their part here. That is the kind of abuse of democracy that is being and will be facilitated if we bring into law a process which allows signatures to be used as though somehow they are foolproof against electoral abuse. The deputy electoral officer who gave evidence to the Northern Ireland Affairs Committee indicated that signatures were unsatisfactory in so far as a perverse individual could disguise his signature at the polls so that he would be denied the right to vote and could then sue the presiding officer. Obviously, that puts unnecessary pressure on someone who is doing a difficult job, under threat and intimidation from the Sinn Fein political party, as was pointed out earlier.

Perhaps national insurance numbers could be acceptable. I disagree with the Minister in the other place who said that most people do not know and cannot get access to their national insurance number. I just do not believe that that is true. Every payslip that one receives throughout one's life has one's national insurance number, as does every P45 and every pension book or pension slip. That number is held on computer and could therefore be used, without infringing anyone's rights, to authenticate applications to be on the register. That process could be further developed in relation to casting votes.

The Government are reluctant to be hard nosed and practical in relation to the rights of ordinary, decent individuals—it is their rights that will be infringed if and when people vote improperly and cast multiple votes. Your Lordships' House should do a better job than has been done heretofore of making the Bill a little more meaningful.

My Lords, in view of the experience of the noble Lord, Lord Brooke, and the important contribution that was made by the Select Committee on Northern Ireland Affairs when he was its chairman, I listened with interest to his speech. I take issue with one relatively small point. He cited the quotation about,

the dreary steeples of Fermanagh".

That is a pejorative quotation, although the noble Lord did not use it in that way. In defence of that county, I point out that Fermanagh is absolutely beautiful. It has wonderful scenery and it is a pleasure to be there. I hope that he did not mean to suggest anything to the contrary. I know that he was not making a point about the scenery.

I welcome the Bill. It will go a significant way towards remedying the defects that were described by the noble Lord, Lord Maginnis. The next Assembly elections will be in 2003. They will be crucial elections because they will determine the future of the peace process and the nature of government in Northern Ireland for a long time to come. It is therefore important that those who are elected and, from among them, those who become Ministers on the Executive achieve their position with the consent of the people, arid that the people of Northern Ireland accept that those elections are fair and proper. There should be no dispute about the electoral legitimacy of those who are elected and those who then become Ministers. That is why it is important that the Government have the extra safeguards in place in good time before those elections. They are, in the main, contained in the Bill.

We cannot, of course, be certain about the extent of electoral fraud but there is no doubt about the fact of it. There is too much anecdotal evidence from many sources, not least that given to the Select Committee. When I served as a Minister responsible for Northern Ireland, there were clear concerns about that at the time and they have continued to the present day.

The noble Lord, Lord Maginnis, discussed national insurance numbers. I do not want to get into a detailed argument at this stage—that is for Committee—but I wonder whether the way in which national insurance numbers are currently issued involves the necessary safeguards to prevent people from getting them improperly and using them improperly when they vote. If the national insurance number system were totally watertight, I should go further down the path of supporting it. Perhaps the Government are still reflecting on the matter.

It is clear that absent voting rather than personation at the polling stations is the key issue; that is not in dispute. There are some interesting figures—some of them have already been quoted—about the extent of absent voting in different constituencies. They varied in the previous general election from 1.6 per cent in East Antrim to 9 per cent in West Tyrone and 8.7 per cent in Fermanagh and South Tyrone. I do not believe that those differences were achieved through normal and legitimate applications for postal votes. Something is amiss in that regard. The figures show that the problem is not restricted to the previous general election—it also appeared in the 1998 Assembly elections, in which the highest percentage for absent voting was 9.3 per cent in Fermanagh and South Tyrone and the lowest were 2.2 per cent in Belfast North and 2.3 per cent in Belfast West and in East Antrim.

The idea of having electoral ID cards is probably a good one, although I am rather sceptical about identity cards—the case for them needs to be made more firmly. However, it is right that electoral ID cards are part of the armoury for dealing with malpractice. I am particularly pleased that my noble and learned friend said that the intention was to have provisions in place before the 2003 elections.

There will always be a balance to be struck between civil liberties and electoral fraud, and achieving it is not an easy task. There is also a need to achieve a balance between preventing fraud and giving people the right to vote. We could prevent all fraud if we took sufficiently stringent measures, but many people who were legitimately entitled to vote might not be able to get the vote. We do not want to go down that path. Surely we all welcome the fact that in Northern Ireland we have moved mainly—not entirely—from terrorism to democratic politics. I say "mainly" because violence that is utterly unacceptable and reprehensible still goes on. The Government have got the balance right and I welcome the Bill.

I have one last, brief point. Robin Cook commented on voting over the Internet. In the context of England—and, I think, Scotland and Wales that is probably an interesting innovation. However, I fear that in Northern Ireland we are a long way from making that acceptable, unless we want to run the risk of having more malpractice than has taken place so far. I welcome the Bill and I look forward to taking part in our debates in Committee.

My Lords, when I read the Bill I had to read it again to make sure that I was reading correctly. I had expected the Bill to make serious attempt to prevent electoral fraud in Northern Ireland. It is well known that all parties in the past have played games at election times; what they did was fraudulent but things have suddenly changed. Games are no longer involved. Over the past few years, one party has declared the intention of becoming the largest party in Northern Ireland and is working night and day to control the constituencies that it intends to win. Money is not a problem and it employs numerous party agents and canvassers. Sinn Fein will use whatever means are necessary, and it has agents who are not far from the IRA who will apply whatever pressure is needed to ensure that votes are cast for Sinn Fein. It is urgent to stop such fraud and the use of pressure to make people vote as required. Otherwise, we may say goodbye to democracy in Northern Ireland.

Unfortunately, the action proposed in the Bill only nibbles at the edge of the problem. Signatures and dates of birth will make fraud only a little more difficult, and paramilitaries would soon overcome that. The Bill provides for identity cards with photographs to be supplied on request but it does not say when that has to be done. That would not make much difference, because a medical card without a photograph will still be sufficient to confirm identity. Sinn Fein is known to forge medical cards. Why have they not been removed as an accepted means of identity in the Bill?

In its present form we have only a pretence of a Bill for reducing fraud. In my view, as it is, it is a waste of parliamentary time. I looked at the record of the passage of the Bill in another place. It took much time, and many excellent amendments were submitted and debated. Unfortunately, all relevant amendments were voted down at the request of the Minister.

Suddenly the penny dropped. I had forgotten for a moment that the Government never seem to lose a chance to please Sinn Fein/IRA, despite the fact that they get next to nothing in return. Was this Bill intended as a chance for the Northern Ireland Office to say, "We're still on side and we're your friends"? Your Lordships may believe that that is going a little too far. But to the majority in Northern Ireland, who wish to remain in the United Kingdom, that is how things seem and we are reminded of it almost daily.

The only way in which to minimise electoral fraud in Northern Ireland is to issue a smart card, with a photograph, to every elector. When such a card is pushed into the machine at the polling station, a person's vote will be recorded and the card will not be accepted if used again at that or any other polling station. In my view, the issue of such cards must be completed by autumn 2003, when the Assembly elections arc due. It will be costly but will amount to only a fraction of the money being spent on the Bloody Sunday inquiry or on convicted paramilitaries who have been granted amnesty. The rules for the issue of absent votes require study. There were excessive numbers of absent votes in each of the Sinn Fein gains at the last election compared with those in other constituencies.

I was pleased that the Minister indicated that he would look carefully at amendments. I hope that he will look at them favourably because important ones will certainly be proposed in due course.

My Lords, we must all welcome a Bill intended to limit electoral fraud and malpractice in Northern Ireland. I was glad to hear the opening words of the noble and learned Lord the Minister. None the less, it is disturbing that, although the major report of the Northern Ireland committee on electoral malpractice was agreed in March 1998, the legislation has taken three years to appear, and since it depends on the creation of special computer programs and software it cannot be put into effect until 2003 at the earliest. Will that be in time for the next election? Will it, indeed, be up and running then?

The Minister, at col. 734 of Commons Hansard for 10th July, said that the electoral office had been provided with more funding and with new IT systems to facilitate the change. But in October he told Standing Committee D that the Government were,

"currently concluding the contract in a process rolling out from next year"—

that is, 2002—

"towards a target date of 2003 to provide the IT equipment that will make the Act work".

I hate to point out that computerisation and IT programs have unpromising records both of speed and efficiency in, for example, the Home Office. Will the system be working by the next election? Will it have been funded in time?

This is a Bill of deep importance for the future of Northern Ireland. It may seem little more than a very proper effort to end some serious malpractices in the conduct of the election process. As we all know, those include multiple registration, personation, fraudulent application for postal and proxy votes, based very often on extensive forgery of documents, and, not least, that familiar element of life in Northern Ireland—intimidation by the paramilitary groups.

Although such practices are not those of one party only, by far the greatest culprit and the greatest beneficiary is, by common consent, Sinn Fein/IRA. In this way it has been enabled to do serious damage to the legitimate voice of the Catholic and even some of the moderate republican voters by taking, through the operation of fraud, seats from the SDLP. Many noble Lords will no doubt be able to give examples of how the frauds operate.

However, the evidence is irrefutable that one party, Sinn Fein, has brought it to a fine art, not only because of its ready-made paramilitary intimidation machine but because of its wealth and criminal expertise. Police found extensive evidence, for example, of the forgery of medical certificates, both for identification and to justify a proxy vote. As noble Lords have said, in West Tyrone in the last election there were 5,443 absentee votes; in Fermanagh and South Tyrone there were 5,784. Both seats were won by Sinn Fein/IRA. Elsewhere in Northern Ireland, in one place there were 10,000 applications for proxy votes, submitted hours before the deadline, the bulk of them by one political party—Sinn Fein/IRA.

In the other place the Government were pressed by all parties to use the national insurance number as a means of additional identification. Every political party but one in Northern Ireland has advocated it. Sinn Fein, however, evidently opposing all forms of identification, has said,

"Sinn Fein believes that there is a compelling and logical argument to ensure that the electorate has the maximum freedom to exercise their vote as freely as possible. We would therefore argue for an end to the current identification regulations because we believe they restrict the electorate's freedom and impose an unnecessary burden on them".

Surprise, surprise: the Government are now convinced that using the national insurance number is a bad idea.

Equally, when in February last year we debated in this House the order on the Political Parties, Elections and Referendums Act 2000, the Government pushed through the decision that political parties in Northern Ireland, alone in the UK, could receive global foreign funding but be under no obligation to keep records of donations received or disclose the value or source of donations on the grounds of a possible threat to the donors if their identities were revealed. What party in Northern Ireland has regularly received major funding from abroad, and what risk has Mr Galvin, the chief IRA fund-raiser in the United States, ever run?

Thanks to such protection, Sinn Fein/IRA alone has been able to raise unquantified sums for undeclared purposes and from undeclared sources. Its funding allows it not only to buy arms whenever it wishes but to pay its paramilitary thugs and to fund its criminal activities in the initial stages, including the sophisticated forgery of medical and other documents to use in election fraud. It has plenty of force at its disposal to intimidate voters at, and on the way to, polling stations and to collect donations and absentee voting papers from voters. Not least, it has the money to fund a campaign in any referendum which may be held. I wonder whether Mr Adams's friends in Africa include Mr Robert Mugabe.

The Government must act quickly as well as effectively to end electoral fraud. Sinn Fein has not forgotten, even if they have, the commitment made in the Belfast agreement that the Secretary of State may direct the holding of a poll,

"if it appears likely to him that the majority of those voting would express a wish that Northern Ireland should cease to be part of the United Kingdom and form part of a united Ireland".

Earlier in the agreement, the text says that the participants,

"will recognise the legitimacy of whatever choice is freely exercised by a majority of the people of Northern Ireland with regard to its status, whether they prefer to continue to support the union with Great Britain or a sovereign united Ireland".

Do the Government really not understand why Sinn Fein/IRA is ethnically cleansing—the phrase justly used by the noble Baroness, Lady Williams, in our debate in 1999—every area over which it holds sway? If it cannot do that, it is using electoral fraud to secure seat after seat. The unfortunate majority—that includes many Catholics as well as Protestants—see their democratic rights being ruthlessly eroded and stolen from them by a brilliant and systematic manipulation and fraud. And they can do nothing about it. As one Member of the other place rightly told the Standing Committee, fraudulent voting is being conducted under,

"a systematic paramilitary dictatorship".

He referred to an,

"organised and militarised fraud of the electoral system, which produces results against the wishes of the electorate".

And he added these ominous and sadly prescient words:

"Those results have been significant enough to change perhaps the political direction of Northern Ireland".

The Government have a grave responsibility. Thanks to their unforgivable combination during the negotiation of the agreement and since of haste, arrogance, gullibility and credulity, they have so far handed Sinn Fein/IRA virtually all they need for victory through the ballot box while retaining the gun on the streets of Belfast, where the violence has never ceased.

It may have been acceptable for demographic change to have moved Northern Ireland over a period of 20 or 30 years to a position where a majority would genuinely have seen no difficulty in contemplating and accepting a united Ireland as a new generation came forward with no raw memories of hatred and conflict. What has happened, however, is that Sinn Fein/IRA has won everything it wanted—prisoners out, political—power in the Assembly, status accorded to it as freedom fighters and not terrorists, the Disqualification Act, the disgraceful capitulation over richly funded access to Westminster (where it murdered Airey Neave) without taking the oath, and, above all, the destruction of the RUC, to say nothing of £40 million spent so far on the Bloody Sunday inquiry—money which could have gone to helping the victims of the IRA. In destroying the RUC, it has also moved closer to its stated objective of a people's police force, through the appointment, which it hopes to achieve, of paramilitaries to "represent" its unfortunate communities in the DPP.

As long ago as 24th February 1999, in a debate in this House initiated by the noble and learned Lord, Lord Mayhew, I said that I was heartened to know that Members in the other place had recognised the monstrous arrogance that allowed the paramilitaries to send whole families into exile. What was done? Three years later the Northern Ireland Affairs Committee, under the chairmanship, I am glad to say, of my noble friend Lord Brooke, examined the issue of relocation following paramilitary intimidation—government-speak for ethnic cleansing. Four months later the evidence was published. The committee made one simple recommendation: that a single unit be set up—as Spain has done for the victims of ETA—to co-ordinate the response of all government departments on the mainland for the needs of a family thus exiled; and there have been many. The Government's response, published on 12th December, was what an excellent institution the Citizens Advice Bureaux is and how well placed to advise.

I hope, though sadly I do not expect, that the Government intend to do more than that about a disgraceful situation. I have cited that instance of government policy, or rather absence of policy, because I am outraged by their failure to fulfil the Prime Minister's promise that there would be no more violence and no more beatings. Bill after Bill has gone through providing yet more sops for the Sinn Fein/IRA Cerberus while doing nothing to protect the ordinary little people of Northern Ireland, whether from daily intimidation or from an insidious takeover of political power. It makes a nonsense of the central promise of the agreement; that the constitutional position will not change except by the will of the people expressed through the ballot box.

For three years the Government have done nothing to prevent those electoral rights from being eroded and destroyed. One election has already put more Sinn Fein/IRA nominees into power through electoral fraud, and unless the Government get on with the software fast there will be a further shift in Sinn Fein's favour brought about by fraud and intimidation which could have been prevented. We have gone far to destroy the peace process and the belief in democracy through criminal negligence.

My Lords, I agree wholeheartedly with everything said by the noble Baroness, Lady Park. I had not intended to speak in the debate, but because of what has been said perhaps I may take two or three minutes of your Lordships' time.

First, I draw the attention of the House to the Explanatory Notes. Paragraph 3 states:

"The Bill proposes changes to the law in Northern Ireland only".

That sentence proves conclusively that the sentiment expressed by a previous Prime Minister that Northern Ireland as part of the UK is "as loyal as Finchley" is wrong. In no other part of the United Kingdom—England, Scotland or Wales—has it been necessary to introduce legislation of this kind. It proves that Northern Ireland is not as loyal as Finchley.

Since the moment of the creation of the Northern Ireland state a culture has built up. The minority voted against the existence of the state. It voted for Catholic candidates opposed to the existence of the Northern Ireland state. The Loyalists voted for its retention.

The debate may not seem all that important. But it is because under the Good Friday agreement Northern Ireland will remain part and parcel of the United Kingdom unless freely authorised by a vote of the majority. What is happening now—we can see it very clearly—is that outside the actual voting pattern on election day intimidation is taking place in certain constituencies in Northern Ireland. I refer particularly to North Belfast which I know intimately. I used to live there. Attempts are being made to intimidate the pro-union vote away from that constituency, so that in the next election it will be represented by a "Sinn Feiner". That Sinn Feiner will then vote, whether it be in the Northern Ireland Assembly or in this House—probably in this House—to a breaking of the bond of Northern Ireland with the United Kingdom.

Elections in Northern Ireland are serious because they call into account the legitimacy and the constitutional position of the state of Northern Ireland. That does not happen in Scotland, in Wales or in England. So it is important to try to bring about a system of electoral reform which guarantees to exhibit the actual means and decisions of the people of Northern Ireland casting their votes. There is no doubt in my mind—the noble Lord, Lord Maginnis, referred to this point—that it was because of gross personation that that seat was won at the last election by a Sinn Fein candidate. It has brought about a change in political attitudes in the United Kingdom because it has meant an extra voice for a united Ireland against Northern Ireland continuing to be an integral part of the United Kingdom.

The Bill highlights the fact that Northern Ireland is not like Finchley. We hope that it will be possible to bring about a series of reforms in Northern Ireland that will give a true indication of the wishes of its people.

My Lords, I shall not cover specifically the contributions of noble Lords in this relatively short Second Reading debate. There have been three themes. First, there is the problem of absent voting. The noble Lord, Lord Dubs, drew attention to that point. Secondly, there is intimidation in the polling booths. One must remember that Northern Ireland has many large rural constituencies which are more difficult to police, particularly on a single day when one is holding a Province-wide election. Thirdly, there is a need for further safeguards, a point expressed by many noble Lords. There is certainly a good deal of momentum in your Lordships' House behind the idea that there should be further safeguards. We shall look at the amendments which the noble Lord, Lord Glentoran, intends to propose. We are disposed to supporting a provision for the introduction of national insurance numbers.

Many noble Lords have made reference to improvements in technology with regard to electoral identity cards. I was much taken by the comment of the noble Baroness, Lady Park, that, given the history of implementing IT, it may well not be in time. Indeed, there will be a real problem. Unless we have tackled the questions of intimidation and personation, it bodes ill for the next Assembly elections in 2003.

I particularly want to stress that while there are, of course, no foolproof safeguards that we can provide to prevent electoral fraud—people will always seek to get round whatever rules we have—we can nevertheless—tighten the regime so that opportunities for fraud are reduced.

In welcoming the Bill, I must say that it is important to ensure that the recent restoration of regional democracy in Northern Ireland is not besmirched by electoral malpractice. That is why we on these Benches commend the Bill and hope that the Government will, as the Leader of the House said, be listening to amendments in Committee and on Report with a view to ensuring that fraud is more nearly eliminated than we so far envisage.

My Lords, I am most grateful for all of your Lordships' contributions to this important debate. The noble Lord, Lord Glentoran, set the tone with which I think we all agree—I certainly do—when he said that electoral malpractice has for years been a serious mischief in Northern Ireland. The temptation when one does not live in Northern Ireland to think that "vote early and vote often" is funny must be resisted.

It is a monstrous thing to steal the democratic right of a fellow citizen. We need only remember how recently it was—in 1994, I think—that the whole of the population of South Africa became entitled to vote. I speak with some interest because my parents-in-law had never been allowed to vote because their skin is not white. It is only when we realise the importance that people in South Africa attached to the free casting of a legitimate franchise—with queues of people standing in the sun for hour after hour—that we remember that we are dealing with serious territory. I entirely agree with all of your Lordships about that.

Three aspects were raised by several of your Lordships. Perhaps I can deal with them. The noble Lord, Lord Laird, raised the question of multiple registration. To be as helpful as I can, the intention is to give the Chief Electoral Officer for Northern Ireland the power by regulation to ask people on their application to go onto the electoral register whether they are registered to vote at another address. That can he done by regulation rather than by amendment to the Bill, and that is our intention. I hope that the noble Lord will regard that as a useful response to his specific question. I appreciate that he was not the only noble Lord to ask it.

The question of national insurance numbers was raised by the noble Lord, Lord Glentoran, and taken up by several of your Lordships. I am not betraying any confidences when I say that I discussed that with the Minister in the Commons, Mr. Browne. On 18th December, he had a meeting with the Information Commissioner, Elizabeth France. She has concerns that must be taken on board about the use of national insurance numbers for purposes unconnected with the administration of tax and benefits. Not all such questions are easily answered. We must consider that with care. I have been in touch with colleagues and hope to be able to return to the matter more definitively in Committee. I underline that I shall carefully consider any proposals. We may be able to achieve our purposes by regulation rather than by amendment to the Bill. If so, I hope to be able to point the way forward.

The other question raised, again by several of your Lordships but in particular by the noble Lord, Lord Cooke of Islandreagh, was that of non-photographic identity documents. The noble Lord referred to the production of illegitimate medical cards—which, of course, do not have a photographic component. I can assure your Lordships that May 2003, the next Northern Ireland Assembly election date, is our target by which to have removed all forms of non-photographic ID from the list of specified documents. Of course, that would include the removal of medical cards. We would then be left with the specific ID card provided for in Clause 4; a passport; or, as the noble Lord, Lord Glentoran, helpfully reminded us, the photographic driving licence currently available in Northern Ireland.

Those will be considerable steps forward. I cannot pretend that a Bill on electoral fraud will deal with the sort of everyday intimidation to which my noble friend Lord Fitt and the noble Baroness, Lady Park of Monmouth, referred. Such intimidation is a criminal offence. They could—and I dare say will robustly respond that the law is not enforced. That may well be so in some instances. I shall not stand here and pretend differently. The Bill is not the vehicle to deal with those vices.

I am grateful for the general response to the Bill. I shall do my best to deal as positively as I can with all amendments, even if that is simply by pointing to alternative means of achieving our common purpose rather than by amending the Bill.

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

My Lords, I beg to move that this Bill be now read a second time.

The Export Control Bill is intended to provide a new legal framework for our strategic and cultural export control regimes. It will replace the export control powers contained in the Import, Export and Customs Powers (Defence) Act 1939. In his 1996 report on the export of defence equipment to Iraq, the noble and learned Lord, Lord Scott of Foscote, rightly criticised the continued reliance of successive governments on the export control powers contained in the 1939 Act. He recommended that the Government consult publicly on the matter with a view to replacing those powers with new legislation more suited to peacetime requirements.

The Bill is the result of the thorough and comprehensive review of legislation for which the Scott report called. In 1988, we published a White Paper inviting views on proposals for new legislation. Last March, we published the Bill in draft. A wide range of organisations and individuals—in particular, industry and non-governmental organisations—have contributed their views and played an important part in the development of the Bill.

The Bill has two basic aims. We need to modernise our export control powers to meet the reality of today's world, which is very different from that of 60 years ago. The 1939 Act provides powers to control only physical exports from this country. The growth of electronic communications and international business mean that that power is no longer adequate if we are to continue to meet the objectives served by our control of military and dual-use exports. The Bill therefore provides new powers to control the transfer of technology by intangible means, the provision of technical assistance and trafficking and brokering. I shall say more about those new powers in due course.

At the same time, the Bill will ensure that the Government are accountable to Parliament for the exercise of those powers. It does so by setting out the purposes for which control orders can be made and by providing for parliamentary scrutiny of those orders. It also makes clear for the first time in legislation the basis for licensing decisions on strategic exports, and it requires the publication of annual reports.

Those measures build on steps that the Government have already taken to improve accountability to Parliament and the public for strategic export controls. In July 1997, we published for the first time the criteria against which licensing decisions on the export of military and related equipment are taken. We pushed for the agreement of similar criteria across the European Union, and in 1998 the EU code of conduct on arms exports was agreed. Since then we have consolidated our national criteria with the EU code. Those consolidated criteria were announced to Parliament on 26th October 2000. As I shall explain in more detail, the consolidated criteria are referred to in Clause 8 of the Bill. We have also published detailed annual reports on strategic export controls for each year since 1997.

As I mentioned, the Bill provides the Government with the powers to introduce controls on exports, the transfer of technology, trafficking and brokering and technical assistance. The detailed controls themselves will be set out, as with export controls now, in secondary legislation. This is necessary because the goods and technologies to be controlled need to be capable of frequent amendment. In most cases these goods and technologies are identified by the various international export control regimes, such as the Missile Technology Control Regime and the Wassenaar arrangement, in which the UK participates. Technologies change, so does the international situation. The items that need to be controlled are therefore kept under continual review. We need to be able to adapt our export and other controls in response. That is why the detail must be set out in secondary legislation.

