asked Her Majesty's Government:

My Lords, universities are responsible for their own admissions policies. We believe that admission should be on the basis of merit. Universities are already exploring different ways in which to select students who will succeed on a course. We have asked the Higher Education Funding Council, with other higher education organisations, to look at how best practice might be translated into a flexible framework to help to ensure fairness and consistency.

My Lords, I thank the Minister for that reply. Is she aware that someone whose son was recently rejected by a Cambridge college was told that the Education Secretary was advising the university that it should favour not only candidates who went to schools with poor academic records but also those whose parents are badly off and uneducated? Can the Minister say whether that reflects Her Majesty's Government's policy?

My Lords, my right honourable friend the Secretary of State does not give advice to individual universities. It is for universities to determine their own admissions policies. In the White Paper, we have put forward proposals to look at the benchmarking exercise run by HEFCE which enables universities to examine how they recruit students of high merit from different backgrounds. I refer the noble Lord to that report.

My Lords, the Minister said that the Secretary of State did not give directions to individual universities. But the Question concerned whether a general direction had been given.

My Lords, as I said, my right honourable friend the Secretary of State does not give general direction. As noble Lords are aware, in the White Paper we looked at how benchmarking is carried out with HEFCE. We also considered the separate issue of introducing a regulator for universities which choose to increase their fees.

My Lords, given that at present universities select according to A-level grades, can the Minister tell the House what information her department has and how far that is a predictor for success in courses at university?

My Lords, some interesting research is currently taking place. Noble Lords may be aware of comments by Mike Tomlinson over the past couple of days about the use of e-portfolios. There is no question but that we want to ensure that students who arrive at university obtain the greatest benefit from that education. We recognise the fundamental importance of A-level grades within that. However, as HEFCE has done, we have also been examining research which demonstrates how university applicants who do not have the highest grades have proved themselves, within the context of their education, to be extremely good candidates. Although it is in its early stages, there is some evidence that those students can do better at university. I believe that for some time a number of universities have been trying to ensure that they follow good practice in finding the best candidates who will prove to be the best graduates. I believe that we can support that.

My Lords, does my noble friend agree that British universities have not only been looking at A-levels as markers but at the baccalaureate as well?

My Lords, as I said, universities look at a range of different ways of assessing the best possible students. I do not have information on which universities may be considering the baccalaureate, although I suspect that some will do so.

My Lords, how are young students to make sense of the answer that the Minister gave to the noble Baroness, Lady Maddock? How are they to understand what, other than their A-level grades, is to be taken into account? What can young people be advised to do in order to access university? Why should background matter at all when, as the noble Baroness said in her first Answer, access should be on merit?

My Lords, I am sure that we shall debate these issues at greater length than we can do within the Question. I am clear that the Government believe that students should be admitted to university on the basis of merit and that those who access such education should do the best that they can and be the best graduates. Over the years, universities have been concerned that applications should come from young people who are able to access that education; in other words, they want schools to work closely with them so that students apply to the best universities. They also want schools to ensure that young people realise that a university education is for them.

It is crucial that students are accepted on merit. Sixty-eight per cent of students who arrive at university with three grade As at A-level are from the state sector. Some universities will take perhaps 50 per cent of those; others will take a higher figure. Universities ask whether that is because some students do not apply to those universities or whether it is for other reasons. All universities want to ensure that they get the best students that they can.

My Lords, does my noble friend agree that many of our state schools could do more to raise the aspirations of their best students? Does she also agree that one problem that older universities, in particular, have is that a dearth of applicants come forward for the places? I do not know whether my noble friend saw the article in a popular newspaper last week written by Sir Colin Lucas, the Vice-Chancellor of Oxford University. He described the process that Oxford has gone through in trying to attract fresh applicants. As a result of that, the number of students from state schools has increased by 30 per cent over the past three years. Is that not the way that we should be going?

My Lords, the work carried out by Sir Colin Lucas is important, as was his article. As I have said before, the 14 to 19 strategy is important. If schools do not assist their young people to aspire to go to university, those young people will find it much more difficult to recognise the value and importance of a university education, especially if they do not have the role model of relatives or friends who have attended university. Universities can play a fundamental part in working with such schools. I pay tribute to Oxford University for the work that it does.

My Lords, can the Minister say precisely how the access regulator will go about his or her business in monitoring the admissions process in relation to all kinds of background data?

My Lords, consultation will take place in regard to the access regulator. In the coming months my right honourable friend the Secretary of State will issue a consultation paper that will enable debate to take place on the access regulator. When a university wishes to increase its fees, the access regulator will look at the admissions procedures of the university, at the best practice that exists, at what the university does to provide bursaries and other support and at the support that it provides to schools across the country to help them to prepare students for university life. We should recognise the value of that to students.

My Lords, is the Minister aware of the social despair among those who were the first from their families to go to university, who enjoyed and benefited from the experience and who now fear that their children will be deprived of such a chance simply on the grounds that their parents benefited from a university education? That seems to them, and to me, to be a curious way of selecting candidates.

My Lords, there is nothing in our proposals that says that we would wish to see a good candidate for university fail to get in. This issue is not about social engineering in any way, shape or form, despite what the media may say. I am sure that noble Lords who have carefully considered our report will recognise that. We shall debate it at length. In this country we have good candidates who do not go to university. We want a well-educated society in which everyone who is capable of enjoying a university education benefits from it.

asked the Leader of the House:

My Lords, the Liaison Committee is responsible for considering proposals for new committees and for making recommendations to the House. When approving the fifth report of the Procedure Committee the House invited the Liaison Committee to give the idea of a new committee "early and sympathetic consideration". I understand that the Liaison Committee is due to meet on the 17th February to consider that proposal.

My Lords, I am grateful to the noble and learned Lord. Is he aware that this excellent proposal, which first surfaced at the end of the last century, has been going through the processes of Parliament with the speed that would make a snail look somewhat like a racing car? Furthermore, given that this House is complementary to another place, but also autonomous, and given that we had radio broadcasting and television broadcasting of our proceedings before another place and that we have set up our Delegated Powers and Regulatory Reform Committee which has no equivalent in another place, can the Minister explain why we should not act on our own?

My Lords, I am happy to accept responsibility for most things, but not for the past 100 years, although sometimes it feels like it! This has nothing to do with the House of Commons. I have notified another place as a matter of courtesy. The President of the Council, my right honourable friend Mr Cook, said that he is looking, with interest, to see the experience that we are able to offer in our own committee. It would be a Lords committee, not a Joint Committee. I repeat, I hope without impoliteness, that the matter has nothing to do with the House of Commons.

My Lords, does my noble and learned friend accept that the case for policy consideration appears to be serious? I illustrate that by saying that when the Joint Committee considered an order requiring taxi cabs to display notices saying that guide dogs were permitted, Parliament was in fact requiring that the dogs should read the notice. However. I was out of order in making the point.

My Lords, I believe that we have agreed that the committee will draw attention to those instruments that merit further debate or consideration. That appears to be an ample rubric.

My Lords, does the noble and learned Lord realise that he does not need to accept responsibility for what happened more than 100 years ago because the noble Lord, Lord Skelmersdale, said "at the end of the last century", which was only a couple of years ago?

My Lords, I am so sorry. I misunderstood what the noble Lord said. Time goes very quickly when one is having fun.

My Lords, the reason for setting up such a committee, which I believe is desirable, is that over the past few years we have seen a massive increase in the amount of delegated legislation going through both Houses and increasingly an unwillingness of Ministers to put down details of legislation on the face of primary legislation. What is the noble and learned Lord doing, in his position in the Cabinet, to use all of his powers of persuasion, which are legion, in order to discourage the practice of increased secondary legislation coming through Parliament?

My Lords, we need to approach this problem in at least two ways. First, we need to look at pre-legislative scrutiny, which your Lordships have warmly applauded and on which we are now starting to deliver. Secondly, we need a committee of experience and expertise to draw attention to instruments that merit further debate. I look forward to the experience that we can derive from the work of the committee which can perhaps be offered to the Commons.

My Lords, we on these Benches welcome the proposed committee and believe that it would be an effective instrument to deal with people's concern about regulation and secondary legislation being used in place of primary legislation. We hope that another place will listen to the experience of this House on the matter.

My Lords, I am grateful for that generous observation. During the next year or two, we may consider whether we can improve our procedures. If so, I am sure that lessons will be learnt.

My Lords, if the Select Committee is to consider those instruments that require particular attention, does that not imply that a large number of instruments are not contentious arid could be dealt with separately—perhaps off the Floor of the House, in a Grand Committee of some form?

My Lords, I am sure that that is right. For example, I think that we all remember the shellfish orders with consuming passion. My noble friend, named as Peer of the Year—which was extremely well deserved—

Hear, hear.

My Lords, what my noble friend said echoed what the noble Lord, Lord Strathclyde, suggested the other day, which was that we might take some orders off the Floor or the House—the noble Lord suggested the Moses Dom. That appears to me to be a useful step for the Liaison Committee to consider.

asked Her Majesty's Government:

My Lords, the Government are committed to modernising the Fire Service along the lines of Sir George Bain's independent review. We intend to restore a power for the Government to direct pay and conditions in the Fire Service. That means that we shall be able to impose a settlement if it proves necessary to do so. We hope that it will not. The Government will respond in full to the Bain review in a White Paper later this year.

My Lords, I thank the noble Lord for that Answer. As we have all done, I studied carefully the Statement made yesterday by the Deputy Prime Minister, Mr Prescott. I welcome Mr Prescott's Pauline conversion. Although it has taken a long time, his decision to seek emergency powers to settle the pay for the Fire Brigades Union is right.

However, will not the legislative process take at least some weeks? Given that the Armed Forces are now stretched to the limit, would it not be sensible, if a negotiated settlement has not been reached within a week or two, to consider seeking a court injunction for emergency powers to stop the strike?

My Lords, the issue of court injunctions is entirely a matter for the Attorney-General. It must be right that he gives that matter independent consideration. We welcome the noble Lord's support for the measures announced yesterday. Although it is true that they will take some weeks to introduce, we intend to ensure that they are in place in weeks rather than months, so that they can have some bearing on the outcome of this most unfortunate and regrettable dispute.

My Lords, the Minister will know that the employers supported the Deputy Prime Minister's Statement yesterday. That is not surprising, given that the negotiation has been tripartite and confusing. Is the Minister aware that the Bain review recommends,

"that the Local Government Association … take steps to develop the contribution of elected members on fire authorities and to ensure that they give stronger leadership in the future"?

Does not the Deputy Prime Minister's Statement indicate a centralising approach? How does it square with Sir George Bain's recommendation?

My Lords, there might be some merit in what the noble Baroness said if it were not that Sir Jeremy Beecham, who is after all the chairman of the Local Government Association, gave the Deputy Prime Minister's announcement yesterday his fulsome support. That speaks volumes about where the employers are: they are at one with the Government in seeking to resolve matters and entirely agree with the steps that the Government announced yesterday.

My Lords, if the Government are fully committed to a solution along the lines of the Bain report, would they not be well advised to suggest to the local authority employers that they give notice that if there are any further strikes, all the striking firemen will be dismissed and offered immediate re-employment individually on Bain terms, and that any subsequent vacancies will be filled by recruitment? After all, President Reagan did something similar more than 20 years ago with the air traffic controllers in the United States and it worked extremely successfully.

My Lords, that is an interesting notion, but I doubt that it bears much relation to the reality of the situation. Obviously we must protect fundamental rights; the right to withdraw labour is one of those rights. On the other hand, we have a duty to ensure that public safety is paramount and protected. That is why the Deputy Prime Minister yesterday announced what I consider to be a balanced and measured set of proposals to try to bring a conclusion to this unfortunate and regrettable dispute.

My Lords, does the Minister agree that there is a long history of politicians and governments getting involved in trade union negotiations? Although the Government must pick up the tab, trade union negotiations are best conducted between employers and employees, who must live with each other at the end of the day.

My Lords, that is what the Deputy Prime Minister has been seeking to encourage during the past few months. He has prosecuted his case extremely well. It is absolutely right that employers and unions must sit round a table to hammer things out. The measures announced yesterday are an encouragement to that process.

My Lords, will my noble friend not take too much notice of advice from those on the Opposition Benches on dealing with trade union matters? I served for many hours with the noble Lord, Lord Renton of Mount Harry. during the passage of the Trade Union Act 1984. His claim to fame then was as chairman of the Association of Conservative Trade Unionists. I suggest that my noble friend takes more notice of the point made yesterday by the noble Lord, Lord McNally, about the official solicitor. Many of us know what happens when governments try to impose conditions on striking workers.

My Lords, my noble friend speaks volumes about how we ought to try to proceed in these matters: with care and caution to ensure that the unions and employers work together to conclude effective collective solutions. That is the best way forward; that is what we are trying to encourage; the Deputy Prime Minister wants matters to proceed in that manner.

My Lords—

My Lords—

My Lords, the noble Baroness has given way at least twice. I think that it is her turn.

My Lords, is there really a sense of urgency in trying to sort this lot out? The Deputy Prime Minister's Statement yesterday gave one the feeling that action was being taken, but in his Answer the Minister said that a White Paper considering the Bain proposals would be issued later this year. The Bain proposals have been published for weeks now. Why have the Government not yet done something about them? There must be squads of people who could conduct the analysis and prepare a White Paper, which would make it much easier to set the pay of British firefighters in future.

My Lords, it is right that we try to hasten the conclusion of the discussions to resolve the pay dispute. The modernisation package is a longer-term issue and the proposals that will no doubt be made in the White Paper must take into account the finer detail of what was, after all, a comprehensive report. I have no doubt that that will happen, but we must concentrate our efforts on settling the pay dispute. As part of that, Bain, modernisation and the White Paper will be part of a whole package.

My Lords, has the Minister noted the reservations expressed by the general secretary elect of the Trades Union Congress, the general secretary of the Transport and General Workers Union and the general secretary of Unison? In the light of those reservations, do the Government plan to meet the TUC and other union officials who are concerned about yesterday's announcement?

My Lords, I understand that there are regular liaison meetings about all those issues. No doubt they will have a bearing on the outcome. Of course we take careful note of what is said in public debate on the matter, but the Government remain resolute in seeking to ensure a proper solution to the tire dispute. We urge the FBU to get round the table with the employers, return to the Advisory, Conciliation and Arbitration Service and ensure that proper negotiations are conducted so that this unfortunate dispute can be drawn to a conclusion.

My Lords, does the Minister agree that time is of the essence and that if disruption continues the Government will have no option but to bring forward emergency legislation? If not, does the noble Lord agree that arbitration independent of the Government would be a far more acceptable means of resolution than any imposed by decree of the Government?

My Lords, we have an adequate arbitration system through ACAS and the Government are happy to rely on that. It has worked effectively for many years. It certainly worked effectively when the party of which the noble Lord is a member was in government. We shall rely on that process and hope that the FBU and the employers will use it to ensure a satisfactory outcome to the current dispute.

asked Her Majesty's Government:

My Lords, our position on renewing sanctions on the Mugabe regime, including the EU travel ban, remains unchanged. Our objective is to see the current EU common position on sanctions—including the travel ban on 79 members of Zanu PF—rolled-over when it expires in February. This will require a unanimous decision by all 15 EU member states. The matter was discussed at a meeting of EU Foreign Ministers in Brussels on 27th January, but this proved Inconclusive. Further discussions are due to take place tomorrow, 30th January.

My Lords, I agree with that reply so far as it goes. I do not propose to take time discussing the invitation to visit Paris issued by Mr Chirac to Mr Mugabe as I wish to discuss a more important question—that is, the renewal of sanctions. Is the Minister aware that the sanctions imposed by New Zealand on Zimbabwe and Mr Mugabe apply to considerably more people than there are on the European Union list? They apply not only to members of Mr Mugabe's party but to his business supporters. Will the Minister arrange to instruct the United Kingdom representative at tomorrow's meeting to propose that sanctions should be extended to some of the financial backers of Mr Mugabe who were named in the report approved by the United Nations Security Council only last Friday—including, for example, Mr John Bredenkamp and his family? Mr Bredenkamp was deeply involved in plundering the Congo in collaboration with Mr Mugabe arid is one of his principal financial supporters.

My Lords, I can assure the noble Lord, Lord Blaker, that our instructions to our permanent representative, Sir Nigel Sheinwald, who will be at tomorrow's meeting, will be to press for the most robust package of sanctions and the longest period of roll-over it is possible to negotiate. However, I stress that we must proceed on the basis of a unanimous agreement. The noble Lord will be aware that this matter will be pursued under the common foreign and security policy. That means that all countries will have a veto—and that can sometimes cut two ways.

My Lords, will the Minister draw the attention of' our European Union partners—the French, in particular—to the Inter-Parliamentary Union council resolution of 27th September 2002 in which serious allegations were made about the torture of six opposition Members of Parliament? Will she also draw the attention of our partners to the demand made by Mr Morgan Tsvangirai for a judicial investigation into the torture of another MP, Mr Job Sikhala? In view of these allegations, does not the Minister consider that any members of the regime who set foot on European soil should be interviewed with a view to their prosecution under the relevant legislation giving effect to the Convention Against Torture, which has been signed by all European states?

My Lords, I assure the noble Lord. Lord Avebury, that Her Majesty's Government brings all these matters to the attention of our partners in the European Union and many are supportive of our stance. The noble Lord cited the IPU report of 27th September. I would cite the statement of the Secretary-General of the United Nations on 14th January this year. There is ample evidence of the terrible effect that the Mugabe regime is having on a country which was once the breadbasket of the region but which is now riddled with famine and difficulties of the kind described by the noble Lord. We lose no opportunity to make this clear to our partners, and we very much hope that they will listen.

My Lords, does the Minister recall that on Monday the noble and learned Lord the Attorney-General enunciated the principle that heads of state while serving were immune from criminal jurisdiction? Does or does not that apply to those who have been heads of legitimate governments which are now regarded by Her Majesty's Government as illegitimate? Will that apply to Robert Mugabe when he comes to Paris, or will we seek to extradite him?

My Lords, as I understand it, it does not apply to former heads of state. If I can be any more forthcoming for the noble Lord on that issue, I shall place a letter in the Library of the House.

My Lords, can the noble Baroness explain what is the difficulty in bringing this matter to a conclusion in Europe? Is the view of the other European countries more forgiving than ours? Why are they not prepared to roll-over the sanctions almost automatically?

My Lords, the noble Lord comes to the heart of the question. There is no problem with the roll-over of most of the sanctions—the arms embargo, the assets freeze and a number of other matters— but there is an issue in regard to the travel ban. As they do every other year, the French wish to hold a summit meeting and to invite the heads of state of all the African countries to meet them in Paris. That meeting is due to take place in a period shortly after the sanctions end. The idea the French are pursuing is that there should be a window of opportunity to allow them to do that. There would therefore be a gap in the travel ban of some three to four days. Her Majesty's Government are disappointed that the French take that view.

My Lords, in regard to the answer given to the question of the noble Lord, Lord Howell, about the prosecution of heads of state who have left power, did not the House make a declaration on a similar matter when it decided that General Pinochet could be prosecuted? Indeed, he was placed under house arrest in this country. Is that not the case? Am I wrong?

My Lords, yes. That is why I answered the noble Lord, Lord Howell, in the way that I did.

asked Her Majesty's Government:

My Lords, the Ministry of Defence makes provision under the Armed Forces Pension Scheme and the equivalent reserves scheme for personnel injured or killed in service. Those wanting additional protection can obtain cover from commercial providers through independent financial advisers or insurance brokers. The MoD also facilitates voluntary, commercially-run schemes—PAX, Forces Safeguard and RPAX—for all personnel. These are still available at present. Nevertheless, the Government are currently examining the options should the necessary cover become unavailable at a reasonable premium.

My Lords, I thank the noble Lord for that Answer. I declare an interest as an honorary vice-president of the Royal British Legion women's section. Is the Minister aware of the great anxiety this is causing? People who are willing to risk their lives are concerned that those they leave behind may suddenly find themselves homeless because mortgages cannot be met. All kinds of other financial difficulties could arise. As I understand it, the pension scheme to which the Minister refers will give only the equivalent of one year's earnings, whereas many private companies schemes give four times that. Is he also aware that, contrary to what he has said about the Safeguard scheme, I am told that it is not available at present and that it has never covered reservists?

My Lords, the RPAX scheme, which has been in operation for some time, covers reservists. Of course there are concerns about this, and the Government want to do their best to alleviate those concerns. That is why I want to make it clear that personnel who are already insured under the Forces Safeguard and the RPAX schemes, as well as being insured under ordinary commercial schemes, will be covered. That is the crucial message that we need to get across this afternoon.

My Lords, is the Minister aware of the recent letter in The Times from a consultant surgeon who is also a reservist, worrying about the fact that there is no cover, from his point of view? Is the Minister worried that there will be a shortage of medical personnel if it is true that they will not be covered without a limit of finality on their service abroad?

My Lords, I am aware of the letter that appeared in The Times yesterday. I have already accepted that there is concern about the issue. I can only repeat that the Armed Forces Pension Scheme and the equivalent reserves scheme are available and that those wanting additional protection can still get it from commercial providers. Those who already have additional protection are covered.