We recognise the importance of the proposed secondary legislation for a full understanding of the Bill. We therefore published in early October a full set of "dummy orders". These provide a clear and detailed indication of how the Government propose to use the powers that the Bill would confer. We have also announced our intention of holding a full public consultation on draft statutory instruments to be made following enactment of the Bill. We expect to hold this in the spring. This consultation will give all with an interest in this legislation the opportunity to comment on the details of the proposed secondary legislation.

I turn to the individual provisions of the Bill. Clause I would replace the export control powers in Section 1 of the 1939 Act. The difference is that orders made under the clause are subject to parliamentary scrutiny, and they can only be made for the purposes set out in the schedule to the Bill. As indicated by the dummy orders, the controls to be introduced under the clause will simply consolidate and, where necessary, rationalise export controls in force at the time.

Clause 2, which provides a power to impose controls on the transfer of technology by any means, is a modernising measure. Under existing legislation a licence is already required for the export of the technologies required for the development, production and use of military equipment. However, at present we only have the power to require a licence when it is exported in a physical form. So the export of a blueprint or technical manual printed on paper would need a licence. But we cannot at present impose a licensing requirement where the identical blueprint or technical manual is to be sent abroad electronically, for example, by e-mail. This clearly does not make sense. It is a problem with which the international export control community has been grappling in recent years. Many countries, including the US, France, Germany and Japan, have already introduced controls on intangible transfers.

Still more to the point, European Community legislation has introduced controls on the electronic transfer of dual-use technology both here and across the rest of the European Community. These controls have been in place since September 2000. If the electronic transfer of dual-use technology—that is technology not designed for military use but which has a potential military application—is controlled, then it clearly makes sense that the electronic transfer of military technology should also be controlled. Clause 2 will enable us to do that.

Technology can of course be communicated in other ways than by exporting physical items or communicating electronically. It can be communicated in person, for example, through the spoken word. As the relevant dummy order makes clear, we propose to introduce such controls for the transfer of technology which a person knows, or is informed by government is, or may be intended, for use in weapons of mass destruction programmes and missiles capable of their delivery. We recognise the difficulties of imposing controls on personal communications, but we believe that the step is justified in these very serious circumstances. Moreover, we are not taking unilateral action as these controls will implement a joint action agreed with other EU member states in June 2000.

Clause 3 provides for the imposition of controls on the provision of technical assistance; that is, services connected with the development, production or use of goods or technology. We will use this too to impose controls on the provision of services which the provider knows or is informed by government is, or may be intended, for weapons of mass destruction or related missiles. This measure is also required by the joint action I mentioned earlier. The fact that these controls are being introduced across the EU will help to ensure that they are an effective mechanism in combating the proliferation of weapons of mass destruction and missiles for their delivery.

The important new power to impose controls on activities connected to trade between overseas countries—usually referred to as "trafficking and brokering"—is contained in Clause 4. These activities include the acquisition, disposal or movement of goods and related activities. At present we can introduce such controls only where this is a requirement of a binding UN arms embargo. However, as the dummy orders that we have published make clear, we intend to impose controls on trafficking and brokering by UK persons and anyone in the UK to any destination subject to an embargo. This will include destinations on which embargoes have been imposed by the EU and the Organisation for Security and Co-operation in Europe or on which we have a national embargo, as well as those imposed by the UN. We will also introduce similar controls on trafficking and brokering in equipment whose export has already been banned because of evidence of its use in torture and long-range missiles. And, finally, we will also introduce controls on trafficking and brokering from the UK of all military equipment to any destination. This last was a new proposal not contained in the 1998 White Paper, but introduced in response to that consultation.

Some supplementary provisions to Clauses 1 to 4 are contained in Clause 6. These include provision for enforcement and record-keeping and a maximum penalty of 10 years imprisonment. This is higher than the current maximum of seven years, reflecting the seriousness with which the Government view potential offences under the Bill.

Clauses 1 to 4 set out the substantive powers in the Bill. The exercise of these powers by the Government, however, is subject to important restrictions, as I shall explain.

Clause 12 provides for the first time that export control orders, and the other control orders that may be made under the Bill, are subject to parliamentary scrutiny. This contrasts with the 1939 Act which makes no provision for parliamentary scrutiny of the secondary legislation made under it. While the Government have laid export control orders voluntarily before Parliament since December 1999, the Bill will make this, as it should be, a statutory requirement.

Clause 5 specifies that, with one exception which I shall come to, orders introduced under Clauses 1 to 4 can only be made for the purposes set out in the schedule to the Bill. This means that for the first time limits are set on the controls that the Government can introduce. Goods and technologies may only be brought under control if this is justified by reference to the schedule. These purposes include meeting international and European Community obligations and avoiding certain adverse consequences such as damage to the UK or the national security of other countries, to regional stability or contributing to the development of weapons of mass destruction, human rights abuses or terrorism and crime.

The schedule also provides for controls to be imposed on objects of cultural interest. As I mentioned, the point of the schedule is to set limits on the goods and technologies that the Government can include in the control lists in the orders. So far as the strategic export control regime is concerned, we must be able to control military dual-use and paramilitary goods and technologies both to ensure that we have an effective strategic export control regime and to meet all our international obligations.

Concern was expressed in another place about whether the schedule, as drafted, will allow us to control all the goods that we wish to control. I can confirm that the schedule, as drafted, ensures that we can continue to control military, dual-use and paramilitary equipment and that we can meet all our international obligations, including under the EU code of conduct on arms exports.

It is appropriate to mention Clause 11 here. This will enable us to make changes to the schedule if future developments, such as changes in the international situation, make that necessary. That can be done only with the express approval of Parliament, as Clause 12 provides for any orders changing the schedule to be subject to the draft affirmative procedure. The Bill originally provided for changes to the schedule to be made by the delayed affirmative procedure, but the Government accepted the recommendation of the Committee on Delegated Powers and Regulatory Reform that the draft affirmative procedure should apply.

I mentioned an exception to the requirement that all control orders must be made for the purposes set out in the schedule. The Bill includes a power to introduce temporary controls under Clause 5(2) for reasons not included in the schedule. The delayed affirmative scrutiny procedure will apply, so such orders will need Parliament's approval if they are to remain in force after 40 days. Additionally, the orders will expire at the end of 12 months unless expressly renewed with the approval of Parliament. The Government consider it prudent to take powers to deal with unexpected emergency situations that must be acted on quickly or which would not justify longer-term changes to the schedule. Recent events have shown how quickly the international situation can change, but we have built in protections to ensure that the power cannot be abused.

Clause 7 deals with the exercise of the power to grant licences and provides that the schedule is one of the factors to be taken into account in the use of that power. The clause makes clear that other factors can be taken into account.

Clause 8 enables the Secretary of State to issue guidance about licensing matters or any of the other functions under the order-making powers in the Bill. Any such guidance must, like the schedule, be taken into account in licensing decisions. The clause also designates the consolidated criteria as announced by the Foreign Secretary in October 2000. The consolidated criteria incorporate the EU code of conduct on arms exports and additional national criteria. Together, the criteria are the basis for the Government's export licensing decisions.

I said that the introduction of national criteria and of the EU code was a major step forward in promoting transparency in strategic export controls, but we want to build on that. Clause 8 requires, for the first time, that the Secretary of State must have regard to the criteria in licensing decisions.

Concern was expressed in another place at the absence of a reference in the schedule to sustainable development. It was suggested that that might undermine a licensing decision taken on the basis of criterion 8 of the EU code, which requires the Government to consider the impact of an arms export on sustainable development. That concern is misplaced. I can assure noble Lords that the Bill will make it possible for the Government to reject an export licence application for an export of arms or dual use goods solely on sustainable development grounds. The fact that sustainable development is not mentioned in the schedule in no way undermines our ability to continue to consider, as part of the assessment of licence applications, the impact of arms exports on the sustainable development of a recipient country.

We are committed to observing all aspects of the EU code, in the negotiation of which we were instrumental. Nevertheless, I promise the House that we take seriously the concerns that were expressed. Moreover, we are considering ways of making clearer in the Bill the Government's continuing commitment to sustainable development. That commitment was made clear when we first published national criteria in 1997 and has been enshrined in the code of conduct that we agreed with our EU partners. Noble Lords will be aware that the Bill states that the consolidated criteria constitute guidance for the purposes of the Bill. We are considering whether the terms of the Bill that relate to guidance can be strengthened and whether we can clarify the role of the schedule in allaying the fears that some have expressed.

I hope that what I have said will reassure the House that we are listening to the concerns expressed in another place and elsewhere. We are considering how we might meet those concerns.

Clause 9 requires the Secretary of State to lay before Parliament each year a report on the operation of the powers in the Bill. The Secretary of State already publishes an annual report on strategic controls. Clause 9 places that practice on a statutory basis, which would allow for effective retrospective scrutiny of the licensing decisions taken by the Government. The clause will also require the Secretary of State to publish an annual report on controls on objects of cultural interest. That report will cover cases considered by the Reviewing Committee on the Export of Works of Art, which are currently presented by the Secretary of State for Culture, Media and Sport in a separate annual report to Parliament. Clause 9 provides another example of the way in which we have sought to build on the measures that the Government have already introduced to provide better transparency and accountability in export licensing.

I have described the main provisions of the Bill. The Bill will modernise our controls and subject them to proper parliamentary scrutiny, and it will provide a framework for more comprehensive—and therefore effective—controls. The introduction of the schedule, the requirement to take account of guidance in licensing decisions and the introduction of a statutory requirement to publish annual reports will help to improve accountability and transparency and build on our recent achievements. For all those reasons, I commend the Bill to the House.

Moved, That the Bill be now read a second time.— (Lord Sainsbury of Turville.)

My Lords, I thank the Minister for that helpful description and explanation of the Bill. We welcome the Bill in principle, although we have some reservations about the methodology used by the Government, the form of the legislation and the way in which the Government propose to achieve their objectives.

There is undoubtedly an urgent need to update the legislation on this topic. Many of your Lordships will have been as surprised as I was to learn that the substantive legislation was enacted as long ago as 1939–63 years ago. In those days, weapons of mass destruction existed in the form of poison gas and chemical and biological weapons, but their use was inhibited by the limited means of delivery available. Terrorism existed in the form of small groups of individuals, not sophisticated international gangs possessing vast funds and aided, abetted and protected by other states—rogue states. Suicide bombers did not exist until the Japanese introduced kamikaze pilots as a weapon against legitimate military targets, not innocent civilians.

The Roman poet Horace's concept that

"It is sweet and fitting to die for one's country"

related to brave soldiers fighting other armed soldiers hand-to-hand, not to murderers with nail bombs blowing up young teenagers. So-called rogue states, when they appeared, were often subdued, usually by Great Britain, through the use of what was disparagingly called gunboat diplomacy. Gunboat diplomacy has never gone away; recent examples include Grenada, Iraq, Somalia and Afghanistan. Your Lordships will have noted from that list that Britain has been replaced as the major power involved by the United States.

Just as the form of terrorism has changed, the general form of warfare has changed. Changes have been brought about by enormous changes in weaponry and the fact that many ordinary, everyday objects can be adapted and used as part of a weapons system. Even the machine on which I typed these notes could be used as a guidance system. The enemies of civilised, democratic countries have changed, as have the weapons and means of delivery, which is why we agree that the controls on the export of weapons and the materials that might be used for weapons must be changed and the legislation brought up to date.

We have reservations about the Government's methodology because the Bill is another so-called enabling Bill, the detail of which is left to be fleshed out in later statutory instruments promulgated by the Secretary of State. In another place, my colleagues rightly complained that the Government had not published draft regulations until the Bill had reached an advanced stage there and that, as a result, they were being asked to consider legislation without knowing what they were being asked to agree to. We are a little better off; we have what are known as dummy orders, a new weapon in the Government's armoury of parliamentary non-information. I do not recall having seen it previously, but I stand to be corrected by the Minister if I am wrong.

Those dummy orders are even lower down the scale of elucidation than draft orders, for in the Explanatory Notes they are described as the "first draft" of the proposed orders. However, I welcome the announcement made by the Under-Secretary of State in the Standing Committee of the other place when he promised full public consultation with all interested parties on the regulations before they become law.

I would like to hope that the consultation will not merely be going through the motions and that the Government will pay attention to the representations made to them. I say that because the Government published their response to the recommendations of the quadripartite committee on the Bill three months late—on the very day of the Second Reading in the other place—thus ensuring that honourable Members had no opportunity to examine the Government's views before that very important stage.

It is true that delegated legislation is nothing new. But negative orders are not necessarily debated in the other place and then only if the Government provide the time. We shall therefore be considering the introduction of amendments to ensure that some of the regulations under the Bill are subject to an affirmative resolution of both Houses, notwithstanding the promised consultation which of course is no more than the noble and learned Lord, Lord Scott of Foscote, recommended in his report. That is because it is an important principle that Parliament, and not a number of pressure groups, should have the last word on legislation.

We are concerned about the power to amend the schedule which is at the heart and core of the Bill. It sets out the purposes for which a control order can be made. But in 13 terse words in Clause 11 it gives the Secretary of State power, subject to an affirmative resolution of Parliament, to vary the schedule. She can override the schedule; she can impose export controls but ignore the restrictions in the schedule; she can impose controls which have not been sanctioned by primary legislation.

As my right honourable friend the Member for Wells pointed out at Second Reading in the other place, the Delegated Powers and Deregulation Committee had commented adversely on the proposal, but we believe that the Government are still pressing ahead, ignoring its impartial recommendation.

I want to draw your Lordships' attention to a piece of fine print in the Explanatory Notes to the Bill. Paragraph 10 reads:

"It is envisaged that the DCMS will establish controls over the export of any goods (with limited exceptions for personal papers etc.) manufactured or produced more than 50 years before the date of exportation".

What objects more than 50 years old might, in the words of the schedule, pose a threat to the United Kingdom and other countries? Are the Government thinking about suits of armour and flint-lock pistols or the plans of Nelson's "Victory"? Are they talking about World War 1 or World War 2 aircraft? And why more than 50 years old; why not 49 years old? Why is the DCMS involved in the matter of international security at all? Is this a way for the Government to slip into law further restrictions on the export of historical objects and works of art?

As regards licensing, major complaints have been voiced by all sections of industry, particularly by the influential Defence Manufacturers Association and the Society of British Aerospace Companies, about the inordinate delays in granting licences. The Government's target is to process 70 per cent of licence applications within 20 days. In the year 2000 they achieved only about 57 per cent and on appeal cases the figure is much worse.

Defence manufacturers told my right honourable friend the Member for South West Hertfordshire that some delays had been between two and a half and three years. That is despite the fact that only a small proportion—2 per cent—of applications are finally refused. Delays particularly adversely affect small businesses which lose foreign orders as well as antagonise foreign governments who can easily take their orders to less bureaucratic regimes.

When my right honourable friend the Member for Wells questioned the former Foreign Secretary on the subject of licensing delays, he received the dismissive reply that he had "limited sympathy" with the complaint. She had "limited sympathy". The former Foreign Secretary admitted:

"We are not moving fast enough".

In my view, that is typical of the subconscious and, in some cases, the historical and blatant antipathy of the Labour Party to what it pejoratively calls the "arms trade". Even the Secretary of State in her opening remarks to the other place at Second Reading referred to the arms trade no fewer than three times in her third paragraph. That antipathy exists despite the fact that it employs 350,000 people in the United Kingdom and that arms exports are vital in keeping down the cost of equipment for our own Armed Forces.

The defence industry, not the arms trade, provides about 10 per cent of the output and the workforce of our declining manufacturing sector. And talking about the former Foreign Secretary, your Lordships will recall that virtually his first pronouncement was that he would conduct an ethical foreign policy. In passing, I wonder how ethical it was for the Government to license the sale of £23 million-worth of military air control equipment to Tanzania, one of the poorest countries in the world which possesses just two airfields and only eight aircraft.

We have only recently, at the very creditable initiative of our Government, procured the cancellation of its foreign debt. How does that lack of co-ordination between the DTI, the Foreign Office and the Treasure fit in with the concept of joined-up government? How does that sale of excessive equipment fit in with criterion 8 of the existing EU and National Arms Exporting Licensing Criteria which obliges member states,

"to look carefully at the compatibility of any proposed arms export with the technical and economic capability of the recipient country and to take into account whether the proposed export would seriously undermine the economy or seriously hamper the sustainable development of the recipient country"?

The Explanatory Notes make it clear that Clause 8(2) and (4) require the Secretary of State to take the guidance criteria, published as long ago as October 2000, into account when granting export licences.

I acknowledge—indeed, I am delighted—that the Tanzania order had benefited 250 engineering workers in the Isle of Wight. But still on the subject of delays, this time in introducing the Bill, the present Administration have wasted more than four years in implementing the Scott report, with detrimental effects to British industry. At Second Reading in the other place, the Secretary of State claimed that,

"we have reached an unprecedented agreement in the European Union on a code of conduct enabling any member states to object if another member state takes up an arms order which has been rejected under the code".—[Official Report, Commons, 9/7/01; col. 548]

I will believe the effectiveness of those words when I see them put into practice.

My scepticism is shared by the Quadripartite Committee which stated:

"There is very little sign that the other member states are taking very seriously the suggestion that they should be more transparent in their reporting of the operation of arms export controls. None of our European competitors has achieved the UN's level of transparency".

Indeed, the previous Foreign Secretary acknowledged two instances where export licenses had been turned down by this country, only to be granted by other EU states. We are in danger of putting our own industry at a disadvantage by operating to a set of rules which our European partners are not applying with the same degree of diligence.

Again, while touching on the subject of export controls by EU countries, it is appropriate to mention the lack of them from other arms producing states over which we have no effective influence; for example, China, North Korea and parts of the former Soviet Union. Only last week it was reported that a cache of uranium capable of producing a technologically simple "dirty bomb" had been found in the possession of Al'Qaeda and bin Laden. That is believed to have been stolen by gangsters operating with seeming impunity in parts of the former Soviet Union.

Another major concern is the extra territorial applications of the Bill. The Government in response to debates in the other place altered the Bill as originally drafted. However, there still seems to be an anomaly which we will want to explore at a later stage. I am glad to note that the Government have rejected the entirely impractical idea of prior parliamentary scrutiny of export licence applications.

There are, as I have already pointed out, more than enough delays as it is, to say nothing of the strain on Parliament's time, the politicising of executive decisions and the danger of disclosing commercially sensitive information to competing countries.

The Bill includes provision for the extension of controls on the intangible transfer of technology to encompass oral and electronic means and also training and demonstration. While welcoming that, we are concerned as to how it can be interpreted. Unless it is realistically interpreted in the secondary legislation, it will become a legal and practical minefield for companies in and out of defence and even academia. It will encompass dual-use technology and will undoubtedly inhibit joint industrial ventures such as we have seen successfully conducted in the aircraft construction industry. I also have to ask, as e-mails, faxes and telephone calls are caught by these proposed new controls, how and by whom are they going to be monitored? Only recently the Daily Mail reported that it was possible to obtain details of how to manufacture explosives and bombs capable of bringing down a passenger plane, along with other terrorist weapons, over the Internet.

The DTI has suggested that companies and universities could apply for open general licences to cover business dealings with approved companies overseas. That will create an unprecedented level of bureaucracy for industry as well as put a greatly increased burden on the DTI licensing department which, as I have already pointed out, cannot even come remotely close to meeting its present targets. This aspect will need to be interpreted realistically in the secondary legislation, but I fear that that may not come about.

The dummy order on the export of goods, transfer of technology and the provision of technical assistance runs to 39 pages. Regulation 12 proposes that any person who commits any act under a general licence shall keep records of the material exported or technology transferred, including the date, quantities, the names and addresses of the consignor and consignee, the name of the end user and any further information that a competent authority would require. All that must be done even if a person is merely talking to a colleague or a customer from abroad over the telephone, discussing how to overcome a problem in operating a widget that has been sold lawfully. Regulation 12 also imposes a further seven detailed requirements set out in over a page of close type that will generate sufficient work for an army of inspectors. Furthermore, I am not overly confident that Customs and Excise will necessarily interpret the regulation reasonably.

On the matter of implementation costs, I have to agree with my right honourable friend the Member for South West Hertfordshire in his description of the estimate of £800,000 for the first year, reducing to £500,000 in subsequent years, as "absolutely ridiculous"—those were his words; I merely repeat what he said. The fact is that the Society of British Aerospace Companies has estimated that the Bill will generate a four-fold increase in licensing activity. The CBI has also made known its concerns regarding the amount of extra paperwork that will be involved.

Perhaps I may touch briefly on a further worrisome but connected topic, also covering licensing. Rather confusingly I refer to the granting of licences by a patentee or copyright owner to enable someone abroad to manufacture a product. The dummy regulations provide for this kind of transaction to be licensed in certain types of cases, but there is little that the licensor can do except to bolt the stable door if the foreign licensee, in breach of the licence, puts the goods that he has manufactured or the know-how he has been given to some improper use. Does the Minister acknowledge that this would make an innocent UK licensor, in a situation over which he has no control, guilty of an offence and liable to serious sanctions, even total ruin, as was the case with Matrix Churchill?

Along with my honourable friends in the other place, we are concerned that we still do not know precisely what powers we are being asked to give the Government under the terms of the Bill. We are marginally better off than the other place because, as I have said, at least we have had sight of the dummy regulations right from the outset. However, the regulations are to be put out to extensive consultation and in their final form may not bear the slightest resemblance to what we have at this moment. For that reason, we shall want to scrutinise carefully the detail hidden away in the final form of those regulations.

Finally, perhaps I may remind the Minister of my opening comments. We welcome the Bill, but we have reservations about it which I have already described. I very much hope that the Government will use their best efforts to encourage our EC partners to put in place a similar regulatory regime, including that called for in the EU consolidated criteria. In that way, I hope that our Government will ensure that our vital defence industry will be able to operate on a level playing field with its competitors.

My Lords, in rising to speak on the Second Reading of the Bill, we should pause for a moment to look at the history of how it has come before us. That exercise feels like looking at sepia-tinted Victorian photographs of a world in which Mr Major was Prime Minister and the noble Lord, Lord Hurd, who is no longer in his place, was Foreign Secretary. At that point the world assumed that a Conservative government would continue for ever. Over that period of Conservative administration the Matrix Churchill events took place, followed by the Scott report. No doubt, all noble Lords are waiting with eager anticipation to hear the contribution of the noble Lord, Lord Scott of Foscote, who spent more time considering those issues than many of us would care to do.

After a lengthy period of consultation, the present Government have produced a response to the events surrounding the Matrix Churchill affair based on their different political persuasion. On these Benches we welcome the Bill. In her remarks the noble Baroness, Lady Miller, indicated that the Labour Party and the Liberal Democrats have a slightly ambivalent view of the whole question of the arms trade. She mentioned that the language used by Ministers often gives them away. I suspect that references made by the Secretary of State in another place reflected a certain ambivalence felt by the Government and those not on the Tory side of the argument as regards the arms trade which, as the noble Baroness also pointed out, still represents around 10 per cent of the UK's manufacturing capability.

This is not the time to rehearse the complex arguments over whether it is sensible for the British taxpayer to continue to subsidise the arms export trade through the mechanisms of the ECGD probably to the extent of a figure between £300 million and £500 million per annum. Those figures have been put forward in recent academic studies, although I appreciate that the noble Lord, Lord Berkeley, is shaking his head. I understand that those figures do depend somewhat on massive write-offs for Iraq, to whom I suspect that we no longer supply weapons of mass destruction. Nevertheless, this is not the time to debate those issues. However, in expressing in general terms our support for the Bill, we would wish to express our reservations and concerns as regards five matters that were debated pretty heavily in another place. We hope that progress can be made on these as we move through our proceedings in this House.

I turn first to a matter touched on by both the Minister and by the noble Baroness, and which was discussed at length in another place when concerns were expressed on all sides of the House; that is, the omission from the schedule setting out the purposes for making control orders of a definition of sustainable development. I do not wish to take up too much of the time of noble Lords on this point because no doubt we shall return to it in Committee and during subsequent stages of the Bill. Furthermore, the Government have indicated that they are prepared to move further on the matter. We look forward very much to the Minister's further comments. Noble Lords on these Benches will welcome an opportunity to discuss with the Minister and his officials what progress he thinks he can make in order to meet the concerns that have been expressed. However, the recent controversy that arose over the proposed export of arms to Tanzania demonstrates in a nutshell the urgency of reaching a satisfactory position on the question of sustainable development.

I understand that in another place the Minister concerned put forward an argument to the effect that, as the Government intended to exercise sustainable development criteria in the guidelines that are to be applied, there should be no concern over the matter. However, I believe that many are concerned that if those guidelines are changed, then the legislation would no longer provide the protection that is being sought. To that end, the events surrounding Tanzania provide a good contemporary example of those concerns. As I have said, we await the Minister's contribution on this matter when it is raised in Committee.

The second major area over which general concern was expressed in another place was that of prior scrutiny. Given the remarks of the noble Baroness on the Conservative Benches, I suspect that we do not have her support. I found it difficult to understand her argument against prior scrutiny, which was recommended by the Quadripartite Committee but was not accepted by the Government on the grounds that it would hold up exports. However, the United States, which is one of the major arms exporters in the world, has in place a system of prior scrutiny. If the United States can have a system of prior scrutiny, it is difficult to accept that it is beyond the wit of Her Majesty's Government to have one here. The controversy currently raging over Tanzania would not apply to the same extent if a system of prior scrutiny before a licence was granted had been in place.

As to the other three areas—some of which were touched on by the noble Baroness—we welcome the extension of controls on the licensing of production. However, an issue was raised in another place in regard to the licensing of production overseas. We will need to be satisified in Committee that there will be satisfactory controls in that regard.

That leads to the question of the ultimate end use, which the noble Baroness also touched on. Proposals were made in another place in regard to further controls on the end use of armaments. This is clearly a significant problem and we look forward to discovering whether or not the Government have any proposals to help us on that issue.

There is also the issue of arms brokering, which was graphically portrayed by the expert on all these subjects, Mr John Le Carré, in his recent novel, The Nigh Manager. I commend to the Minister the character of Mr Richard Roper. If his officials turn up the appropriate pages in The Night Manager he will see why it is necessary to widen the controls on arms brokers who are based in the United Kingdom and to give those controls extra territorial scope.

Those are the five areas where we feel the Bill needs strengthening. They were considerably debated in another place and we look forward to making progress on them in Committee. We hope that the Government will go a long way towards meeting our concerns.

Finally, everyone who has been involved in these discussions will wish to offer a word of thanks to Saferworld, which has done a fine job of consultation and briefing on this very important Bill.

My Lords, in view of the opening remarks of the noble Lord, Lord Razzall, I have a feeling that your Lordships may be disappointed with what I have to say.

I welcome the Bill. For the first time in some 50 years there are proposals for export controls which will have constitutional and democratic respectability. The Bill is long overdue and thoroughly to be welcomed.

I express my gratitude to the Secretary of State for her kindness—it started off by being "his" but then it became "her" kindness—in keeping me abreast of the proposals in regard to the Bill; for allowing very helpful officials from the DTI to explain to me some of the problems that I was having with the early draft; and for explaining some of the thinking behind the language in the Bill—particularly in the schedule, with which I still have some difficulties and to which I will refer.

The introduction in the Bill of transfer controls, technology assistance controls and trade controls is thoroughly logical and sensible. It obviously makes no sense in a technological age to have prohibitions and restrictions on the export of technologically advanced goods but to allow free dissemination of the technology that lies behind those goods. This gap became apparent in some of the evidence that I was given when I was conducting the inquiry. It has now been filled and is a very good addition to the controls in this area.

One point about the Bill has caused me a little concern. It is a point to which I have already made an oblique reference and, as I understand from the noble Baroness, Lady Miller, it is a point which was raised in the debate on the Bill in the other place. It is not at all apparent to me that the existing controls over the very wide range of goods that they can presently be exercised over will still apply under the Bill. The present position is that the Secretary of State can specify any goods as being the subject of export controls and will therefore require licences for their export. Under the Bill, the Secretary of State has power under Clause 1 to make export control orders—he can impose transfer controls and so on—and Clause 5 states that the export control orders must be made for one or other of the purposes specified in the schedule. So they must be franked by one of those purposes.

One then goes to the schedule and finds in paragraphs 1 and 2, plainly expressed, the purposes—that is, the purposes of giving effect to Community requirements and international obligations. Those are the purposes and they would cover whatever the Community and international obligations require. But paragraph 3 does not express a purpose at all. It states that export control orders can be made for the purpose of imposing export controls. That is tautologous; it tells one nothing. Paragraphs 4, 5 and 6 are to the same effect.

The paragraphs go on to state that an order imposing export controls may be made if it appears to the Secretary of State that the export of the goods in question would produce one of the relevant consequences set out in the schedule. The intention is clear enough—the author is endeavouring to identify goods with particular characteristics which warrant their being subjected to export control—but the method adopted of looking at the relevant consequences of the export is a process appropriate to the licensing decision.

There has been mention of the Tanzanian airfield control equipment, which is the subject of some debate in the media. As I understand it, this concerns radar equipment of a military character which is appropriate for use at a military airfield. Under the present export control regime, it is export licensable, and so the debate has been whether a licence should or should not be granted, and matters such as sustainable development and others have been raised in connection with this argument. That will go, and the licensability of radar equipment for military airfields will have to be justified by reference to the schedule.

I do not know whether it will fall within paragraphs 1 and 2 that we are required to have licensing controls over radar for military airfields under Community or international obligations, but, leaving that aside and looking at the impact of paragraph 3, how can it possibly be said that the export of radar for a military airfield would have an adverse effect on national security, or an adverse effect on the peace, stability or security of some other country, or be relevant in any of the other respects specified in the schedule?

For the purpose of seeing whether goods are appropriate to be subjected to export controls, one should be looking at the characteristics of the goods. I believe that is what the draftsman of the schedule is driving at. That ought to be expressly stated, rather than going off at a tangent and talking about the consequences of the exportation. The consequences in any individual case will be relevant to the question of whether a licence to export should be granted or whether it should be refused. But the characteristics of the goods themselves ought to be the governing criteria for their licensability in the first place.

It occurred to me also to consider the case of parachutes. They may be used by pilots of civilian aircraft in case they get into difficulties; they may also be used by a brigade of paratroopers. Are parachutes to be licensable? If they are dual use goods, presumably they will be licensable—but which of the relevant consequences under the terms of the schedule could be said to apply to them? It is unclear whether paragraph 3 as drafted will be effective in catching all the firearms, military equipment and dual use goods which are subject to export controls under the present regime. I suggest that the Minister might re-examine the provision with a view to seeing whether the entirely appropriate object of the drafting cannot be better achieved by some other form of wording.

The reasons for rejecting or granting licence applications are dealt with in the guidance referred to in Clause 8. The guidance currently published includes the sustainable development points to which reference has been made. However, there is a point of illogicality regarding sustainable development.

Sustainable development as a criterion for the granting or refusing of a licence takes account of what, in the Government's view, the country seeking to import the goods can afford, having regard to the other requirements of health, education, social services and so on to which we may think they should give priority. If these are appropriate criteria—and most people believe that they are—in logic they should apply equally to goods for civilian use as well as those that are for military use. In terms of the sustainable development argument, what difference should it make if the buildings to be erected are for a grand display of wealth on the part of a head of state as opposed to being a barracks for the housing of troops?

The sustainable development criterion is subject to a paradox: it is applied in cases where the reasons for the goods being subjected to export control have nothing to do with the sustainable development point. The goods are subject to export control for one reason, and the decision is taken on grounds that have nothing to do with the reasons why the goods were export controllable in the first place. There is a paradox; I do not know whether there is an answer to it. It is an unsatisfactory feature of the current export licensing regime, and it looks as though it will be imported into the new one.

Perhaps I may say a few words about prior scrutiny—mentioned by the noble Lord, Lord Razzall. Speaking personally, I am against prior scrutiny and am in favour of the Government's refusal to agree to its incorporation into the export licensing regime. But my reason has nothing to do with objections on grounds of bureaucracy. It seems to me that the function of Parliament, whether of this House or another place, is to hold the executive, the government, accountable for the decisions that they take. Export licensing is essentially an executive function. Parliament has a constitutional obligation to hold government to account for their executive decisions and should not become complicit in them by prior scrutiny, which one supposes would disqualify whichever House had conducted the prior scrutiny from conducting a proper accountability exercise. For those reasons I believe that the prior scrutiny proposal was correctly rejected.

As I have said, I welcome the Bill and I am pleased to have had some part in its history.

My Lords, it is an honour to follow the noble and learned Lord, Lord Scott of Foscote, whose report was one of the chief inspirers of the Bill.

The Labour Party called for proper controls on the export of arms even before I was born, and those of us brought up on "Major Barbara" recognise the historic moment of the defeat of Lord Undershaft.

As has been said, there were some controls before—a temporary measure instituted in 1939. It is more to the point that the Scott report recommended specific measures in 1996 and these were picked up in the Labour Party manifesto. So this Bill meets a high level of expectation.

My noble friend has outlined the range of the Bill, including its welcome proposals for transparency and for parliamentary scrutiny. He has also mentioned the all-important process to obtain commitment within the European Union from all member states to control arms trafficking and brokering. I want to focus on one area where the Bill could be improved, or rather, returned to one of its original purposes.

Following the recommendation of the Scott report, the Bill sets out the purposes of export controls, in a schedule. In the draft Bill published last March, as the noble Lord, Lord Razzall, said, these included the need to consider the consequences of arms exports on sustainable development. This was warmly welcomed, and reflects properly the EU code of conduct for arms exports, whose eight criteria broadly match the Bill's schedule. As Oxfam points out, the development of the code of conduct was a flagship policy pioneered by this Government in their previous term of office and adopted by the EU in June 1998. It marked a major step forward in a common European policy towards the arms industries of EU member states, setting out as it does the ethical criteria as well as the security criteria by which we and our European partners are bound. As far as I know, no one in this country objected to the presence of the criterion on sustainable development publicly during the consultation process. I am proud that a Labour government put a policy in place which recognises the risks of the arms export business for international development.

The point of making the criterion explicit on the face of the Bill, like the others in the code, is that any desire by any future government to amend it would require a full parliamentary debate; guidance can be changed without reference to either House. Without the safeguard of the reference in the Bill, the Government could be vulnerable to a completely avoidable clash between our commitments at a European and at a national level.

We know that the criterion relating to sustainable development has now been omitted from the Bill. My noble friend has given assurances, but according to Matrix Chambers the effect is to prevent a strategic export order being made which takes into account sustainable development.

I will not speculate on the pressures which caused the Government to drop this criterion. Tanzania's purchase of the BAe system, as the noble Lord, Lord Razzall, said, exemplifies exactly the kind of issue which is at stake. But dropping the criterion goes plain against one of the most successful policies of this administration—the furtherance of sustainable—development as defined in the International Development Bill, a concept right at the heart of the central purpose of the control of strategic arms exports itself. That is why the EU was able to agree on its incorporation in the code. Very many voices, including Oxfam, International Alert, Amnesty International, and Saferworld find the omission of this criterion—the only one in the list of appropriate criteria which is not now included in the Schedule—unacceptable. Resistance will be widespread, as debates in another place have shown. Following my noble friend's assurances, I hope that the Government's discussions will succeed in removing this blot on a very good Bill.

My Lords, after six years, it is a rather piquant pleasure to take part in a debate on this subject in which the noble and learned Lord, Lord Scott of Foscote, is also participating. Indeed, it is surprising that it is in fact almost six years since the issue surfaced with crystal clarity in the report of the then Sir Richard Scott.

Perhaps your Lordships will forgive a passing autobiographical reference, because I had the interesting task of receiving and presenting to Parliament that report—all 2,000 pages and five volumes of it—without the benefit of executive summary. It was an interesting report. Noble Lords will remember that the government were exculpated on the wilder and more extreme allegations of conspiring to arm Iraq and to cover up that fact. On some issues and conclusions of the report the government frankly disagreed with the noble and learned Lord, Lord Scott, while on others there was a certain delphic quality, a certain balance of conclusion, and it was difficult to form a view. However, we agreed strongly on some of the report's conclusion. I certainly considered that the need for reform of export control legislation was one of those issues. In February 1996 I immediately promised a Green Paper on reform, as recommended by the Scott report. Had we still been in power, we should certainly have legislated long before now.

However, against the comments of "urgency" and "outrage" of the then Labour Opposition, I find it puzzling that it has taken as long as six years for this legislation to come before us. Of course, I sympathise with the Minister at the DTI on the difficulty of getting a legislative slot—other departments always seem to find a way of gaining preference. In our day, it was the ever-hungry Home Office that always came forward with ill-considered, but immediately important, emergency Bills. But six years is an unconscionable time, the more so because this is essentially an enabling Bill and much of the detail will be found in secondary legislation. That, in itself, is an unhealthy trend in parliamentary accountability, notwithstanding the perfectly plausible explanation proffered today by the Minister in his very comprehensive summary of the Bill's provisions.

I turn to the issue of scrutiny. I regret that scrutiny of the export of goods (control) orders will be by negative resolution. I am sure that this would be better done by affirmative resolution, thereby giving Parliament a clearer and automatic right to exert a check on the executive. I hope that the Government will think again on that issue. Much the same thing happened in 1990 when the 1939 emergency Act was patched up with the co-operation of the then Opposition. The Government of the time preferred to propose an affirmative resolution, but agreed to Opposition requests for a negative resolution procedure. I do not believe that to have been a healthy development.

I strongly agreed with the noble and learned Lord, Lord Scott of Foscote, when, in his 1966 report, he said that the 1939 emergency Act was entirely inappropriate in a modern age given the age of the legislation and its temporary, emergency wartime nature. But I am surprised to find that chunks of it still remain in the present Bill, in particular in the parts covering the control of the import of goods where the Government have retained what the Quadripartite Committee described as,

"draconian powers … for no stated purpose and without parliamentary control".

Indeed, I sense that the Bill centralises more power than may he desirable within the hands of the executive. It is hard to measure that at this stage, but I believe that it is a matter that should be further probed and something that we should be guarding against. I wonder whether the industry organisations that have welcomed it realise just how much of a burden this legislation may impose upon them. Inescapable though the need is for clear and effective controls, I wonder whether it may go further in this respect than is really necessary.

Concerns have also been expressed by the British American International Committee, which believes that the Bill has a loophole—one which, incidentally, breaches a Labour manifesto commitment—to stop British arms dealers arming terrorist groups and regimes that violate human rights. At this time, if true, that could be a very serious omission and one that certainly needs further scrutiny. However, I do welcome the register on trafficking and brokering.

Having said that, I welcome a long overdue measure that should have reached Parliament three or four years ago. Although in need of amendment, it is more comprehensive; it is more transparent; and it is more up to date than the legislation that it replaces. I welcome the measures to address the transfer of goods through intangible means, using modern technology, especially potential dual-use goods. But I believe that more work is needed as regards the impact on business of such measures and on how they would work in practice, as we gain further experience in the area.

I welcome the controls on the transfer of technical assistance outside the United Kingdom, which will enable the implementation of the EU Joint Action of June 2000 to control assistance to certain military end-users. I welcome the requirement for annual reports to Parliament on the use of strategic export controls, especially on the export of objects of cultural interest. Above all, belatedly, this Bill removes the uncertainty that has dogged exporters in recent years. It creates anxieties. It needs amendment, but I hope that we can speed it, belatedly, to the statute hook.

My Lords, I warmly welcome this Bill, even though I believe that there is one glaring omission and several areas where the legislation could be improved. It is a privilege for me, although a somewhat intimidating one, to speak after the noble and learned Lord, Lord Scott. I declare an interest as a former chair of Oxfam and also a trustee of International Alert, both of which organisations are key members of the UK national working group on arms, which has been deeply involved with the Bill.

The Bill lays down the ground rules for one of the most important parts of British foreign policy; namely, to whom we should not sell arms. It is vital that this legislation—the first since the current laws were devised some 60 years ago for the very different world of 1939—is responsibly and consistently framed. Arms export decisions must move in step with our foreign policy priorities to protect people both here and around the world from unnecessary violence, to promote peaceful co-existence rather than war and to protect the frail green shoots of development in many parts of the world from being trampled on by excessive spending on expensive and inappropriate military systems. The current Bill reflects most of those priorities. If we look at the schedule to the Bill, we find that the framers have indeed borne in mind the need to avoid unwanted consequences from arms exports, such as breaches of human rights or facilitation of terrorism.

However, there is a glaring and inexplicable omission to include on the face of the Bill the protection of sustainable development as one of the purposes for which controls can be imposed—something to which we have committed ourselves at a European level. It is encouraging to learn from the Minister that the issue of sustainable development is being reassessed and that ways are being sought to make it clearer that the Government are able to use this as a basis for refusing export licences.

I should like to outline why I and many others, especially in the NGO sector, are so concerned about the issue. Events in December have shown what can happen unless the fullest backing is given in legislation. I refer to the sale of the air traffic control system to Tanzania, which the noble Lord, Lord Razzall, and the noble Baroness, Lady Whitaker, have already mentioned. At issue is not the desirability of air traffic control, but the suitability of the particular system being offered. The Government have given BAe Systems a licence for a £28 million air traffic control system that, I understand, is primarily designed for military use. The World Bank has said that a system satisfying civilian air traffic control requirements can be bought for a quarter of the price and the International Monetary Fund has also refused to fund the deal.

Much as I am sure that your Lordships would like the interests of British industry to be promoted abroad, I do not believe that anyone would wish it to be at the price of the prospects of the poorest people on earth. One child in four in Tanzania dies before reaching the age of five. That £28 million could pay for education and health provision for a great number of children.

That is a particularly conspicuous case in which, decisions made for short-term gain have ridden roughshod over the longer-term interests of Tanzania and, indirectly, of our country. The full impact of the deal is yet to be felt, but it will be seen in increased debt repayments and less provision for education and health services, thanks to the cost of maintaining an expensive radar system. The whole deal is sad news for poor people in Africa and highlights the urgent need for sustainable development to be ingrained in the schedule to the Bill.

While I am encouraged by what the Minister has said and by his assurance that sustainable development can be covered by the Bill, I am perplexed by its exclusion from the schedule. Why put it in and then take it out? I have carefully studied the reasons for the exclusion given by the Minister in the other place, but I remain perplexed. The Minister has today given us an assurance that everything is all right and told us not to worry because the Government are looking at it. There is a clear difference between the legal advice given by Matrix Chambers and that given by the Minister's legal advisers. The obvious solution would he to reinstate sustainable development in the schedule, yet the Government refuse to do so. If they fail to amend the Bill, they will simply invite litigation, which they are anxious to avoid, particularly against the background of their insistence that, by setting out in the schedule the purpose for which export controls may be imposed, they have made clear to all concerned the exact statutory parameters for imposing controls. Despite that insistence, they exclude sustainable development, to which they are clearly committed, from the schedule.

The solution is so clear that I do not understand why the Government need to look so deeply into the issue. I get the sense from what the Minister has said—perhaps it is the wrong sense—that there is a plan to introduce sustainable development into the Bill by implication rather than explicitly. What harm could be done by taking the obvious solution and putting it back in the schedule? It could only do good, and would save a lot of unnecessary future litigation.

The Government's seemingly irrational refusal is inexplicable, unless there is a reason that the Government are reluctant to disclose. It would be most helpful if the Minister would explain why sustainable development was first put into the Bill and then taken out and why the Government are so determined not to reinstate it. If the Government do not amend the Bill to insert a specific reference to sustainable development in the schedule, I urge the House to ensure that the issue is not allowed to fall victim to inadvertently poor legal draftsmanship or deliberate omission from the Bill.

I referred earlier to a number of other areas in which I believed that the Bill could be improved. They include the limitation on the control of extra-territorial arms brokering to deals where part of the deal takes place in the UK, prior parliamentary scrutiny and licensed production overseas. As those issue have been or—I understand—will be raised in some detail by others in the debate, I shall not speak to them.

My Lords, I shall talk about some of the Bill's deficiencies in the context of a general welcome for its purposes and against a background of welcome for an improved regime of EU controls in the past few years, which, as an MEP, is very much in my focus. I shall not discuss the inadequate structure of this enabling Bill, with its emphasis on secondary legislation, because others are doing so.

The Government deserve considerable credit for helping to instigate the 1998 EU code on arms exports, which was a major step forward in ensuring consistency and coherence of EU member states' policies. There are clear signs that considerable progress has been made, including the decision to publish two annual reports. In June 2000, agreement was reached on a common list of military equipment. As the noble and learned Lord, Lord Scott, fairly pointed out, the EU has a regime based on the criteria and descriptions of the goods.

Considerable progress has been made, but there is still room for improvement in making commercial policy consistent with foreign policy. The EU's development declaration of May 2000 promised coherence between EU policy on arms exports and EU development objectives, but we must improve that coherence in getting consistency in EU external action, such as on goals of conflict prevention, combating poverty and the promotion of human rights.

Agreement was reached last April on guidelines for EU policy towards third countries regarding torture, with the aim that combating and preventing torture and ill treatment will be considered a priority for the EU. There is also an agreed common list of non-military security and police equipment, but there is an absence of controls on the export of such equipment, such as electro-shock weapons and stun belts. The EU said in its April 2001 guidelines that it would urge third countries to prevent the use, production and trade of equipment designed to inflict torture or other cruel, inhuman or degrading treatment and to prevent the abuse of any other equipment to those ends. That is laudable, but it is curiously ahead of the EU's actions. A common list has been agreed, but there are no controls on the export of those items, which are envisaged as separate from the operative provisions of the code of conduct.

In response to a question from me, EU Commissioner Chris Patten said that the Commission intended to submit a proposal for an export prohibition for certain equipment that can be clearly linked to torture "very soon". I hope that that is done without delay. The unpleasant irony of the situation is that electro-shock equipment can carry the "CE" mark of conformity with EU standards of electrical safety. I am sure that that is a great reassurance to any torture victim.

The other area that clearly cries out for coherence is sustainable development, as other colleagues have said. There is a need to include the impact of arms exports on sustainable development as a criterion in the Bill so that it cannot be removed by the Government at any time. As the context is defined in the International Development Bill, it is clearly not impossible.

If the EU code had legal force, as it ought to, the Government's arguments against an explicit inclusion of sustainable development on the grounds that it is already in the EU code would have more force. Criterion 8 of the EU code says that member states will take into account whether the proposed export would seriously hamper the sustainable development of the recipient country, taking into account its relative levels of military and social expenditure.

The Prime Minister recently stressed his commitment to development in Africa. In October, in his party conference speech, he said:

"The state of Africa is a scar on the conscience of the world. But if the world as a community focused on it, we could heal it. And if we don't, it will become deeper and angrier".

So why are we giving assistance to the export of an air traffic control system with military capabilities to Tanzania when 51 per cent of its citizens live below the poverty line and almost half have no access to clean water? Why are we not insisting that its £1.4 billion debt-relief package—for which I give some credit to the Government—be spent on schools, health care and basic infrastructure? Is this deal not a form of tied aid—which I thought that the Government were pledged to abolish? In a recent briefing that I had with the noble Baroness, Lady Amos, on the International Development Bill, she pointed out that Clause 1 of that Bill will ensure that aid cannot be used for improper commercial or political ends. Surely an export licence and export credit for an unnecessary military facility, to save 250 British jobs, amounts to aid for improper commercial ends.

As for this Bill, I reiterate the disappointment expressed by other noble Lords including my noble friend Lord Razzall on the lack of specific provision for controls on licensed production abroad and on end-use monitoring. I shall not repeat his comments. However, although I welcome the inclusion of controls on UK-based brokerage, I find the purported justification of exclusion of foreign deals as unconvincing. After all, the Labour Party's manifesto commitment was to license brokers and traffickers wherever they are located. There are also plenty of examples of extra-territorial legislation. The most recent example of such provisions are those in the Anti-terrorism, Crime and Security Act 2001 criminalising bribery anywhere by UK persons or companies. The long overdue introduction of those provisions into UK law is perhaps that legislation's most welcome feature.

As for transparency, the Government's refusal to agree to prior parliamentary scrutiny is disappointing. Such scrutiny is not unworkable; it works well in Sweden, and indeed in the United States where arguments against it on grounds of commercial confidentiality and delay would surely have been well aired and well supported by the defence industry. Perhaps it is a mark of the greater powers and independence of the United States legislature that it has managed to gain prior parliamentary scrutiny. It is a pity that the UK will not be leading in this sphere of openness, and especially so because it does have a good record on its annual reports. Saferworld—which I, like my noble colleague Lord Razzall, thank—has described the UK's third annual report, of July 2000, as the most transparent report published by an EU country, offering a potential template for best practice. That is high praise and well-deserved praise; it is a pity that it cannot be followed through.

With more transparency, surely the case would be bolstered for ending export credit for arms exports, as recommended by senior officials of the International Monetary Fund and with a substantial saving to the British taxpayer. In 1999, more than half of ECGD cover supported arms sales; as the Government are budgeting £2 billion to subsidise export credit in the next three years, that amounts to a very great sum, perhaps even more than my noble friend Lord Razzall mentioned.

We must not allow the fight against terrorism to he used as a pretext to relax arms export controls. I fear that there is evidence that that has been happening since 11th September. We must be vigilant and not allow concerns about terrorism to become pretexts for relaxing controls. We must focus on the impact that arms exports could have on exacerbating internal conflict or fuelling internal repression.

The Bill is welcome, although we shall have to see the detail in the secondary legislation. I hope that the Government use the legislation as a springboard to strengthen not only the provisions of the Bill itself, but the aspects of the EU code of conduct that I and other noble Lords have mentioned.