My Lords, will there be an increase in the death-in-service benefit from one and a half times to four times, and when could we expect such provision to be made? If there is an excess premium for reservists who are caught out if they are called up unexpectedly, will the Government meet those excess premiums?

My Lords, on the first part of the noble Lord's question, it is a little too simple to suggest that the death-in-service benefit under the existing Armed Forces Pension Scheme is as limited as the noble Lord suggests. There is a one-off lump sum payment with a subsequent pension. For death on active service, both are tax free and are calculated according to factors such as number of dependants and length of service. We are looking at how we can improve this package, but it will take some time before we can complete our consideration and do so.

My Lords, what guidance is given on life and disability insurance matters when reservists report to mobilisation centres? What guidance is given to regular personnel when enlisting into the Armed Forces? Will the Minister comment on the fact that, as I understand it, Safeguard has said that it is excluding war cover with effect from 7th February?

My Lords, as far as Safeguard is concerned, I believe that a meeting is to be held tomorrow to see whether what appeared in The Times yesterday will happen. The noble Lord asks what we do to inform personnel, especially reservists, about insurance matters when they join up. Some providers—and I think this is the basis of his question—have withdrawn schemes for new members under order to deploy. Existing policyholders are on unchanged risk until their policy expires. Internal communications briefings steer individuals to the services' insurance and investment advisory panel. We assist service personnel in getting independent financial advice by publishing a list of 35 independent financial advisers and brokers who have knowledge of the services.

My Lords, will the Minister confirm that on the death of any reservist in this conflict, which we hope will not be, his widow would count as a war widow?

My Lords, I can confirm that because, as I said in answer to the original Question, the equivalent attributable reserves scheme—the equivalent of the Armed Forces Pension Scheme, which the noble Baroness, Lady Strange, knows very well— will apply for personnel injured or killed in service.

My Lords, is the Minister aware that in another place, the Secretary of State for Defence said that these insurance companies were still offering cover, whereas the Minister seems to have admitted today that a number of well known insurers are not? Is not the great dividing line between those who already have policies, whom we know are covered, and those who are now applying? Is he willing to admit that people are being refused policies now?

My Lords, there is no difference between what I am saying and what my right honourable friend the Secretary of State said on Monday in another place. He quoted directly from the website press release of the Association of British Insurers. It produced a press release on Saturday 25th January, which, of course, was the date on which this story appeared for the first time in The Times. He quoted the press release as saying that,

"existing life insurance policies held by members of the armed forces would be unaffected by any call-up or deployment in the Gulf".

It also said:

"Existing life insurance policies will continue in force if the policyholder is on standby or deployed on active service".

In addition, the press release said that,

"armed forces personnel are encouraged to recognise the long-term nature of life insurance at all times and not just at times of more active service".

My Lords, with the leave of the House, between the two debates today, my noble friend Lord Sainsbury of Turville will repeat a Statement on auditing and accounting.

My Lords, I beg to move the Motion standing in my name on the Order Paper. The first amendment implements a recommendation to which your Lordships agreed on 15th January and the second and third correct drafting errors.

rose to call attention to the role of design in improving public services; and to move for Papers.

My Lords, the whole House is indebted to the noble Lord, Lord Freyberg, for initiating the debate and for the way in which he introduced it. The power of design in reshaping the underlying systems and businesses process is very important. Without a doubt, high quality public services are vital to the nation's prosperity and well-being.

Britain is rightly regarded as a world leader in design. Successful businesses are the ones that invest in design to create more innovative and valued products and services, but in the public services that is not the case, and we must ask why.

The Government clearly recognise the importance of high quality public services to the nation's prosperity. Much effort is being put into modernising our public services, and the Government have embarked upon the most ambitious programme of investment in public services for more than 50 years. By 2004, public spending on education alone will buy one-third more than in 1997 terms. Modernisation requires investment, which is something that our public services were starved of in the 1980s and 1990s and—to be honest—well before that. That amounts to years of neglect, and it will take a long time before that can be turned round.

Money alone, however, will not deliver the reform of public services, or the transformation necessary. We all know that some of the worst public services have been among the most costly. People who work in public services systems do not go to work because they want to do a bad job—quite the reverse. Often they work in systems and structures that inevitably deliver poor outcomes. How frustrating and demotivating it must be for workers to work in a system capable only of delivering poor outcomes, however good they are as individuals.

For the Government's investment to deliver improvements, we must take a completely fresh look at the systems and structures that underpin the delivery of those services. We need to break out of the traditional ways of doing things, which will only continue to deliver the same outcomes and ultimately fail the needs of the people who depend on those services. Design skills and design thinking have a central role to play in transforming our public services. Design offers creative innovation and a new perspective on persistent problems. If public services are to be valued by the public, they must be redesigned around the needs of the users—the pupils, parents, patients and passengers.

The traditional model of a public service can be caricatured as being provider led, inward looking and hidebound by rules and structures and hierarchy. We need to break out from that model; services need to be redesigned so that the user is at the centre of everything that is done. Targets, inspection and league tables all have a part to play in increasing the accountability of public services, but over-inspection and the imposition of arbitrary targets can actually stifle creativity and innovation.

Fundamentally, improvement comes from within public organisations, and is not something that is done to it from outside. The people who work in the systems and processes will be those who deliver that improvement. We need to build the capacity of our public services to transform themselves and to achieve improvement continually. We need to give those who work in public services the right tools and techniques to redesign systems and structures to deliver high quality services for their customers.

I have some good examples from public services in my area. For example, local pension officers from the Department for Work and Pensions work alongside local council officers to provide a one-stop-shop for pensioners to improve ease of access and take up of benefits and pensions. That is so important when at least a quarter of pensioners do not take up their benefit entitlement.

I can also cite a successful partnership between police and local councils delivering enterprising solutions for designing out crime from local neighbourhoods, such an "alley gating" schemes. That involves the gating off of common alleyways in terraced housing areas, reclaiming the space for local people and cutting burglary by one-fifth compared with other areas.

My local council in Tameside, with its staff, recently redesigned the way in which they process council tax benefit claims. By involving the staff, applying the tools and techniques of design and taking a completely fresh and unfettered look at the services, they reduced the error rate from 80 per cent—the sector's norm—to less than 1 per cent. They also reduced the time taken to process claims from 10 days to one and, at the same time, slashed unit costs.

Finally, we must not have the idea that redesigning services is a one-off process. It cannot be seen that way. The search for improvement in public services must be never ending. The use of design as a critical tool must be an integral process.

My Lords, I add my congratulations to the noble Lord, Lord Freyberg, for initiating this debate, as it is an important subject.

I was the Minister responsible for the Design Council about 20 years ago, and I remember those days well. The situation then was that good design was always spoken of as important but never given enough importance in practice. It was somewhat similar to a publishing and purchasing policy for which I also had some responsibility around that time. As an ex-Treasury Minister, I accept that some of the blame remained with the Treasury, but that is not the whole story.

We produce many of the best designers in the world, but at that time far too many of them went overseas to work. The constant complaint to me from leading designers was that too many of the top people had financial skills but knew absolutely nothing about design. There was a lot of truth in that accusation, but in my view the fault is not on both sides. Part of my purpose today is to hear from the Minister how we have moved on in the past 20 years.

For every business manager who knew nothing about design, there was a designer who knew nothing about finance. They simply did not speak the same language. A key of good design is that it is sometimes wise not to accept the lowest price on offer. Many times the lowest price is the right choice, but the cheapest is not always the best. Taking something well designed or building up a long-term relationship with a supplier may be more expensive in the short run but cheaper in the long run. Those who know about design need to persuade those who make decisions to take a wider view.

I detect that we may have made some progress over the past 20 years and we still have a long way to go, but the Design Council can take a lot of credit. However, that organisation's website shows that too much of its material is designed to appeal to those who are already converted and accept the basic concepts of good design. That is important for the Design Council, which must remain at the forefront of progress, but there is another more basic job to do. The Design Council must get across to a large majority of the slightly cynical mass of managers that good design is a vital part of any investment appraisal.

Put simply, we need good designers but we also need financial managers who are better aware of the importance of good design. My experience taught me that one cannot take everything that they say at face value. In my day there were, and I suspect there still are, too many managers who publicly called for design and were strong advocates of it but who did not in practice, when making decisions, live up to their word.

I have not come to this debate to criticise or to complain but to find out how, in this important area, the messages that I was trying to get across 20 years ago have made progress. I look forward to hearing what the Minister has to say.

My Lords, I greatly enjoyed the speech made by the noble Lord, Lord Freyberg, in both its spirit and substance. I wait with keen anticipation what the noble Lord, Lord Foster of Thames Bank, will say in his maiden speech. He is a shining star of architecture world-wide. We look forward to his speech.

Almost 50 years ago I walked into the newly-opened Design Centre in Haymarket and it was a revelation. It was an outcome of the Festival of Britain. I was greatly impressed by the products on show. My wife and I were newly-married and we looked for our essential domestic utensils. We bought them from the shops when they were available. We still have some of those cups, saucers, knives and forks that we saw in the Design Centre.

As names are so easily forgotten, I pay tribute to Gordon Russell and Paul Reilly who brought energy and flair to the Council of Industrial Design and to the nation. It made a permanent impact on those times. Together with the Consumers' Association and Which? magazine, they led a consumer revolution in what was becoming an affluent society. At least, that was my lay view because I had not been involved in design or manufacturing.

Then, almost 20 years ago, the voters of Stockton-on-Tees lost their enthusiasm for me and, in due course, in 1987 I became director-general of the Royal Institute of British Architects. So for the first time I began to reflect on the design of buildings, including buildings serving the public.

As a Minister I had not thought much about the role of architecture in the public estate. I was involved in the planning of a new headquarters building for the Ministry of Defence, including its location, its cost and the transfer of staff, but I never raised the question of design, nor did my civil servants offer any such advice.

Good public sector clients usually appointed good architects and good architects achieved good public architecture. But new, countervailing factors in the late 1980s and early 1990s began to damage the role of high quality design. The first was the growth of design and build (usually a misnomer) and, secondly, compulsory competitive tendering (CCT). The aim was to reduce costs by diminishing the primary role of the architect as designer, thus putting price before value. Later, a third factor emerged with the arrival of the private finance initiative (PFI) which would further diminish the role of the architect.

Then, rather to my surprise, soon after 1997 the new government decided that design could lead to better public buildings. With the Prime Minister's personal support, the Commission for Architecture and the Built Environment was set up and Sir Stuart Lipton, a hard-headed property developer, was appointed. Despite some scepticism and little initial enthusiasm on the part of most Whitehall departments, it has since vigorously campaigned for high quality design. Already CABE has helped to change the mood of all those deeply concerned about the environment.

That is all good news but I have three principal concerns. First, it is probable that the PFI will diminish the design factor in the complicated equation of construction. As the noble Lord, Lord Freyberg, mentioned, the recent Audit Commission report has said that early PFI schools are not significantly better. All the pressures, including the Government's own PFI ideology, point the wrong way.

Secondly, despite good intentions, guidance on improving standards of design in the procurement of public buildings falls short of instructions. I hope that operational guidance on the procurement of public buildings will be acted upon and that performance will be monitored.

Thirdly—this is wholly relevant to this very welcome debate—I hope that CABE and the architectural dimension in the public sector will be cross-party. It is right for the Government to claim credit for these developments. I welcome the Prime Minister's award for better public buildings. But if we are to have better public buildings from one generation to another, there must be a sustained campaign that will endure from one government to another.

My Lords, it is a pleasure to take part in a debate initiated by the noble Lord, Lord Freyberg, who, as most of us know, is a skilled practitioner in sculpture. Sculpture is to my mind one of the most attractive and satisfying of the visual arts because of its three dimensional aspect.

I believe that design, whether it be design of objects or furniture or design of the internal and external layout of buildings of all kinds, or, indeed, the design of whole districts and cities, can enhance immeasurably our ability to work and function effectively and, indeed, the whole environment in which we live. To my mind, good design is not just a joy in itself.

Design is as old as civilisation itself. In creating today's public buildings and their layout and content, I believe that design is as vital to the purposes and functions of those buildings as it was in the creation of a Greek temple or a Roman palazzo. The Design Council, of which the noble Lord, Lord Freyberg, is a distinguished member, has published a useful briefing paper for this debate. Reference has already been made, both by the noble Lord, Lord Freyberg, and by my noble friend Lord Pendry, to the neatly alliterative phrase of the Prime Minister when he referred to the importance of design in satisfying users whether they be patients, parents, pupils or passengers. I believe that he also referred to victims of crime. I should like to mention passengers and victims of crime.

Foreign visitors to London comment frequently most favourably on the design of our taxis and, indeed, of our buses. Not long ago I was about to take my wife home after an orthopaedic operation and asked the hospital to order us a taxi, knowing that the back of a taxi is splendidly designed for ample luggage and, indeed, for putting one's legs straight out without having to bend them. We were somewhat dismayed when we realised that the hospital had an arrangement with a minicab firm. A small saloon arrived that was completely useless for the purposes in hand because of the small amount of room in the back.

The design of our buses has gradually been improved and adapted over the years, especially for driver-only operation, although they could do with further change to facilitate the carriage of disabled passengers. There is always a great outcry whenever that is mentioned because of the expense that might be involved. But sometimes it is important to put in order of preference comfort and convenience on the one hand and expense on the other. I think in particular of how the design of some of our train carriages has, far from improving, declined. I am, unfortunately for myself, a frequent traveller on Thames Trains. They have become typically poor in terms of design for luggage space, seating and lavatories. The Design Council states in its briefing paper:

"Britain has a wealth of expertise in transport design".

Indeed, but, sadly, good design aimed at comfort and convenience of passengers often seems forced into second place against the demands of economy.

Economy class seating in aircraft has been a subject of debate many times in this House and I need not worry your Lordships about it. Noble Lords will well know that for long-haul flights in particular the space between rows has been limited and reduced. I fear that it is not only a matter of inconvenience but also perhaps of risk to one's health. I believe that passengers are a good deal less impressed by those changes—they are often referred to as design improvements—in the liveries and logos of transport companies, as the noble Baroness, Lady Thatcher, once graphically demonstrated in relation to British Airways, than by changes that can be brought about to enhance comfort.

Because of the time factor, I shall not go into the matter of the victims of crime. I believe that noble Lords would agree in general terms that, whether it be the layout of council estates, referred to by my noble friend, or car parks, although a great deal has been done, even more could be done to ensure greater safety for the possible victims of thieves and drug dealers.

My Lords, in rising for the first time in your Lordships' House, I am greatly indebted to my noble friend Lord Freyberg for initiating this vitally important debate on something which is so close to my heart.

A debate about design is, for me, a debate about values because I sincerely believe that there is a moral imperative for good design; to do it well and responsibly. Design is not an add-on, it is not a cosmetic, it is not window-dressing. It is a core, primary activity because anything in any part of the world that we inhabit has to be made. But before it is made it has to be designed. There are no exceptions whether it is on the scale of a city, the infrastructure of its buildings, the equipment in them, the infrastructure of streets and public spaces, pavements, the paving slabs, the door handles and even the invisible digital electronic world—it all has to be designed. It is a human act because design is a response to the needs of people, whether they are spiritual or material. The quality of that design affects the quality of all of our lives. As Winston Churchill said,

"we shape our buildings and thereafter they shape us".

He could be talking about infrastructure because the infrastructure of public services is arguably more important than any individual building.

There are many myths about good design or perhaps they are really excuses for bad design. One is that it costs more and that we cannot afford it. Believe me, quality is an attitude of mind. It is not how much one spends of precious resources; it is how wisely one spends them. Resources are money. obviously; time is a very precious resource, but above all, there is creative energy. That is the determining factor, which is more important than money.

Given the power of creative energy, as a nation we are fortunate to have an abundance of talent, which is sought after around the world. Perhaps the most important point of all is that the challenge is to harness that creative energy and bring it close to the decision-making process. Only in that way can we raise standards and genuinely encourage innovation.

Apart from the ability of good design to lift our spirits, to offer delight and pleasure, enlightened design delivers economic benefits. We know that in a hospital a room with a view reduces recovery time. We know that the workplace is a good and desirable place to go as it can provide a better lifestyle, which increases productivity. We know that an airport with views, natural light and sunlight makes travel less stressful but vitally it dramatically reduces energy consumption.

We know that our buildings can be powered by clean, renewable sources of energy. We are not dependent on depleting fossil fuels. The German Reichstag parliament is a working example of that philosophy. But design is not a static one-off event; it is evolutionary. As the components of our environment erode around us over time design initiatives are required to upgrade them and eventually, as they become obsolete, they are required to replace others with more adequate and up to date facilities. In that sense it is evolutionary.

Designers continually face new challenges, some caused by irresponsible past strategies, the threat of global warming and population growth. They affect the balance of an island nation as much as a mega-city on the Pacific Rim. The challenges are the same, only the scale varies.

I passionately believe that we have to build more densely in urban areas and—a vital coupling—when we do that we have to improve the standard of urban living. It may mean building taller, but not always. It certainly means producing more housing of higher quality and at lower cost. I believe passionately that history is on the side of the density argument.

Buildings consume half the energy produced in an industrialised society; transport and industry, the infrastructure, the remainder. Given the link between energy production, pollution and global warming, the threat to the fragile planet's eco-system, there are strong arguments for reducing the energy demands in building and infrastructure.

The quest for a greener, more ecologically responsible design is not about fashion, but about survival. Designers can advocate with passion, but in the end they are only as good as those who lead; those who have the courage and the political will to set standards and raise goals. In that spirit it has been a privilege to participate in this constructive and, I believe, far-reaching debate. I thank your Lordships for your kind attention in listening to me for the first time.

My Lords, it is a great pleasure to follow the noble Lord, Lord Foster of Thames Bank, and to say how honoured we all are to have such a distinguished architect and designer in our midst. Although no one is predicting that we shall follow the Germans with a new parliamentary building as part of our reforms, we could be sure that the design would be in good hands with the noble Lords, Lord Foster, Lord Rogers of Riverside, and perhaps with the noble Lord, Lord Freyburg, contributing some modern sculpture.

The noble Lord, Lord Foster, was educated at Burnage Grammar School, Manchester University School of Architecture and Yale University School of Architecture. His career has been in private practice. He has pioneered new structures, collaborating with Buckminster Fuller. Noble Lords will have seen the gherkin rising in the City and Stansted and will have some idea of their origins.

He has set up a world famous practice. His buildings have enlivened our cities and helped the United Kingdom to develop a more design conscious society. He has received many awards, prizes and fellowships from Europe and the United States, from academies and universities. As a professor at University College London I am pleased to say that he has been a visiting professor at Bartlett School of Architecture there. His books describe beautifully his marvellous buildings. He even has time for his recreations of flying, ski-ing and running.

I congratulate the noble Lord, Lord Freyberg, on initiating this debate on such an important topic. I also thank the Design Council, which has produced a useful package of information for it. My own experience in this area is that I ran a rather high profile government agency, the Meteorological Office, where we had many discussions on design and presentation. The chief executive's view was seldom listened to. That is because we listened to designers.

As with any government agency there were the more mundane aspects; for example, rather dilapidated buildings in remote Scottish islands, which are also part of the public service domain. The important point that I wish to make is that there have been very considerable improvements in the culture and application of design in the public service since the 1970s. As a cynic, one might say that the advertising world has had a more beneficial influence on government than it has on politics, in that respect. Certainly, the world of government is more design conscious.

I should like to focus a few remarks on the importance of environmental design, which the noble Lord, Lord Foster, emphasised. Perhaps one of the most important features is that good design must be fundamental and not merely an afterthought. My noble friend Lord Rogers, who regrettably could not be here today, said that environmental design was not just a question of green lipstick, which is rather a vivid expression.

I shall give an example. An element of design in Britain that is a bit of a scandal where environment and design could come together is noise barriers. One sees the most remarkable noise barriers in France and Germany. They are extremely important to communities as we increase our roads, and the efforts in this country are absolutely woeful.

As the noble Lord, Lord Foster, mentioned, buildings are extremely important. Design and science must be brought together, so that designers and people involved in building regulations work together. At a conference in London recently, it was realised that the architecture profession was perhaps not as much at the forefront of pushing the agenda forward as it should be.

Design does not relate only to hard matter; it also affects landscapes. My wife is a landscape architect, so I hear a lot about that. Perhaps one of the triumphs of design is the good design now being applied to restoring historic landscapes, with the help of the Millennium Fund. It leads to tremendous tourism. The most widely advertised posters on the Underground may be those that concern Hampton Court and its new design. Landscape design is also extremely important on housing estates. For example, by investing in better landscape design, Peterborough was able to reduce vandalism considerably. Other noble Lords have commented about design being important in reducing waste.

Government managers or chief executives of government agencies will be under considerable pressure from the Treasury or their government departments to reduce their budgets, or to be as efficient as possible. Therefore, it is very important that there be as much encouragement as possible from the centre for managers to consider good design. As other noble Lords have said, the cheapest design may not be the best. It is important that agencies and departments should use a business case with a design element in their decision making.