My Lords, I congratulate the Government on introducing this comprehensive legislation on export controls; it is the first of its kind in more than 60 years. I am delighted that they are taking the matter seriously. I should like, however, to address several issues.

The events of 11th September highlight the importance of introducing effective controls in arms export policy. As other noble Lords have said, in the aftermath of the tragedy, it is imperative that human rights and sustainable development are not sidelined in the fight against terrorism and remain an integral part of arms export control policy.

UK export control policy needs to reflect an understanding that arms transfers should be governed by the consistent application of certain principles—for example, that arms exports should not be permitted when there is a risk that they may be used to abuse human rights; to undermine sustainable development, as described both in your Lordships' House and in the other place; to exacerbate international instability; or to facilitate acts of terrorism. Now, more than ever, it is vital that the UK applies strict arms export controls, especially for arms transfers to unstable or undemocratic states. As one of the EU's main arms supplying states, the UK should take a lead in encouraging other EU states to implement responsible arms export policies. The Bill is an opportunity for the UK to do just that.

I shall focus on three issues: the long-term concerns of arming unstable or undemocratic regimes; arms exports to Afghanistan; and the Bill itself. The short-term approach of providing military equipment or assistance to strategically important states ignores the long-term implications of arming countries in a region that is susceptible to change. There have been repercussions when we have armed states with undemocratic or unstable regimes that are fighting for a common cause. In the 1960s and 1970s, for example, the United States supported one South Vietnamese dictatorship after another in the hope of holding North Vietnam at bay. When South Vietnam fell, the victorious communists gained strength by inheriting an enormous amount of abandoned US military hardware.

Furthermore, throughout the 1980s Britain and its allies played a part in substantially increasing Iraq's military capability in its conflict with Iran, only for those same exports to be turned against allied forces in the Gulf war. In Afghanistan, the Taliban were armed with US-manufactured Stingers in anticipation of the arrival of US fighter jets. Substantial risks and dangers attach to policies enhancing a country's military capacity. The lifting of sanctions on countries in a region may satisfy an immediate, short-term goal, but the longer-term impact on international security must not be ignored.

It is essential that the potential consequences and implications of any policy to reward countries for their support in combating the threat of terrorism are fully taken into account. For example, India, in dispute over Kashmir, has been responsible for the death of more than 75,000 people. It should therefore not be rewarded but be made accountable. Charges should be brought against certain politicians for crimes against humanity.

In relation to arms exports to Afghanistan, in a worrying move on 31st October, the European Union decided to lift an arms embargo on the Northern Alliance. At the time, lifting the embargo clearly contradicted the spirit of an EU agreement (the Joint Action on Small Arms 1998) to encourage all countries only to supply small arms to governments. Furthermore, at the UN small arms conference in July 2001, the EU was one of the strongest advocates of an international ban on supplies to non-state actors. There was no legitimate or recognised state authority in Afghanistan on 31st October.

A UN-sponsored agreement for a new administration has been put in place. However, that should not give the green light for widespread supplies of arms to Afghanistan. The extended history of gross abuses of human rights by the various warring Afghani groups over the past two decades, including those which make up the Northern Alliance, would counsel caution on loosening restrictions on arms sales to any Afghani faction. There is a risk that arms exports to Afghanistan could be used in contravention of international humanitarian law, to abuse human rights and exacerbate conflict. There is a concern that any exports to Afghanistan could contravene the criteria in the EU code of conduct that stipulate that exports will not be licensed,

"which would provoke or prolong armed conflicts or existing tensions or conflicts",

and,

"if there is a clear risk that the proposed equipment might be used for internal repression".

Ideally, a policy of presumption of denial for arms exports should be instituted wherever there are signs of abuses of human rights and where concerns have been expressed within the UN. That would mean that export licence applications would be refused unless there was demonstrable proof that the arms were necessary for self-defence.

The Export Control Bill is a welcome step in strengthening and developing UK strategic export controls since the publication of the Scott report in 1996 which called for new legislation to govern UK arms exports. Undoubtedly, the Bill is a significant step forward in trying to prevent the transfer of arms by UK companies and citizens into conflict or human rights crisis zones. However, there are some grave weaknesses in the Bill that, if not addressed, could undermine the effectiveness of the legislation. It is crucial that the new export controls, the first since 1939, are comprehensive.

It is welcome that under the Export Control Bill, for the first time, all persons in the UK who broker the transfer of arms from one overseas destination to another, will require a licence for their activities. In the past, UK brokers have been free to arrange the delivery of weapons from countries outside the EU to conflict zones with impunity. Often brokers have taken advantage of the large numbers of cheap surplus weapons available in central and eastern Europe and brokered them to other destinations. There is evidence to show that some British dealers and freight companies have participated in the transfer of significant quantities of arms from third countries into war zones.

However, while the controls in the Bill are welcome, there is a serious loophole. Under the draft secondary legislation proposal, full extra-territorial controls only extend to embargoed destinations and to certain equipment—long-range missiles and torture equipment. If the new legislation covers arms brokers only where at least part of their activities take place within the UK, UK passport holders could simply travel abroad to conduct their business. Clearly that is inconsistent with the principle that all UK nationals should adhere to UK policy on arms transfers.

It is important, in the current climate, that arms transfers are not diverted to terrorist groups or governments that abuse human rights. There have been numerous instances where arms of UK origin have been diverted for purposes or to destinations contrary to the Government's intentions. The Bill does not address any specific measures for monitoring controlled goods after export. This means that no mechanism is in place to verify whether British-made weapons are being used for internal repression or to exacerbate conflict in recipient countries or whether they have been diverted to other countries.

The export criteria state that export licences will not be issued,

"if there is a clear risk that the intended recipient would use the proposed export aggressively against another country or to assert by force a territorial claim".

Yet the Government's annual report on Strategic Export Controls for 2000 highlights that the UK is exporting equipment with a potentially offensive use to India and Pakistan (in dispute over Kashmir). Those cases are of particular concern given the current environment. For example, in the case of India, 699 standard individual export licences have been granted, including components and technology for combat aircraft and helicopters and components and technology for surface-to-air missiles. In the case of Pakistan, 88 standard individual export licences have been granted, including components for combat helicopters, 171 shotguns and military communications equipment.

I sincerely welcome the role that Clare Short personally and the Department for International Development as a whole played in developing concrete action on conflict prevention, controlling arms exports and the spread of small arms. However, development issues are still not being given full weight in the inter-departmental export licensing process. No export licence has yet been refused on the grounds that it might hamper sustainable development.

The Export Control Bill makes no reference to sustainable development. I do not want to go into that because much has already been said in that regard. So while I welcome the Bill, I have a number of concerns, some of which were expressed also by other noble Lords.

My Lords, before the noble Lord sits down, perhaps I can ask him one question in relation to his remarks. He referred to the supply of arms to Iraq during the 1980s, which he went on to say kept the conflict going between Iran and Iraq. I was one of the junior Ministers responsible for that policy for part of that time. Can he say to what arms he is referring?

My Lords, I do not have the list of those arms. But it was reported in the press over many months, especially during the Gulf crisis, that most of the arms and machinery given to Iraq were supplied from European countries. Perhaps in the speech of the noble Lord he will give us some details about that.

My Lords, perhaps I may pursue that because this is an important point. In fact there were no arms supplied from the United Kingdom during that time. The noble Lord might like to do his research a little more carefully.

My Lords, was machinery supplied to Iraq during that time?

My Lords, if my recollection is correct, I think that Hawk fighter training aircraft, which are capable of being converted for offensive purposes, were the point in question.

My Lords, they were not supplied. The application was refused.

My Lords, having listened to the noble Lord, Lord Ahmed, I am sure that he, like me, in re-studying the Scott report, will improve his speed reading capabilities. I am sure that the answers to some of his questions and those on which my noble friend Lord Trefgarne sought to intervene might be revealed and answered comprehensively from that report.

I declare an interest as chairman of the United Kingdom's second largest defence manufacturer and exporter—Thales plc, for the benefit of the stenographer and perhaps also for the benefit of some of our customers!

The defence industry—I speak on behalf of the Defence Manufacturers Association—and certainly my company, support the Bill. It is a timely, well constructed Bill. I understand that my own company—there are 40 subsidiaries within the group—makes each year about 3,000 export licence applications to the DTI. Typically, they take between five weeks and six months to be processed. Therefore, we have a direct interest in the practical outcome of this legislation.

As my noble friend Lord Lang indicated, it is important also, even at Second Reading, briefly—I intend to be brief—to look at the practical implications of the Bill for industry. My noble friend Lady Miller drew attention to that from the Front Bench. She was absolutely right to do so.

Before I discuss the practical implications of Clause 2, I should say that I very much agree with what the noble and learned Lord, Lord Scott, said about prior parliamentary scrutiny of applications, not orders. I refer also to what I consider a knock-out argument, for constitutional reasons, in introducing that procedure, against which the Government have rightly set their face. I place on record that from the defence industry's standpoint additional delays would only compound the problem we already have and with which the Government are trying to help by making sure that the export control procedure is as fast and efficient as possible.

Further, I register a concern about the competitive position of UK applicants. I believe that the prior parliamentary scrutiny of applications would in some cases prejudice the competitive position of UK applicants. As I said, I shall discuss briefly Clause 2. I remind your Lordships that one of the key changes that will be introduced if the Bill is enacted—as I hope it will be—concerns the electronic transfer, typically by e-mail, of technology relating to military use. The dual-use provisions are already covered by European regulation implemented and obeyed in this country. That is one of the key new changes which significantly affects global companies such as Thales, BAe Systems and Rolls Royce. We estimate that unless the procedure is ameliorated we shall have to make 1,000 extra licence applications per annum as a result of the provisions of Clause 2.

I give noble Lords a simple example. An engineer sitting in our Basingstoke office working on a missile guidance system wants to consult his colleague in our Paris office or our Amsterdam office. At present he would send an e-mail seeking advice, guidance and opinions upon the software or the wiring diagram system for the missile. Under this legislation, unless a simplified solution is introduced, an export licence would be required. I suspect that that will be too big a burden for the Department of Trade and Industry.

I pay tribute to the staff of the DTI export control organisation as they work hard but they are meeting only two-thirds of their target for responding within 20 working days to standard export applications that have to be referred to the MoD, the DTI and DfID. I believe that it is unworkable to add this extra dimension with possibly only two extra staff unless we follow a simple solution which I put to the Minister. The Minister may not be able to respond to it in this debate as there will be consultation on the orders and the procedures to be followed which I very much welcome. Perhaps we can discuss the matter at that stage. I believe that the solution is to pursue what is called in the jargon, "open general licences"; that is to say, that companies, subject to regular audit by the DTI, are allowed to export certain technology to certain countries without having to make an individual application for a licence. I believe that that could comprise a solution.

We must consider the competitive position of British industry. My noble friend Lady Miller was right to draw attention to that. We are talking about moral principles—that is why I welcome the Bill—but we must also consider the practical implications. I thank the Minister, and through him the DTI staff, for all their help over the past 12 months. On behalf of the defence industry I say that we look forward very much indeed to the consultation. We shall be constructive.

My Lords, I, too, welcome the progress the Government are making in export control and the improvements made in another place since the draft Bill was published. I declare an interest as a trustee of Christian Aid which has long been connected with specialised charities such as Saferworld and Campaign Against Arms Trade. That is also an issue on which the Churches feel particularly strongly.

The case of Tanzania's air traffic control system has highlighted public concern about this Government's priorities. NGOs, including many in Tanzania, are indignant about the matter and one can see why given that substantial sums of debt relief have gone to that country. It took a long time to convince mainly Conservative governments that taxpayers do not want money set aside for education and health to disappear into hydro schemes or defence and thus into the balance sheets of large British companies. In this case we are talking about export licences, but the principle is the same when governments are faced with stark choices between military spending and development funded in part by debt relief.

Today, things should be different as we have a government who have declared themselves for the poorest. Yet British jobs and profits are at stake and compromises always have to be made. Pergau was a watershed, Narmada was another, and most recently the Ilisu dam in Turkey showed how corporations are still trying to push the boat out, and who can blame them? In the case of Ilisu, Balfour Beatty pulled out mainly for its own reasons, but one is that the ECGD has had to rethink its whole raison d'être and mission statement.

I was delighted to receive a Written Answer from the Government on 20th December confirming that from 1st January all but two of the 26 OECD export credit agencies have agreed to raise their environmental standards for capital goods exports. That agreement for the first time obliges agencies to screen applications and review any projects which could have an adverse environmental effect, as happened at Ilisu. That was a UK initiative and a significant achievement in itself and one in which the US did not form part of the coalition. It is only an informal agreement and it will be a year or two before we know how well it is working. This is not the time to discuss ECGD but if the Government are to continue to promote transparent coherent policies among OECD members, we can look forward—I believe that this meets some of the points made by the noble Baroness, Lady Miller—to further harmonisation between the ECAs on export controls and issues such as outstanding non-concessional debt in countries such as Tanzania.

It is surprising that the Prime Minister chose to make the Tanzania decision against the advice of the World Bank which had advocated the civil system for a quarter or the price, as my noble friend said, and contrary to two senior members of the Cabinet who should know a thing or two about development. I understand that there is still a possibility that a modified civilian version will be preferred which would secure some of the BAe jobs in the Isle of Wight. We all want to support British industry at a time of job losses and we should also respect decisions made by sovereign governments. It is never a clear-cut decision because there are genuine technical and military requirements in all these countries. But if the victories of Pergau and Ilisu are to mean anything, we must insist, as my noble friend Lord Joffe said, that our exports to indebted poor countries still trying to meet their basic needs should be appropriate to those needs.

Turning to the new Bill, and remembering its origins in the Scott report, I applaud the determination of the Government to pursue those who deal in arms sales and exports to developing countries and exploit the vulnerability of societies which cannot always afford to control them themselves. The sale of Hawks and spares to Indonesia and Zimbabwe, whether or not they were inherited by this Government, are reminders of the contribution this Government continue to make to repression and human rights abuse abroad, as mentioned by the noble Baroness, Lady Ludford, and the noble Lord, Lord Ahmed.

My wife and I, on a recent visit to Israel, witnessed on a small scale the way in which we are still condoning the demolition of Palestinian homes with British-made equipment. The cynical growth of our trade in goods to Israel, which is in breach of agreements, regardless of their effect on the occupied territories, makes me wonder whether the Government are serious in their desire to resolve that dispute.

On Israel, I understand from Saferworld that the consolidated national and EU export criteria state that export licences will not be issued,

"if there is a clear risk that the intended recipient would use the proposed export aggressively against another country or to assert by force a territorial claim".

However, the Government's annual report on strategic export controls for 2000 includes the following equipment as being licensed for export although, in the case of Israel, it can be put to potentially offensive use:

"Demolition charges, general purpose machine guns, rifles, small arms ammunition and components for small calibre artillery ammunition, components for air-to-surface missiles, armoured fighting vehicles, armoured personnel carriers, combat aircraft, combat helicopters and tanks".

Open individual licences are available for an even wider range of equipment. They also allow for multiple contracts. Given the Government's policies on the Middle East, is it right or consistent that such arms and equipment should be made available to Israel? And why are Ministers still denying that British-made arms and equipment are being used in the occupied territories?

Returning to the Bill, the inclusion of sustainable development has been mentioned. It would be a small concession if the Government accepted that sustainable development, which featured in the draft Bill, is just as important a consequence as a breach of human rights or national security. The argument that the matter is covered by guidance falls away, I am advised, because, contrary to what the Minister said, that provision could be altered without recourse to Parliament. The EU criteria would remain in force but would not be binding.

The provisions on arms brokering by persons in the UK—that was discussed by the noble Lord, Lord Ahmed—has been widely welcomed because illegal traffic in small arms is a pernicious external cause of conflict in, for example, Africa. However, there is the lacuna that the noble Lord mentioned. The provisions will catch only deals that take place at least partly in the UK. That is contrary to the Government's manifesto commitment,

"to control the activities of arms brokers and traffickers wherever … located".

As the Bill stands, British arms brokers who are based in this country could continue to sell arms without an export licence to groups carrying out terrorism or abusing human rights simply by signing deals outside the UK. That would surely defeat one of the important purposes of the legislation. There is also a lack of clarity about the degree of extra-territorial control of particular weapons under the Bill, and about the extent of future monitoring.

Finally, parliamentary scrutiny by the Quadripartite Committee has been widely welcomed—my noble and learned friend Lord Scott did not welcome it—although its work is only retrospective. I agree that there are obvious difficulties in examining complex rules by a joined-up committee in a way that does not delay the ordinary process of export licensing or infringe commercial confidentiality. I sympathise with some of the comments made by noble Lords on the Conservative Benches. Does the Minister agree with the committee and many parliamentarians that because such scrutiny currently takes place only after licences have already been granted, there is a case for prior examination of some—I emphasise that word—of the more sensitive applications? That would give Ministers the benefit of the advice of a highly regarded Select Committee on some of the most complex issues and would surely be more in line with the doctrine of greater openness and transparency in export control. I look forward to the Minister's comments.

My Lords, I do not usually speak in your Lordships' House on the topic that is covered by the Bill. I do so today because in my small but growing and perfectly formed party, there has been a real move to write to me urging me to make a speech and to support amendments that have been discussed fairly widely in another place and in this House tonight.

I, too, am very disappointed that the criterion relating to developmental concerns, which was included in the draft Bill, has been dropped. I still do not understand why. There is currently no explicit reference to the impact of arms exports upon a recipient country's sustainable development. That significant omission from the Bill is of particular concern because all other criteria, which are contained in the consolidated European code of conduct on arms transfers, and the national criteria, are set out in the schedule to the Bill. The significance of that omission was recently made apparent by the rift in the Government over the sale of a military air traffic control system to Tanzania, which several noble Lords have already mentioned. The decision to allow that transfer also demonstrates the need for powers of revocation, if necessary.

The Bill as it stands is able to give the Secretary of State powers to issue guidance for consideration during the licence application process. However, that provision is inadequate because Parliament does not need to be consulted on changes relating to it. Therefore, the schedule must include explicit reference to the adverse effects on countries of cumulative arms exports. The cumulative effect is important because applications are currently assessed on a case-by-case basis. That does not take into account the cumulative impact of transfers on a country which may be considerably less apparent.

Another significant omission from the Bill is the absence of powers to control licensed production. The lack of controls on licensed production is a major loophole in current UK legislation. It enables a UK company to sell a foreign company the right to manufacture its weapons or equipment, thus bypassing our export controls. That is a huge disappointment and in this ever-increasingly globalised world, arms manufacturers can set up shop in any country that has weak arms controls and continue to export deadly weapons to repressive regimes or human rights abusers.

The risk of diversion highlights the need for stringent end-use monitoring. There are currently no provisions in the Bill to introduce stricter end-use controls. Without any such provisions, new powers to control brokering and/or licensed production would be hampered by the lack of controls to ensure that an export was being used by the intended recipient for its intended purpose and was not being transferred to a third party. We believe that end-use undertakings should be explicitly conferred through a legally binding agreement between the end-user and the exporter.

On the whole, this is a good Bill and we support it. However, some amendments are very necessary—they have been discussed by several noble Lords and I outlined some of them very briefly for the House's benefit. We welcome the Bill but we hope that the Government will listen to reason in Committee, as they often do.

My Lords, I, like many noble Lords—indeed, like all of those who have spoken—commend the Government on the broad purport of the measure. Those of us who are lawyers recognise the difficulty of framing such legislation. What I shall say will be said not in the spirit of hostility but with the wish to suggest that there may yet be ways to improve the measure.

My first point—I shall not spend long on it because it has already been referred to—is to question whether the degree of delegation in the Bill involves the best arrangement. In particular, orders under Clauses 1 to 4 can currently be enacted by secondary legislation on negative procedures. However, given the importance of the orders, I believe that they should be made by affirmative procedure.

Secondly, reference was made by, I believe, the noble Lord, Lord Freeman, to the rather lame duck at the end of the schedule concerning cultural objects. That subject is something of a fish out of water in the Bill as the remainder relates to arms. But here the issue of cultural objects crops up in an isolated way, with no relevant considerations governing the type of order that can be promulgated in pursuit of preventing exportation. It seems to me that that item in particular requires an affirmative procedure if an order under the schedule is to be brought forward. I suspect that we shall receive a large number of representations from bodies outside this House with regard to that matter.

Thirdly, I am dubious as to whether the extent of criminal offences that can be created by Clause 6(1)(g) are not so serious as not to need an affirmative procedure to bring them in. Indeed, I wonder whether an indictable offence with up to 10 years' imprisonment is the type of new criminal offence that should be created by secondary legislation at all. However, I should be interested to hear the remarks of the Government.

Fourthly, I turn to orders in respect of Clauses 1 to 4 under Clause 6(2)(b). I shall read out that paragraph because the allowance which it sets out seems to me to be extraordinarily uncontained. The paragraph states that an order may,

"amend, repeal or revoke, or apply (with or without modifications) provisions of any Act or subordinate legislation".

Therefore, as is stated here, by an order under this Bill any legislation may be amended by secondary means. Can that be right?

Fifthly, I draw the attention of the House to the deliberations of the Select Committee on Delegated Powers and Regulatory Reform. It had two bites at this cherry. The first, in April, was at the draft Bill stage. With regard to the power under Clause 11 to amend the purposes set out in the schedule, the committee said that it questioned whether granting such a power was appropriate. I believe that we need to hear more from the Government as to why they believe that it is appropriate. It seems to me that the power goes too far. The purposes set out in the Bill are at the very heart and essence of the matter. To allow them to be changed by secondary legislation is, I believe, open to severe question.

I now turn to the question of Israel. I simply want to endorse strongly the remarks already made by the noble Earl, Lord Sandwich. Perhaps the Government will respond to that.

With regard to the subject of the control of brokering, as I believe it is called, the suggestion has been made that we should take powers in the particular circumstances of this Bill to allow for extra-territorial prosecution in relation to offences committed abroad. I understand that the Home Office has six criteria against which the appropriateness of extraterritoriality is judged and that five of them are met in the case of this Bill. Given the relative ease with which the provisions of this measure could be circumvented by those intent on so doing by taking certain decisions out of the jurisdiction, I believe that the Government should review the matter. Again, I shall be interested to know what the Government have to say.

Perhaps I may now turn to my final point concerning an issue referred to by many noble Lords. I shall not name them all because virtually everyone has mentioned the matter. It is: why is sustainable development not one of the relevant considerations in the schedule? In his opening remarks, the Minister reassured the House that it is not necessary—I believe that that is a fair summary of what he said—for it to be set out in the schedule because it can be taken account of in the guidance to which regard must be had by the licensing authority. I hope that that is a fair summary. However, I believe that one is apt to reply, "If it is already there by the back door, why not put it in by the front door?".

I also believe that a clear and specific answer is needed from the Government in response to the issue raised by the opinion given by counsel in Matrix Chambers. They said that there is a difference between putting the matter in the schedule and putting it in guidance. I shall use their words. They say that, although in one sense the legal effect of including a matter in the table to the schedule is the same as the effect of including it in guidance because both are matters to which regard must be had in the exercise of a licensing function, the crucial difference is that the table and the other parts of the schedule set out the only purposes for which an order under Clauses 1 to 4 can he made. However much other matters must be taken into account, they cannot justify making an order for a purpose which is not listed in the schedule.

I believe that the reassurance that we on these Benches want to hear from the Government is that they cannot envisage a case or a circumstance in which the difference between placement in the schedule and placement in the guidance would be of practical effect. If that is so, none the less I urge the Government to take a leaf out of the book of the recently enacted anti-terrorism Bill. There, as I am sure, given the recent battle, noble Lords will recollect, under Sections 102 and 103 concerning the right of the Secretary of State to direct communications providers to retain communications data, the whole process has one main and significant control upon it; that is, the duty of the Secretary of State to consult before issuing the code of practice or, in this case, the code of guidance.

The consultation concerns the draft code—or, in this case, guidance—and requires the Secretary of State to consider any representations made in relation to the draft and, indeed, to consult specifically named bodies. Again, I should be interested to know from the Government why that would not be an entirely suitable procedure to incorporate into this Bill, in particular as in his opening comments the Minister made considerable play of the fact that consultation will take place in the spring. Again, I believe that it would go some way to reassure the aid bodies which are considering this matter from the field, so to speak, that this Bill will take due account of sustainable development. I should have said at the beginning, but shall do so now, that I declare an interest in that my firm of solicitors acts for a number of the aid agencies that form the UK working group on arms which has been of such help to so many of us.

My Lords, I apologise for not being present during my noble friend's opening speech and those from the other Front Benches owing to being caught up in a rigid traffic jam due to the closure of Islington High Street.

This necessary and welcome Bill has been in gestation since 1998. Getting the drafting right has obviously been a complex matter. It has also involved the need to consider the position of those with a number of legitimate—some might say "vested"—interests in arms exports. Here, the Bill has some similarities to the Tobacco Advertising and Promotion Bill, which also aims to reduce the distribution of a potentially lethal product and is facing rearguard opposition from the tobacco industry as it progresses through your Lordships' House.

To name a few of the interests which some fear may be adversely affected by the Export Control Bill, first and foremost is the defence industry, with some 97,500 of its employees directly or indirectly dependent on arms exports. It is felt by some that the diminution in orders resulting from the operation of the Bill may have a serious effect on national employment statistics, as well as affecting the viability of an industry of importance for national security. There is also concern about the possible effect of the Bill on the balance of payments through reducing exports of manufactured goods, in which of course the arms trade features substantially.

A recent report from the Centre for Defence Economics at York University, entitled The Economic Costs and Benefits of Defence Exports, commissioned by the Defence Select Committee, contains a detailed study of the effect of a sudden hypothetical 50 per cent reduction in arms exports—a worse case scenario—with a greater and more rapid reduction than is likely to follow if the Bill becomes law. Some of its conclusions are that the initial loss of nearly 49,000 jobs would be offset by the creation over a five-year period of 67,000 new jobs in non-defence employment.

The cumulative "one off" net adjustment costs over a five-year period would be between £0.9 billion and £1.4 billion, with an additional £1 billion to include the effects on the terms of trade. That would cease at the end of the period. However, there would be an ongoing cost to the Government of some £40 million to £100 million per annum, which is about 0.2 to 0.4 per cent of the defence budget. Some of that could be offset by a reduction in government expenditure in promoting arms exports.

It must not be forgotten that at the other end of any arms export deal there is the effect on the economics of recipient countries, many of whose budgets are already overstretched and failing to provide the basic infrastructure that they need to develop economically.

All these concerns arise even before considering the potentially, and too often actually, devastating effect of the weapons themselves. Noble Lords know only too well that the 50 or so conflicts since World War II have mainly been in the developing world, more often than not using weapons sold to developing countries by the industrial north, on both sides of what used to be the Iron Curtain.

With all these conflicting factors to consider, it is gratifying to see a Bill which allows for parliamentary scrutiny of a trade which too often has been associated with under-the-counter deals and secrecy. The recommendations of the inquiry of the noble and learned Lord, Lord Scott of Foscote, into the arms to Iraq episode provided the initial stimulus for the Bill; some of its features give effect to EU legislation on, for example, dual use items and will assist implementation of the EU code on arms exports which, as the noble Baroness, Lady Ludford, mentioned, is to the credit of the Government for getting it off the ground. I understand that the Bill is similar to legislation which has been adopted or is being prepared by several other European countries.

To emphasise the need for a Bill of this nature, it is worth pointing out that in the year 2000, of the 36.4 billion dollars total of arms transfer agreements worldwide, 29.4 billion dollars, or 69 per cent—more than two-thirds—were made with developing countries. Of actual arms deliveries, amounting to 29.4 billion dollars, 19.4 billion dollars, or 66 per cent—exactly two-thirds—were to the developing world. These figures are from the CRS Report to the US Congress on Conventional Arms Transfers to Developing Nations, published in August 2001, which was pointed out to me by Saferworld. To put these figures into context, the total overseas development aid disbursed from OECD countries in 2000 was 56.4 billion dollars. The value of arms transfers to developing countries was 19.4 billion dollars, representing 34 per cent of the aid given to those countries. The figures speak for themselves.

Other noble Lords have drawn attention to the recent case of the military air traffic control system for Tanzania, which has conveniently highlighted the need for some kind of reference to development issues when issuing arms export licences. That is why many voices, including, I am sure, the Secretary of State for International Development were she able to speak freely—of course, she usually does—want to see sustainable development, as many noble Lords have suggested, clearly re-inserted into the schedule of purposes in the Bill. The Bill as it stands allows the Secretary of State to include sustainable development as a criterion, as it is in the guidance, if he or she wishes, but it would surely be better to have this on the face of the Bill in the schedule. Secretaries of State and governments change every few years but the need for this provision will continue.

I hope that my noble friend will be able to say in his winding up speech that it is the Government's intention to bring forward an amendment to ensure that sustainable development is included in the schedule of purposes. If not, he can be sure that several noble Lords, including me, will be happy to bring forward such an amendment. There are several other areas, all mentioned by other noble Lords, where the Bill could be usefully strengthened to make it more effective. I shall not go into detail about them at this stage. There will be time in Committee to do that. The areas are as follows: allowing prior parliamentary scrutiny of export licences. At present only retrospective parliamentary scrutiny is possible, after licences have been granted. Prior scrutiny measures exist in some other countries, for example Sweden and the USA, without risk to commercial confidentiality, which is one of the main objections put forward. Provision for this could and should be included in the Bill.

There is the question of extraterritorial controls on the activities of brokers who are British nationals but who operate overseas. There are various ways in which this could be done effectively, and amendments to include them will doubtless be debated in Committee. It would of course be excellent if the Government could introduce them, if only because the drafting would be more acceptable.

There is also the question of controlling the sales of arms manufactured under licence from UK companies in overseas countries. It should be possible to insist that firms which grant such licences must stipulate that the arms produced do not contribute to destabilising accumulations of arms or breaches of international law.

Those are probably the most important issues which will he raised at subsequent stages of the Bill. Of course my noble friend could pre-empt amendments were he to come up with his own set. It is my hope that he will attempt to do just that. In the meantime, I strongly support the Bill, which, even as it stands, is a significant step forward.

My Lords, like virtually all previous speakers, I welcome the Bill as a definite expression of the Government's will to strengthen control over arms exports and trading.

On the ground that the Foreign and Commonwealth Office has to deal with ill-advised exports and diverted end uses, it might have been preferable for the Bill to have come from that department. I hope, however, that it will be improved in Committee and that co-operation between the Department of Trade and Industry and the Foreign and Commonwealth Office, which has already increased, will become even more thorough and effective.

I outline two serious weaknesses in the Bill as presented. The first lies in the scope that it gives for British arms dealers to supply weapons to governments who abuse human rights or even to some terrorists groups. I say that because if our dealers broker arms transfers from within the United Kingdom they will be caught by the terms of the Bill. On the other hand, as the noble Lord, Lord Ahmed, pointed out, if they move to Dublin, Ostend or elsewhere—outside the jurisdiction of our courts—they will be free. Those of your Lordships who enjoy the novels of Trollope may remember what happened when duelling was banned in this country but was legal in Belgium. The sands of Blankenburge used to echo with shots in the early morning!

The Government appear not to intend to control the activities of our citizens or residents if they operate from overseas. As the noble Baroness, Lady Ludford, and my noble friend Lord Sandwich pointed out, that is clearly contrary to the Government's manifesto commitment, which is to control,

"brokers and traffickers wherever they are located".

I have a little experience of extra-territorial legislation in connection with paedophile offences. The deterrent effect of such legislation lies not in the number of cases brought but, rather, in the knowledge that where the evidence is available there will be prosecutions.

I understand—here I agree with the noble Lord, Lord Phillips of Sudbury—that the Home Office has six criteria to judge whether extra-territorial jurisdiction is necessary. On the five out of six criteria basis, I trust that the Government will produce or accept an amendment providing for extended jurisdiction—preferably on the face of the Bill.

The second weakness concerns the actual use to which exported arms are put. It is vital to ensure that arms are not diverted to brutal and possibly criminal governments, let alone to terrorist groups. Unfortunately, the Bill does not provide specific measures to control goods once they have been exported—a point made by the noble Lord, Lord Beaumont of Whitley. Good verification of end uses is most important given the instability of large sections of Africa—and, indeed, of some other continents. Will the Government consider how best that can be remedied and, in particular, what form of parliamentary scrutiny of end use would be most appropriate?

My Lords, like many noble Lords, I start by welcoming the Bill. However, we have been given an opportunity to set out a list of criteria that we want included. Considering all the points raised by noble Lords, I expect many amendments to be tabled, the most important of which must concern sustainable development, which has been mentioned by almost every noble Lord who has spoken.

I had prepared paragraphs to read on that issue, but as the Minister has already said that the Government are considering bringing forward their own amendment, which will obviously meet our requirements, I shall not go into the detail behind sustainable development. However, along with the noble Lords, Lord Joffe and Lord Rea, I want such a provision included in the Bill. If the amendments tabled by the Minister do not meet our requirements, we may well table amendments on which we may even test the opinion of the House.

Sustainable development is important because it goes to the heart of what the Bill was originally intended to do. Indeed, it would perhaps be the major test for the idea of an ethical foreign policy, which the Government proposed a few years ago. I do not say that by not including such a provision in the Bill the Government are in any way deviating front the high standards proposed by the Department for International Development. However, the fact that the provision is not in the Bill and that guidance alone will control the implications for sustainable development is unacceptable.

There are many pressures on the Government. Those difficulties are made clear by the air traffic control system for Tanzania. Many noble Lords say that the Government have already issued an export licence for the system. I do not believe that to be the case. I hope that the Minister will be able to tell us whether a licence has already been issued. If it has not, the concern shown by such august bodies as the International Monetary Fund and the World Bank, which do not believe the system to be a legitimate use of scarce resources in a developing nation, should not be ignored. A new system should be considered.

I have a couple of questions on the issue that I hope that the Minister will answer. The first is whether a licence has been granted. The second concerns jobs. It is said that selling the system will preserve jobs on the Isle of Wight. I fully understand the importance of the economy and jobs on the Isle of Wight, but there have been conflicting reports. People say that the system has already been built. If so, how can the sale preserve jobs?

We shall return to that matter in greater detail, but it is as well to remember the conflicting pressures on government. Perhaps that is the paradox referred to by the noble and learned Lord, Lord Scott of Foscote, of introducing export controls on the executive. The laudable aims of the DfID are somewhat different from the equally laudable aims of the DTI.

We should also like to consider prior parliamentary scrutiny. The noble Lord, Lord Freeman, said that he was glad that the Government had left such provision out of the Bill. I do not agree. The Quadripartite Committee has argued that there is a role for a parliamentary committee to scrutinise export licensing decisions before they are granted and provide advice to Ministers in difficult cases. A difficult case that I would cite is the refurbishment of artillery pieces in the territory of Western Sahara occupied by Morocco. If prior parliamentary scrutiny had been undertaken, I do not believe that that work would have been carried out. As the noble Baroness, Lady Ludford, pointed out, such prior scrutiny is already successfully carried out in the United States and Sweden.

I am especially concerned about controls on brokering, as were the noble Earl, Lord Sandwich, the noble Lord, Lord Hylton, and the noble Lord, Lord Ahmed, who is not in his place—again. For the first time, all persons in the United Kingdom who broker the transfer of arms from one overseas destination to another will require a licence for their activities. That is obviously a major step forward to be welcomed. However, it is perhaps time—maybe not in the Bill, although we will table a couple of probing amendments to discover whether it is possible—to consider whether it is legitimate for the Government to expect UK passport holders, whether working from these shores or from abroad, to apply for export licences under the criteria. Those with UK passports may broker overseas. Such a provision may be problematic, but the overseas activities of UK passport holders are already controlled in areas such as the sex trade. Our nationals may be tried in UK courts for such activities.

Another area, mentioned in particular by the noble Lord, Lord Beaumont of Whitley, is the control of end-use certificates and revocation of licences. This is a particular concern because there have been a number of cases of diversion of exported material to destinations other than those set out on the licence agreement. There is perhaps need for a more detailed look at the accumulative effect of exports to certain countries and regimes.

While we on these Benches support the arms industry when it is being responsible in its activities, I cannot help but bring to the attention of the Minister one small point which I find extremely interesting. I perhaps wear the hat of the spokesman for international development rather than that of the spokesman for defence. This debate has been conducted mainly by noble Lords whose interests lie in the international development field. I would like to mention a very interesting paper published by the University of York in November 2001. Two of the four authors are the chief economists in the Ministry of Defence. I can show the report to the noble Lord later. The executive summary states,

"The study examines the economic costs and benefits arising from a 50% reduction (over two years) in defence exports to UK resident workers, shareholders and the UK Government. It concludes that the economic costs of reducing defence exports are relatively small and largely one off. It therefore suggests that the balance of argument about defence exports should depend mainly on non-economic considerations".

I am not suggesting for one moment that there should be a reduction in exports. But it is interesting, considering the tone of today's debate, that this report should focus mainly on non-economic considerations but also examine the export of weapons and such material.

An area of the Bill that has not been studied in great detail is cultural goods, although it was mentioned by the noble Baroness, Lady Miller. I understand that reform of the export licensing system for cultural goods, which was not the main reason for this Bill, contains very general enabling provisions. The Explanatory Notes merely tell us that,

"It is envisaged that the DCMS will establish controls over the export of any goods … manufactured or produced more than 50 years before the date of exportation".

Although I understand the intention is essentially to maintain the status quo, there is currently a very well developed regime for the export licensing of cultural goods. It would be helpful to have more information as to what are the Government's intentions. In particular I ask about the recommendations in the report of their own advisory panel on illicit trade set up by the previous Minister for the Arts at DCMS in May 2000 under the distinguished chairmanship of Professor Norman Palmer. That panel included experts from all interest areas—including the noble Lord, Lord Renfrew, who I am sure would have wished to take part in this debate had he been able to do so—as well as representatives from the art trade.

While all objects found in the soil or the territorial waters of the United Kingdom more than 50 years old require a licence regardless of their value, many are being openly offered for sale on Internet auction sites such as the e-Bay site, often priced in dollars, making it clear that they are likely to be sold abroad. I believe that the department needs to be much more pro-active in warning potential exporters of such objects of their legal obligation to obtain a licence. It can do no good to see the law so openly flouted.

Professor Palmer's panel considered these issues in its report published in December 2000. It recommended that there should be a significant tightening up of the export licensing system as regards cultural objects. I hope that that will be one of the purposes of the Bill. In particular, the report recommends that checks should be carried out on cultural goods imported into the UK within the past 50 years and that the export licensing unit of the DCMS should be strengthened with up to four additional staff in order to fill these additional responsibilities and that two of the staff should be experts in cultural objects.

The passage of this Bill will surely provide the occasion for implementing these recommendations. I would like to hear from the Minister what are his intentions. I realise that in asking the Minister those questions I am asking him to reply, as regards my previous remarks, on behalf of the Df1D, and in this context for the DCMS.

My Lords, as we have heard from many noble Lords, the Export Control Bill is the Government's attempt to implement the 1996 Scott report. We should note how, in Opposition, this Government consistently urged the last Conservative administration to bring legislation to the two Houses to tighten our export controls. Despite daily comment by the former Foreign Secretary as regards the Scott report, once in power this Government have allowed the matter to drift disgracefully. The Scott report was published in February 1996 and only now, nearly six years later, as my noble friend Lord Lang of Monkton, pointed out, are we having a Second Reading of this Bill in this House. Clearly, the Government's management of this proposed legislation has, regrettably, not been as efficient as one might have hoped.

This side of the House welcomes the Bill, but that welcome is qualified. As is the fashion today, this is essentially an enabling Bill, as my noble friend Lady Miller mentioned. The Government have decided that most of the detail will come through secondary legislation. That is certainly a bad principle for any government to follow as the executive gains ever more power at the expense of the legislature.

I would like to declare an interest as a fellow of the Industry arid Parliamentary Trust which fellowship I have fortunately spent with BAe Systems. On a point of principle, the supply of defence equipment to our allies and friends around the world enhances Britain's influence overseas and reinforces stability for Britain's interests in the world's trouble spots. This importantly ensures other powers, who may be opposed to British interests, are denied such influence.

On an economic note, our own Armed Forces' defence requirements can be insufficient to support weapons development programmes without the manufacturers relying on additional overseas sales, unlike America's armed forces which create a massive internal market. We must not allow this Bill to diminish our defence industry and end up reliant on others. During Desert Storm our Armed Forces were dismayed to find that they could not rely on our European ally, Belgium, to supply our arms requirements. We must nurture our defence industry and not create a Bill to hamper it.

The Defence Manufacturing Association made the following comment:

"One of our Member companies has in the past openly called the Export Control Organisation at the DTI to be re-named 'Her Majesty's Government Department for the Obstruction of Trade—.'

This feeling: of exasperation is especially so of certain sectors such as riot control and could result in those sectors in the UK indigenous industrial capability, which cannot stay in business simply by relying on the UK market, ceasing to exist altogether and the UK becoming totally dependent on overseas sources of supply to meet its own needs. That might not alarm some, but it could result in interesting scenarios developing in the future in which British police quell riots on British streets equipped, for instance, with riot shields from Indonesia, riot helmets from China, and so forth. We must consider the practical implications of the Bill, as my noble friend Lord Freeman said.

Last week, the Prime Minister stated his intention that the United Kingdom should continue to be at the forefront of world affairs. In this House, we should encourage our defence industry, as a force for good in uncertain times, to secure international peace in our time. In the Department of Trade and Industry's December publication, The Forward Look 2001, Dr Lewis Moonie points out the importance of

"the pivotal role that technology now plays in achieving this aim."

The Bill will have an impact on key sectors of British industry.

The United Kingdom has the fourth largest economy in the world, and we remain a major international manufacturing and trading nation. Our defence industry is second only to that of the United States of America. Given that the manufacturing sector has been in recession since the beginning of last year, it is essential that the Government do not add to the burden of regulation and bureaucracy any more than is necessary. The Government have certainly failed in that area over the past four and a half years, and we must ensure that the Bill does not further hamper competitiveness in such an important industry.

Parliamentary scrutiny was a key focus of the Scott report, which emphasised the need for greater accountability in strategic export control. The Bill will oblige Parliament to scrutinise secondary legislation and the Government to provide annual reports on licensing decisions. There is an important point at stake: we must insist that Parliament should retain more control than will be allowed by the Bill. It is not an ideological or political issue; the issue is control of the executive and the exercise of parliamentary prerogatives.

Noble Lords will be glad to hear that I shall not touch on the issue of sustainable development; we have more than covered that aspect.

The Government have said that they feel that the Bill is not the correct legislation through which to control mercenary activity. However, the Green Paper on mercenary activities, which was to have been published in November 2000, has still not seen the light of day. We need regulation that will draw a line between mercenaries who are despicable and those who are not. In Committee in another place, the Gurkhas were cited as an example, as some felt that that outstanding fighting unit had started out as mercenaries. Now, the Gurkhas fight under the colours of the British Army and are seen as anything but despicable. A line must be drawn that would leave genuine mercenaries free to protect democracy. Despicable mercenaries, such as those fighting for A1'Qaeda in Afghanistan, who have no noble reason to be in a war zone offering their service or expertise, would be prevented from getting involved or would, at least, be held accountable after the event.

At this time of fluidity in the international situation, when barriers are breaking down and there is greater freedom of movement, we need legislation, as soon as possible, to ensure that mercenaries who originate in this country are dealt with by this country. Other European Union nations complain that the United Kingdom is lax on that matter. The Bill gives us an opportunity to improve the reputation of the United Kingdom and, most importantly, to improve security for all of us.

The subject of the transfer of technology by intangible means has been touched on. Clause 2 provides general powers to impose controls on transfer of technology. The intangible transfer of all military list technology will be covered, based on the controls recently introduced in relation to dual use goods.

We support the Bill, although that support is qualified by a number of concerns. We are critical of the scope of the controls governing transfer by intangible means. It is conceivable that controls will be imposed on transfers between subsidiaries of companies and on the transfer of the control of technology by intangible means, including telephone and e-mail. That could mean that an employee using an e-mail or a telephone to communicate with another employee of another subsidiary could be transferring technology and committing an offence under the Bill. That would be a sweeping power and would be too all-encompassing. Like my noble friend Lady Miller, I shall be interested to hear how legislation will deal with the monitoring of telephone, e-mail and other communications.

We do not want the Government to overburden United Kingdom industry with regulation and red tape, as they have been so willing to do in the past. If new controls must be introduced, that should be done in such a way as not to impinge on the legitimate, free exchange of information. Nor should such controls give foreign competitors an unfair advantage over our industries by giving overseas buyers the impression that trading with the United Kingdom is too difficult and time-consuming. We must support all British industry, and we should be careful that any change to the export laws is sensible and necessary and not to the detriment of British firms.

I am sad to see that the noble Lord, Lord Ahmed, is still not in his place.

He is!

My Lords, I beg your pardon. The noble Lord was sitting further down earlier. I had wanted to address some of the comments that he made, but my noble friend Lord Trefgarne has, I am glad to say, already done so.

My Lords, I am grateful to all who have spoken. It has been a stimulating debate with an unexpectedly literary flavour. I do not know when your Lordships last heard a debate in which Le Carré, Horace and Bernard Shaw were mentioned. It was remarkably interesting, especially in a debate on export control.

I am grateful for the opportunity to wind up the debate. The fact that I am doing so underlines the interest of my department in the proposed controls on defence equipment. Such controls form a key part of this country's defence interests and of our wider international commitments. Our commitment to preventing arms proliferation, especially in regions where there is instability, remains at the heart of our defence policy, and the Bill will contribute directly to that aim.

Many points were made in the debate; I shall limit myself to 20 minutes. I dare say that noble Lords will be delighted—or perhaps not—that there will not be any more than 20 minutes. If I do not deal with every point that has been raised—which I will not—I hope that noble Lords will understand. I am certain that many interesting points will be raised in Committee.

The Bill is central to the United Kingdom's foreign and international development policies and our policies for maintaining controls on objects of cultural interest. Such various interests emphasise the extent of cross-government interest in and backing for the Bill. One of the most encouraging features of today's debate has been the universal support for the Bill, albeit with qualifications of varying severity. The Government are grateful for that.

As my noble friend Lord Sainsbury of Turville said in opening the debate, the Bill is primarily intended to modernise the export control regime, against a background of recent improvements, which include the banning of the import, export, transfer and manufacture of all forms of anti-personnel landmines and the banning of the export and trans-shipment through the United Kingdom of torture equipment. In addition, the Government have made the export licensing process more transparent and accountable through the publication of comprehensive annual reports. We believe that our country now makes publicly available more information about its export licensing decisions than most if not all of our trading partners. As my noble friend said, the Bill will place the annual reports on a statutory basis.

The publication of national criteria on which export licence applications are judged, now consolidated with the EU code of conduct on arms exports, is also part of the creation of a more open and accountable regime. Here again, the Bill will underpin this by making reference to the consolidated criteria.

The way in which the Bill modernises the export control regime—by introducing new powers about which we have heard—have already been explained in detail. We fully appreciate that modernisation brings with it concerns on the part of industry, which will be required to comply with the new controls.

It is in recognition of those concerns, as well as the wider interests in the legislation on the part of NGOs and others, and the need to be well prepared for eventual implementation, that the Government have already published dummy orders, giving examples of how the controls might work in practice, and have decided to carry out a public consultation on the proposed orders to be made under the Bill. We attach great importance to this process because it helps to inform industry and others about how the new controls are expected to operate in practice, enables them to become familiar with those controls and paves the way for effective implementation.

However, I want to emphasise that we recognise that there is a mutual interest in the Government and industry working in partnership to ensure that the new controls are implemented effectively and with minimum red tape. Our approach to the control of strategic exports, as outlined in the Bill, ensures that we will continue to be a responsible exporter, consistent with our defence and foreign policy objectives and a strong UK defence industry.

It has been argued that the economic benefits to the UK from defence exports are somehow illusory and even that, on the contrary, such exports are effective only because they are heavily subsidised and therefore actually represent an economic drain. The Government therefore welcomed the publication on 11th December of the findings of an independent study by two leading academic experts into the issue.

That study concluded that, rather than being subsidised. defence exports represented a significant net benefit to the UK economy. Defence export sales averaged about £6 billion in 1998 and 1999 and supported almost 100,000 jobs, many of them high-quality jobs in cutting edge industries. The report further estimated that the ending of defence exports from the UK would involve a one-off adjustment cost of between £4 billion and £5 billion, equivalent to about 0.5 per cent of one year's GDP. In addition, there would be a continuing net cost to government of between £90 million and £200 million a year. The costs of government assistance to defence exports are more than outweighed by savings, including reducing the cost of equipment procured for our own Armed Forces.

The Government welcome the findings of that study, as I am sure will all parties in this House. I know that they all support the defence export policy but if they do not they should say so. I understand that all have said that they do. The study shows that those who argue that the United Kingdom would be economically better off without defence exports are wrong. I want to point out that the report also supports a point all too often overlooked in the argument: namely, that the UK defence industry is so effective in the export market precisely because it is competitive and efficient and not through any lack of application of export controls.

However, I want to make it clear that the Government's policy of supporting the legitimate efforts made by UK industry to win export orders are primarily based on their contribution to our wider defence and international security interests. Defence exports help support a strong UK defence industry and contribute to the security of our friends and allies overseas.