The framework documents of agencies should include the need to use good design, both in terms of their own activities and those of their contractors. I hope that the Minister will explain how the best practice is being developed to ensure those vital needs.

My Lords, I should like to add my thanks to the noble Lord, Lord Freyberg, for initiating the debate, and to congratulate the noble Lord, Lord Foster, on a very interesting maiden speech, which lifted my spirits.

The debate could be more accurately headed, "How to improve the quality of life for all in the United Kingdom"—and do it easily and effectively. Public services are at the very heart of our quality of life in the United Kingdom. We have no alternative but to rely on public services to a greater or lesser degree throughout our lives. Hospitals, the police service and education all impact massively on the way in which we live. The quality and relevance of the service that we receive can determine how we prosper, how we live and how we die.

Although investment and focus clearly are important in helping to make our public services fit for and able to support our 21st-century economy, money and attention are not enough in a world of forever-changing attitudes, values and standards, and even faster-changing technology. Public services need to do more to keep abreast of changing user requirements and new demands.

Business has long recognised that fact. It has recognised the colossal contribution that good design and innovation can make, and the massive impact that they can have on communication and the morale, performance and retention of staff. All that is important to public services. Design also has an impact on product quality and service and, of course, on profitability. Public services should use design in the same way.

The most successful example is the Department of Health, which is currently working with the Design Council on a project to "design out" medical accidents. Other government departments are working with the Design Council to develop new perspectives on old recurring problems. They clearly understand the direct read-across from good design to user satisfaction, but that is not widespread. Why not? What is the down side? It is certainly not the cost, because good and effective design pays for itself, over and again.

If a better designed hospital environment helps to shorten a patient's stay, if it helps patients to retain their dignity and to recover more quickly, and if it frees beds, how much value is there in that? If our criminal population and crime are lowered by reducing the opportunity for theft through designing "crime-resistant" products, what is that worth to us? If simply the clever design of a bus shelter is not only more comfortable and better looking, but can be directly linked to lower crime levels, as it has been in South Yorkshire where I live, that must make design a bargain-basement investment. Design works in schools, too, where well designed lighting, heating, acoustics and furniture have been proved to yield better results.

We have heard already that there is no shortage of design ideas. We in the UK are the largest design workshop in the world, with almost 4,000 design consultancies that employ more than 67,000 people. In fact, last year the British design industry had export earnings of more than £1.4 billion. We lead the world in so many areas of design and have always had a spirit of invention and good ideas, from Harry Beck's London Tube map, which was designed in 1931 and still shows us the way home, to the bioform bra, the Dyson vacuum cleaner and the Millennium Bridge in Gateshead. We can choose from thousands of world-famous projects. British design successes are legend, but not in the public services. If our public services are to have any chance of meeting our growing needs and demands, the implementation of good design is not simply desirable but absolutely essential.

We need actively to encourage more dialogue and closer collaboration between the policy-makers, the manufacturers and the design industry, and we need to do it now. The catalyst to do that already exists in a long-established agency that makes things happen now through design initiatives in both industry and public services. That agency—the Design Council—has been mentioned several times.

The Design Council is currently funded by a DTI grant to the tune of around £7 million per annum—not £70 million, but £7 million per annum. That is small change in a government context, and some might say miserly. With a wall of money descending on the public services at the moment, now is the time to invest in design. Procrastination is not a valid option. Let us involve the best in the design industry and invest creatively.

How we do that does not matter, but the Design Council would be a good, practical starting point. It is in a warm-start position and, if adequately funded, could massively accelerate its aim of helping to turn design ideas into actions. It could accelerate that change and move toward a better quality of life for all in the UK, and achieve that through public services that could be transformed beyond recognition through and by design.

My Lords, I add my congratulations to the noble Lord, Lord Freyberg, on securing the debate. I say to the noble Lord, Lord Foster, how much I enjoyed his excellent and very inspiring maiden speech.

The debate is timely and important, given the Government's focus on public services and the intention of putting the patient, client, user and consumer at the centre of all provision. If those people are to be at the centre of all provision, an inclusive approach to design is essential. I want to put that in the context of this profound social revolution through which we are living: the age revolution.

I was privileged to have been involved in a Design Council initiative called "Living Longer", involving Professor Roger Coleman at the Royal College of Art and the charity that I chair, the ILC-UK. We looked at design in the new context that we face. I was also involved in another initiative with the Royal Society of Arts involving an international competition for postgraduate students.

Many public services are no longer appropriate, given the change in the population that we are going through. The same is true of housing and consumer and household products. More older and many more disabled people are living alone and are keen to maintain their independence and, above all, their autonomy. They want to live, work, shop and enjoy their leisure in a safe and secure environment that is tailored to their needs and which adapts to their needs as they go through life and age.

It is the combination of the ageing population that we are experiencing with rapid technological and consequential social change that is the big issue. It is imperative to include and not exclude through design. In addition, the Disability Discrimination Act and related legislation gives rights to people who are discriminated against by bad design. They can and will take the offenders to court. That will also apply in the workplace when anti-age-discrimination legislation is introduced. There is a carrot and a stick for providers—and "providers" includes government. There is a need to develop products and services that work for us all, throughout our lives, and do not present obstacles to social participation. Those that do so will succeed and those that do not will fail. That is especially true for public services and in particular for housing, transport, education, health and caring services and leisure. Those public services can and must be at the leading edge of design.

With regard to ageing, what Peter Laslet described as the secular shift in ageing is recent. As little as 50 years ago the probability of surviving to enjoy an extended period after work was so low as not to be worth investing in. Now everyone worries that they have invested too little, as does the state, which 50 years ago embarked on a pension scheme that involved not investment but only income and expenditure. Now we know that that is becoming unsustainable. The big thing to realise is that the shift from young to old societies has never happened before in the history of mankind. This is uncharted territory and we are all learning as we go along.

Instead of thinking about retirement we must think of continuing to work into our seventies. That has enormous implications for the type and extent of our public services, and not just their design in physical terms. It also means that the people involved must be involved in the actual design of what they use and need. They must participate; that includes older people and those with disabilities. They must have the goods and services that give them that possibility and ensure their continuing independence. They must be available as part of any mainstream consumer offers. If people are to work longer, they will also have more money to spend, and the producers of goods and services are beginning to realise that.

What can we do? We must encourage the adoption of inclusive design thinking and practice. People in the design profession have been working on those ideas for some years now, but inclusivity is rarely asked for in design briefs. That must change, and measures must be taken to encourage industry to change its practices in that regard and to "mainstream" inclusive design.

The British Standards Institution has decided to introduce a BS in the 7000 series on inclusive design management. That standard is now in the drafting stage and should be completed for publication during the course of this year. That is important because it will encourage industry to engage with those issues and, in tandem with the DDA, it will expose those that do not take reasonable steps to ensure that the design needs of older people and those with disabilities are taken into account.

I shall add a few examples to the many that have so far been given. We must have a "life course" approach to design and flexible homes that adapt to us as we go through life. We might want semi-independence for our teenage children but also a granny flat; it is not impossible to design homes in that way. Leisure centres and parks should cater for all ages and the judicious use of street lighting for safe and secure living has been mentioned. Glass must be used and the design of bus stations and railway stations should be considered. Schools could be very adventurous because with interactive learning age becomes irrelevant and we can have learning centres that cater for everyone—teenagers and older. Interactive learning is only one part of an holistic approach to design, which can transform people's lives throughout their lives and make age in fact irrelevant.

My Lords, I add my congratulations to the noble Lord, Lord Freyberg, and offer him my gratitude. He talked in a very erudite manner about the change in culture required in our attitudes to design. I also congratulate the noble Lord, Lord Foster. it is almost impossible to discuss design in this country without quoting the noble Lord, but seeing him sitting in the Chamber rather inhibits my doing so. His was a most accomplished and remarkable speech.

The planning of our splendid new Royal Opera House building took more than 20 years. Several times during that period we seemed to be ready to build but when we got our quotations the price had gone up so much since the previous time that we had to stop again and raise more money. Eventually we realised it was now or never. There was still a funding gap, but we had to go ahead. We called in that brilliantly creative property developer, Sir Stuart Lipton. described by the noble Lord, Lord Rogers, as hard-headed. I agree. Sir Stuart took one look at our plans. He took one look and said, "Cut out the lowest two levels". We had been going down 60 feet. The bottom 30 feet would have cost us much more than all the other space in the building. It also involved the risk of further entanglement with London Underground and with various hitherto unknown archaeological sites—even at 30 feet we found a Saxon village—and we would have endangered our 1858 foundations. So we took his advice. To make up for the lost basements, we had to use some office space that we had hoped to let. However, the overall financial saving pretty well closed our funding gap. Our project had been saved, not by a designer, but by an expert briefer of designers.

When I recently visited one of our renowned teaching hospitals for a health check, I stopped briefly at the main signboard. An elderly woman was staring at it in a bemused way. "What does that mean?", she said pointing at a sign saying "Renal Medicine". I told her. "And that?" she asked of "Podiatrics". "And that?" she asked of "Haematology". I just about knew what they were. "These signs aren't for us", she said. "They're for the doctors and nurses. If they were for us they would be in proper English; you know: 'Kidneys', `Feet' and `Blood'". I agreed. "What's that one?", she asked. She was looking at "Colo-rectal". I pointed at the relevant part of my anatomy. "That's me", she said, and began to march off but she stopped and spoke again. She said, "It should have said, `Bums'". I believe that our designers of hospital signage should probably take their briefing from her.

Coming from a background in printing and publishing, I feel that I should mention the importance of typography and graphic design in our daily lives. As the noble Lord, Lord Foster, said, everything has to be designed: every book and every sheet of paper. The design affects not just the aesthetics but also the function of the printed product. Noble Lords may not realise it, but the speed at which one can read, absorb and remember information depends largely on its design. There is incontrovertible evidence that a well-designed textbook can be effectively read at almost twice the speed of a badly designed textbook. We all know about the pain of reading text that some designer has decided should be printed in small white type on a black background that comes off on your hands.

The design of the many printed forms and booklets issued by public sector organisations is variable. All express clearly the needs of the issuing body. The bad ones go no further. Good design takes the customer into account. There is great variation in the public's sensory capacities and relevant knowledge. Technical terms and small print, for example, can make form filling a nightmare for some people, especially older people.

Like many of my noble friends, I recently had the opportunity to discuss with someone in the Audit Commission its much talked about report on PFI schools. It is obvious that private contractors are interested in maximising their profit on each contract. In one case, a contractor, to save money, put a tin roof on an assembly hall. When it rained, not a word could be heard. That is not the fault of the Government, nor of the contractors, nor even of the architect. The specification was at fault, and the briefer who drew it up.

In conclusion I return to my main theme: we must use designers for everything we make. In the UK we produce great designers, as we have heard. According to the Design Council they earned huge fees from abroad last year. Good design gives pleasure and is highly cost effective. But in order to achieve good design we need good briefing of designers. The people who brief designers in the public sector have a great effect on our daily lives. They need to be numerate, clear thinking, decisive, and have long term vision. They need to behave as if spending their own money. I commend to the Minister that they need to be fully and properly trained for their job.

My Lords, I thank the noble Lord, Lord Freyberg, for initiating this interesting debate. Design surrounds us all the time. We value good design when we see it, but we do not stop to think about it. I thank the noble Lord for making us think consciously about a subject that we do not normally think about. It was a privilege to hear the noble Lord, Lord Foster of Thames Bank. I hope noble Lords will agree that we would like to hear more from him from time to time.

We have heard much about good design, but I begin with the impact of bad design. In the 1970s I became a member of the board of visitors of Holloway prison, which at that time was newly constructed. If one needed an example of impractical bad design, it was that prison. It was decided not to have bars on the women's prison, but the windows were so wide that a slim young woman could slip out. In the end they had to put bars on narrow windows which made it even darker and more unpleasant inside. One could not see very far down the corridor or what was going on around the corner. There were places where things could be thrown onto little roofs. Your Lordships would not have liked to see what used to land on those bits of roof.

We have to realise how destructive and expensive bad design is. It is important to start right and provide for people's needs. Good design, however, uplifts the spirit. That point has not yet been mentioned. When we go to see the Great Court at the British Museum or Tate Modern, the spirit lifts. Good design gives us much more than a space to use; it does something for our spirit.

I have a few points to make, which may be because I am a woman. Forgive me if my glasses keep falling off; they are not mine. It would be today that I would forget my glasses. Good lighting is important. How often lighting is relegated to being something that will happen by itself. In this country, where we have four months of almost non-stop darkness, good lighting should be at the top of everyone's list of considerations.

I turn to practicality and the people who are to use public spaces. The noble Lord, Lord Borrie, mentioned patients, victims and so on. If they are to use a space, are they ever consulted? Do we consult patients when we design hospitals? Do we consult anyone else when we design facilities for those people? It is extremely important that there should be an opportunity to consult users. A working environment can succeed only if the people who are to use it are at least asked for their views about it.

With your Lordships' indulgence perhaps I may place a slight gloss on the debate: good design is in itself a public service. I have been involved for five years in the construction of a memorial on Constitution Hill. It is a long overdue memorial to the men from the Indian subcontinent, Africa and the West Indies who volunteered to serve with the British forces in two world wars. Somehow they have been forgotten. Nearly 5 million served in the two world wars.

The memorial sits on the top of Constitution Hill as one enters from Hyde Park Corner. The architect Liam O'Connor described it as follows:

"Four sculpted piers in solid stone, surmounted by bronze urns form a cenotaph, a square, a public space, sacred to the sacrifice made by a great many people.

The space between the piers forms a perfect square … framing views towards the Wellington Arch to the west and a domed pavilion to the north. The pavilion forms the heart of the composition; a belvedere in the Park flanked by two plinths, each a monolith carved with campaigns from the two World Wars. Cast bronze railings with a peacock theme form balconies from which the four main piers may be viewed across the sand-ride…

Bronze lamp standards have been designed with tops to match the pavilion dome and the lotus leaf capitals re-appear as supports for the urns and the pavilion dome finial. The oak leaf section of the lamp standards re-appears as a wreath moulding to the urn bases, a reference to Lutyens' Whitehall Cenotaph".

The reference to Lutyens extends beyond the Whitehall Cenotaph, because coming from New Delhi as I do, I see echoes of Lutyens throughout the memorial. It completes Aston Webb's original plan for a gateway to that side of the park. It is a serene and beautiful memorial, with beautiful Portland stone. The construction is exquisite. I think that that is a public service. The good design of that memorial helps us to enjoy the past even more.

My Lords, I also congratulate the noble Lord, Lord Freyberg, on securing a debate on a topic that has enormous practical implications for the lives of users and staff of our health services. It was a particular pleasure for me to listen to the maiden speech of the noble Lord, Lord Foster of Thames Bank, and I look forward to hearing more.

I shall use examples from my professional experience to demonstrate the importance of good design for healthcare. One of the essentials for the care of new-born babies—especially those who are ill—is a clean, warm environment with electricity and a constant supply of clean water. The facility should be close to the delivery room with access to mothers. Those two facilities should therefore be on the ground floor of a hospital. But the environment of the delivery room where the baby is born is so different from the unit for the care of newly born babies.

Keeping a new-born baby care unit clean and free of infection requires, among other measures, that all adults entering it—including mothers and staff—wash their hands. Only when their hands are clean should they handle babies. That is difficult to achieve because most people do not wash their hands regularly.

A clean supply of water 24 hours a day, seven days a week, 52 weeks a year is a commodity that we take for granted. Most infections in a new-born care unit are water-borne because the drainage pipes of washbasins trap and breed germs, so they need to be sterilised regularly. Here is an opportunity for better design. Taps with long arms are necessary if we do not want to contaminate our washed hands when turning off the water supply.

Washing our hands with water regularly, before touching any baby in the care unit, will give us sore hands within two days. That is why today we wash our hands thoroughly with water and soap on entering the unit and then use antiseptic lotion to clean our hands before handling every baby thereafter.

Simple things can be difficult I o achieve, particularly when a team of healthcare professionals is looking after a sick baby who will have visits from parents. Design and the proper use of facilities is a prerequisite for helping people who need clinical healthcare. The user of the service must be the one whose well-being determines our design of buildings and equipment. Today, we would not approve of any health service facility that does not have access for disabled patients or visitors in wheelchairs. But reception desks may still be above the eye level of people in wheelchairs.

Primary care trust boards are now conscious that small premises with a doctor working single-handed are no longer adequate for healthcare in the 21st century. A health centre should have facilities for services other than doctors, nurses and receptionists so that patients need not go to hospital for ECG tracings of their heart, blood tests and X-rays.

Automatic doors are common at the entrances of hospitals, but they are inefficient in keeping out the cold when patients insist on smoking just outside the doors.

Design for the safety of patients must be a high priority. For many years I worked in a unit for newborn babies that was on the fifth floor of the maternity building when delivery rooms were on the ground floor. I was informed that in 1966 the architects of that maternity building in Liverpool had not heard of the need for a new-born baby unit and had added one on the top floor rather than draw up new plans. But in Birkenhead we have the best-designed bus station in Europe. Staff working in the baby unit had to have regular practice in moving incubators and cots down five floors in case of fire. The unit was closed only two years ago.

Design for the safety of patients and their families requires attention to detail. Let us consider the example of the medicine bottle with a child-resistant cover containing small pills for an older person. How often have we struggled to get the child-proof top off the bottle, or heard grandparents asking a young grandchild to help remove the top in order to reach the tablets for their blood pressure or heart failure? There are effective bottle tops, which people with arthritis in their hands can open that are genuinely resistant to the child under five, but they are expensive.

Other design improvements can be life-saving, such as needles attached to syringes that do not need to be removed by hand, thereby avoiding needle-stick injuries and preventing the infection of healthcare professionals who take blood from patients with hepatitis or HIV.

Another improvement needed must surely be the colour coding of medical solutions for injection used for anaesthesia, treatment of severe blood-poisoning and cancers. Some injectable drugs given directly into the blood will be lethal if injected into the spinal fluid. Such drugs should be colour coded so that doctors will be warned, and patients protected from medical accidents and death.

Finally, I shall quote from the Design Council, which states:

"Good design creates products, systems and environments that can help improve the outcomes of healthcare, providing more effective and safer services".

Designing for patient safety must be the highest priority. Therefore, I welcome the news that the Department of Health is working with the Design Council to investigate the potential for a design-led approach to reducing the opportunity for medical error as part of its on-going "Building a safer NHS" patient safety strategy.

I look forward to the Minister's response to the debate.

My Lords, I, too, congratulate my noble friend on the masterly way in which he has addressed a complex and extremely broad subject.

In the short time that I have to speak, I want to touch, first, on the importance of teaching good design in schools and, more particularly, art colleges. I draw attention to the work of the Royal Society of Art and its student design awards scheme, which attracts more than 3,000 entries a year. The RSA increasingly sees its role as helping to set the agenda for design colleges by bringing in fresh new thinking. I find it rather refreshing that this ancient body, whose full title is the Royal Society for the Encouragement of Arts, Manufacturers and Commerce, should be so active in promoting new ideas.

The RSA drew attention to some worrying trends. The huge increase in student numbers has resulted in a dramatic change in student:staff ratios. That, in turn, has led to a loss in the quality of teaching. The RSA questions whether it can retain its pre-eminent position in design education. Sadly I do not have the time to mention its consequential observations.

I turn to buildings. About 10 years ago the Royal Fine Arts Commission published an admirable study called, What makes a good building?. Incidentally, the study was commissioned by the noble Lord, Lord Brooke of Sutton Mandeville, when he was the Culture Secretary. The final words of that excellent report are as follows:

"To achieve a good building requires a good brief, a good client and a good architect…It is not a simple matter, and requires great effort and passionate commitment".

I think that we had the passionate commitment from the noble Lord, Lord Foster, in his masterly maiden speech.

I want to talk about the brief and the client—the procurement process. My first point has already been made, but it is worth repeating that research both at home and abroad shows that investment in good design generates economic and social value. This is not a novel point among professionals, but decision-makers, such as the Treasury, often tend to forget it. If I have time, I may come back to that issue.

Sir Stuart Lipton, who has already been mentioned by a number of speakers, the chairman of the RFAC's successor body, the Commission for Architecture and the Building Environment—CABE—reminds us that the Government are now embarking on the most significant building programme since the 1960s. Therefore, the stakes have been upped and the procurement process becomes all important. In the same piece, where he spoke about the big spending ahead of us, Sir Stuart Lipton was fairly scathing about some of our new buildings.

I want to touch on one or two consequential issues. First—again, the point has already been made but I repeat it—how can we ensure good design in PFI contracts, or, to put it the other way round, how can we design the form of PFI contracts so that good design is ensured?

Secondly, how can the Treasury, for example, be made to understand that building economics on the basis of lifetime costs is far more efficient and better than the normal Treasury regime of the initial cash budget approach? Of course, the Treasury denies that. It says that we have manuals on how to proceed with such matters, but, when the chips are down, it is cash that matters.

Thirdly, how do we prevent what I call "design degradation", which usually comes about when endeavouring to economise on detailing or qualities of finish—for example, door knobs and so on—when budget problems arise during construction? I draw attention to the issue but have no time to go into it.