All countries have a right to self defence, as set out in the United Nations Charter. However, that would be an empty provision if nations were then prevented from obtaining the means to defend themselves. Few countries, including the UK, have the defence infrastructure to meet all their defence requirements and rely on being able to buy overseas. Many of our friends and partners look to the UK to assist in this and our exports in that sense are their defence procurement. Such exports can promote international stability by deterring potential aggressors. It is time that that argument was put.

However, while the Government remain fully committed to supporting legitimate defence exports from the UK, we fully accept—as does the defence industry and all people of good will—the need for the proper regulation of such exports. We believe that our system of controlling exports is among the most comprehensive and rigorous in the world. However, there is no room for complacency and we need to modernise our procedures in order to cope with changing technology and to extend our controls where necessary. I hope that what I have just said carries broad support across the House.

I now turn to some of the issues raised in the debate. First, I compliment the noble and learned Lord, Lord Scott of Foscote, on his contribution today. Although there were many distinguished speakers, as regards this debate he was the most distinguished. Although he probably will not want to be called the author of the Bill—frankly, having heard him I am sure that he would not—the book can be legitimately dedicated to him. His incredible work gave rise to the change, which should have taken place many years ago. We greatly welcome the support which he gave to the Bill in general terms.

The noble and learned Lord, Lord Scott, expressed concerns about whether the schedule to the Bill fully achieves what he correctly understands to be the intention; namely, to provide the basis for the introduction of controls on military dual-use and paramilitary goods and technologies, as well as goods of cultural interest. We are already aware of the noble and learned Lord's views on that matter. That is one of the reasons why my noble friend mentioned in his opening address that the Government are looking at whether we can further clarify the role of the schedule.

That brings me to sustainable development. Many noble Lords spoke on the topic and my noble friend in opening mentioned concerns. I assure the House that it is neither the intention nor the effect of the Bill to downgrade in any way the Government's commitment to sustainable development; a commitment we have made clear since we first published criteria for arms exports decisions shortly after the 1997 election. However, perhaps I may reassure the House that the Government are listening to the concerns which have been expressed in another place and again here today about sustainable development and that we are considering what we might do.

I want to turn to the effects on United Kingdom industry, referred to in particular by the noble Lord, Lord Freeman, who has great experience in the area. We appreciate the concerns which have been expressed about the new controls on industry, but industry's views on the Bill have been largely positive. The Defence Manufacturers Association has been quoted. It stated that it fully supported the Government's efforts to replace the existing legislation and the CBI also welcomed the Bill. I am pleased to say that we have excellent contacts with industry and have included it in all the consultations about the Bill so far. Of course we shall continue to do so.

I now turn to an area mentioned by many noble Lords; namely, trafficking and brokering and extra-territorial controls, which are dealt with in Clause 4. The Bill as drafted gives the DTI the power to apply trade controls extra territorially through Clause 4(8). The dummy orders demonstrate how the Government intend to use this power. We will introduce extra-territorial controls on trafficking and brokering to embargo destinations in equipment whose export is banned because of its use in torture and missiles with a range of over 300 kilometres and their component parts. We believe that extra-territorial jurisdiction is justified for those activities because a United Kingdom citizen abroad could reasonably be expected to be aware that activity of such a serious nature would constitute an offence.

However, we do not believe that it would be appropriate to apply that extra-territorial jurisdiction to all equipment on the military list. We believe that extra-territorial jurisdiction is justified only in the case of serious offences which are subject to universal international condemnation. This does not apply to the licensing regime for military equipment, which will encompass a vast amount of legitimate trade. To apply the controls extra-territorially would be to risk criminalising UK citizens' involvement in legitimate defence exports from an overseas country of residence. The inevitable enforcement difficulties arising from extra-territorial jurisdiction would also distract valuable resources from tackling the most serious cases as well as reducing confidence in our export control regime as a whole.

That is why we believe that international co-operation is the way to ensure effective action against those who fuel conflicts through the supply of arms. To that end, the Government have supported the recently adopted EU Statement of Principles on controlling arms brokering. We shall also continue to press for international embargoes to be imposed on countries and regions of conflict.

The noble Lord, Lord Phillips of Sudbury, among others, asked how we could take that line, bearing in mind the Home Office criteria. The Home Office criteria suggested that extra-territorial jurisdiction can be considered in cases of serious offences subject to general international condemnation, for which the offender could reasonably be expected to be aware that he had committed an offence. Hence, extra-territorial jurisdiction will apply to trafficking and brokering to embargoed destinations, as I have outlined, of torture equipment and long-range missiles.

However, the new controls on trafficking and brokering of military equipment do not come into that category. The vast majority of transactions here will consist of legitimate trade by United Kingdom defence companies carried out according to the laws of the appropriate country. Nevertheless, under the new controls we will be able to prosecute offences which take place largely outside the United Kingdom. Where any part of a particular trafficking and brokering transaction is carried out inside the United Kingdom, be it by phone call, sending a fax or e-mail, we will have the power to prosecute that offence.

Perhaps I may turn briefly to Tanzania and the issue which has been mentioned in passing by many noble Lords during the course of our debate. I shall not be able to satisfy noble Lords, least of all the noble Lord, Lord Redesdale, who asked questions about that licensing application. Following the policy set out by previous governments, the Government do not comment on individual applications for reasons of commercial confidentiality. Details of export licensing decisions will continue to be published in the Government's annual report on strategic export controls and will be scrutinised retrospectively by the much-praised all-party quadripartite committee.

However, in any licensing decision, the Government take into account criterion eight of the consolidated EU and national arms export licensing criteria, which states that the Government will take into account whether any proposed export of licensable items would seriously undermine the economy or seriously hamper the sustainable development of the recipient country. We continue to take this into account.

Many other issues have been raised in the debate. So far as concerns the cultural aspects of the Bill, I am not in a position to respond to a question put by the noble Lord, Lord Redesdale. However, the noble Baroness, Lady Miller, touched on this aspect of the Bill. The legislation provides the basis for both strategic export controls, which in the main we have been discussing, and cultural exports controls, as demonstrated by the dummy orders. Both regimes currently operate under the 1939 Act, whose export control powers this Bill will replace in full. That is why the DCMS aspect of the Bill is in place.

I hope that my remarks have addressed some of the main points raised in what has been a fascinating debate. I look forward with some apprehension to the Committee and Report stages of the Bill, during which no doubt we shall discuss further some of the interesting subjects that have been raised today. I conclude by commending the Bill to the House.

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

rose to move, That this House takes note of the report of the European Union Committee on the European Court of Auditors: the case for reform (12th Report, Session 2000–2001, HL Paper 63).

The noble Lord said: My Lords, noble Lords may wonder how it is that a report which was published on 25th April 2001 must wait until 8th January 2002 to be brought to the Floor of the House for a debate. At least the debate is being held on a Tuesday rather than on a Friday. A general election, an 11-week Summer Recess and the events of September 11th of course must be taken into account. Nonetheless, I hope that the Leaders Group, chaired by my noble and learned friend the Leader of the House, which has been looking into the procedures of the House, including its scrutiny role, will have fully recognised that where the report of an inquiry is deemed important enough to be brought to the Floor of the House for debate, business managers have a duty to ensure that the debate takes place before the passage of too much time renders it irrelevant.

I am deeply grateful to every member of Sub-Committee A for the hard work put into a very complex inquiry. Some members had specialist knowledge and direct experience of working with the Court of Auditors, and this was of particular value to us. We took evidence from a wide range of witnesses: from eight of the 15 members of the court, from the European Commission, the European Parliament, from our own Treasury and from the National Audit Office, from our permanent representation in Brussels, to whom I wish to express my thanks for their great help in making arrangements for our visit, and from a number of individual experts well versed in the ways of the European Union's audit process.

I should like to pay special tribute to the Clerk of our committee, Anna Murphy. This was her first inquiry on becoming a Clerk. While I felt that truly we were throwing her into the deep end with such an inquiry, she took to it like a duck to water. Since we had no specialist adviser, her role in the drafting of the report was crucial and she played it with the skill of an old hand. We are very much in her debt.

Perhaps I may also thank the Government for their response to our report, even though I do not agree with all of it. Nonetheless, it is a thoughtful and comprehensive response and, as always, I am delighted that my noble friend Lord McIntosh of Haringey will be the Minister who is to reply this evening. By now I can scarcely imagine a debate on a Select Committee report prepared by Sub-Committee A without him, but I would not blame him if he thought otherwise.

Our inquiry was prompted by a growing concern that current problems relating to the structure, functions arid methodology of the Court of Auditors would surely be accentuated by the enlargement of the European Union. Enlargement will pose many challenges for the court, not least among them the greater cultural diversity in its working environment and the substantially greater expenditures and revenues to be audited. For that reason, the court needs to be properly equipped to meet the challenge—and the court knows it. Changes are already under way. However, the question is whether they are the right changes. That is what we decided that we wanted to find out.

As reflected in the report, we set about examining the court's structure and organisation and evaluating their appropriateness. We looked at the complex inter-institutional system within which the court is expected to operate and to fulfil its audit functions. We explored its audit methods and its role in the prevention of fraud. We examined, and found compelling, the case for a one-off external management audit of the court itself. Finally, we took a good look at the likely impact on the court of the internal audit reforms which Commission Vice-President Neil Kinnock was in the process of implementing within the Commission.

A number of noble Lords who will be speaking in the debate will delve into more of the detail of this inquiry. I shall content myself with an overview of the principal conclusions that we reached.

Even if the enlargement of the European Union was not imminent, the present structure of the court needs an overhaul. One court member per member state is an unsatisfactory arrangement in a union of 15 states. With 20 states or more it will prove hopelessly unwieldy. National representation is a sine qua non for any EU institution, but to improve the court's efficiency that representation ought, as we state in paragraph 33, to be at the level of a part-time non-executive board to which a highly qualified chief executive, supported by a large audit staff, would report. In paragraph 34 we suggest how the present shortcomings in the method of recruiting audit staff should be addressed. The introduction of a "chambers" system, sanctioned in the Nice treaty, is not, in our view, radical enough to solve this problem. I believe that the noble Lord, Lord Sharman, a member of our committee, will be expanding on the need for the crucial reform we are advocating.

In their response, the Government have noted that there are other ways of combining the representation of all member states with a focused management structure and cite the example of another Luxembourg-based EU institution, the European Investment Bank. None the less, we feel strongly that the structure proposed in this report better responds to the EU's needs for improved audit efficiency. Of course I welcome the Government's statement that our proposal is,

"an interesting one and a useful contribution to the wider debate on the effectiveness and legitimacy of the EU institutions which will lead to the IGC planned for 2004".

But it is more than that. It is, in our view, really the only solution to a problem that is seriously undermining the court's effectiveness.

With regard to the court's published output, we were impressed by the number of witnesses who saw greater value in the court's special reports on specific sectors—recognising, of course, that there are variations in their quality—than in the court's annual reports. The court itself acknowledged to us the past deficiencies of the annual report, and we were pleased to note that more attention is now being paid in them to the follow-up of previous court observations.

Nevertheless, the court remains reluctant to get into political battles with other Community institutions or member states. This will continue to inhibit it from really throwing the book at those who take no action after errors have been identified. If there are counter pressures on court members—and we have evidence that there were—that is one more cogent argument for moving towards an entirely professional and independent court executive.

We share the view of many that the major problem with the court's annual report has been with that component known as the "DAS", the French acronym for the statement of assurance on the reliability of the accounts and the legality and regularity of the underlying transactions. This was based on the audit of a representative global sample of underlying transactions. The problem was that the methodology used to arrive at an opinion, which we fully describe in paragraph 51, produced an error rate estimate which was invariably taken to be a precise enough measure of irregularities—which in fact it was not—to allow definitive conclusions to be drawn and recovery action by the Commission to be triggered. Worse still, it gave the media the opportunity to trumpet inaccurate and exaggerated claims of massive fraud against the Community budget.

Starting with the 1997 annual report, the court has progressively supplemented the DAS with more detailed and specific assessments of each category of the EU's financial perspective. What was once a "top down" system of assessment is becoming, as the court and the Commission disaggregate, a system which can provide far more, and far more useful, information, with a consequent enhancement of public accountability. We welcome this in our report, as indeed do the Government in their response.

As noble Lords will know, the responsibility for approving the accounts of the preceding financial year relating to the implementation of the budget—known as "granting the discharge"—rests with the European Parliament, acting with the aid of a recommendation from the Council and the court's annual report. The court will have discussed its audit findings with the audited bodies in a procedure known as the procédure contradictoire. Both this and how the recommendation to the Parliament is eventually reached are described in paragraph 56. We shared the view of the noble Lord, Lord Williamson of Horton, that a major advantage of the procedure is that it ensures that the Parliament, through its budgetary control and the plenary sessions, can play its proper financial role.

But we and almost all witnesses, including the noble Lord, Lord Williamson, were agreed that the procedure was too protracted, that it alienated the Parliament and that it could lead the public to believe that the long drawn-out process merely served to give time to the parties to fudge the audit. The Government share our concern over too protracted a procedure but warn against speeding it up too much for fear of a botched job. My noble friend the Minister will no doubt refer to some possible alternative remedies.

Although 80 per cent of the budget is administered by member states, the Commission still has to take responsibility for its implementation. Even so, Ministers in Council ought, in our view, to manifest a greater interest. The almost perfunctory Council recommendations for discharge tend to leave the impression that the Council wants to avoid being accused of using the Commission as a whipping boy for the failings of the national administrations in their administering of 80 per cent of the budget. My noble friend the Minister will, I hope, explain why he feels that we are being less than fair to the Council in this regard.

But that is only one aspect of our concern about the Council's attitude. The court president sought to assure us that dialogue between the court and Council officials had, in his words, "increased enormously", but we remain deeply unhappy with the Council's seeming indifference to the whole process at a time when the public's perception of the management of Community funds is as low as it is.

The internal audit reforms under way in the Commission, particularly the tightening of control mechanisms and the simplification of regulations to reduce errors and irregularities, can reduce the potential for fraud and prompt more robust follow-up through the system on the court's observations. At the same time, the Council, at ministerial level, would do well, to put it politely, to focus more seriously on the court's progressively more informative and authoritative annual reports before reaching for the discharge recommendation button.

Given what we call the "80 per cent paradox", the need for minimum standards of financial control in the member states is paramount, as our report insists. Differences between systems can be justified as long as each is effective. But that said, we prefer the delegated financial control system as used in this country, and we welcome the Commission's move to embrace it.

With respect to audit methods, the court, of course, has to cope with a cultural diversity, which enlargement can only increase. The solution seemed to us to lie in getting the national supreme audit institutions—the SAIs, as we call them—to share as far as possible with the court and each other a common audit methodology, similar competences and equal statutory rights of access, the last being a matter on which the UK has lagged behind but on which my noble friend the Minister is in a position now to reassure us. In general, however, we are encouraged that the SAIs are now much more attentive to the way national administrations implement the Community budget.

We found to our consternation, which is also the Government's consternation, that the member states and the Community's institutions share no common definition of fraud and irregularity. This needs to be, and can be, quickly resolved.

With further reference to fraud, we came down strongly against relying on the court's work to be the main line of defence against it. The potential for fraud will best be reduced by a much greater simplification of the systems and regulations relating to expenditures of Community funds. We warmly welcome in our report the attention being paid to this by the Commission in the areas of structural and agricultural funding. We fully understand the European Parliament's frustration at having no official figures on which to assess the extent of error, irregularity and fraud. If the court has them, and their accuracy can be vouched for, it should publish them.

Much of what we learnt in this inquiry led us to the conclusion that the time was ripe for an external management audit of the court to help determine how appropriate its structures are as it enters its second quarter-century. I am pleased that the Government feel that such an audit could provide a useful contribution to the debate in advance of the 2004 IGC. I hope it is more than just a useful contribution to the debate; it is something that really needs to be done.

I come finally—and I apologise for the length of this introductory speech—to the changes in the Commission which should make the internal audit more effective. We welcome these changes—they are reviewed in paragraphs 97 to 103—and were reassured by Commissioner Kinnock's determination to see that the functional independence of the Internal Audit Service and the audit capability within each directorate-general would be inviolate.

We encountered differences of opinion on whether the removal of the system of prior financial approval by a financial controller was sensible. With certain provisos, we come down in favour of a move away from the ex ante system of control. We agree with the Government that responsibility for financial management is better delegated to those who decide on how the money is spent—namely, to the directors-general.

A few witnesses feared that the reforms would enable the Commission to keep the Court of Auditors at a distance. We are sure that these fears will prove unfounded. The court remains treaty-bound to carry out the external audit of the Commission, and we see these reforms as a means of improving working relations between them, not least through the sharing of best practice so that the Community's financial management is improved overall.

This was a long and complex inquiry, but I believe that we came to a set of conclusions which make sense. Some of them are radical—notably our conclusions on how the court could, and should, be better structured, staffed and governed. As I said at the outset, the court's current structural and functional problems can only be accentuated by enlargement. Time is therefore not to be wasted. I am glad that Her Majesty's Government are taking these and our other proposals seriously. The opportunity afforded by the 2004 IGC to equip the court to meet the challenge must not be missed. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on the European Court of Auditors: the case for reform (12th Report, Session 2000–2001. HL Paper 63).—(Lord Grenfell.)

My Lords, I congratulate the chairman of the Select Committee and its members on the considerable amount of work, some of it tedious, that they have undertaken. If it is possible to agree with a Select Committee report on a matter of this kind, I am in full agreement with it, and indeed congratulate all the committee members on their work.

Your Lordships will recall that I have had reservations in the past about the presentation of Community accounts and their audited approval. I have often criticised the way in which the audit report of the Court of Auditors has, for some obscure reason, to be published with the Commission's replies to it, as distinct from having the audit report made directly available publicly. It is not the practice in this country. It should not be the case that a report can be published only when those who are perhaps criticised in it are given an opportunity to reply in advance to questions raised. I repeat that it is not the British practice. That in itself does not make it undesirable, but from an auditor's standpoint it puts the auditor in an impossible position.

The functions of the European Court of Auditors have been dwelt upon in the report that is before the House. They have aroused a certain amount of interest—not as much as they ought to have done, but some nevertheless. I was, therefore, intrigued to find that a government response to the Select Committee report had been published on 16th July 2001 among Government Responses to House of Lords Paper 13. I refer to pages 33 to 38 of the Government Responses. I thought that I should take a look at them before taking part in this debate.

I find overwhelming involvement of the domestic Civil Service in the response—which is in the form of a letter from Ruth Kelly MP, who was appointed Economic Secretary to the Treasury some months ago. It was published 37 days after her appointment. I refer to the response because I am a little troubled by the position of political Ministers in dealing with their own Civil Service.

This is a document of some importance and warrants critical ministerial attention at political level. It is not sufficient that it should be so dominated by the Civil Service as to be virtually ignored by the political establishment. I have good reason for saying this. At page 35 of the Government Responses, in the middle of a sentence, there is a queer little insert in brackets:

"(I sent a copy of this document to the Scrutiny Committees of both Houses on 9 May this year)".

"I"? I thought that this was a government document. Again, in the penultimate paragraph of the response we find the following words:

"We urge Her Majesty's Government to give this, and our other proposals, serious consideration in light of the opportunity afforded by the Inter-Governmental Conference, now set for 2004, to equip the Court to meet the challenge".

It looks as though the Government are "urging Her Majesty's Government"—

My Lords, perhaps my noble friend will permit me to point out that he is reading from the committee's report to which the Government are responding.

Yes, indeed, my Lords; that is part of my case. I sincerely hope that the Government will in fact read the report. I say that because, on the evidence, they have not even involved the political members of the Government in the publication of the response. This is quite indefensible.

I respectfully suggest to the House that it is necessary to return to the appointment of the Court of Auditors and to the amendments that were incorporated in the Maastricht Treaty, as amended at Amsterdam. Article 248 of the treaty says:

"The Court of Auditors shall provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions".

That is it: it defines the role of the Court of Auditors with some precision—nothing more, nothing less. Any idea that the treaty can be circumvented in any way to vary from that is, of course, right out of the question.

In the same way, it seems as though items that appear in treaties are not properly perused by the political chiefs of the civil servants who are actually responsible for the production of these documents. At present, we have an entirely different situation: we find that practically everyone, bar the kitchen stove, is involved in obtaining the statement of assurance that is required by the treaty. Indeed, it seems that you can be anyone at all, without any authority and that no one will argue about the situation.

More ominously the same applies to the definition of the word "fraud". It is said that fraud is an irregularity that is officially frowned upon in the Commission and in all quarters of the European Union. However, in point of fact it is ignored. There is a pretence that it does not exist in any identifiable form. I defy anyone who reads the report to reach a different conclusion. I shall give the House an example of a fraud that is still going on with the approval of members of the European Parliament and also of other parliaments. I have in mind the tobacco fraud. In the last budgetary year, no less than £604 million was spent in conducting transactions, particularly in Greece, which everyone knew—and, indeed, still knows—are fraudulent, but no one dares say so because someone is afraid of offending someone else.

This kind of attitude becomes all pervasive, and the committee's report gives too many examples. I should like to draw your Lordships' attention to pages 44 and 45 where we find outlined in very great detail all the steps required to obtain, as the French would more dramatically put it, a déclaration d'assurance—because they like to have declarations rather than statements—and exactly what happens. Before any kind of matter goes to the final Council for approval it will have gone through a whole series of stages, which will occupy quite a number of weeks or months. The report will go through a whole gamut of departments before it can finally be drafted; for example, it goes to the civil servants of the Treasury, and it goes to the civil servants in COREPER. Indeed, the process is specifically designated as such. There is no question of there being any personal involvement by politicians in these reports. Each report is discussed at all levels by civil servants. There is nothing wrong with that—indeed, I have no objections in that respect—but there is no visible sign of real ministerial interest or concern.

This is the very simple case that I want to put to the House. Finance is an extraordinarily important item in the whole of the operation of the European Community. It gives enormous power to the Commission, which appears before the Budget Control Committee. That committee does an excellent job in so far as it is able, but throughout the process there is a network of civil servants through which everything must pass before the matter is finally agreed by the Council and the European Parliament. If noble Lords care to refer to pages 44 and 45 of the report, they will find that what I have said is abundantly justified. I shall give the House an example. In evidence, on page 45 of the report, Mr. Ilett, the Financial Counsellor, United Kingdom Permanent Representation, says:

"The Commission participates in this discussion all the time. The Commission will [always] be there in the working group. The Commission is always present at Coreper. The Commission will be defending itself … making suggestions, participating in the dialogue all the way through".

He was then asked by the noble Lord, Lord Tomlinson, whether the Court of Auditors would also be present, and he gave a firm "yes" in response to that point. Each chapter is presented with the comments of the court and the replies of the Commission.

No proper and honest business will be carried out unless members of the political side of things take control of what is being done in their names. I am afraid that one is not encouraged by the evident willingness of governments to accept the assurances of a Commission whose troubles were recently reported upon. It is no good at all that it should be allowed to rule the roost for the sake of universal peace and lack of argument among the European rulers at whatever level—be it the European Council level, whose duties still remain to be defined. I defy anyone to say what legal status the European Council has. It means that politicians, especially Members of this House and of another place, must show a greater interest in these matters. They must carry out their own research and arrive at their own conclusions, rather than take things for granted on the basis of the documents being initialled by senior civil servants. They must make their civil servants have some regard for the desirable aims that ought to be achievable, and for the political force at the top level that ought to be there whenever necessary to enforce them.

My Lords, I confess that I am a little nervous when I find myself being congratulated by the noble Lord, Lord Bruce of Donington, because I am normally on the opposite side of any argument that he makes about the European Union. However, on this occasion, as a past member of Sub-Committee A—I am now out to grass after four years on the committee, but I hope that I may climb back into it again at some stage—I accept his congratulations with pleasure. I shall pass them on particularly to the noble Lord, Lord Grenfell, and to the Clerk, because they and we have produced a report that is thoroughly competent and mercifully brief on a subject that no one would say was immediately of great dramatic interest.

It could be said that for your Lordships to be considering a report on the Court of Auditors at the moment is rather like a householder wondering whether his central heating is working when a hurricane is approaching that will remove his roof. I speak of the current debate on whether we should join the euro and when the Government will have the courage to hold a referendum. That said, it was a worthwhile exercise and I strongly agree with the remarks of the noble Lord, Lord Grenfell, about our principal recommendation, in paragraph 33 on page 12, which says that the ECA,

"would best be served by the impartial appointment of a highly-qualified chief executive, supported by a large team of audit staff, reporting to a part-time, non-executive board of representatives from each of the Member States".

What is the background to that recommendation, which the sub-committee discussed in great detail, poring over every word? In my book, it is simply that the constitution at the top of the ECA is wrong. A top management structure with 15 members, one drawn from each state, each acting as executive directors with their own cabinet and their own special interest but with no requirement for any professional accountancy or auditor qualifications, is not capable of delivering results. As the noble Lord, Lord Grenfell, said, it is bad enough with 15 members of the Community, but when that figure increases to 25—perhaps by 2005, which is only three years away—the accession of another 10 will make that top management structure even more incapable of dealing with the complex accountancy of the European Union and doing so bravely and independently.