Fourthly, how can we encourage the participation of innovative small sub-contractors; for example, in relation to furniture and furnishings and so on? The red tape of the billing process can constitute a crippling overhead.

It is so easy to identify the problems and so difficult to find solutions. In brief, how do we train and educate our officials not only in the virtues of good design but in identifying, and distinguishing between, good and bad? I believe that the answer is to educate and train officials at—I emphasise—all levels.

I must conclude. I should have liked to link building design to urban planning. But, again, the noble Lord, Lord Foster, took us down that path and spoke in his outstanding maiden speech far better and with far more authority than I could have done.

My Lords, when thinking of what to say in this debate, I looked in the Oxford English Dictionaryand found that the word "design", simply as a noun, has eight definitions. Number five was,

"a crafty contrivance or hypocritical scheming".

I am afraid that for some design—or perhaps lack of design- —that definition may occasionally be apposite.

I was much helped in preparing these remarks by the recent short document published by the Commission on Architecture and the Built Environment, referred to by a number of noble Lords. On the very first page, the results of a MORI poll show that 81 per cent of the population are interested in how the built environment looks and feels. Even more people—85 per cent—agree that better quality buildings improve the quality of people's lives.

Those findings, which show such a high awareness among the general public, perhaps explain some of the other positive research findings in the report. One has been given by the noble Lord, Lord Freyberg. Another is a study by the University of Nottingham, which found that in a cardiology ward which had been fitted with improved lighting, better external views and other improvements, patients' blood pressure and pulse rates were significantly lower and post-operative stays came down from 11 to eight days.

My own medical practice moved into a newly built health centre in the mid-1970s. It was in advance of its time and had carefully thought-out plans to enhance joint working between doctors, nurses and other primary care team members. At the planning stage, there was much discussion between the staff who were going to use the building and the architect. However, due to cost-cutting during construction, the fabric of the building began to fail at an early stage so that now, 30 years later, it is having to be extensively rebuilt. That is an example of how skimping on building costs, despite a good conceptual design, can lead to greater expense in the long term.

On my way to my home in East Sussex, I often pass the remarkable development known as "BedZED"— the Beddington Zero Energy Development—in the borough of Sutton. This is a high-density housing project of around 100 homes. It is immediately arresting because of the brightly coloured wind-driven, heat-exchanging ventilators, which swivel on the roofs—a system rather similar to that used in Portcullis House.

There are many other novel features—many more than I can describe—including a small biofuel combined heat and power unit. Energy consumption in the dwellings is only 10 per cent of that in a comparable traditional dwelling. That 10 per cent of energy is produced on site. The project was developed by the Peabody Trust to the design of architect Bill Dunster who first tried out the design concepts when building his own house. It is a superb example of good design and environmental conservation, and the cost of building it was no greater than that of a conventional housing development.

Like other noble Lords, I want to refer briefly to the Audit Commission's report on PFI in schools. It shows that, of the 10 traditional and eight PFI schools studied by the Building Research Establishment, the PFI schools were, on average, worse in all five aspects of design quality used. However, to be fair, one PFI school was commended. Its quality may have been high because the head teacher was involved in the project negotiation from the start. It is a key feature of a successfully designed building that the eventual user, who may not be the commissioning agent, should be involved from the start.

The summary of the final chapter comments:

"There is a strong case for changing capital funding incentives to enable options other than the PFI to be pursued equally advantageously".

It was very audacious of the Audit Commission to give advice to the Treasury. But surely the main reason for using PFI in the first place was to shift the burden of raising capital from the public to the private sector and, thus, the debt incurred would not appear on the Government's balance sheet. But the debt is still there, of course, and it costs the public considerably more to service than a state-secured loan. In addition, as the report shows, the product that results may be less suitable, of inferior quality and have higher maintenance costs. All that is because of an inflexible Treasury rule not to increase visible public sector borrowing.

Good design may initially cost a little more in time and thought, although not necessarily in money. But the end result is more pleasing to the eye and more efficient, costs less to maintain and is kinder to the environment.

My Lords, I, too, commend the noble Lord, Lord Freyberg. His family's ancestral courage is well known, but the personal imaginativeness of the subjects which he chooses to bring before your Lordships' House for debate deserves separate praise. He has also on this occasion given us the opportunity to hear the notable maiden speech of the noble Lord, Lord Foster of Thames Bank.

The noble Lord, Lord Freyberg, referred to 19th century prisons. There is a great continuity in our affairs. I mention the prison that Bentham built—the Millbank Penitentiary, where the Tate now stands. Not for nothing was he a utilitarian. Five prisoners were lodged in a group of cells but there were washing facilities for all of them from the start. Judge Tumim could not have approved more.

I declare an interest as a Senior Fellow of the Royal College of Art. My own speech will be idiosyncratic and telegraphic. My greatest luck in public life was to be the Minister to issue the guidance to the Lottery distributors that they should consider the architectural quality of the applications put before them. I thank the noble Lord, Lord Chorley, for his kind reference to another initiative in my time.

Others have quoted the Design Council report. In the spirit of the quotation given by the noble Lord, Lord Chorley, the observation in the report that the input of end users is most valuable at the start of the process, before the designs have been made and before the cost of change grows prohibitively high, was the story of how Japanese ship-building took over the world.

My father's philosophy tutor became the controller of metals during World War II. My father asked what his qualifications were and he said, "They are two. The first is that I am trained to ask questions—there are a large number of questions to ask in the context of metals. The second is that everyone else in metals has an emotional involvement in particular metals like wolfram and tungsten, but I have no emotional involvement in any of them". The creation of a post within Government with the oriental title "The Great Questioner" would do design a great favour.

I was lucky enough to attend a school founded in 1843 where, around a fine early 18th century house, the governors employed Blore, Street—I spent four years in a boarding house designed by Street who put concrete into a domestic building for the first time—Norman Shaw, Bodley, Comper, Aston Webb and WG Newton whose science laboratories were among the 50 first 20th century buildings to be listed. There was even a Waterhouse cricket pavilion, perhaps his only one, which the school has just restored to Waterhouse's original design. The child is father to the man and these things teach one what is possible.

One of the earliest boys to attend the school—in the school's first five years—was William Morris. It is interesting to note that what made the most impression on him during his school days was Avebury seven miles away. I remark that Avebury is essentially a public sector artefact.

From that school I also took away the recognition that people behave as a result of the way in which they are treated—whether it is listed blocks of council flats in Pimlico, the design of the legendary Thomas Telford School in Shropshire, with its academic success, or the new Jubilee Line stations that won the buildings of the year prize, competing, coincidentally, in the small change of today's debate, against a bus shelter in Scotland.

To draw on Waterhouse's cricket pavilion, I shall add to the list of design successes in the public services. I cite topically the English Cricket Board's use of the national curriculum, initially to design coursework and teaching aids based on cricket—arithmetic, geometry and physics come first to mind—but more subliminally to get school children interested in cricket as well.

Thirty-five years ago I called on the enlightened managing director of a public but smallish company in the Black Country who had just sent a new appointee to his board on a three-month sabbatical all around Europe to refresh himself and to look at recent capital investments by industrial companies. I ask the Minister how far that example is followed in the public sector today.

All of that said, we should not rely blindly on innovation. I saw the Nottinghamshire County Council's winning exhibit at the Milano Biennale in the winter of 1960 of a CLASP prefabricated school, and I flushed with national pride. But 25 years later I was a DES Minister when the CLASP schools all needed renewal at the same time.

Finally, a cheering coincidence. Like the noble Lord, Lord Rodgers of Quarry Bank, in 1961 I furnished my first office from the Design Council's design index. On that index was only one hatstand. I loyally and blindly bought it. The other day I was in Bond Street where the Fine Arts Society was selling a Charles Rennie Mackintosh hatstand for £35,000. In life, as in the Bible, the bread that one casts upon the waters comes back after many days.

My Lords, I join other noble Lords in thanking the noble Lord, Lord Freyberg, for initiating the debate. It provides a timely opportunity to acknowledge the importance of design in all parts of public life. It also allows me to stress how important the higher education sector is for encouraging improvements in design in public services and more generally. I declare an interest as chief executive of Universities UK.

Too often the role of design is forgotten. Universities have a central role in research, teaching and knowledge transfer in all areas of design. Our universities have a reputation as world leaders in creativity and innovation. That is a reputation on which they are keen to build.

Design is just one of the 13 creative industries defined by the Department of Culture, Media and Sport. Others include architecture, music, performing arts, publishing and software and computer services. The creative industries in the UK are a massive success story. They generate revenues of some £112.5 billion, employ something like 1.3 million people, contribute around £10.3 billion in exports and account for over 5 percent of GDP.

The universities already make an enormous contribution to improving the delivery of public services. They train the professionals on whom we rely. We might ask what that has to do with design. In the context of this debate, it means not so much the doctors, lawyers and engineers of whom we normally think, but the designers and architects whose creative vision provides modern hospitals with specialist equipment, attractive living accommodation in towns and the countryside, bridges across our rivers, new transport systems and so on. Design is not a sideline in universities but a mainstream activity.

I shall take 2000–01 as an example. In that year there were well over 40,000 full-time undergraduates taking degrees in design studies. In addition, there were almost 6,000 more who were studying courses that included elements of design. That enormous number means that just over half of all creative arts students in our universities were studying design. It does not stop with undergraduates. Also in that year there were almost 3,000 postgraduate students studying design, either as their sole area of study or as a component.

I think that that makes it clear that without the work of our universities there could be little possibility of improved design in our public services. Like other noble Lords I pay tribute to the enormous amount of work carried out by the Design Council in promoting the excellence of UK design. I was delighted to see its recent publication, Meeting of Minds. It illustrates universities' role in design, innovation and research and highlights what business and public services gain from working with universities.

I am delighted to use an example which will be close to the heart of the noble Lord, Lord Foster. I compliment him on his enlightening and uplifting maiden speech. I give the example of the partnership between Primal Pictures and University College London. Supported by the DTI and the Medical Research Council, that partnership led to the development of the interactive hand, a 3D virtual model of a hand, a new and important teaching and reference aid for the medical profession.

Where else are universities having an impact? The noble Lord, Lord Wakeham, will be pleased with my second example, as it demonstrates the progress for which he was looking. Brunel University has been involved in a project to design millennium homes that will be designed with state-of-the-art technology to enable elderly people to live independently in their own homes for longer. I could quote many more examples.

Where do we go from here? How do we increase the skills base of our designers so that they can help to improve the delivery of public services? How can we ensure that more of the innovation in design in our universities can be put at the disposal of the public sector? First, I hope that the Government will remember the importance of design and the other creative industries as they consider how they implement last week's White Paper on higher education.

In that light, I welcome wholeheartedly the announcement that there will be an arts and humanities research council by 2005, although I have a concern about the possible direction of research funding in the White Paper. It is important that the council will be able to support emerging centres of excellence and not just those that are already world leaders. It is an area of growth and innovation and if we stop innovating it will soon die.

I also hope that the Government will continue to press for overt reference to arts and humanities in the design of important research initiatives in Europe, such as the future framework programmes and the European research area. Finally, I hope that the White Paper will result in additional funds to teach the next generation of designers in universities whose skills are vital to ensure that design plays its full role in the improvement of public services.

My Lords, I am grateful to the noble Lord, Lord Freyberg, for initiating this debate and I congratulate the noble Lord, Lord Foster, on an illuminating maiden speech.

I am no expert on design, but as a layman who is constantly the end-user of products and of public services, I want to share my views on good and had design. I should like to talk about our built environment. Whether housing or office space, it affects our quality of life and output. A badly designed house or office has an adverse effect on our behaviour, work and well-being. About 20 years ago, I was involved in the development of an institutional building in the centre of London, and have been fortunate to be able to build a small house for my family to the west of London. Perhaps I may share some of my experiences with your Lordships.

The institutional building required office space, conference and meeting facilities and a community hall. We had a sensitive owner and architect, both conscious of the need for a building that would cater for a large number of people using its facilities, taking into account movement from one space to another and providing sufficient lighting and good, well-designed furniture. Above all, the building would have to stand up to constant use by a large number of people.

Many believe that architects and builders are the decision-makers. My experience is that unless end-users are brought in from the beginning and their views sought at the planning stage, the whole development will be a disaster. We shared the architect's initial drawings with the end-users and, indeed, with the neighbours. We asked whether they liked the plant and facilities and whether they wanted anything added or deleted. Photomontages were produced to show how the new building would sit with the existing, neighbouring buildings.

Although that process was painful, time-consuming and expensive, it enabled us to develop a building that truly reflected the needs of end-users. My point is that good design of a building is not the sole domain of the architect, but needs involvement from the owner, user, builder, building material supplier and craftsmen We spent much time on the building materials and quality of workmanship. We searched for and found the most suitable materials and the best workmen to execute the final product.

A plaster ceiling in one part of the building won an award, but the most fascinating incident involved a teak wood bench designed and placed in one circulation area near a glass window. I found myself with the carpenter who had made the bench and the designer. They were arguing about who was the creator of that beautiful product. The bench, under the window with the sun pouring through, cast a beautiful shadow on the marble floor below. The bench was beautiful and so was the shadow. They finally settled on the compromise that the design was that of the designer but the shadow belonged to the carpenter. The pride in the design of that simple bench and of the craftsman who had built it with loving hands was evident.

I have been watching the people who use the building for a long time to see whether such a well-designed and built work space has any effect on the quality of their lives and output. Surprisingly, I constantly notice the huge change in the way people use the building and how a well-designed space affects the quality and output of their work. Working in a good environment automatically makes them conscious of the stationery they use, the publications they produce and the manner in which they organise social and other events. I often find them arguing about whether the kind of event they are planning will match the beautiful building in which they are located. Working out the most minute detail of such events reflects the detail of the way in which the building was built and is maintained. As a whole, I can say that that well-designed building raises standards of output and presentation and reflects on the people who use the building. There seems to be a direct relationship between a well-built environment and the quality of the work carried out in that space.

We all see the huge number of new office buildings being constructed in London. We hear about modern buildings of all shapes and sizes being built to attract and accommodate new businesses and investments. Some of those new developments are unattractive and unpleasant to look at. I do not understand why planning authorities allow such buildings to be constructed. I am often told that such structures are built to last for no more than 25 or 30 years because the land value is so large that the developers can knock the building down in 30 years and build yet another atrocity in its place to meet the demand for office space. So good design—external and internal—is sacrificed on the altar of more space for a short-term gain. Some of the new buildings in the City of London today bear witness to that phenomenon.

About 12 years ago, I was fortunate enough to build a small house for my family in the west of London. Being able to build something from the ground up in London had been only a dream. The best I had hoped for was converting an existing building to my needs—never the best solution. However, I found a piece of ground on which I could build something to suit my needs. I made contact with a local architect, who said, "Yes, I can design two nice bedrooms upstairs and a living/dining room space downstairs". It took me some time and effort to explain to him that I knew what I wanted. I sketched it for him on a piece of paper. He sat there looking at me in disbelief and said: "This is probably the first time I have met a client who knows what he wants". It was obvious to me that he had never asked what the client wanted.

We got on splendidly well thereafter until we started to talk about the internal finishing and designing. It soon became obvious to him that he was designing a house for a person from a different culture. Fortunately, a lucky event saved us both a lot of trouble. I happened to be travelling to India for some work and invited the architect to come with me to see some of my cultural heritage. We agreed that he was not to copy anything that he saw but was going there simply to understand his client's cultural background.

It was one of the best things that happened to him and to me. On our return, his words were, "I think that I understand you better". From thereon he completed the design of the house, which was reviewed in the Financial Times, House and Garden and a couple of other arts and architecture magazines. I have now lived in the house for the past 12 years. I consider it a well-designed space—of course, I would say so—in which I feel comfortable because it is built to meet my needs.

My Lords, with all due respect, the noble Lord is well over his allocated five minutes.

My Lords, during one of the last warm days of autumn, I took my three children on the riverboat from Greenwich to Westminster. As is the custom, one of the boatmen offered us a running commentary as we went down the river. As we passed the headquarters of the Greater London Authority on our left, he said, "And there, on our left, is the new headquarters of the Greater London Authority. As you can see, it was designed by an under-employed window cleaner".

It was a great honour today to hear from that underemployed window cleaner. I thought that I would tell the noble Lord that story because he has had so much praise today that he should hear at least one word from his critics. It was a great pleasure to hear from the noble Lord, Lord Foster.

My other problem arises from hearing the noble Lord, Lord Freyberg. As noble Lords may know, I am one of the revolutionaries concerning reform of this House, and yet, whenever I get out the tumbrels for the hereditaries I think of the noble Lord, Lord Freyberg, and his contribution to this House. Yet again, he has made a major contribution by raising the issue of design, and we are all in his debt for that.

My interest in design originated with my membership of the Select Committee on Trade and Industry in another place, then as director-general of the British Retail Consortium in the mid-1980s, and then, since entering this House, becoming associated with the campaigning groups, Anti Copying in Design, known as ACID, and the Federation Against Copyright Theft. Much of their work is about protecting creativity in areas such as music, film and product design, but protecting a good idea and rewarding creativity applies equally to the power and direction of public service procurement.

I agree with the Prime Minister that Britain's future lies in creating a high-skill, high-tech, high value-added economy. But to create and sustain such an economy it is essential that ideas, innovation and design distinctiveness are protected and that the ideas of men and women of innovation are protected by law. That has been one of my interests in the House.

This excellent debate has drawn on the brief produced by the Design Council, which is among my papers. I shall not repeat many of the points that other noble Lords have referred to except to point out that, although it may be a brief for the converted, as the noble Lord, Lord Wakeham, said, it would be well worthy of wider distribution, if only to provide the proselytizers of good design with a good document from which to work.

I agree with the noble Lord, Lord Pendry, that design has great importance in ensuring that our public services are taken up. Too many buildings that house organisations which offer help seem to say not "We are here to help" but "Abandon hope all ye who enter here". It is true that good design can make a building appear friendly to people who may be a little cautious about becoming entangled in the bureaucracy of public service.

Throughout the debate various themes have been taken up—for example, how good design can help in the areas of health and education; in sport and leisure, an issue to which the noble Lord, Lord Pendry, referred; and in tourism. I agree that good signage can be a great help to tourism.

As to housing and housing design in the public sector, I can remember going round a council estate in Southwark with a local councillor 30 years ago, at the beginning of my political career, and him standing there with real pride, looking at the high rise flats and saying, "When I see those high rise flats I see socialism in action". It is worthwhile designers and planners reminding themselves that sometimes they can get it disastrously wrong. Those high rise flats, which were built with such good intentions and such worthy aims, created massive social problems that we have spent many of the past 20 or 30 years trying to repair. In addition to the many virtues advocated today, I urge on the designers and planners a tad of humility.

Another area where public service lateral thinking as regards design can help is in the design of built-in deterrents against theft. Too many products are too easy to steal. There have been exchanges in the House about mobile phones and how slow the companies were in building-in anti-theft devices. Before that, the manufacturers of cars were similarly accused.

There is a whole range of areas in the public service where positive thinking can be of help. We have all learnt something today. Having listened to the noble Lord, Lord Brooke, speak about his hat-stand, my noble friend Lord Rodgers will probably now rush home and take a close look at his Festival of Britain cups and spoons. I recommend that he takes them to the next edition of the "Antiques Roadshow" because he might have some worthwhile heirlooms on his hands.

Like my noble friend Lord Rodgers, I left another place by public demand. One of the nice things about it is that I occasionally get invited back to my old constituency. On 28th March I shall be going back to Stockport to address the Stockport Chamber of Commerce annual dinner and to present prizes at a design award ceremony. The competition, which was sponsored by the Stockport Chamber of Commerce, Stockport Council and the local community, was to redesign the centre of Stockport.

One of the lessons to come through the debate is that end users must be involved in design right from the beginning. I am going back to Stockport with a real sense of pleasure—although slightly fraudulently because it is my membership of the All-Party Design Group which gives me the qualities to present the prizes. As my colleagues know, I have not been renowned in the past for my Armani suits or design consciousness.

The arguments that provoked the competition in Stockport could be rehearsed elsewhere. Good design is a win-win situation. It is a win for the citizen as a taxpayer because, as speaker after speaker has emphasised, good design brings good value. It is a winner for the citizen as the consumer of these services because, again as other noble Lords have emphasised, good design helps the consumer. My Whip is wagging his finger but, if he reads the whip, he will see that I have got 10 minutes. Whips try to control everything.

Finally, as my 10 minutes come up, let me say that good design is good for UK plc. I work with one of the big trade associations—the electrical manufacturers— and it is still in Britain because of the quality of design. Whether in manufacturing or public services, the lesson to be learnt is that design is not the cherry on the cake but the real heart of success.

My Lords, I thank the noble Lord, Lord Freyberg, for several things; first for having introduced the debate; secondly, for himself having introduced it so well; thirdly, for having introduced a debate which has caused so many excellent, interesting and different speeches to be made; fourthly, as my noble friend Lord Brooke said, for giving us an opportunity publicly to congratulate the noble Lord, Lord Foster of Thames Bank, on his excellent maiden speech; and, fifthly, for his adventurous spirit in introducing a debate that is more about ideas than anything tangible. It is true that the ideas have to be linked with discipline and experience, as many noble Lords have said, but the whole concept is very interesting.

Like the noble Lord, Lord Rea, I looked up the definition of "design" in the dictionary. The definition I came up with is completely different from his—I did not notice that there were seven others—and states:

"The art of producing plans, sketches or concepts"—

I emphasise the word "concepts"—

"for the making or production of a building, machine, garment or other object".

I stress the word "concept" because the Design Council, of which the noble Lord, Lord Freyberg, is a member, in its brief for the debate, attaches the word "design" not only to physical objects such as I have described but to much more abstract matters.

I hope that the noble Lord, Lord Freyberg, and the House will forgive me if I do not attempt to deal with the philosophical concepts of design—other noble Lords have spoken to that issue. It will be easier for me if I speak to the more tangible purposes and the need for good, better physical design.

My personal approach to the tangible nature of design is best expressed by the well-known quotation, to which I am glad no one else has referred today because I do not want to feel that I am repeating other noble Lords, from the American poet, Ralph Waldo Emerson, which is generally summarised as:

"If a man build a better mousetrap…the world will beat a path to his door".

One of my own experiences of the effect of better design was an advertisement, which many noble Lords may remember, from 25 years ago when a company introducing tea used a very elegant-looking teapot. I do not know how much tea the company sold but it was said at the time that thousands of the teapots practically walked off the shelves. I still have one that I use today.

"Design" is not simply about building a better, better-looking or more efficient mousetrap. It is about finding what is sometimes described as a gap in the market, discovering an unfulfilled need and devising the means of filling it. It was so interesting to hear different people's experiences. The noble Baroness, Lady Greengross, talked about having to design things differently for the older person. Like the noble Lord, Lord Chan, I cannot open that wretched thing for pills that is supposed to be safe for children. Everything has had to change considerably. So discovering an unfulfilled need and devising the means of filling it is very interesting and worth while.

I remember my first experience of using a mobile phone—it was during an election in 1984. It was a great big heavy thing; you had to carry around heavy batteries because the thing never lasted long before it needed charging up again. I did not think that it was much use, but today, mobile phones are light and tiny. The only thing you need is good eyesight so that you can see the numbers. However, you can do all sorts of things such as sending text messages and photographs. I have just learnt to do that, which is why I mentioned it—I would not have done so otherwise.

A new world-wide industry, of vast economic significance, has developed because of the improved design of the equipment and the technology which, within a generation or so, will make the public phone booth as obsolete as the gas lamp which, in turn, disappeared as a result of the introduction of the better designed, more efficient and less labour-intensive electric lamp standard.

It is clear that design is not limited to making objects better; it is also about bringing into existence more efficient and functional objects. Perhaps this is what the Design Council means when it talks about producing environments for people to work in that are more pleasant or promote more efficient operations—or, preferably, both.

Britain has long been a leader in design in every aspect of invention or in the delivery of services. The Moscow underground may be something of great beauty, but the London Underground map is a classic of design that has stood the test of decades. It has survived the introduction of several additional subway lines and is a model of clarity for locals and foreigners who need to find their way around. In fact, as my noble friend Lord Kirkham mentioned, that is especially so when we compare it with the maps of the Paris Metro or the New York subway. I do not want to be rude to them, but they resemble plates of spaghetti.

The London Underground map is an outstanding case of design improving public service. It also shows that good design can be timeless. In my former business, I used a machine for filling envelopes with forms and literature which is still used to this day. I was amazed to find that the machine that I used was designed in 1906. Apart from adjusting the use of simple knobs rather than complicated nuts and screws it was, in effect, exactly the same. Similarly, the qwerty keyboard, on which I typed my notes today, has served English-speaking typists throughout the world for almost 100 years.

It is beyond argument that well designed schools and classrooms are just as essential for encouraging learning and good teaching as well designed text books, while old-fashioned, decrepit classrooms encourage slovenly habits among the pupils.

Like the noble Lord, Lord Gavron, I am moving on rather quickly, as time is passing and much of what I was going to say has been said.

In a series of searching Written Questions in another place last summer and autumn, the honourable Member for Stourbridge elicited the information that although the Department for Education and Skills had one of the ministerial design champions, it had not sponsored a single project—at least, not as at 26th February 2002.

By contrast, it is a totally different story at the Department of Health. Research has come up with the fairly obvious conclusion, which many noble Lords have mentioned today, that medical treatment is better and recovery quicker in a pleasant, well designed hospital than in one that resembles a Victorian workhouse.

The noble Lord, Lord Hunt of Kings Heath, is the ministerial design champion for the Department of Health. Scouring through a series of Written Answers, I see that he is commendably mentoring four National Health Service schemes in central Manchester, Birmingham, Leicester and Walsall. To its credit, the Department of Health employs 47 chartered surveyors, 14 architects and four town planners in addition to outside specialist expertise. When someone who knows what to do harnesses that knowledge with whoever is to design a project, that makes it so much better.

Public transport is another important matter, particularly the objective of persuading more people to use it rather than their cars. I suspect that penal taxes will not be the answer. Instead, getting people to abandon their cars and use public transport needs an adequate number of buses and trains, running with adequate frequency and on schedule. No less important is that those buses and trains should be well designed and comfortable. The noble Lord, Lord Borrie, made similar comments when he was talking about the design of trains and being packed in like sardines. That is hopeless—who wants to use that as an alternative to a comfortable car?

I give credit, however, to the Civil Service for the efforts that it has conspicuously made over many years to redesign many of the forms that it sends us for a variety of purposes, so that they are clearer and easier to fill in by members of the public. The noble Lord, Lord Gavron, mentioned that as well. Doubtless, they are better because it is probably easier for computers to read them, but it is very important none the less.

The debate has shown that there is a consensus in favour of good design, not just for aesthetic reasons but for sound, commercial and environmental reasons, and in the interests of efficiency, delivering essential public services. I shall be very interested, as I am sure all your Lordships will be, in hearing the thoughts that the Government have to offer, not in the form of general platitudes or talk about more departmental design champions, but indicating what active steps they are taking to encourage good design in every field in which the Government, as the font of all public services, have an interest.

My Lords, I, too, congratulate the noble Lord, Lord Freyberg, on securing this quite excellent debate. As the noble Baroness, Lady Greengross, said, it comes at an important time. This Government have increased levels of capital investment in our public services to their highest, in real terms, for well over a generation. In just four years, we have doubled levels of investment to some £38 billion in 2003–04.

I echo, too, the views of my noble friend Lord Pendry and others. These levels of capital investment are essential to deliver our main ambition, which is the reform of public services. The relationship between this ambition and the role of good design can be simply stated. Understanding and responding to customer experience is the key to successful public service reforms. By redesigning our systems for tracking the views of the users of our public services, we can then redesign services to match more closely the public's needs and priorities. As the noble Baroness, Lady Flather, and the noble Lord, Lord Bhatia, have emphasised, we need that stronger focus on customer needs.

The Government also believe that it is vital that public servants, politicians and other professionals think imaginatively about innovative ways in which we can realise the huge potential of good design to improve and even revolutionise sectors of our public services. As the Prime Minister stated when launching the Better Public Buildings initiative in 2000, we have asked Ministers and departments to achieve real change in the quality of design across the public sector so that we leave a legacy of well liked public buildings delivering well appreciated public services.

Good design is not just a matter of aesthetics, although we should always be aware of the profound impact of attractive products and distinctive buildings on the reputation of institutions and towns and the self-esteem of those who live and work in them. Good design is also about utility and service delivery. Better designed hospitals allow medical staff to deliver higher standards of healthcare and encourage patients to get better quicker, as we have heard. Staff and pupils can no doubt advise on how better designed schools can make teaching more pleasant and productive. Carefully designed local environments help the police to fight crime and promote community safety. In short, good design is a necessity for all our people, not a costly indulgence for a minority of aesthetes.

I hope to persuade the noble Lord, Lord Wakeham, therefore, that this Government have learnt from experience that good design need not cost more over the lifetime of the product or building. That is a lesson my colleagues in the Treasury would readily endorse. Good design can also demonstrate how new technology can promote better ways to build, manage and maintain new facilities. When one considers that design investment is usually only about 0.1 per cent of the total cost of building, maintaining and delivering services within a public building, one can see the potential for improvement. As the noble Lord, Lord McNally, warned, whether through municipal ambition or private speculative building, all around us in the public realm is the dismal evidence of past failure and the false economy of saving through the neglect of decent design.

As my noble friend Lord Borrie said, we must be alert to the lessons of that history. Given past mistakes, this Government have also had to start from a poor position. In contracting, the public sector was not often a competent client. In the 1980s and 1990s, building projects typically suffered cost over-runs and delays of some 60 per cent. That is why we invited Sir John Egan to produce his report on Rethinking Construction, which demonstrates how the standardisation of procurement techniques and the transfer of construction risk to the private sector could help us control our capital expenditure plans. By setting tough targets, we now have far more buildings delivered on time, on budget and with fewer defects.

I, too, share the fond memories of the noble Lord, Lord Rodgers of Quarry Bank, of those exciting early days of the Design Council in the 1950s and 1960s. He was pleased to learn that we have resourced two organisations—the Design Council and the Commission for Architecture and the Built Environment (CABE) —to champion the pursuit of quality design across the procurement process. We understand that we can achieve the most efficient procurement process in the world, but unless we have a committed client working with talented designers, we will still end up with a poor product. We need only to look back at some of the disastrous public building strategies of the 1960s to see that future generations will scrutinise our contribution according to what we deliver, not just how fast we deliver, on the planned £38 billion spend. We, too, want to ensure that PFI projects do not skimp on design, as the noble Lord, Lord Rodgers, fears.

We certainly have no cause for complacency. As the Audit Commission recently reminded us in respect of school design, we are still not achieving on a consistent basis the standards we strive for. Nevertheless, in responding to the debate, I want first to set out what we consider we have achieved to date before considering what more we need to do.

We have heard from distinguished former Ministers, such as the noble Lords, Lord Brooke of Sutton Mandeville and Lord Wakeham, who in their time effectively championed good design and we try to maintain that tradition. Following the launch of the Better Public Buildings programme in 2000, the Prime Minister appointed the noble and learned Lord, Lord Falconer, to chair a group of ministerial design champions.

A Minister champions good design in each government department with a significant capital expenditure programme. This group has been meeting for more than two years and it has made impressive progress. Each department now has a clear action plan for improving design standards which it is systematically implementing. Those are monitored by the CABE.

That system of champions has been replicated across the public sector so that, for example, every NHS trust—hospital and primary care—now has its own design champion. The same applies to regional development agencies, the Housing Corporation and a growing number of local authorities. Each Minister is personally mentoring between one and four large capital projects to understand and influence the procurement process first hand.

Each department has been working hard to improve design standards. The importance of design in healthcare is reflected in empirical evidence from around the world, which demonstrates that high standards of design lead to quicker patient recovery times and improved levels of staff recruitment and retention.

Let me amplify the example of good practice in health given by the noble Lord, Lord Freyberg, and cite one of the studies mentioned by my noble friend Lord Rea. The University of Nottingham compared three healthcare environments before and after they were redesigned. The schemes included a cardiology ward with improved lighting, better external views and the clustering of beds in smaller groups; and a coronary day-care unit with better beds and patient facilities, larger windows and a visitors area. Measured healthcare improvements included lower pulse rate and blood pressure readings among patients; shorter post-operative stays—eight days down from 11 days; and lower prescribed drug intakes. That is a remarkable outcome and the contribution of the noble Lord, Lord Chan, a distinguished paediatrician, is a personal testament to the importance of design for patients.

The Department of Health recognised early on that the NHS was achieving inconsistent standards of design in the early stages of its hospital building programme. There were some clear winners, such as the Norwich and Norfolk hospital, but some designs were out-dated in terms of our desire to create patient-focused environments. As a result, the NHS appointed His Royal Highness the Prince of Wales as its design champion and has partnered CABE on a variety of initiatives to improve standards. It has set up a design review process, which should help reassure your Lordships, so that every new hospital project is scrutinised for its quality at the key stage of the PFI process. It has revised its guidance to ensure that it reflects up-to-date healthcare management.

As the noble Lord, Lord Chan, may know, the NHS has also introduced a system of design quality indicators to help all the users of a hospital to be involved in the design process. Finally, it has sent the CABE to help individual hospitals and primary healthcare providers in the early stages of the design process. On hospital signage, I trust that the designers will take note of the lady mentioned by my noble friend Lord Gavron, who, like myself, does not have the Latin, and design something more functional.

The recent Audit Commission report tells a similar story in the education sector. A few years ago, the then Secretary of State for Education asked PricewaterhouseCoopers to explore the main impacts of capital investment in schools on pupil performance. It found that capital investment had the strongest influence on staff morale, pupil motivation and effective learning times. In the early years of this Government, we found that there was a considerable variation in the extent to which the LEAs and individual schools were responding to the design challenge. There were some real success stories, but too many schools were providing environments that were functional but not inspiring.

In response, the DfES has partnered both the CABE and the Design Council to drive the message home. The CABE is now working with every LEA going into a major round of PFI school procurement to act as a confidant and adviser in the early stages of that process. Both organisations are serving on the School Buildings Advisory Group, which also includes educationists, head teachers and designers. The DfES has recently published the results of Classroom of the Future, which used design and innovation to plot a series of responses to the changes in education environments we can expect over the next 10 years and beyond.

Perhaps most significantly, the Secretary of State is commissioning a series of exemplary primary school and secondary school designs, which will combine great architecture and urban design with a drive to maximise the benefits of off-site modular construction techniques. These exemplars will draw on the best design talent in this country and beyond and will act as a resource for all LEAs and individual schools entering into a major building project.

I cannot match the breadth of aesthetic influence on the noble Lord, Lord Brooke, of his school days, but I was fortunate enough to attend Scotland Street school in Glasgow. Sadly, it was the only school ever built by the brilliant Charles Rennie Mackintosh and I wish I had taken my school desk away with me when I left.

As the noble Lord, Lord Freyberg, mentioned, the department has been funding an organisation called School Works to examine new ways of involving pupils and teachers in the design process. Its first active case study was the Kingsdale secondary school in Southwark, which has just achieved a 20 per cent increase in the number of pupils achieving at least five GCSEs at A to C grade level.

All this effort does not start just when children enter primary school. Among our most successful design initiatives have been Sure Start centres and Neighbourhood Nurseries. In both cases, we used national design competitions to set the standards of design at the outset of those initiatives.

The noble Baroness, Lady Warwick of Undercliffe, and the noble Lord, Lord Chorley, reminded us of the importance of educating an ever more creative generation of graduates. I trust that this debate will demonstrate to students of design the broad and strong support for their future role, as witnessed by the entertaining contributions of the noble Lord, Lord McNally, and the noble Baroness, Lady Miller.

On courts and prisons, the Lord Chancellor has pioneered new approaches to the design of court buildings. Again from the outset he has used CABE as a critical friend. He has also employed the internationally-renowned architect, Ian Ritchie, to set appropriately high standards for these landmark buildings.

At the same time, Ministers at the Home Office are working with the Design Council and the independent design organisation, the Do Tank, to rethink the design of prisons. The importance of that issue was highlighted by the noble Baroness, Lady Flather. As I learnt previously from the noble Lord, Lord Freyberg, the cost of keeping a prisoner in gaol each year is twice the cost of Eton School's fees and six out of 10 ex-offenders are still returning to prison within two years. We have to work harder to incentivise those building and managing our prisons to design systems of detention which place greater emphasis on improving the future life chances of the prisoner, and reducing the probability of reoffence.

Of course, the role of design in the delivery of public services is not confined to the delivery of public buildings. In a few days' time, in another place, the Deputy Prime Minister will be publishing his Communities Plan which will set out how this Government intend to create neighbourhoods in different parts of the country which offer the better quality of life which the noble Lord, Lord Kirkham, rightly demands. We face two different problems: the need to deliver additional housing in London and the South East; and the need to renew the housing stock in parts of northern England and the West Midlands. I can reassure the noble Lord, Lord Hunt of Chesterton, that the importance of design will be branded into the Communities Plan. Excellence in urban design will be essential in creating higher density mixed use neighbourhoods. This will require the skills of architects, landscapers and planners who will have among their concerns the needs of the elderly, as described by the noble Baroness, Lady Greengross.

The Deputy Prime Minister has already announced at the Urban Summit that CABE will be asked to set up a new unit, CABE space, to champion the design and management of public space, including parks, playgrounds, squares and streets. At present, over half of local authorities have no strategy for making the most out of their green spaces. It is not surprising, therefore, that 30 per cent of the population will not use our parks at all.

Part of the process is designing places that are safe. The Office of the Deputy Prime Minister is currently working with the Home Office, CABE and the police to revise the planning guidelines on designing out crime. Again, there are many empirical studies that show a clear relationship between good urban design and improved community safety. We need to use Secured by Design principles, including increasing natural surveillance and reducing rat-runs, to help local communities and the police deter criminal and other anti-social behaviour.

I hope that your Lordships will agree that this programme of activity demonstrates our commitment to raising our consciousness across Government when it comes to investment in quality design. But we cannot be complacent. I want to close by concentrating on what still remains to be done. Last year, we asked CABE and the Office of Government Commerce to review our design performance in the procurement of public buildings. The report of their review was published last October. The 11 recommendations they made have been accepted by every government department and by the National Audit Office.

Let me add to the praise of the noble Lord, Lord Hunt of Chesterton, and many others. I feel particularly privileged to speak in the same debate in which the noble Lord, Lord Foster of Thames Bank, makes his maiden speech. It was an outstanding contribution which I take to heart as a Minister. in a previous life, as chairman of the Scottish Media Group, I was fortunate enough to be a tenant in his wonderful ITN building in Gray's Inn Road; and before that as a journalist who once worked in the old newspaper building which stood on the site I congratulate him on the dramatic use he made of the depth of the old print room. As a former Transport Minister, I should say that if one wishes to travel on the Tube, go to Canary Wharf. The station, designee: by the noble Lord, Lord Foster, is well worth the journey.

The noble Lord, Lord Borrie, spoke of transport. I understand the problem with taxis. I see them also mutating into people carriers in many of the market places up and down the land. The noble Lord and I are both impressed by the advances made by London Transport with its low-floor buses, and so on—despite the fact that it is at the expense of that splendid classic, the Routemaster, which is a splendid vehicle as long as one does not fall off the platform.

The noble Lord, Lord Hunt, mentioned noise barriers. On the transport side, I assure him that we are very conscious of the needs there. The noble Baroness, Lady Greengross, spoke persuasively of the changing needs of an ageing population, comments which should carry across Government. I listened with great interest to the noble Lord, Lord Gavron, and the experience with the Royal Opera House and its thoroughly enjoyable outcome.

In conclusion, I agree with the general thrust of the argument of the noble Lord, Lord Freyberg, and other noble Lords who have spoken so persuasively from their wide experience of business. We all agree that we have extraordinary design talent in this country, arguably the best in the world. We are already reaping the benefits of that design talent in export receipts. It would be a missed opportunity if we were not to maximise the use of that talent in our drive to improve the quality of public services. We want the best designers and the best architects designing new public buildings and products. Our message to the private sector is quite simple. If you do not employ this design talent, you are reducing your chances of winning business from the Government. Once again, I commend the noble Lord, Lord Freyberg, on securing this debate and congratulate both the Design Council and CABE on their work to date. They enjoy our full support for the future.

My Lords, I congratulate all noble Lords who contributed their impressive and considerable expertise to the debate. I also congratulate the noble Lord, Lord Foster, on his extremely informative and accomplished maiden speech, bringing to bear his enormous knowledge in this area. We all look forward to his future contributions on this and other matters.

I know how seriously the Government take the question of design in public services. The fact that current measures are frequently not achieving the high standards is no reflection on their interest in the subject but evidence that there is no single, simple set of criteria which can be implemented. However, I hope that the Minister will agree with me when I say that it is well worth persevering to improve all aspects of design in the public sector and that when a high standard is achieved, even in just one project, rewards are enormous. I beg leave to withdraw the Motion.

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

"I should like to make a Statement about the report of the Co-ordinating Group on Audit and Accounting Issues and the report of the Review of the Regulatory Regime of the Accountancy Profession which my right honourable friend the Chancellor and I are publishing today. Copies of both reports have been placed in the Library.

"Last year the collapse of Enron, WorldCom and Andersens in the United States appalled investors all over the world. Millions of people saw their savings and pensions collapse.

"As I told the House last year,

'audit and accountancy standards in Britain are different from those in the United States: different and, as is now widely acknowledged, in some respects better'.

So there was no need for the UK to rush into a Hewitt/Brown equivalent of the Sarbanes/Oxley Bill. But equally it would have been folly to sit back and say, 'It couldn't happen here'.

"Structures, standards and regulations can never be a complete defence against individuals determined to do wrong, nor can they wholly protect us against a culture of corporate greed and loose ethics. But we owe it to savers, investors and employees, as well as to all the honest business people whose reputation has been tarnished by these scandals, to ensure that our defences are as robust as they sensibly can be.