That is not surprising and there is nothing for the ECA to be ashamed of. The court has been in existence for 24 years and has done a valuable job. It has taught a lot of lessons to the Commission, which would acknowledge that the ECA has led it a long way on the path of competent modern accountancy. It is worth remembering that the amount of expenditure that the ECA has to audit has increased tenfold, from 10 billion euros a year when it was founded to 100 billion a year now. Given that growth in the court's task, it is appropriate for the top management structure to be thoroughly reviewed, hence our recommendation in paragraph 33, which is repeated in paragraph 67. It needs an entirely professional and truly independent chief executive with a qualified auditing staff working under him, reporting to a part-time non-executive board.

It is worth reminding your Lordships of the comments of one of our witnesses, Mr Carey, who is a past member of the court. His suggestion, recorded on page 110 of the report, was that the non-executive board should be composed, ex officio, of heads of national audit offices from each of the countries represented. I accept that that is a very radical suggestion and that it goes against the patronage tradition of European Union bodies. It is not at all unusual to find a politician who is half way to retirement sitting on the ECA court and having a very pleasant time, with a large staff around him or her.

I urge the Minister, who is the Admirable Crichton of debates on Select Committee reports—he sweeps everything up so beautifully—to think very carefully about Recommendation 33. I feel more strongly than the noble Lord, Lord Grenfell, that the wording of the Government's response is not sufficiently strong or encouraging. I think that the noble Lord, Lord Bruce of Donington, would be as worried as I am by the clear civil servant language of the comment that our recommendation of an independent chief executive is an interesting proposal and a useful contribution to the wider debate on effectiveness. My goodness me, I hope that we can urge the Minister to come out with something a good deal stronger and more virile than that tonight. Let him say that he agrees with us and that the Government will adopt the idea and press it very hard at the 2004 Intergovernmental Conference. Bully for him if he manages to make such a brave statement. Knowing and respecting him as I do, I am sure that he will.

There are other words in the Government's response that are, to say the least, interesting. It says:

"Consideration should be given to how such a change in the court's internal structure might affect its relationship with other EU institutions".

There is a whole abracadabra hidden in that sentence that I shall explore as my second point. One thing that I learnt from serving on the committee under the noble Lord, Lord Grenfell, was that the spending of EU funds is devolved to national authorities to a large extent. Some 80 per cent of all spending is managed not by the Commission but by national authorities. We touch on that in paragraphs 44 and 45 of our report. I shall quote from page 40 of the written evidence. A current member of the court, Mr Wiggins, said in answer to a question from the noble Lord, Lord Tomlinson, about the common agricultural policy:

"We issued our own opinion about Agenda 2000 which pointed out that the Commission's assumptions about the costs of extending the policy in Poland, Hungary, etc., appeal to have been grossly under-estimated. Most of the things that we have said in the field of agriculture amount to 'what you need to do is to reduce prices so that you can reduce the cost of the policy and you can then reduce the extent of the temptations to fraud and irregularity which arise from it.' If not fraud and irregularity, the inducements are uneconomic behaviour, encouraging people to cultivate perfectly useless crops in order to get undeserved area aids for them and that sort of thing".

I found that a very telling comment from a member of the European Court of Auditors. It leads on from auditing expenditure to auditing commitments. That is the other point that came to us in our inquiry. The ECA audits expenditure. It has not previously become involved in auditing commitments. However, Mr Wiggins is clearly worried about the issue, as he should be.

Those are the points. What if the commitments that will be made on the costs of extending the CAP to Poland, Hungary and other countries are grossly under-estimated? If prices are subsequently reduced, the cost of extending the policy will be reduced, and the temptation to commit fraud and other irregularities also will be reduced. That seems to sum up very well the necessity for interdependence between the various institutions that are connected to the EU in relation to the spending of money. The issue needs to be clarified and examined very carefully either before or during the 2004 IGC. What we are very unclear about in relation to many aspects of the issue is the competence of Brussels versus that of Luxembourg and Strasbourg, and the competence of the European Parliament versus that of national governments and the Länder.

I believe that that should be a very big issue at the 2004 IGC summit, and I should very much like to see an increasing role for the European Parliament in addressing it. However, I also think that it is an issue to which governments should pay particular attention.

My Lords, I congratulate the noble Lord, Lord Grenfell, on his chairmanship of Sub-Committee A which produced the report. I should also declare an interest as a member of that sub-committee: I am a former auditor and have other interests that are disclosed in Appendix 1. I also thank the Clerk, who did an outstanding job with a very difficult subject.

In the few moments that I propose to speak, I shall concentrate on the court's role and structure. As I made clear in the report that I issued last year on audit and accountability in UK central government, I think that it is common ground that at the core of any system of accountability there needs to be a strong function of scrutiny or audit. That function has to have three distinct qualities: it needs to be strong, it needs to be independent and it needs to be effective.

The report shows that the sub-committee examined the Union's supreme audit institutions. I think that it is worth bearing in mind that we in the UK are used to the audit function being performed by an auditor-general. In other parts of the Union, that role is performed by a court that in many cases has a judicial function. The strange thing about the European Court of Auditors is that it is neither a court—it has no judicial function—nor are its members auditors. I think that only one of the court's members has some experience of audit.

That body, which is not a court and does not have auditors in its top executive management, has as its role the duty of examining the Union's revenue and expenditure accounts, which it must ensure are lawful, regular and the subject of sound financial management systems. It must also issue a statement of assurance, which involves examining Union institutions—the bodies set up by the Union—and Union funds, whether they be spent by national, regional or local administrations. Its access, certainly in the UK and in some other member states, is far deeper than that of the supreme audit institutions of those member states. I am encouraged to see that many of the member states, including the UK, are taking action to bring access levels for their own institutions into line with those for the European Court of Auditors.

I hope that I have made it clear that I believe that the court should be absolutely pivotal to the accountability systems within the Union. As the report shows, however, the procedures and processes, and particularly the procedure for clearance of reports, are slow, cumbersome and bureaucratic. If one had tried to design a system to slow down the auditor, one could not have done better than to put in place such procedures. We hear much about the need for reform of the Union's institutions. This is a suitable case for treatment. I had hoped that the negotiations on the Nice treaty would provide at least the first opportunity to tackle the matter but, sadly—as in so much else—I was disappointed. The results have all the hallmarks of the very worst type of compromise: we end up with one member for one state.

Currently there are 15 members, and potentially there will be 20. What does it do for us when each of those members is a member of an executive management board? Apart from the notion of jobs for all, to which the noble Lord, Lord Renton, referred, it absolutely hits at the heart of the issue of independence versus representation. I submit that we cannot have a truly independent body when it has a representative from every member state. It is fatuous to believe that member state representatives will not take some heed of what is happening back home. After all, some of them will need jobs when they return to their home country.

The second factor that the compromise ignores is the state of development of accountability and audit practice in the member states. It is just not real to believe that the systems of accountability and state audit of at least candidate states even begin to approach those of the more sophisticated Union members.

Then we come to the court's management structure, in which there are more chiefs than indians. There will be more executive board members than there are directors of the audit divisions. In turn, the audit division directors will have a large number of staff reporting to them. I have encountered many types of organisation design in my career, including pyramids, matrices and flat organisation designs, but I have yet to see an hourglass organisation design, which is what is being proposed. Heaven help those who are in the narrow part of the hourglass. It will not give us the result we want. I submit, in short, that it will not work.

I believe that now is the time to embark on that reform, along the lines proposed in the report. I too found the Government's response on the issue less than encouraging. I thought that the report's treatment of it was more than just interesting and useful; I thought that it was very good. Make the court members non-executive, fix their number and rotate them. If we do that, we shall have independence. Supervisory boards are quite common within the European Union and many people know how they work. Supervisory boards are less common in the UK; but why not have one? We should also appoint a strong chief executive. People have said that it might be difficult to do that, but the Union has already led the way by appointing Mr. Jules Muis, lately of the World Bank, as the chief internal auditor. Such appointments can be made; people of that quality are available.

We should also make the court subject to external financial and management audit. In the outside world, we often hear the cry, "Who audits the auditor?". At least in my former organisation we had someone who could do that.

We see many adverts these days under the Belgian presidency which say: "It is your Union". I like that. Let us make it so. Let us sort out this vital institution which is at the core of accountability within the Union. We should not accept the mess that the provisions of the Nice treaty left us in. We need to tackle it without delay and the Government need to lead.

My Lords, I begin by expressing my gratitude and admiration for the way in which the noble Lord, Lord Grenfell, chaired our committee and then our proceedings. It has been a great privilege to work with him and under him in this inquiry. I should like also to second his thanks to the Clerk, who did such a good job as her first effort.

I make no apology for returning to the subject to which the noble Lords, Lord Renton and Lord Sharman, majored; that is, the structure at the top of the European Court of Auditors. It is not possible to think that, as the Union develops and gets larger, an executive body of 15 now, but 20 or more later, people who are not trained in accountancy or audit can be an effective way to conduct the main audit function of the European Union. It must be right, when we come to 2004, to opt for a highly qualified chief executive and a part-time, non-executive board.

We perhaps should not get rid of national representation on that board. But I hope that, by its becoming part-time and non-executive, its ability to hold things back will be diminished. I hope also that we will consider seriously the recommendation of Mr Joe Carey that the part-time, non-executive members of the board be ex-officio heads of the national audit offices of the member countries the Union.

Previous speakers referred to the need for a highly qualified chief executive. I fervently endorse that suggestion. But the high qualification need not stop at audit or accountancy. The head of this organisation will need the qualities and experience to enable him or her to stand up to the other "big shots" in the European Union and to be impressive and convincing to both them and the European Parliament. So the qualifications will need to be more than simply those of good audit.

I am sure that the European Union needs an officer, rather like the Commonwealth Ministerial Action Group in this country, who can strike a certain amount of terror into the departments and people whose expenditure he is scrutinising. Anybody who has been, as I have, at the sharp end of a report by the CMAG and the subsequent questioning by the Public Accounts Committee knows how effective it can be. I hope that we can produce something like that in the European Union by giving effect to this recommendation of the sub-committee.

My Lords, the Court of Auditors is an important and useful body; but it is by no means perfect. It is not perfect in its present format serving 15 member states, and it is quite evidently less than optimally useful for the needs of a post-enlargement European Union.

When we speak of the Court of Auditors, we sometimes use words that have more than one meaning. The court is not only the 15 members who make up the collegiate body; it is also the institution. If we look first at the 15 members who make up the collegiate body—the court—one from each member state, we get a clear view of them from the evidence of Mr Carey. When Mr Carey was asked about the role he said,

"I think the dominant reason was the observation that as long as you have (in my day) 10 or 12 and now 15 full-time members, each of whom is very jealous of his or her autonomy and very conscious of his status as strictly equal with all of his colleagues, and very jealous of his fiefdom (that is to say, his audit patch and the bloc of staff who work for him), it is going to be extremely difficult (in fact, it is going to be impossible) for the Court ever to adopt a rational policy towards the deployment of its resources; and extremely difficult for the Court to form a view that certain areas, certain situations, are of higher priority and more urgent priority than certain other areas in certain other situations, and to make the necessary dispositions to meet that judgment. That. I suppose, is my starting point. I found it, and I find it, distasteful as well that a body, which is supposedly a sort of arch apostle of the principles of economy and cost-effectiveness within the Community, should be run by, what shall I say, 15 over-paid, under-worked senior executives".

That was Joe Carey, who did not serve out his time as a member of the Court of Auditors. He actually resigned during his tenure of office as the British member because he could not stand some of the working practices within the collegiate body. Inevitably, when we get that view of the 15 who form the collegiate body at the top of the Court of Auditors, it has implications for the institution as a whole.

A body which at the top is too politicised and in many ways under-qualified, skews the distribution of scarce resources. As the noble Lord, Lord Sharman, said, in his clear speech, consequences flow from having only one qualified auditor—the size of each member's cabinet; the size of the number of qualified staff they have to have directly working for them takes such a large slice from the small establishment of the Court of Auditors that it substantially skews the distribution. So when we speak of the Court of Auditors, we are speaking of those two stances.

I, too, want to thank my noble friend Lord Grenfell for the excellent way in which he took us through this inquiry and of course, in saying that, I associate the Clerk of the committee with those thanks. But I want slightly to disagree with my noble friend. Although he welcomed the Government's response, my welcome is slightly more muted than perhaps his, as chairman, inevitably had to be.

I am always tempted, having read the Government's response to the recommendations of the committee, to suggest to the noble Lord, Lord Grenfell, that as we are debating our future work programme, we might perhaps find an odd day for a short follow-up session with the Minister to evaluate the progress on some of the things that have been said in the Government responses to us.

When we go through the recommendations we see clearly a recommendation for changing the number of members of the court; for having a smaller court; for having a non-executive board with representatives from member states reporting and having responsibility for a highly qualified chief executive. In that recommendation there is a high degree of unanimity. But when the Government started to respond to it they proposed a system of chambers which would,

"go some way towards speeding up the process of adoption of the Court's reports".

The first sentence of their response is very much concerned with one of the minor parts of the recommendations. They further state,

"Consideration should be given to how such a change in the Court's internal structure might affect its relationship with other EU institutions".

However, the Government do not tell us whether they think that they should be part of that consideration. They say that the consideration should take place. However, I ask my noble friend, by whom should it be considered? Who in government is making sure that that which should take place actually does take place? Which government Minister is doing that? How is he or she doing it? That applies to a whole series of the recommendations.

I refer to the recommendations in connection with the inadequacies of the present system of the annual report and the way that it leads into the discharge procedure. We are told in the government response that,

"The Government will press the ECA to make full use of sectoral assessments in order to provide a clearer picture of the financial management of the different budget areas".

However, that is something for the future. They will do it. They told us that when they published the report on 2nd July. In the past seven months have they begun to do that? The Government are to press for that measure, but have they used the past six or seven months productively and, if so, to what effect? It would be helpful for the committee to know that progress is being made on some of these matters rather than just having them on the agenda as items for some future, as yet indeterminate, discussion.

I refer to the question of the methodology in relation to the statement of assurance. That argument has been with us since the inception of the statement of assurance back in 1995. We are told that the United Kingdom had suggested an experts' group. But who suggested it? When was it suggested? What happened to it? All we are told is,

"however this did not meet with general support".

But I see other member states in our Union which fight a little more vigorously for some of the things that they believe to be useful and helpful. On the basis of the response we seem merely to have rolled over because the suggestion did not meet with general support. I am somewhat disappointed with the Government's response. It could have had greater specificity.

I come to the whole question of the discharge procedure. This is essentially the conclusion of the audit process. When one has had the Court of Auditors' report and the debate on it in the European Parliament, the decision has to be made as to whether or not to grant discharge. Here we see some evidence that matters in the Court of Auditors are not being pursued as strongly as perhaps they could be. During the meeting with the Court of Auditors we had the opportunity to raise with Mr Karlsson, the then president of the Court of Auditors, the criticism that had been made and the replies that had been given. It was pointed out to Mr Karlsson that,

"'The Court's audit revealed a high incidence of error due, for example, to costs or actions not meeting eligibility criteria, costs declared exceeding those actually incurred or insufficient supporting documentation'".

I said,

"That strikes me as being for normal people who are moderate with their language a fairly stringent criticism and yet when I look at the Commission's reply"—

we are told that it is important to have a long-winded procedure contradictoire in the Commission's reply in order to eliminate all the factual errors—

"they say 'The high incidence of errors found by the Court is not evidence that a significant proportion of Community funds are being misspent but rather that deficiencies exist in the Member States financial control of the funds which are typical of the management of any complex programme'".

If that is why you have to have a long-winded procédure contradictoire, perhaps it would be better to get the discharge procedure dealt with in something more like real time rather than have long delays. When that point was raised with Mr Karlsson he immediately answered it himself as it was a presidential matter, not one for Mr Salmi. Mr Karlsson said,

"When it comes to nuclear defence you do not over-use it".

That is how he regarded saying something fairly bluntly to the Commission, as it had been suggested to him that one ought simply to say in the procédure contradictoire that the Commission replies were frankly unacceptable. He regarded that kind of approach as being the nuclear option.

There are a number of important issues in the report and a number of important criticisms. It would be helpful to be given not just a general statement that everything is well but something a little more specific. I come to two final points on which I should like my noble friend to comment clearly. First, the Government have said that an external management audit could provide a useful contribution. Does my noble friend believe that it should provide a useful contribution? Do the Government support it? If the Government support it, how are they pressing it? Have they raised it in COREPER? Have they raised it in any COREPER working groups? Have they elevated it yet to any ministerial meeting? We believe that it is fundamentally important as we approach the next 25 years of what could be a useful Community institution.

Secondly and finally, I come to the point that was revisited in the very last of the recommendations. We raised the question of endowing the court with a highly qualified chief executive supported by a strong auditing staff. The Government's response welcomes the committee's proposals as,

"a most useful contribution to the debate on the effectiveness and legitimacy of all the EC institutions, including the ECA, in the run-up to the Inter-Governmental Conference planned for 2004".

Is that matter specifically placed on the IGC agenda by the Government because it is primarily an inter-governmental conference, not an inter-parliamentary conference? If we are to have an IGC in 2004, the agenda will be set by governments. I hope that they will take some notice of some of the ideas and proposals which emanate from Parliament.

By and large this is a better response from the Government than we received on the previous occasion that we discussed matters to do with the Treasury, but I still think that some of the weasel words could be removed and that a little more commitment could be shown to the report, particularly if the Government are to continue to say how much they welcome the work that is done by your Lordships' Select Committees.

My Lords, like other noble Lords, I offer my congratulations to the noble Lord, Lord Grenfell, and to the whole committee on their report. It is a first-class report which deals with matters in a serious and thorough manner. I only hope that it has a wide audience and is referred to whenever this subject is discussed.

When I first entered the European Parliament in 1974 as a nominated member it was fairly clear that there was an urgent need to establish an efficient and respected financial regime. Obviously, when the EEC was established not everything could be expected to have been put in perfect shape. Experience and developments in the EEC were already making clear the need for change. So I found my years in the European Parliament to be an exciting period of development, particularly with regard to budgetary procedure and financial regularity. After two years of hard slog, the much-needed amended financial regulation was finally adopted in November 1977. The Budgetary Control Committee was set up in the European Parliament and the European Court of Auditors began to operate in October 1977.

I must admit that I had great hopes of a developing relationship between the Budgetary Control Committee and the European Court of Auditors, with a growing ability of the Budgetary Control Committee to examine the detailed workings of the Commission. I can say only that I was very disappointed at the time. As a former member of the PAC, I suppose that that was natural. In no way during those early years did the Budgetary Control Committee get near to developing any influential control over budgetary matters. I shall say a word about what happened later to the noble Lord, Lord Tomlinson.

The truth, of course, was that while it was a considerable achievement to set up the organisations, it was bound to take time and persistent determination to make things work effectively. Yet, as one of the witnesses indicated, if it had not been for the existence of the Court of Auditors, whatever its imperfections, the present Commission reforms would probably not have come about.

That is why the report is so timely and important. It examines the changes to the European Court of Auditors that have already taken place, as well as its developing relationship with other Community institutions. The most significant and welcome change has been the production of its special reports. The report makes it clear that they have been well received. That should be coupled with the fact that the Budgetary Control Committee has now developed into a much more effective committee than it was in my day. I hope that their relationship can develop into a really useful tool of management.

There is one change in the European Court of Auditors that has met with a certain amount of criticism. At Maastricht, the European Court of Auditors was made a Community institution. Reading the report, I noticed that one or two members seemed to feel that it is to be regretted that that has taken place. I do not agree with any of that regret. If you give people powers that they refuse to use, it is their fault, not yours. I have to admit that I originally suggested to John Major that since the Commission either ignored or belittled the European Court of Auditors, it might be a constructive contribution to the Maastricht discussions if he proposed the upgrading of the European Court of Auditors to give it more clout.

I admit that subsequent developments in the court's organisation may have been encouraged by that enhanced status. None the less, had the court had the guts to use its new status, the Commission's reforms might have been brought about much sooner than they were. Indeed, I rather agree with Mr Christopher Heaton-Harris, who said in evidence:

"The Court of Auditors have a huge power, because if they come anywhere near pressing the nuclear button, I am sure the Commission would shake in its boots and sort out all sorts of problems that might have been found out".

Although suggesting that it would "shake in its boots" was perhaps going a little far, a reluctant and earlier sorting out might well have occurred.

The most important part of this valuable report lies in its suggestions for the future. I was glad to note the following principle:

"The need for the Court to be independent and to be seen as independent was accepted by all of the witnesses questioned about this".

Equally, however, I was not surprised to read of the very valid doubts that were expressed about how consistent the practice of that principle was likely to be.

Although a change in the structure of the European Court of Auditors is clearly necessary, a satisfactory alternative will not be easily agreed. National and institutional interests do not always coincide with the interests of an efficient audit system. Nevertheless, the case that was outlined by the report for a highly qualified chief executive supported by a large team of audit staff who were mainly professionally qualified, is overwhelming. Perhaps I should add that I am a chartered accountant, although I have not practised for very many years.

The report recommends that the chief executive should report to a part-time non-executive board of representatives from each of the member states. That may well prove to be necessary to make the changes acceptable. However, I should not like to rule out without discussion the proposal made by Mr Carey—that the non-executive board should be composed of ex officio heads of national audit offices. The attraction of such a proposal is that, as well as representing every country, those heads of national audit offices would become involved internationally and the experience would enhance their standing in their own countries. Such a proposal might prove to be a step too far, but it should be considered and might prove to be acceptable if the status of the European Court of Auditors itself were again changed.

Incidentally, the evidence given by Mr Carey was very valuable and is entirely acceptable, particularly in view of his wide experience. I remember meeting him in ECOFIN, in relation to Treasury and PAC negotiations and during his period in the European Court of Auditors. I hope that his submission will be looked at very carefully.

As to any future changes of status, I refer briefly to the report's comment that,

"we remain deeply unhappy with the seeming indifference displayed at the Council's highest level to the auditing functions and findings of the [European Court of Auditors]. Given the poor public perception of the management of the Union's funds, the Council should be more concerned with the criticisms made by the ECA".

My personal opinion—I have reached it very reluctantly—is that such indifference on the part of the Council is endemic and that, at least so far as concerns the special reports, those reports should go directly to the European Parliament and so through to the Budgetary Control Committee. The importance of the special reports should be enhanced and that of the annual report reduced or changed in character and purpose.

I end simply by endorsing the words of the noble Lord, Lord Tomlinson. I believe that this report is of such importance that it should be referred to again and further submissions should be taken in the light of what has happened since. I have a horrid feeling that not much has.

My Lords, I am a member of the European Union Committee of your Lordships' House but I am not a member of the sub-committee which prepared this report. However, at its invitation, I gave evidence to the sub-committee. Therefore, my role is a little unusual in that I am on two sides at the same time.

As is customary, my evidence is annexed to the report. To this degree, some of my views are already known, but I should like to comment both on the report and on the Government's response to it. Like those who have spoken so far, I believe that the report is excellent and I want to thank the members of the sub-committee and, in particular, its chairman, the noble Lord. Lord Grenfell.

The committee does not hesitate to use the word "radical". It uses it on a number of occasions, and why not? If the national parliaments are to have any substantive influence on potential changes in the working of the European Union institutions in the perspective of the biggest enlargement we have ever seen, it is important that specialised committees in the national parliaments should be willing not only to react but also to initiate or advocate ideas for change if they believe that such change would be beneficial.

I also want to welcome the government response, particularly where it states clearly that the Government agree with the committee. But I hope that that response also goes beyond lip service to the idea that there should be a wider and deeper debate in preparation for the IGC of 2004. Like the noble Lord, Lord Tomlinson, I ask: where's the beef on this question? Even where the UK Government have not always gained support from other member states for some changes, they consider in their response that the conclusions of the committee can make a useful contribution to the wider debate. I hope that that has some substance.

I say to the noble Lord, Lord Bruce of Donington, that I am of course aware that in the European Union there are not 11 but 12 languages—11 national languages and a bureaucratic language. Therefore at times we must be rather cautious in our assessment. However, I hope that we shall have some follow-up to those points. Of course, we need to have a certain amount of patience because patience is a part of European Union life, as it is elsewhere. My own languages are now a little rusty but I am sure that there must be a phrase in all the 11 languages of the Union for "Softly, softly, catchee monkey". Therefore, I hope that we shall get there in the end.