"The reforms I am announcing today, along with those proposed last week by Derek Higgs and Sir Robert Smith will raise standards of corporate governance—I should emphasise that the reforms essentially cover only listed companies—strengthen our accountancy and audit professions, and provide for a more effective system of regulating the profession. Together, they make up a complete package of reforms—comprehensive and mutually reinforcing.

"First, I address the issue of boardrooms. Following Derek Higgs's proposals, the combined code on corporate governance will be strengthened to provide that at least half

"the board (as well as the chairman) should be independent—as should all members of the audit and remuneration committees, and a majority of the nomination committee; the definition of an independent director should be strengthened and clarified; the separation of roles of chairman and chief executive should be reinforced; and new descriptions should be given of the respective roles of the board, the chairman and non-executives.

"Mr Higgs's report showed a startling picture of the way top level appointments are handled, with over half of directors being appointed through personal contacts and friendships. I welcome his proposals to promote meritocracy through an open, fair and rigorous appointments process. As part of the follow-up, a group led by Laura Tyson of London Business School will look at ways of bringing candidates from the non-commercial sector to greater prominence—including women—and will report to me in May.

"In revising the combined code, the Financial Reporting Council will also implement the recommendations of Sir Robert Smith's group that the audit committee should consist entirely of independent members, with at least one having relevant financial experience; monitor the auditor's performance, especially on independence and objectivity; and develop and implement policy on the purchase of non-audit services from the auditor, with reference to tough new ethical guidance.

"Following well established practice, listed companies will be required either to comply with these provisions or to explain to their shareholders why they are not doing so.

"The second aspect of our reforms concerns tougher measures to underpin auditor independence. Following the recommendations of the co-ordinating group, I can announce that, as well as an enhanced role for audit committees and a tightening up of the provision of non-audit services by auditors, the professional bodies have already changed their regulations so that the lead audit partner has to be rotated within five years; partners and senior employees of audit firms will not be able to take up employment with a company they audit within two years of leaving their audit firm; and most of the UK's large audit firms have already agreed to publish an annual report, provide management and financial information, and reveal levels of dependency on single clients, including how the firm handles conflicts of interest and interdependence issues. I believe that that third aspect will work on a voluntary basis. If not, we will make such disclosures a condition of auditing listed companies.

"I am also calling for the standards and ethical guidance for auditors on the provision of non-audit services to be toughened up further.

"We will also strengthen enforcement of accounting standards. At the moment, the Financial Reporting Review Panel only steps in if particular concerns are raised with it. But the co-ordinating group recommends, and we agree, that enforcement of these standards must be proactive. From now on, the Financial Services Authority will help the Financial Reporting Review Panel on enforcement—particularly in identifying the high-risk cases which most merit investigation. The FSA and panel will need to agree as soon as possible a memorandum of understanding to clarify their precise roles and responsibilities.

"These measures will be underpinned by the third element of our reforms—more effective regulation of the professions. The Financial Reporting Council will assume the functions of the Accountancy Foundation. This will create a unified, independent UK regulator with three clear roles: setting accounting and audit standards; proactively enforcing and monitoring them; and overseeing the self-regulatory professional bodies.

"The Financial Reporting Council, under Sir Bryan Nicholson, has developed an excellent reputation. The Accountancy Foundation, chaired by Lord Borrie, has also done valuable work, for which I thank it. The new combined body will build on these achievements.

"After wide consultation, the DTI's review team recommend, and again I agree:

"First, the Auditing Practices Board should take over from the professional bodies responsibility for setting standards for independence, objectivity and integrity. Oversight of other ethical standards will become the responsibility of a new professional oversight board. The Ethics Standard Boa rd will be wound up in due course. I have greatly appreciated the work which its chairman, Christopher Jonas, and his colleagues have done to take forward the ethical agenda and to provide the basis for the new board's work;

"Secondly, a new independent inspection unit, located within the FRC, should take over from the professional bodies responsibility for monitoring audits of listed companies, major charities and pension funds, and;

"Thirdly, the long delayed Investigation and Discipline Board should come into operation quickly to provide a truly independent forum for hearing significant public interest disciplinary cases.

"It is vital for the new structure to have clarity of accountability and responsibility, together with the appropriate powers, to operate effectively in the public interest. There is a strong case for statutory underpinning to make the new body work. We will consider that further and report our conclusions to the House.

"The proposals that I have outlined today are substantial and mean significant changes to the way companies and their auditors carry out their work. This package must be implemented as quickly as possible. Changes to the regulatory structure will be taken forward immediately. The DTI will lead an implementation steering group on which Sir Bryan Nicholson, Lord Borrie and Peter Wyman, president of the ICAEW, have kindly agreed to serve.

"An FRC with enhanced responsibilities will require more investment. The Government will pay their share of core running costs, but I also expect companies from the profession to contribute. It is in all our interests to make these changes work—and it is fair that we all pay for the improvements. Changes to the combined code arising from the Higgs and Smith reports will be made in the early summer once the FRC has consulted on the precise wording. All these measures will be taken forward alongside the Government's longstanding programme of company law reform, following last year's White Paper.

"These proposals are not a response to short-term market movements. They are about strengthening the foundations of our capital markets for the long term. I want in particular to thank Derek Higgs and Sir Robert and his group for their excellent reports, as well as all those who participated in the coordinating group under the joint chairmanship of my honourable friends the Minister for Competition and Consumer Affairs and the Financial Secretary to the Treasury. I also want to pay tribute to the officials who so swiftly took forward the review of the regulatory regime.

"The overall package is tough where that is needed, but measured and proportionate throughout. It will ensure that our corporate governance structures remain among the best in the world—for the benefit of the millions of pensioners, savers and businesses that depend on them".

My Lords, I am grateful to the Minister for repeating the Statement made in another place. Bearing the public matter in mind, I begin by declaring an interest as a non-executive or independent director of two listed companies and a mutual building society.

On these Benches, we welcome measures designed to reduce the possibilities of fraudulent activity. Trust is a vital ingredient in financial markets, giving confidence to those who wish to save, especially over the long term. However, it is a bit rich for the Government to claim that the proposals are not a reaction to short-term market movements, for that is precisely what they are, and the Government are being disingenuous to pretend otherwise.

We welcome the Government's attempts to try to avoid a one-size-fits-all approach to corporate governance by applying the new standards to what the Statement describes as "essentially only…listed companies". However, it would be helpful if the Minister can explain what is meant by the word -essentially". It is potentially a weasel word. Either they apply to listed companies exclusively, or they do not. Secondly, do the new standards apply to AIM listed companies, which are listed on the alternative investment market? Thirdly, do they apply to foreign companies listed on the London Stock Exchange? If so, how will they be enforced? If not, how will potential investors in those companies be aware of the greater risk that they are running?

Finally, are the Government aware of the huge range of listed companies—multi-billion, multinational companies at one end of the spectrum and the £50 million capitalised local engineering company at the other? For the latter to have over half its board made up of independent directors will be quite a challenge. Could thought be given—or has it been given—to focusing the new rules so that they fall most heavily on larger companies, say those listed in the FTSE 100 or the FTSE 250 index?

As I say, these new rules are the by-product of fraudulent activity but we must always be careful to distinguish between fraud and risk. Too often people are inclined to view fraud as their risk that went wrong. In the previous debate mention was made of the importance to UK plc of design. But UK plc also needs risk takers. Risk takers need freedom to manage and a competitive base from which to run their businesses. The new rules will undoubtedly represent another regulatory and cost burden. We understand why they are being introduced but will the Government undertake a study of the cumulative effect of the increasing regulatory burden on UK businesses' world competitive position?

Will the Minister also clarify the chain of command in the new structure? We have, as I understand it, the Financial Reporting Council, which will take over the Accountancy Foundation. We have a new professional oversight board taking over the Ethics Standards Board. We have a proposed independent inspection unit and a new investigation and discipline board. We have an implementation steering group and a financial reporting and review board. Circling over all that we have the Financial Services Authority, the Department of Trade and Industry and, last but not least, Professor Laura Tyson. How will we ensure that there is no duplication of effort and of cost?

It is very welcome that the Statement repeats the importance of separating the roles of chairman and chief executive. In those circumstances it is an even greater shame that the Government do not follow their own precepts and that it took enormous pressure in your Lordships' House to persuade them to split the roles of the chairman and chief executive of the Office of Fair Trading in the Enterprise Bill. I invite the Minister to take this opportunity to announce that the Government will forthwith split the roles of chairman and chief executive of the Financial Services Authority, particularly given the FSA's important role in enforcing the new proposals announced today.

Finally, it goes without saying that we on these Benches find any form of fraud unacceptable. Fraud enables the greedy to prey upon the weak and the unsophisticated. We therefore give a broad welcome to the proposals. But before more legislation is put on the statute book, if legislation is required, we need to have an informed public debate as to how effective the detailed proposals will be in the real world.

My Lords, I join the noble Lord, Lord Hodgson, in thanking the Minister for repeating the Statement made in another place. It seems to me that your Lordships' House is exactly the place where detailed comments on such a Statement can be made. The noble Lord, Lord Hodgson, mentioned some important issues. I look forward to hearing the Minister's response, particularly with regard to the FSA, without wishing to intrude on past private grief.

As the Minister rightly said, the Statement brings together three reports raising different issues that are relevant to corporate governance in the UK. First, I refer to the Higgs proposals on conduct in boardrooms and the way in which listed companies should conduct themselves. It is not for me to respond to the noble Lord, Lord Hodgson, but it is fair to say that the Derek Higgs report makes clear that he proposes applying the most onerous requirements on the leading 350 listed companies. There is a section in the report in which he recognises that the smaller listed companies will not be able to comply—certainly not immediately—with the more onerous requirements. I believe that the Minister with his business experience would be the first to agree that the Higgs report is at the very soft end of what might have emerged in relation to corporate governance. I am sure that some of the Minister's noble friends, who are not present today but are often present at Question Time, will consider that the Higgs proposals do not go as far as they would wish.

The noble Lord, Lord Hodgson, made an important point with regard to small listed companies. I refer to a fundamental concern—I hope that the Minister will give his views on the matter—namely, from where will the people come to provide the non-executive directors that the Higgs report requires? Looking around your Lordships' House I see a number of noble Lords and noble Baronesses who sit on boards of directors as non-executive directors. Given the current state of liability, I am not sure that any of them would readily take on a new post as a non-executive director. We are not talking here about people who are effectively seconded from major companies to sit on those boards. Although the Higgs report wishes to increase vastly the pool of non-executive directors its recommendations will restrict the number of executive directors who can take up non-executive appointments in other companies. I should welcome hearing the Minister's comments, not only his comments as a Minister but also those arising from his own practical business experience, in regard to where all these non-executive directors will come from.

I believe that the noble Lord, Lord Hodgson, indicated that the essence of the Higgs recommendations is that this matter should not be a case of "one-size-fits-all". I cannot let the moment pass without commenting that Mr Higgs himself sits on the board of direct ors of British Land but has so far been unable to persuade the chairman and chief executive to stand down from one of those positions. That situation is rather ironic. I believe that a similar irony arose in the Greenbury report that was issued years ago.

I turn to the recommendations regarding the accountancy profession. I believe that those measures are at the soft end of recommendations compared with some ideas that have been floated. For example, there is no recommendation that there should be any form of statutory split between audit and non-audit work. Noble Lords who follow these matters are well aware that that is a major issue both in Europe and in the UK. I should also welcome hearing the Minister's views on whether the trend towards separation of audit and non-audit work will continue and whether the Government will support that.

What views does the Minister hold on an idea that my noble friend Lord Sharman has floated on a number of occasions as former chairman of KPMG; that is, that the National Audit Office should be allowed to compete in the private sector for big company audits? We believe that the National Audit Office would be keen to do that and that it could develop a degree of audit expertise which would be outside that of the big four which dominate the FTSE 100 companies. In the case of the National Audit Office there would obviously not be the problem of wanting to compete for non-audit work.

I turn to the alteration of the position of the regulators. I draw noble Lords' attention to the sentence on page 7 of the Statement which states:

"There is a strong case for statutory underpinning to make the new body work".

I hope that the Minister will comment further on that sentence. I should have thought that what the words,

"There is a strong case for statutory underpinning to make the new body work",

actually mean is, subject to negotiation to get it into the Queen's Speech, there will be statutory underpinning to make the new body work. I hope that the Minister will develop that point.

In conclusion, I take up the sentence where the Government say that the proposals are substantial and

"mean significant changes to the way companies and their auditors carry out their work".

I would consider that as going a little far. These proposals will only mean what the quotation stares if the voluntary provisions recommended here are actually complied with by companies and auditors. Is the Minister prepared to be drawn on what action the Government will take if it transpires that many of these recommendations are not adopted in practice by companies and auditors? In those circumstances do the Government propose to legislate?

My Lords, I shall deal first with the point made by the noble Lord, Lord Hodgson. He said that these measures were a response to short-term market movements. Given that they have spent a long period in gestation., I do not believe that we can say that they are such a response. It can be fairly said that they were a response to events which took place in America. It seems to me wholly right that where we have that situation in America, which was outlined at the beginning of the Statement., action should be taken because of it. If we had not taken action, I believe that the noble Lord would have said with some justification that we were in danger of being complacent. I do not believe that that is the same as making a response to short-term market movements.

As regards to whom it applies, we very carefully said that it applied to "essentially" listed companies. That was not the use of a weasel word, but to be strictly accurate about the situation. It is a whole package of proposals. The Co-ordinating Group on Accounting and Audit alone has 27 recommendations. What we mean by "essentially" is that the vast majority apply only to listed companies; for example, a measure such as a pro-active enforcement of accounting standards will apply beyond purely listed companies and in fact to some large private companies. It was for that reason that we did not want to say misleadingly that all the measures applied only to listed companies.

We have not taken the view that one size fits all. In many cases we are saying that there will be a model and that companies, through the listing agreement, will either have to go along with that or explain to the market why that is not being done. It will be the market's judgment on the matter. That is the wholly appropriate way to proceed.

I do not believe that there is a great deal of extra regulatory burden although some of those burdens may be different because they require people to do different things. That is not the same as increasing the regulatory burden.

As regards the new bodies, there is equally a reduction in their numbers. For the new arrangements for the Financial Reporting Council it can be fairly said, having looked at the pages where the Accountancy Foundation is set out, that we are simplifying and probably cutting down the number of bodies involved.

The noble Lord, Lord Razzall, asked where the non-executive directors are to come from. There are substantial sources from which people can come. The Laura Tyson taskforce will look at how we can increase the number coming from outside the corporate world. Within it there are executive directors of other companies where it is regarded as good for their development that they should be non-executive directors of other companies. That source could be drawn on much more in future.

As regards the separation of audit and non-audit work, the co-ordinating group considered various approaches to the problem of auditing independence. I believe that an outright ban would be the most extreme response. The co-ordinating group recommends against it and we very much agree. The UK approach is based on key principles and safeguards, not on lists of banned activities. If no adequate safeguards can be implemented then the auditor must not carry out the work. But the thrust of the matter is that each situation must be judged on its merits against the overall standards. That is why the role of the audit committee is so crucial.

As regards the statutory underpinning of the Financial Reporting Council, the noble Lord is right. We shall consult on that as to exactly which parts of that council should be underpinned statutorily. We do not believe that it is necessary that all its activities should be. There are some quite fine judgments involved in that. We shall consult on it and return to the House on the matter.

As I said at the beginning, a great deal depends on voluntary action in some cases, but in many others it is underpinned by the fact that a listing agreement will require companies to explain why they do not take the necessary action. In that event there will be a market judgment and in others there will be new statutory underpinning. I believe that the total package gets the balance right in terms of taking firm action, but proportionately.

My Lords, do these measures apply to AIM companies and what is the position of foreign companies listed on the London Stock Exchange? I do not believe I had a response to those two matters.

My Lords, may I come back to the noble Lord on those matters? As I said, there are very many issues here which apply in different ways. I shall write to the noble Lord.

My Lords, I am not a director now, but I have been in the past. I am concerned about the role of non-executive directors. Some years ago a Permanent Secretary at the Department of Trade, having retired, was offered a non-executive directorship at one of the largest of the listed companies in this country. Nothing happened and he wondered why. He was told that the chairman had said that he would not have him because he would ask too many awkward questions.

When someone as competent as that— and he was an outstanding Permanent Secretary—receives that kind of reaction, it makes one worry about the kind of situation he was likely to have entered into. There is a need to strengthen the independence of a number of the non-executive directors. I would welcome that.

The legislation is obviously going to be very complex. Can my noble friend say anything about that?

My Lords, the independence of non-executive directors is a very important question. In order to protect my back, I take it absolutely sine qua non that a Permanent Secretary would be an excellent addition to any board. That is obviously unarguable. The Higgs report is about giving a much stronger position to the non-executive directors and much clearer independence. But in answer to the noble Lord's question, it is also a process by which they are chosen not on the whim of a chairman but through due process, which will widen the selection and make it more transparent.

My Lords, I declare an interest as a hard-working, non-executive independent director of Whitbread PLC and a member of its audit committee for a long time.

While I very much welcome what the Minister has said about non-audit services provided by audit firms, we need to be extremely careful about it. I agree with the noble Lord, Lord Razzall, that the proof of the pudding is in the eating because it is a voluntary system although it underpins the listing requirements. We need to give a lot of attention to this matter.

Does the Minister agree that with the many reports which we have had on governance, including the Higgs report, we have to be careful not to get ourselves into a position where we believe that every recommendation is automatically right. Some of the recommendations can be legitimately challenged on grounds of efficiency and how business should be conducted. For example, should a senior non-executive member of a board be appointed so that he can have further contact with shareholders? There are other ways to do that, and it is important not to get ourselves into the position of thinking that everything in a report must be adopted automatically. Some things can be done better in other ways.

My Lords—

My Lords, if the noble Baroness would like to answer the question, I am more than happy for her to do so. She is probably more qualified.

Much of the Statement meshes together. As important as distinctions between audit and non-audit work are, that question is in the context of the Smith report and its strengthening of the audit committee. The committee will have the say on the matter. That its independence has been greatly strengthened by the Smith report is very relevant.

We did not say that we would accept every recommendation of the Higgs report, but we looked at it carefully. It is an excellent report. We are impressed with the recommendations and will take them forward.

My Lords, I apologise for jumping the gun. My eagerness on the subject overcame me. I declare a couple of interests as a non-executive director of listed companies, a member of audit committees and a member of the Institute of Chartered Accountants, although fortunately no longer an office holder.

I start by asking the Minister about costs. The Statement says that there will need to be more investment in the new regulatory arrangements and that the Government will pay their share. However, it is silent on how much those costs will be and how much the Government are prepared to contribute. I assume that they have not signed a blank cheque on that. Will he give us some more information?

Related to that is the impact of all the changes on audit costs. Is the Minister aware that audit firms in the US are talking about audit costs rising a minimum of 25 per cent, and often much more, to deal with the equivalent regulatory changes there? Do we think that there will be a similar impact on costs in particular? Have the Government thought about the impact of costs not on the larger plcs, but at the smaller end of the scale, which is the engine room of growth?

Finally, will the Minister say what the Government have achieved, if anything, in ameliorating the impact of Sarbanes/Oxley on dual-listed companies that have their main listing in this country?

My Lords, I cannot say much more about the costs of the Financial Reporting Council, including the foundation of functions. Clearly, we will try to proceed in the most cost-effective way, and the FRC will consult contributors, the Government, industry and the profession on firm budgetary estimates of its running costs. We think that the FRC's core annual running costs should be broadly shared by the Government, business and the profession, with two exceptions. The cost of cases heard by the investigation and discipline board should fall to the professional bodies concerned, and the cost of inspection by the independent audit inspection unit should be met by the audit firms. In both cases, that reflects the current position.

In terms of the impact on audit costs, one needs to keep a firm view on the end objective of the whole process, which is to make certain that company accounts are trusted by investors of all kinds. If that does not take place, we are in a serious situation in terms of the functioning of the capital markets. If that involves some extra expenditure but leads to trust in accounts, that would be money well spent.

The SEC is showing a welcome sensitivity to foreign concerns and to some issues arising from Sarbanes/ Oxley on corporate governance, non-audit services and rotation of audit partners, in response to the pressure from the UK and the European Commission. We pointed out that sometimes the regulations do not turn out well, and there is sensitivity to some of those issues.

My Lords, I apologise to the Minister for missing the first moments of his Statement.

Bearing in mind that the curse of many disciplinary tribunals is delay, does the Minister support the hope and expectation that the investigation and discipline board will be expected to create protocols that enable it to act quickly? Also, does he support the hope that it will have interlocutory powers and, where there are criminal investigations—such as by the Serious Fraud Office, which can be long delayed—disciplinary proceedings will not necessarily have to await the conclusion of criminal investigations?

My Lords, if I may say so, that is slightly jumping the gun in terms of where we have got to on the process. All the points that the noble Lord has made are in principle highly desirable but, in terms of where we have got to, I would jump the gun if I assured the House that all that would definitely take place.

My Lords, I declare an interest as a non-executive director of three companies—one listed, one mutual and one large private company.