The points on which I wish to comment relate directly to the report and to the government response. In particular, I want to comment on four of them: first, the structure of the European Court of Auditors; secondly, the relationship between the annual reports of the court and the sectoral reports and, in particular, the move towards some more specific and sectoral reports with some "disaggregation", as the committee calls it; thirdly, the requirements which result from the fact that about 80 per cent of the budget is administered by the member states but that the European Commission must ensure as far as it can that the expenditure is correct and implemented effectively, as that is the nature of the situation between the member states and the Commission and the Parliament into which the Court of Auditors must place its work; and, fourthly, the definition of—perhaps one should say the confusion between—fraud, irregularity and error.

First, I turn to the structure of the European Court of Auditors. That structure has not changed significantly since 1975. The then president of the audit court made clear in his evidence to the sub-committee, basing himself on the situation of the previous report in 1987, that the court has exactly the same structure now as it had then. As a result of the European Union's expansion, it is larger and has created one more audit group. The Court of Auditors, which now consists of a member from each member state, took the view before the negotiation of the Nice treaty that this principle should be maintained. Therefore, the number of court members—the bosses—will increase considerably as a large number of new states enter the Union on enlargement.

That is broadly the same argument which was so controversial in the discussions about the number of future members of the Commission. During those discussions some argued forcibly that there must always be a commissioner from every member state and others argued that it would be more efficient to have a Commission smaller than the total number of member states after enlargement.

These differences of approach have not been wholly resolved, despite the long discussions in the preparation of the Treaty of Amsterdam and the conclusions of the Treaty of Nice. Mr Carey, who has quite rightly been quoted, was fairly harsh in his evidence to the sub-committee. It is worth quoting again what he said. He described the court as a body,

"run by, what shall I say, 15 over-paid, under-worked senior executives".

The enlargement of the European Union will obviously change the life of its institutions. I believe, like your Lordships' committee, that there is a case for looking again at a system of a highly qualified chief executive, supported by a team of audit staff and reporting to a part-time non-executive board of representatives from each member state. The unanimity on the point in the debate is appealing. In consequence, I hope that it appeals even more strongly to the Government. It would especially be the case if the Treaty of Nice—currently rejected in the Irish referendum—were not ratified. The system of "chambers", which is a half-way house, would then not come into effect anyway. We need seriously to consider the committee's proposal in relation to the structure.

Secondly, I welcome the audit court's recent greater emphasis on sectoral or specific reports which it has spread over the year. I agree with the evidence of Mr Karlsson, the then president of the court, that this can give the budgetary and discharge authority the possibility of following more deeply the situation in different programmes on the European budget. These programmes are very different. The way to improve financial management in the member states and the Commission may not be the same in every case. Obviously, the intention is to improve the rating in each sector.

The United Kingdom Government agree with this new sectoral approach. It is certainly good to move the emphasis away from an overall direct statement of assurance—the so-called "DAS" introduced in the Maastricht treaty—since aggregated figures of errors in the financial management of member states and the Commission were sometimes understood wrongly by the press or other commentators as referring to fraud. That misunderstanding still bedevils arguments about the financial management of the European Union's budget. In addition, the aggregation did not direct attention towards practical improvements. I note that the United Kingdom Government also indicate that there have been instances of dispute concerning the audit court's methodology.

Thirdly, the committee's report rightly deals with the question of the Court of Auditors' relations, not only with the Commission but with the member states and their national auditing bodies, since most of the EU budget is administered by the member states. The committee continues to feel that the Council of Ministers does not give sufficient attention to the audit findings in preparation for the discharge. The Government, on the other hand, feel that there is clearly significant ministerial involvement in the consideration of the annual report. That part of the government reply perhaps goes slightly into bureaucratic language. However, the Government are right to indicate that there has been an increase in the attention given by Ministers. That was also expressed by Mr Mingasson, of the Commission. But is it enough? And are the problems in individual member states sufficiently identified and transparent?

Fourthly, the committee has done well to draw attention to the problems which arise from lumping together errors, irregularities and fraud and the apparent lack of agreement among member states and institutions on definition. The remit of the Court of Auditors, which covers the European Community's income—for example, the customs duty collected on imports into the United Kingdom from third countries—as well as its expenditure, is to examine whether all revenue has been received and all expenditure incurred in a lawful and regular manner, and whether the financial management has been sound. It reports on cases of irregularity.

Of course, in looking at financial management, auditors can sometimes indicate a risk of fraud. Indeed, that is one of the most valuable results of an audit, and the European Court of Auditors has a vital role in that respect. But fraud itself is more the domain of the policeman. Most of the auditor's work concerns the detection of errors or accounting irregularities or the reliability of financial systems. That is why it is important to avoid a public misapprehension that an error rate describes fraud.

It has been a long struggle to improve financial management in the Commission, to reduce errors and irregularities and thus to reduce the risk of fraud. The latest moves on the internal audit system are much to be welcomed. But I do not believe that fraud itself is such a widespread or especially marked problem in the administration by the member states of the European Union budget. In my view, corruption is almost non-existent.

I return finally to a theme that I have stressed for many years but with only limited success. One of the best ways to reduce the risk of fraud is to tackle the risk at an earlier stage by an even greater effort to reduce the complexity of programmes and the volume of secondary legislation, by an even greater devolution to the administration of member states and, most importantly, by the abolition, or at least reduction, of relatively minor schemes run directly from Brussels. All of those changes are possible, but I doubt that they are given sufficient priority.

I have tried to pick out a number of points from the report that I find of value. It is a great report and I hope that it continues to influence government thinking. The audit function itself is essential and, as long as the court continues in its present form, both the Commission and the member states must seek to draw the maximum benefit from its work to improve financial management and avoid errors and cases of irregularity.

My Lords, I should like to make two brief comments in the gap before the noble Baroness, Lady Noakes, speaks. I was abroad and did not know whether I would be able to get here, so I did not put my name down to speak.

As a member of the sub-committee, I have one or two reflections on subjects that have been covered. I should like to put my finger on a couple of dilemmas, because we have been stimulated by an excellent overview of the report by the chairman, the noble Lord, Lord Grenfell, and all of the subsequent speakers.

We must say every time that the European Union is sui generis. It is much more complex than any other organisation—with respect, it is more complex than the territory examined by the noble Lord, Lord Sharman. That is because there is the strange balance between the Council of Ministers, the Commission, the Parliament and the European Court of Auditors at one level, while 80 per cent of expenditure is made within member states, in a culture in which the member states' own expenditures constitute 95 per cent of the moneys being spent in the member states. So the culture is member state-driven.

That leads me to make one point that has not yet been made. Mr Carey's recommendation that the National Audit Office should be made ex officio the new first tier of a two-tier board may be jumping from the frying pan into the fire if what we want is a more arm's length scrutiny of the cultures of the member states. The Kinnock reforms are perhaps as relevant to that as are what we have been able to identify.

My second point is that if we ought to be looking more at the member states because that is where the expenditure is made, why do not we not look at our own navel and ask what would be the procedure in national parliaments such as ours for considering common agricultural policy expenditure in a new way? What would be our procedure if we in this House were to consider expenditure from the structural funds? That is the logic of all the money being spent within the member states.

Finally, I have some sympathy on one point with the noble Lord, Lord Bruce of Donington. I believe that there is something over-incestuous about the way that COREPER would be looking at the criticisms made before going to the Council of Ministers and how to handle them. Although one does not want the European Court of Auditors to be totally at arm's length, we have to be aware of the danger of an incestuous relationship within the structure of COREPER, which inevitably is the vehicle for getting to the publication stage of some of these reports. I believe that the work needed before Berlin means we have time to get matters right, but not all that much time, because matters have to be thoroughly dealt with this time.

My Lords, perhaps I may begin by joining other noble Lords in congratulating the noble Lord, Lord Grenfell, and his committee on their report on the European Court of Auditors. It is much to the committee's credit that it has tackled the important topic of the Court of Auditors. There is much in the report which we on these Benches support.

Audit is a subject which does not quicken the pulse. The headlines, "Auditors give clean audit report" or "No financial management problems found", are about as compelling as, "Small earthquake, no one injured". Doubtless, there are many in the Commission who would long for that relative anonymity, because what we have in Europe is a financial mess.

For example, the annual accounts of the Commission have not been given a clean audit report for many years and the time taken over the whole discharge procedure, as the noble Lord, Lord Tomlinson, pointed out, is excessive. But despite these manifest problems, the Council has never recommended to the Parliament to refuse a discharge. The committee's report rather coyly refers to this at paragraph 62 as throwing,

"a curious light on the institutions of the community".

I suggest that the committee is too polite. It should have said in terms that this is yet another example of the harmful processes of the European Union. As long as the financial management and accountability processes lack rigour, as so well documented in the committee's report, we should all be sceptical of ever closer union.

But it is not just the Commission's own financial systems which have been condemned. Many of the problems lie with the 80 per cent of the budget which is managed by member states. But here too the Commission and the Parliament are implicated. Almost everything done in the name of the European Union is unbelievably complex, and with complexity comes the likelihood of error and the opportunity for fraud.

We in this House often criticise the things which come before us for their complexity. The problem exists in spades in Europe. We look to the Government to be pushing for simplification in Europe, and I hope that the Minister will tell us today what the Government are doing to get a new approach in Europe which avoids complexity and pursues simplicity as a virtue.

There is clearly fraud, irregularity and error in the way that European funds are spent, with a rate as high as perhaps 8 per cent. But neither the Commission's own system nor the annual report of the Court of Auditors sheds much light on how much is involved and where it occurs. Indeed, as the committee's report points out, there are even semantic debates about what constitutes fraud or error.

That is intolerable. We do not spend time in this country on such debates. The task of management, in this case the Commission, is to establish and operate control systems that minimise the risk of fraud or error. Of course, that includes, where necessary, ensuring that the systems which exist in member states are adequate to the task. The task of auditors is to check on those systems, find and quantify any material problems and report on those problems. In particular, cases in which funds have disappeared, due to fraud or error, should be unambiguously reported.

In this country, we are fortunate that we have a well understood system of responsibility and accountability and well developed public audit. If something goes wrong, we can rely on our Comptroller and Auditor General to tell us how it is. Why should we accept anything less in Europe? Why are not the Government yelling from the rooftops about it?

The European Court of Auditors cannot bear the whole burden of auditing European funds and must, as the report states, rely on local supreme audit institutions. In general, we should be proud of the United Kingdom's role, but, as the committee gently points out, the Comptroller and Auditor General's hands are still to some extent tied behind his back with regard to access. That is an unnecessary blot on the United Kingdom's role in European auditing. The Government's official response to that part of the report is weak. For almost as long as I can remember, there have been calls for the Comptroller and Auditor General to be able to follow public money. For as long as I can remember, the Treasury has dragged its feet. Your Lordships' House raised concerns about that during the passage of the Government Resources and Accounts Act 2000, which allowed for some new powers—fully in the hands of the Treasury, of course. However, the Government put off the evil day by setting up another review and another steering group.

The noble Lord, Lord Sharman, produced his report last February. What have the Government done since then? It would appear that they have sat on their hands. We still do not have a government response. The Government's response to this committee's report is to say that the response to the report of the noble Lord, Lord Sharman, will be made—to use a well honed formula—in due course. That is not good enough; the issues are straightforward and have been in the public arena for many years. They were well summarised in the noble Lord's report last year. As a minimum, the Minister should say when the Government will give their response to that report.

It is plain that the European Court of Auditors is groaning under the weight of having to reconcile the 15 countries represented on it. The court describes itself as being independent from the other European institutions and from the other member states. I have no reason to doubt the integrity of the court or of those who work for it, but, as the noble Lord, Lord Sharman, said, the institutional arrangements have put representation ahead of independence. If we were to start again and say that the primary design consideration of the court was independence and that representation was a secondary consideration, we would not design the court as it is.

The court should be fixed on its main goal, which is the delivery of a high quality, independent audit service. Having 15 members with equal status is a recipe for confusion and lack of focus. The proposed system of chambers is not a rational response, because it would continue to place representation ahead of independence in the pecking order. It would be a rational response to have the Court of Auditors professionally run, with an oversight or policy board giving due—but not undue—weight to the need for representation. The committee was right to propose that.

As my noble friend Lord Renton said, the Government's response has not been strong enough. They said that they would allow the idea to contribute to the discussion at the 2004 intergovernmental conference, in the same way as they would do with the committee's other good idea, a management audit. But as the noble Lord, Lord Tomlinson, pointed out, the Government should know that without determined advocacy those ideas will disappear into oblivion, and we might well conclude that that is where the Government want them to go.

The committee rightly pointed out that the current arrangements are not fit for purpose with 15 members. Enlargement will make the current arrangements unworkable. The Court of Auditors can only suffer if it has to reconcile yet more cultures and emphases. The Government have a duty to push our partners in Europe to ensure that all of Europe's institutions can cope with enlargement and promote necessary reform. It is curious that a Government so committed to modernisation in this country, even in areas where none is necessary, should be so coy about necessary reform in Europe.

My final topic is the need for the Court of Auditors to have more professionally qualified auditors. I am in good company here today with my noble friend Lord Shaw and the noble Lords, Lord Bruce and Lord Sharman, because we are all chartered accountants. For the record, I declare that and my involvement with the council of the Institute of Chartered Accountants as an interest.

I find it odd that members of the Court of Auditors do not have to have either a professional qualification or recognised experience in government auditing in one of the SAIs. I find it even more odd that professional qualifications are not de rigueur among the court staff. But most odd is the Government's response, which seems to say that all is well. The Government believe that the qualifications in audit and/or accountancy are important but on a par with knowledge of the European Community and its institutions. That is a response generated from a Civil Service dominated by the cult of the generalist. I am disappointed in the Government for showing so little appreciation of the ethos and skills of professionally qualified auditors.

The report of the committee is a valuable one and it is one which should resonate with all sides of the debate on Europe. I hope that the Minister will be more enthusiastic in his response today than the Government's official response to date.

My Lords, I have no hesitation whatever in joining all noble Lords who have congratulated the noble Lord, Lord Grenfell, and his committee on a most valuable report. Considering how quickly it was produced in the period before the election—or rather the period before the election was anticipated—it is remarkably thorough and well argued.

On similar occasions I have been criticised for the delay and inadequacy of government responses to Select Committee reports and I was grateful to the noble Lord, Lord Grenfell, saying that the Government's response was "thoughtful and comprehensive". Although other speakers did not go quite so far, I had better rest my case on what the chairman said. It is also true that despite the intervention of a general election, the response was produced within three months of the publication of the committee's report. Again, that is not unreasonable in the circumstances. As regards the timing of the debate, that is a matter for the usual channels and not for myself as a mere spokesperson on behalf of the Treasury. I have no usual channels capacity when I address the House today.

It is an important and timely report and it is one which deserves the full and well-informed debate that it has had. It is important to put it in context because the Government, like the members of the committee, believe that the European Court of Auditors has a key role in promoting improvements in financial management. The Government, and all governments during the past 25 years, have supported the work of the ECA and have sought to increase its powers and effectiveness. I shall be commenting about that later on.

The findings of the ECA have had a good effect. They have led to improvements in financial control procedures both in the Commission and in the member states. However, as has been pointed out during the debate, that has come about to a considerable extent through the publication of special reports and, for example, through the initiative to set up OLAF, the anti-fraud office. That came about through an ECA report. It has been pointed out several times during the debate that with enlargement, the ECA's role will become more important. European taxpayers' money needs to be spent as intended and good value for money will have to be assured.

The most important issue to have emerged in the debate—it may not be entirely the most important issue, but I shall treat it as such because that is what noble Lords would have wished—is the structure of the European Court of Auditors. The noble Lord, Lord Renton of Mount Harry, went so far as to question whether, under its present structure, the European Court of Auditors is capable of delivering results. I think that the test of that should be on the quality of the annual report as well as the special reports rather than on assumptions based on the structure itself. Almost any structure can be made to work under certain circumstances, although it certainly is not the case that the Government agree that the current structure is ideal, not least because it will be virtually impossible to maintain after further significant enlargement.

The system of the chambers proposed at Nice, which has not yet been implemented, was described by the noble Lord, Lord Williamson of Horton, as a "halfway house". We think that it would be an improvement on the present system, perhaps not in every respect but in the sense that it would speed up the processing of the court's report. Furthermore, it would lead to some diminution of a problem which clearly exists; that is, of shutting the stable door after the horse has escaped.

I was challenged to say more about the proposal for an independent chief executive. That is an interesting contribution to the debate. Would "welcome contribution to the debate" be any improvement? I am in some difficulty about this. The noble Baroness, Lady Noakes, wishes that the Government would "yell from the rooftops". I do not think that negotiating with 14 other members of the European Union is best conducted by yelling from the rooftops. We have to argue our case as effectively as possible from a strong negotiating position. I believe that I can show that we have done that in the past and that we shall do so in the future. However, we will not achieve much by yelling from the rooftops.

In particular we shall not achieve much by declaring that the British way of conducting audit is the only conceivable way. I draw that conclusion from certain comments that have been made during the course of our debate. After all, there is a major difference between the way in which Britain and, to some extent, Ireland conduct audits as compared with other European countries. For them, these are legal matters to be resolved in the courts. These may not be the ways in which we wish to do things—I do not argue that we should adopt their ways—but they are ways of carrying out these procedures. They have supreme audit institutions and they have their own standards which must be complied with by the European Court of Auditors. It is necessary that we acknowledge the way others conduct audit and, indeed, that it works.

If that were not the case, firms such as KPMG would not be able to set up European practices—to choose an example at random. Such practices cover many European countries and use local European staff. If it were possible only to work using the rules laid down by the Institute of Chartered Accountants, such developments would not be possible.

Of course the problem of 15 executive directors will not go away and will get worse. Of course the issue of whether there is to be an independent chief executive, who will have responsibility for choosing his own professional staff—and even Mr Carey did not quite say that—will have to be considered. At the same time, the court's relationship with other institutions of the European Union has to be considered. Noble Lords seemed to think that that was not a serious argument. I point to what Neil Kinnock said in describing his new procedures for internal audit and I ask whether it is self-evident that the committee's proposals would fit in well with those.

As to the issue of enlargement, I agree very largely with the noble Lord, Lord Renton, but I have to remind him that proper financial controls are a precondition for any applicants becoming members of the European Union.

I have great sympathy with what the noble Lord, Lord Sharman, said about the hour-glass model of management. It is very dramatic. I certainly agree that we have to have a strong, independent and effective audit procedure. I have used the word "strong" and the noble Lord, Lord Sharman, has used the word "strong"; clearly the depth of access for the auditors is an essential consideration. That is a consideration the noble Lord contributed to this debate in the report he produced last year. In answer to the noble Baroness, Lady Noakes, our response will not be "in due course" but in the next few weeks. We have to do what the noble Lord, Lord Grenfell, asked and look at alternatives. We have to negotiate with our fellow members in the most effective way that we can.

I have spoken already about the staff and their skills and about the different systems of financial control compared with the United Kingdom. Clearly we need to have in our ideal court of auditors or ideal audit department a wide variety of skills, including of course, very heavily, professional audit skills. But why not have, as in the National Audit Office, a staff qualified not only as auditors and accountants but as economists and operational researchers? I challenge the view that membership of a particular organisation is equivalent to maintaining standards. The best international standards have an important role to play. They can help to reconcile the different ways in which member states organise their professions.

There has been some debate about the DAS, but I noticed that the committee shied away from advocating its abolition. DAS covers the reliability of the accounts and the legality of the underlying transactions. It is the only document which gives an overall view of the standard of management of the EC budget. Some of us have very significant doubts about the sampling procedures on which DAS is based—I certainly do personally—but that means that we should seek all the more to support the ECA in its efforts to improve its usefulness and to develop it into an instrument for analysing management and control systems.

Clearly, as provided for in Nice, there should be a greater use of sectoral assessments. There has been a greater use of sectoral assessments and this makes it possible for DAS, instead of being a negative assurance, to be more positive and to make specific recommendations to the Commission.

The United Kingdom has already suggested an expert group to consider ECA methodology and the DAS process—in other words, something similar to what the noble Lord, Lord Tomlinson, calls an external management report. Unfortunately, so far we have not succeeded in achieving agreement to that, but it is important that we should continue to press the proposal as heavily as we can.

There was—properly—some debate about issues of fraud and irregularity and some concern in particular from the noble Lord, Lord Williamson, about whether there are proper definitions. Council Regulation 2988/95 defines irregularities both as simple omissions due to errors or negligence and also as intentions and deliberate acts. But that divides into fraud, which is intentional acts or omissions, as well as incorrect or incomplete statements. A genuine payment made after a closing date for claims represents an irregularity, but import of goods under false papers is definitely fraud.

The Government have pressed, and continue to press, for a reduction in the unacceptably high level of irregularities. We believe that we are making some progress on the matter, particularly—this is the valuable point made by the noble Lord, Lord Williamson—through simplifying the systems and regulations. We have been a strong advocate of simplification. The noble Baroness, Lady Noakes, raised the point as well. A proposed new financial regulation is being discussed by the Council's budget committee, a much more simplified document than its predecessor, which originated, I learnt to my horror, in 1977. The new regulation to improve financial control in the structural funds came into force in 2001 and there have been reforms in the CAP regulations. I agree with the noble Baroness, Lady Noakes, and the noble Lord, Lord Williamson, that this is the way forward.

Clearly, there is still concern about the issue of the discharge of the budget, and indeed about the fact that it takes so long to go through the whole of the audit process. I understand the impatience expressed by the noble Lord, Lord Bruce, as I do the impatience of all noble Lords on this matter. But all auditors have to have a dialogue in order to remove factual errors before publication.

As to the issue of the report being published together with the Council response, that is required by Article 248. It is required to be forwarded to the other Community institutions together with the replies of those who have been audited. That is not so different from the way in which audit proceeds in this country.

Again, there was the issue of an official response from the member states being required at an earlier stage. That was discussed at a recent meeting of the group of personal representatives of finance Ministers. Indeed, this has come to pass. The Commission asked for an official response to the latest report by 20th December last year. One of the few countries to achieve that was the United Kingdom.

I was challenged on what we have done since we responded to the report and what we intend to do in the period between now and the next IGC in 2004. The noble Lord, Lord Tomlinson, challenged me on what we have done in the past seven months. The evidence for what we have achieved lies in the improved sectoral information in the 2000 report which was published in November last year. That is evidence of strong pressure, not merely over seven months but over a longer period.

As for the period between now and 2004, I believe that the Prime Minister set out our targets most clearly in his speeches both in Warsaw in October 2000 and in Birmingham in November 2001. He has talked about the delivery of results not on abstract issues but on issues that concern people. We are mandated by Laeken to do just that. I believe that value for money and probity in European financial matters falls into the category of issues that can, and should, concern people. That is why we have a convention starting in March of this year, which will be chaired by former president Giscard d'Estaing and which will continue until the middle of 2003. It will be an inclusive convention, and one that will include the applicant countries, as well as civil society representatives and representatives of national parliaments. It will not produce a draft treaty text, but options for a new treaty. It will also be ready in good time for the preparation of the IGC agenda.

My Lords, out of interest, can the Minister tell the House whether the Government were actually in favour of the appointment of Valéry Giscard d'Estaing as chairman of this most important committee, or whether they would have liked to have seen someone slightly younger in the post?

My Lords, I do not believe that to be a relevant question. I simply reported the appointment as a matter of fact and stated that this is what is proposed. I cannot see how that has anything to do with the European Court of Auditors. I simply seek to give information to the House in order to give flavour, if you like, to the proposals that are before the European Union.

The period between now and 2004 will not be wasted. The Government are grateful to the sub-committee and to the European Communities Committee for their work. It will be evident from what I have said that we take their conclusions most seriously.

My Lords, perhaps I may indulge for a moment in a military analogy. I sometimes feel that the role of a chairman in the debate on a Select Committee report is rather like that of a platoon commander who goes over the top waving a service revolver, but who is happy to he accompanied by comrades with much heavier weaponry. In this instance, my colleagues have used their weaponry well in focusing on some of the really important issues in our report. It has been a very good debate. I should like to thank all those who have participated in it for showing that there are expert views to be brought to bear on a matter of this importance. We have had a model debate of that kind.

I am most grateful to my noble friend the Minister for his response. If I say, again, that I thought his response was thoughtful and comprehensive I should probably be over-egging the pudding. But, in any event, it was a helpful response in many ways. The important message that has come across from this debate and which, in a sense, is a generic message, is that scrutiny of the executive does not end when the debate is concluded. My noble friend Lord Tomlinson was absolutely right to say that this is the kind of issue on which we ought to carry out some follow up so that we can see what the Government are going to do and how words will be translated into deeds. I am not sure that we expect the Government to be shouting from the rooftops, but we want them to do a little more than just whispering through the letter-box. I want them to really make a point. For a Government who wish to be, and claim to be, at the heart of Europe, I believe that evidence of the kind of attention that they should be paying to the reform of the European Court of Auditors would give some substance to that aspiration. I strongly encourage them to ensure that our proposals are seriously pressed on our European Union partners so that the reforms that we feel are essential are carried through.