The Minister made no mention of mutuals, at least two of which, Standard Life and Nationwide, would probably fall into the FTSE 100 if they were listed. Would the proposals affect the mutual sector as well? The Minister mentioned large charities. Is there a definition of a large charity?

My third question relates to Europe. None of us should ignore the fact that as we sit on our varying boards we not only have to cope with the FSA and its continuing consultation documents but increasingly have to take into view what is happening in Europe. Can we have confidence that Her Majesty's Government will not produce recommendations that then have to be amended two years on because of data or instructions coming out of Europe that we should have known about already?

My Lords, on the first question I would have to say what I said originally. What we have been talking about is an enormous and substantial package of proposals. They apply in different ways to different kinds of organisation. I cannot give a simple answer for mutuals or anything else without going through all the proposals and saying how they would impact on them.

So far as international standards are concerned, a lot of work is now taking place to make it certain that UK accounting standards are brought in line with international standards. In the world in which we live, that is clearly of increasing importance.

My Lords, would the Minister say a little more about the range of expertise that may be available for non-executive directorships? I speak as one who has held no more than three at any one time. That is presumably within the remit of the Higgs report. It was commented that there would be a serious dearth of suitable candidates. Not even thinking of the vast number of suitably qualified women who could do the job, what about the range of academics, lawyers and heads of Civil Service departments? Surely a huge range of suitably qualified people could help to make up the 50 per cent suggested by Derek Higgs.

My Lords, I refer to what the Secretary of State said in the Statement, which was that Professor Laura Tyson of the London Business School would look at ways to bring candidates from the non-commercial sector to greater prominence, including women, and would report in May. That is on the basis that the Secretary of State and I have considerable confidence that an enormous pool of talent is waiting to be drawn on.

My Lords, I declare an interest as an audit client for 18 years, as a tax client for 40 years with Arthur Andersen and as a continuing tax client of its successor, Deloitte & Touche Private Clients. The first tax partner who looked after my affairs, who is now sadly dead, always prefaced complicated ideas by saying that I would have already considered and rejected the suggestion that he was about to make but he thought it was worth a second look. Leaving aside the over-kindness of the preface that I have mentioned, can the Minister enlarge on the answer that he gave to my noble friend Lady Noakes about how the understanding of these matters among the amateur investing public can be improved, so that after recent events they do not unnecessarily shun the Stock Exchange?

My Lords, that is an extremely difficult question. To convey to the average investor the range of regulations that already exist and the further action that we are taking would be a considerable task. I hope that as these measures are put into place, the average investor will increasingly become aware of the action that is being taken and will realise that we are in no way complacent about the situation, despite the fact that in comparison with the United States, we have had comparatively few incidents of serious mis-statements of company accounts.

My Lords, I asked the Minister three questions, the third of which was: what was the definition of a large charity? That was mentioned in the Statement that he repeated. Is there such a definition?

My Lords, I do not believe that there is such a definition. We were simply pointing out that large charities—without specifying what they were—would come into that same category.

rose to call attention to the case for rethinking the provision of special education; and to move for Papers.

My Lords, the House will be grateful to the noble Baroness, Lady Warnock, for introducing the important subject of special education. I will focus on the special educational needs of children with autism, and in doing so declare an interest as the father of an autistic daughter.

The Government are driving the push towards "inclusion". However, the emerging picture nationally is that for many vulnerable children that does not work. Indeed, autistic children and their needs are identified by most mainstream schools as the single issue for which they have the greatest difficulty catering.

Mainstream education failed my daughter totally. We battled it out for four years, the last two amounting to nothing more than childcare. The education provided, and the totally inadequate support, were quite unable to meet her needs. Unfortunately, my daughter's case as a mainstream failure is typical.

The National Autistic Society's recent survey of schools found that one in 86 children has special educational needs related to an autism spectrum disorder. The schools also reported that one in every 152 children had a formal diagnosis of an autism spectrum disorder. Ongoing research in 366 schools in England and Wales suggests that 17 per cent of all statements mention autism or Asperger syndrome. Through its Advocacy for Education service, the NAS hears from thousands of parents who are deeply dissatisfied with the educational provision that their child is receiving. Across all age ranges, and in every type of provision, parents run into conflicts with schools and LEAs in their attempts to identify and meet the needs of their child with autism. This struggle to access appropriate education provision is reflected in the number of cases related to autism registered with the SEN tribunal. Last year there was an increase of 22 per cent of cases registered. It is unacceptable that parents should have to battle for what is every child's fundamental right. I agree with the noble Baroness, Lady Warnock, that this is a complete and utter waste of resources.

As the noble Baroness mentioned, last year the Audit Commission published Special educational needs: A mainstream issue, which looks at how well our system is serving children with SEN. I welcome this review as the current system is failing many children with autism who have SEN. However, my understanding of the problems posed by the current system and potential avenues for improvement, differs from the blueprint set out in the Audit Commission report. I would welcome improvements to the current assessment and statementing procedures, but reject the Audit Commission's conclusions that statements add little value, provide little assurance to parents, lead to an inequitable distribution of resources and are inconsistent with inclusion. Without statements, parents, who are not satisfied with their child's SEN provision, would have no practical legal redress.

My concern over the current statementing and assessment process is that there is no statutory body to regulate local education authorities. At the moment, parental vigilance is the only means of monitoring the implementation of a statement of special educational needs. This is compounded by the fact that local education authorities act as gatekeepers to the actual assessment process in the first place. Often parents do not know their rights and are, unsurprisingly, unable to cope with the complexities of the process without support.

I ask the noble Baroness what mechanisms can be put in place to give parents access to quick and easy forms of redress when statutory bodies fail to deliver on their SEN duties. How can the current variations in assessment and statementing practice be removed to end the postcode lottery of SEN provision? Although the statementing system is not working as it should, many parents of children with SEN are desperate to get a statement for their child as it is the only means of ensuring that they receive support in mainstream.

There are three fundamental problems with the current statutory assessment and statementing process. First, there is a gap between identified levels of need and current human and financial resource availability. Secondly, there is the failure of LEAs to act according to current law and guidance. Thirdly, there is the lack of any mechanism to ensure that LEAs implement statements. Those three points must be addressed to ensure that children with SEN access the education they need and deserve.

I do not agree with the Audit Commission's view that reducing the number of statements issued by LEAs would improve the current situation. The sole purpose of the current statutory assessment and statementing process is to determine the appropriate provision to meet the needs of all children with SEN. I believe that the motivation for parents to fight for an assessment comes from a deep dissatisfaction with the level of provision available from a school's SEN budget. As many LEAs are already delegating much of their SEN funding to schools, it seems unlikely that further delegation will lead to provision that will satisfy parents and will be appropriate for children with high-level and complex needs. Instead, assessment and statementing should be modified with the intention of putting into practice the current law and guidance designed to ensure appropriate provision for all children with SEN.

At no point does the Audit Commission ask whether we are spending enough on SEN nationally. There are several indications that we are not. The average lifetime cost resulting from autism and associated learning disabilities is estimated to be £3 million. That is a staggering figure. Only 7 per cent of that sum is spent on education. Evidence suggests that even slight increases in educational provision could result in major savings in later living costs. In my own county, Kent, with a funding gap of £3.7 million as a result of the Government switching resources to Labour core areas, the education budget will have to be cut dramatically.

Whether they are in mainstream or special schools, children with autism and Asperger syndrome need to be taught in an environment that is autism-aware and responsive to the needs of individual children. Regardless of whether the underlying rate is increasing, there are more children with autism in English and Welsh schools than ever previously reported. Resources must be found to meet the needs of those children if the policy of inclusion is to work.

What can be done to improve the recruitment and retention rates of specialist SEN professionals, particularly speech and language therapists, to increase the likelihood that assessed provision will actually be delivered? The noble Baroness rightly pointed out the vital role of speech therapists. Many teachers do not feel that they know enough about autism. Therefore LEAs should plan to train all teachers, assistants and specialist professionals in awareness and understanding of autism as part of the accessibility planning duty introduced by the Special Educational Needs and Disability Act 2001. The Teacher Training Agency should include modules in basic teacher training on how to meet the needs of children with autism spectrum disorders. The excellent document, Autism Spectrum Disorders, Good Practice Guidance, issued jointly by the DfES and the DoH, provides practical advice on teaching children with autism. I urge the Government to send a copy to every school in the UK.

My Lords, I thank the noble Baroness, Lady Warnock, for opening the debate, and for having the courage to prick the bubble of defence that has built up around the idea of statements. Virtually everyone who has been involved in these matters for any length of time see statements as a shield and support. Should we get rid of them because there is something better, or are they still the only show in town? That is the question that comes out of this debate. Whether they should or should not be the only option is another question. I believe that we should have an alternative, but at present there is not another way forward—at least not from here. I am reminded o f the story about asking directions in Ireland and being told, "Well, I wouldn't start from here if I were your."

The awareness of autism and autism spectrum disorder reminds me of dyslexia 20 years ago. People are suddenly discovering it. I hope that the noble Lord, Lord Astor, will not take this badly when I say that it is the sexy disability of the moment in education. It is a disorder that we are just discovering. Many of the cases that people are discovering and going through may be fairly mild, but I am not sure whether there are stories about autism spectrum disorders with people saying, "Oh, I knew someone who used to be autistic but he got over it", as I hear about dyslexia. Such people fail to comprehend what a disability is. They do not understand what is involved in the coping strategies, in learning and in getting through the problems. But I am sure that it will happen eventually. It is a little like, in fashion terms, the second run of flares: they have a slightly different cut but basically the same process is going on. People are discovering something new.

Against that background and against the expansion that took place, the statementing process, which finally gave people a way to say, "We need something to protect our educational needs and requirements", was vitally important. I do not believe that we have gone far enough into the process to be able to drop statementing yet, if we ever do.

The words of the noble Baroness, Lady Blatch, will be listened to with even greater interest than normal on this occasion as the statementing process was so much part of her drive. I believe that we should think long and hard before we drop statementing as it provides protection for the individual.

Reading the Audit Commission report reminded me of everything that I had ever heard was wrong with the education system in relation to special educational needs over many years. We are told: there is more awareness of the problems; there is not sufficient initial teacher training; there is not sufficient in-service training; it is better than it was; or, it is nowhere near good enough; and so on. That was the impression that I gained from the report.

Also, as the noble Lord, Lord Astor, has already pointed out, the Audit Commission does not address the fact that we may not have sufficient resources. The issue might be put into context if I break with habit and read what the Audit Commission says about itself:

"The Audit Commission is an independent body responsible for ensuring that public money is spent economically, efficiently and effectively, to achieve high-quality local and national services for the public. Our work covers local government, health and criminal justice services".

It does not say how big the cake is and whether it is big enough to feed all the people; it simply says that it should be done efficiently.

I am convinced that the Audit Commission will say that statements, which absorb money because they allocate needs effectively, are inefficient. More importantly, groups such as the National Autistic Society, the British Dyslexia Association and the RNID, to name a few, are very good at ensuring that people now receive statements.

Another problem pointed out in the report was that it is the middle-class child with the articulate parent who obtains a statement. I am reminded of dyslexia, which was known as the "middle-class disease". Problems do exist but, until we get something better, we shall be in trouble if we try to get rid of the statement. We should not do so until we are able to produce a better framework with teachers who know not only that dyslexia is a Greek derivative word meaning that one's spelling is bad, but who know fundamentally more about the variations that exist, how people are affected in later life and how there are different learning strategies.

I do not even dare to embark on the subject of autistic spectrum disorder. There are dozens of other groups concerned with hearing and sight problems—that is, sensory problems. Until the problems that can occur are known—at least, in theory, in the classroom—people will always be playing catch-up.

I believe that the Audit Commission was absolutely right to point out that we are not giving the teachers a fair start. If we are talking about integrating 10 or 20 per cent of children with a disability-based, special educational needs problem into the classroom, then it is inconceivable that a teacher would be able to meet the problems that he would face without starting with a better basis of factual knowledge. I believe that some people are receiving only two or three hours' initial training. A technical factual base is vital in getting this matter right. We must provide such a start.

The Government are always telling us that more will be done in this area. But perhaps we may finally have a Statement at some point saying that league tables are a problem. Such a high proportion of the school population will have difficulty in passing examinations or there will be so many holes in the exam-passing mechanisms that it will not add up. There cannot be simple league tables; they must be adjusted in some way. If they are adjusted often enough, surely league tables will become so complicated that they will become useless. If we are to be fair to special educational needs, we must tackle that problem. At present, teachers are having to defend their positions.

I do not know what more can be said on the subject. I shall simply say that if 20 per cent of the school population can potentially lower the status of a professional institution, that is not a great way forward. I hope that we shall hear more about that. But I suggest that the ultimate answer is, at the very least, to get rid of these crude league tables and to consider their entire status.

I hope that the answer that we reach in considering our whole approach to this matter is that in future it might be possible to get rid of the statement. I believe that we can do so if we institute better training and better resourcing in special educational needs. But that should not happen now or in the immediate future because, at present, it is the only show in town and we do need something.

My Lords, I begin by thanking my noble friend Lady Warnock for providing another opportunity to discuss such an important issue. As president of Mencap, as the father of a daughter with Down's Syndrome and as the grandfather of a grandson with a like syndrome, it is an issue close to my heart, as it is to the hearts of many other noble Lords present. In one sense, it has all been said before, but I do not apologise for saying it again. Each child with special educational needs who gets less than the best we can offer is an affront to both our society and our educational system.

With not a little help from this House, the noble Baroness, Lady Ashton, and her colleagues have done a good job on education and disability. They deserve credit for that. Nevertheless, I need to sound a note of caution. Legislation is important—we would not all be sitting here if we believed otherwise. However, even more important is the implementation of that legislation locally—in each local education authority and in each school. The findings from the two recent Audit Commission reports do not leave me with great optimism about the extent to which we have already secured full-blooded implementation.

In my view, special education means tailoring to the individual needs of the child the curriculum, the teaching skills, the teaching materials and the measures of achievement. With that tailored support, every child can enjoy his or her childhood and fulfil his potential. Having seen what children labelled as "ineducable" have achieved, I am not willing to settle for anything less than the best that we can offer. That means that mainstream schools and pre-school groups must try much harder.

In the light of the two Audit Commission reports and their tale of what has yet to be attempted and achieved, I want to focus on two areas that particularly affect children with a learning disability: early years provision in inclusive groups and meeting health needs in mainstream and special schools.

One of the recent Audit Commission reports made a very strong case for a substantial increase in early years investment. Children with severe learning and other disabilities are too readily sidelined into specialist settings—bypassing the experience and losing the benefits of mainstream nurseries or pre-school playgroups. Separation can mean isolation: missing out on early educational experiences and on early social experiences as being members of their local community. The children are separated from their brothers and sisters and from their potential friends. At the same time, their parents are separated from important contacts with other parents.

Inclusion is a real possibility for virtually all children, particularly in the early years, and it should be explored, not ignored. Indeed, there are many examples of children with the most complex needs being successfully included to their benefit and to the benefit of other children. As I said, the Audit Commission calls for more investment in early years provision for disabled children. Quality is not cheap; and I am pleased to hear about the new special educational needs and disability development fund. Can the Minister confirm that that will be extra money and that some of it will be used to support the inclusion of children with complex needs during the vital early years?

To pursue my central theme of including those who are most readily excluded, I jump from early years education to the subject of meeting the health needs of pupils with special educational needs. If that seems a jump too far, I trust your Lordships will remember that Eddie the Eagle was once a national hero. Since my noble friend Lady Warnock wrote her historic report some 25 years ago, there have been significant changes in the child population. Many more profoundly disabled babies are surviving. That steady rise in a very special population is thought to be due to improvements in healthcare, including enhanced prospects of survival for premature babies. By no means all, but a significant proportion of those children have multiple disabilities and complex health needs. Unless the Minister can tell me otherwise—we do not have precise numbers but we are talking about some thousands of children who may need to be tube-fed, are on complex medication or need specialist support of some other kind.

Mencap's report, Don't Count Me Out, revealed the exclusion from school life experienced by children with substantial health support needs. This very day Mencap has held a seminar to bring experts in the field together to help to plan the changes that are needed to include all children with health needs in education. Progress in that area is patchy. Some schools have been able to include children with major health needs with a minimum of fuss. Sadly, in other areas schools have made it clear to parents that their child was being refused admission on health grounds. Some claim that insurance is the problem, while others claim that t hey do not have a school nurse. Whatever the excuse, exclusion on health grounds is clearly discriminatory and the Disability Rights Commission, with the support of Mencap and many other organisations, is keen to do battle to stop such discrimination.

Severe disability comes as a challenge to some head teachers and school governors; it does not come easily to the parents or indeed to the child either. However, those who have risen to the challenge have shown that even the most complex health needs can be met successfully with the help of health colleagues. My generation of parents fought to get any kind of education for their disabled children. My wife and I, together with other parents, raised thousands of pounds to build a school many years before the 1970 disability legislation came into force. Today's parents still struggle to acquire the best education for their disabled children. Many want mainstream education, but all want really good appropriate education. None has a child who is ineducable, but there have been some blatant cases of discrimination against children and young people with learning disabilities, of whom society's expectations and priorities are often appallingly low, especially when it comes to educational needs.

Often discrimination is not premeditated; it arises out of a lack of imagination and planning. and sometimes a lack of resources to develop the right infrastructure in which disabled children can flourish. The Special Educational Needs and Disability Act has removed many barriers of exclusion and blatant discrimination for disabled children but, as with the weeds in my garden, new barriers seem to spring up when old ones are removed and unless those barriers are swept away, we shall be unable to follow Plato's prophetic dictum:

"The direction in which education starts a man, will determine his future life".

My Lords, I welcome this opportunity to debate special education provision following the Audit Commission's report. I thank my noble friend Lady Warnock for initiating the debate and for her report that gave birth to the 1981 Act which together with the codes of practice in the 1993 and the 1996 Acts forms the pillars that prop up special education law.

Only six months ago at Third Reading of the Education Act 2002, which introduced powers to free schools from the national curriculum and so on, many noble Lords who are present today were involved in tabling an amendment to secure for the future the legal safety net for children with special educational needs created by those pillars: the duty to identify, to assess and to statement when necessary. My noble friend Lady Warnock was swift and stalwart in her support. At cols. 226 to 227 of the Official Report on 3rd July 2002—I paraphrase—she said that the so-called 18 per cent of children without statements were those at risk of being swallowed in the excitement of innovation—which was greatly welcomed—and that the preservation of the duty to identify children with special educational needs was the most important part of the amendment.

Your Lordships will remember that the Minister, while unable to agree to the amendment, gave firm assurances at cols. 230 to 235 that the protection would remain, but that innovation, if judged in the best interest of children with special education needs, would be permitted. I am sorry to go over old ground, but I believe that, welcome as the noble Lord's view may be, we need to keep the concept of the safety net firmly in mind. I hope that the Minister will reiterate that assurance today.

The first report argued for a high level review of statements. Eighty per cent of responses supported that recommendation. It is interesting to note that the least supportive of it were SENCOs, parents of children with statements and voluntary organisations, the people nearest to delivery or receipt of special education provision. They worried that the review may be focused unduly on the erosion or the removal of statements in a world where there is no other framework for assuring parents of the provision to be made for the child. Several said that they would welcome strengthening the law around statements, rather than scrapping them and argued for some practical solutions.

IPSEA, of which I am a patron, said that at present, the law which gives disabled children legal rights to appropriate provision can only be enforced by individual parents in respect of individual children. That is manifestly very hard especially for those children whose parents, for whatever reason, lack the ability or the resources to challenge the actions of their LEA. That was a problem that was also highlighted by the National Autistic Society.

For many years IPSEA has argued for the establishment of an independent enforcement agency that could ensure that LEAs fulfil their legal duties towards disabled children. That could be achieved through an extension of the ombudsman's role or that of the Special Educational Needs and Disability Tribunal. That is a practical suggestion that would remove from parents the burden of having to police local education authorities. It would bring immediate benefit to many children.

The second report highlighted difficulties with SEN as a mainstream issue. Many of those points—weak accountability for SEN provision or a patchy approach to early intervention and so on—underlined the importance of the safety net. As the SEC puts it, precisely because of the difficulties identified in the second report, it is crucial that we have the statutory framework in place. The SEC welcomes the second report and the 10 point agenda for action, and has been pressing for many of those points for a long time. The Government have done much to promote some of them and the report will be a spur to putting the more neglected elements back at the top of the agenda. The new duties on schools and LEAs to increase access to schools for disabled pupils should be a great help and with the new initiatives involving a multi-agency approach for pupils at a very young age it is hoped that children will no longer experience failure before they receive additional help. The National Autistic Society and the RNID made that point.

However, the SEC stressed that even if statements are being very little used, it is important that they are not abolished. They still provide the safety net, should schools or LEAs be unwilling or unable to provide for the individual child's special education. I entirely support what the noble Lord, Lord Astor, said about cost. A small increase in what is spent would produce a spectacular result.

Why do I sound such a fuddy-duddy when I used to go on about integration and then inclusion? I should be the last to meddle in Scottish affairs, certainly since devolution. The noble Baroness, Lady Linklater, was in her place; unfortunately, she is no longer present.

My Lords, I shall ensure that the comments of the noble Baroness are passed on to her.

My Lords, I am grateful to the noble Lord, Lord Addington.

Last Friday, the Scottish Parliament published a Bill, the Education (Additional Support for Learning)(Scotland) Bill. If enacted, it would remove a disabled child's right to the special educational provision for which his or her needs call. IPSEA and her sister organisation in Scotland have condemned that move.

The warning that we must heed from the actions of the Scottish Parliament is that not all those engaged in the debate on the legal framework for the delivery of special educational provision will have as their prime concern the aim of protecting and extending disabled children's education. Some will argue, as it seems to be argued in Scotland, that it is too bureaucratic to assess individual disabled children's needs and too expensive to provide for them. That is why I was so delighted that we had the debate in the summer during which the Minister gave us her firm commitment about that. I do not suggest that that argument will prevail, but things can go pear-shaped and we always need safety nets.

I am less hesitant about raising another point about Scotland. The Disability Discrimination Act 1995 covers Britain—it is not devolved legislation. Noble Lords will remember that when that Act was extended to cover schools, including schools in Scotland, the Government decided that failure to provide the auxiliary aids or services that a child needs would not constitute discrimination. The reasoning behind that was set out in the code of practice for schools on the Act at paragraph 6.20, to the effect that special educational provision should include any educational aids and services where those are necessary to meet the child's identified needs as specified in the statement.

Clearly, if the legal framework for special education in Scotland is changed to remove children's rights to assessment and provision, they will be exposed to disadvantage under both education law and the Disability Discrimination Act 1995. It is not for me to decide how to sort things out, but I hope that the noble Lord, Lord Addington, will convey that message, as he promised. The Disability Rights Commission in Scotland is well aware of that difficulty. When the Scotland Office consulted on the ideas behind the Bill, the DRC' in Scotland argued:

"It is not in the best interests of the child to displace the legal right to assessment, recording"—

that, is statementing—

"review or appeal … We support a revised and strengthened process whereby the Record of Needs is developed to become an entitlement to support".

By all means let us have a full review, innovate and be imaginative, but I urge the Government to hang on to the safety net. As the noble Lord, Lord Addington said, we have not yet gone far enough to do without it, if we ever will. One never knows; things can go pear-shaped, as we have seen in Scotland. Let us hope that that can be sorted out, but if the two pillars were to become the twin towers and the whole safety net were to collapse, children with special educational needs would be left without a lifeline.

My Lords, I, too, thank the noble Baroness, Lady Warnock, for introducing the debate and for all her care, concern and hard work over many years on behalf of disadvantaged children and those with special needs.

I shall speak briefly from my perspective as a bishop and from the point of view of the Church of England, which has always been much concerned with education—not least, to cite the Board of Education, with,

"the education of the most disadvantaged in society and of children with special educational needs".

Those priorities were reiterated in the Church's report entitled, The Way Ahead, published two years ago in response to a General Synod debate in 1999 that identified Church schools as being at the heart of the Church's overriding concern with mission.

A bishop has a particular interest in that aspect of education. At his consecration service, he is charged by the archbishop to have a special care for the outcast and the needy. The noble Baroness, Lady Warnock, eloquently explained how wide a spectrum of disadvantage we need to consider—not simply those children whose special needs are such as to warrant a statement but all those from variously disadvantaged backgrounds, for social, political, economic or linguistic reasons, who need special care, encouragement and help. So the cause is dear to my heart.

However, to concentrate for a moment on statemented children, I agree with what has been said by most noble Lords during the debate: we need to retain that system. It is interesting to note how policies towards their education have changed over the years. In the early 1980s, following the establishment of the new framework, there was at long last a recognition of the need for both proper identification of special educational needs and the inclusion of children with those needs, as far as possible, within mainstream schools—although it is of course true that the most severely disadvantaged children will continue to need to be educated in special schools.

I have two severely autistic great nephews for whom inclusive education was briefly possible in a local primary school with special support. Both now have to be educated in special schools. I am glad to say that that education is reasonably satisfactory.

In Herefordshire—or Hereford and. Worcester, as the LEA was in the 1980s—special units were established in each secondary school. Since 1997, most of them have been disbanded. The statutory framework for inclusion, Inclusive Schooling, Children with Special Educational Needs, published in 2001, gives all statemented children a strengthened right to a place in a mainstream school unless that would be incompatible with the wishes of their parents or—this is difficult to evaluate—with the provision of efficient education of other children.

As noble Lords have mentioned, there is an inherent conflict of interest between the inclusion agenda and the league table culture. They make uneasy bedfellows and can sometimes cause serious tension or outrigit conflict. The inclusion of children with moderate or severe learning difficulties in ordinary classes creates enormous difficulties in most cases, although some schools—I speak in particular of Church schools—that have welcomed SEN children have found it an enriching experience.

The answer must be that we need varied and flexible provision. Classroom assistants can give valuable help with moderate SEN children or children who do not have a statement but still have considerable problems with learning. Last week, I visited a primary school on the edge of Telford, an area of considerable social deprivation, that has been turned around, by a brilliant headmaster, from a failing school to a beacon school in which, in one classroom, three classroom assistants are working with the class teacher in a good and happy atmosphere.

But the disbandment of most special units in secondary schools in Herefordshire has meant that secondary-aged children in the county with more severe problems—either of physical disability or of learning difficulty—have gravitated to the one remaining specialist unit, which is excellent. It is within the Church of England secondary school in Hereford itself, happily called the Bishop of Hereford Bluecoat School. That unit accommodates 46 children in a school of about 1,100 with generous specialist staffing needs. It is on the campus, physically linked to the main buildings yet distinct and distinctive in its ethos and style. It is an impressive place. The children who go there are happy and achieve what are for them remarkable results. There are excellent relationships between the SEN and other children—good social interaction, which is beneficial to all.

Let me give another example, this time from the primary sector and from Suffolk. A Church of England voluntary aided primary school there has worked very closely with the LEA and has provided for two classrooms to be adapted and staffed in order that statemented children, some with multiple disabilities, can be educated within the environment of a mainstream school, with real benefits, education and social, to the whole school community.

In the same county—this picks up on the issue of a wider interpretation of multiple disadvantage and the special education provision which may be necessary—the diocese and the LEA are working together on a Sure Start project for pre-school children with severe behavioural difficulties which enables them, after proper assessment, to move into mainstream schooling.

These are small but typical examples of good practice, implementing an inclusive policy in a sensitive way which respects all the children involved, those with special needs and those without. From my conversations with teachers, I believe that there is a reluctance on the part of the teaching profession to embark on further new developments, let alone to see new legislation introduced at this stage, although I recognise the point, well made by the noble Baroness, about the disproportionate resources which at present are going into the statementing process. We need to find some way of reducing that disproportionate use of resources.

It would be better to share existing good practice. There is not an even spread of good practice across the country and sharing it must be the first way forward to increase the integration of the Sure Start and Home Start projects with local schools which can do so much to help children get a good start when they first enter primary schooling.

Alongside that initiative for very young children, there must be continuing efforts to overcome the multiple problems caused by poverty, broken homes and all the damaging consequences of disfunctional families and social exclusion. But I suggest, for the time being at least, that we will have to live with the statementing process and build on best practice.

My Lords, I declare an interest as editor of the Good Schools Guide.

The 1981 report of the noble Baroness, Lady Warnock, was a great achievement from which many good things have flowed. If one looks back over the years at what life was like for the kind of children who are now statemented—before the process began, before the Warnock report and before the progress that has been made—we can see that undoubtedly things are much better than they were and that we have done many good things. However, I share entirely the noble Baroness's analysis that we have reached a point where we need to look to see whether we are going in the right direction and whether we could not do better by changing tack to some extent.

It is not satisfactory that local authorities are seen as the enemy of statemented children, but it is inevitable given the current structure of funding. Local authorities are under a great deal of funding pressure. They have very little free money in their schools budgets—a delegation of which I thoroughly approve—which necessarily makes the statementing process contentious. In many local authorities great delays creep into the process, to the great distress of parents and the disadvantage of the child.

It is a process which, in financial terms, can be extremely difficult to manage and can result in a great misallocation of resources. The system is bureaucratic. Educational psychologists and other people—a resource which is very short in this country—are tied up in the process and do not have time to dedicate themselves to looking after the children. It is very rare that a local education authority EP sees a child twice. The child is seen for the statementing process and then the EP is gone. If we were providing proper support for children in need of educational psychological assessment, it would happen every couple of years or so in order that a child's progress through the system could be charted and adjustments made as necessary.

A system is emerging where resources are very much directed at 2 per cent of the school population. If you are a fraction outside that, you get nothing. In many schools, 98 per cent of the population do not benefit from the things that are done for SEN children. The way things are going, the way things are structured at the moment, I cannot see how this situation will do anything but get worse.

Parents, not unnaturally, see the statementing system as the solution to their problems with their child, and those who are articulate and able will push extremely hard to get their child into the system because of the benefits that flow from it. And quite rightly too. If the money is there for that purpose, I entirely support parents who choose to make use of it. But it is a source of continuing pressure on the system, and will continue to be the source of distress and malfunctions within the system in years to come if we do not look for a better way of managing it.

There are possibilities for doing things differently. My vision is for a system based on SEN-friendly schools, taking inclusion a stage further to the point where schools are truly able to deal, in a routine way, with most mainstream SENs. This would involve schools taking a great deal more responsibility in this area than they do at the moment. It would involve a great deal of training, principally. Teachers should be trained to deal with children with dyslexia, Asperger's and ADHD and other disabilities. Resources should be available with the SENCO or with the LEA to help a teacher who needs an additional understanding of how to deal with a child who has a mainstream SEN in a disruptive or extreme way.

The structure is already there in some schools. Such schools are wonderful for all children because a school that is good at dealing with special needs is a school that pays attention to the needs of every child. It adapts itself to the needs of every child, rather than having a set way of operating and letting the children bump around regardless of their individual needs. That kind of school can deal with the needs of most children with SEN, providing great benefits to all children in the process.

Under that kind of structure you could put a border on statementing. You could say, "This is what should be treated by the school and anything beyond that will be provided for by the statementing process". I imagine that most of the charges of the noble Lord, Lord Rix, would stay within the statementing process. Children who require such a degree of support need specialist, individually provided and individually crafted support, whereas most children with dyslexia can deal with an environment where the resources are there and teachers know how to help the child make use of them, but they are not specially provided for the child.

You could give parents the right to expect and schools the duty to provide that kind of education. You could provide the resources to schools as part of their financial baseline to train teachers up to the necessary standards. You could expect schools to have a general awareness of special education needs. You could expect schools to indulge in baseline testing so that they know the pattern of abilities and disabilities of their students and know how to respond to it. You could expect schools to have teaching styles which are SEN friendly. And, in many other ways, you could expect schools to provide, as a matter of routine, the kind of support that parents now have to fight for under the statementing system.

I do not believe that we can hope to establish such a system merely by making changes in legislation and saying, "We now expect schools to do this", and leaving all those children who are presently supported by the SEN system to sink or swim according to whether or not their school responded in a correct way to this change in expectations. It is much more complicated than that. Under those circumstances, the noble Baroness, Lady Warnock, is quite right to ask for a proper investigation and report on how such a change might be achieved.

I would like to see a situation in which children with SEN could expect support from all the professionals who were involved in the SEN business. Everything would work together to make sure that they received the support they needed, but in a way that benefited everybody and kept costs under control. People would not have to fight all the time to have extra money spent on their child as the resources would be available in the way that they are for the ordinary needs of most schoolchildren as a matter of course.

It is worth looking again at the system. I do not think that we can go on the way we are, and so I thoroughly support the Motion of the noble Baroness, Lady Warnock.

My Lords, I, too, thank the noble Baroness, Lady Warnock, for allowing us this opportunity to think carefully about special education. I have no view on statements—I do not have the experience to have such a view. I am concerned about inclusion, particularly the inclusion of children in care, and that is why I speak.

I should like to describe how one primary school maximises inclusion and works very much in the spirit of what the noble Lord, Lord Lucas, has just said. I should also like to call attention to one model of teacher support that I think could be more widely used. I suggest that we have smaller secondary schools in areas of high deprivation or devise some means to make smaller community schools for secondary students in those areas.

Marion Rosen, the head teacher of Star primary school, has minimised the number of her children needing statements. She has achieved that in a school of over 600 pupils that has a higher than average number of pupils on free school meals. The school has very high pupil mobility—half the pupils have spent less than two years there. The establishment is in Newham, an area with large numbers of families in bed-and-breakfast and substandard accommodation. The area's social services are overstretched and under-resourced. In this area, a child's death was associated with fearfulness on the part of the social services department to visit the violent parents. The neighbourhood has a large ethnic minority, asylum-seeker and refugee population.

In 1997, Star primary school was in special measures. Marion Rosen was seconded in March 1999, and by March 2000, her institution was removed from special measures. Sadly, there is not time to catalogue and detail all the improvements the head teacher and staff have made. If your Lordships are curious to learn more about this remarkable school, please ask me outwith the Chamber.

Star primary school has two children in the autistic spectrum who have not been statemented. Four-year-old Tanya's needs were identified by Sure Start before she arrived in the nursery. She already has a full-time worker and when she settles into the nursery class she will receive support from a full-time nursery nurse. Later she will be supported full time by a teaching assistant.

On Monday morning of this week, we saw Hamid being taught. Jane, his teaching assistant, had her leg behind his chair so that he could not remove himself from the task in hand. As he turned away, she would reach to the side of his chin and gently redirect his gaze to the work in hand. Watching Jane was Olga, another teaching assistant, who is being trained up with Hamid. Jane was described to me as an outstanding teaching assistant who was being used to model the correct way of working with autistic children.

The funds that might have gone to provide for a statement had here been delegated to the school for it to develop the whole school framework to provide for children with SEN. In co-operation with the local education authority, three criteria for deciding the quantity of delegated funding were identified—the numbers of children on the school roll, the numbers of children on free school meals and the rate of pupil mobility. Additional funding is available by application to a board of special education needs coordination officers, who moderate such payments.

With the assistance of this funding, money from Sure Start, Excellence in Cities and the Healthy Schools initiatives as well as from education action zones, Marion Rosen and her staff have transformed their school. According to the latest Ofsted report, Star primary

"is now a very good school providing good value for money. This is an inclusive school which provides a very good education for all pupils. The school has made rapid improvement because of the head teacher's careful analysis of the needs of the school and the very effective management systems and structures she has put in place. The quality of provision for pupils with Special Educational Needs has improved under the inspired leadership of the school's Access Manager".

One needs to be realistic in making decisions about which children will benefit from inclusion in the mainstream. One needs to ensure that they do not hinder or harm other children. There is still an important role for special schools. At Star primary school, two children benefit from three days a week at a local special school. However, the better managed and resourced a school is, the more able it is to include challenging pupils and harmonise them into the whole school. That is what one sees at Star primary, Marion Rosen's school.

Last night, the noble Baroness, Lady Sharp—I see that she is in her place—and I were reminded of the Office for National Statistics figures for the mental health of pre-school children. Some 15 per cent have moderate mental health difficulties, while an additional 7 per cent have severe mental health difficulties. In the United States, one in seven children is prescribed Ritalin, a drug to manage hyperactivity. Such hyperactivity in children is associated with postnatal depression in their mothers.

Lady Young is with us in spirit today, and I hear her drawing attention, as she always so eloquently did, to the changes in family structure that have contributed to this. However, there is no going back to past models of family life. We must deal with the needs of children and families as we are confronted with them now. We should also recognise that our decision not to invest in housing, not to invest more in midwives, health visitors, social workers and teachers has pushed many of those families that might have been viable over the edge.

In this context, I ask the Minister to consider making available to staff of schools with particularly challenging children regular consultation with an appropriate mental health professional. It would be on a group basis and the consultant would need an understanding of the particular circumstances of schools. Such a service might play an important part in teachers' professional development and prove an effective means of strengthening teachers' capacity to deal with emotionally unhealthy children and occasionally with their emotionally unhealthy parents. It might well prove useful in improving the retention of teachers in such stressful environments.

Three weeks ago I was speaking with the manager of a children's home who has 30 years' experience. Once every three weeks, she and her staff meet and discuss their work with a child psychotherapist from the Anna Freud centre. This has been part of the home's culture for many years and the manager has found it invaluable.

I have seen a similar system at work to great effect at Centrepoint. Speaking today with the deputy head of a well respected pupil referral unit in Lambeth, I was told that his staff benefit from such a consultation once a month. He, too, finds it invaluable but dearly wishes that it could be more frequent. His view is that many mainstream schools could benefit from such support and significantly fewer pupils might then be excluded.

If teachers are to work effectively in milieux within which there are growing numbers of increasingly troubled young people—and, from what I hear, there are worrying increases in disturbed behaviour in children, with increasingly young children acting in very troubling ways—they need to be adequately supported in doing so. I should make clear that I am not suggesting that teachers stop teaching and concentrate on their pastoral role. Rather, I believe it may be necessary for teachers to have a protected place in which to think about their work. They might then be better enabled to teach well; to teach creatively; and to carry on teaching well and creatively.

In that proposal, I am supported by Kairen Cullen, head of the child and educational psychology department of the British Psychological Society. Marion Rosen, last Monday morning, repeated to me several times the need to make schools more emotionally literate. If the Minister would care for more information about that proposal, I will gladly furnish her with it.

Finally, as we rethink special education and as we think about inclusion, perhaps we can also think about the size of our secondary schools. Is their scale suitable for building a sense of community, a sense of being valued and of being considered among their pupils? Are children who have lacked nourishment within their families likely to warm to an anonymous institution in which the head teacher may know them by name only if they cause trouble?

Practitioners are telling me and academic research demonstrates that we need to give serious consideration to smaller secondary schools—not necessarily smaller classes—in areas of high deprivation. Alternatively, it might be possible to have larger schools broken down into smaller units where every child and adult knows every other child and adult.

My time is up. I am grateful to the children's mental health charity, Young Minds, for its advice in preparation for the debate. I look forward to the Minister's response.

My Lords, I, too, thank my noble friend Lady Warnock, who is so deeply knowledgeable about SEN children, for raising the matter for debate. While I was reading the Audit Commission's report, my mind went back to the late 1950s when I was on the management committee for Botley's Park hospital for those suffering from mental deficiency, as it was called in those days. I admit to being fairly appalled at the conditions that existed then for the patients—including children—and I suppose that from then on I have supported campaigns for reforms aimed at what is today called "inclusiveness"; that is, enabling those with handicaps to live as full a life as the rest of us. However, sometimes I wonder whether we think through sufficiently the consequences of our well-meaning policy changes.

One recent Starred Question in your Lordships' House wanted to know whether the NHS had abolished mixed wards in hospitals. Yet it is not that long ago that after much campaigning these were introduced. Those of us who had campaigned—including myself—felt that to keep the sexes separate in this way, especially in long-stay hospitals, was not the natural way the rest of would want to live. That example illustrates the kind of problems we face today due to the well-meaning emphasis on full education opportunities for SEN children and, in particular, our wish for as many as possible of them to be educated in mainstream primary and secondary schools.

I am not suggesting that that approach is wrong. But I fear that unless more resources are allocated the short-term effect may well be the exact opposite of what was intended.

A top government priority—rightly, in my view—is to get children out of poverty. SEN children, like looked-after children, form a targeted group within the category. But, sadly, the report highlights sharply that this group is still not the priority it should be. There are even some potentially counter-indicative trends emerging.

We have heard how the budget of £3.6 million is split between children with statements and those without. That leaves only one-third of the budget to be spread over the remaining 1.5 million children. No wonder the vast majority of SEN children are not diagnosed early enough. There are clearly far too few resources available for that important early diagnostic work, which, with the right support, might well prevent later suffering and expenditure.

Secondly, there is an appalling dearth of reliable statistics, not least about the higher absentee and permanent exclusion rates for SEN pupils. LEAs' provision and support services generally vary considerably. Some case studies show just what can be achieved, but the overall picture is fairly dismal.

Thirdly, there are concerns from SEN children and their parents. These include, for example, difficulties over school access—and not just for the physically disabled. There is a lack of speech therapists and a perceived lack of friendliness on the part of other pupils and, no doubt, for seemingly good reasons such as safety, restrictions on access to some curriculum subjects and the fuller school life. There are hints, too, that one reason why fewer academic SEN children may be discouraged from taking exam subjects is the competitive league table problem.

Recommendations to deal with many of these problems are made in the report. They include more training in SEN for all teachers in their induction year. But there is a general need for wider knowledge at all levels of SEN problems and how to cope with them. There is a need, too, for far better support from the LEAs' educational psychology service and more detailed record keeping by both LEAS and schools.

But, apart from children's educational needs, as the report points out:

"It is clear that educational inclusion poses particular challenges to health and social services, as children with complex needs who might previously have been grouped together in special schools are increasingly attending mainstream schools".

As my noble friend Lord Rix said, many more babies survive who might not have done so previously, which is good. We face, too, a more complex scene partly because of a better understanding of the range and complexity of those with SEN. The noble Lord, Lord Astor, mentioned autism. It was not that long ago that autism was not acknowledged and parents fought strongly to win that acknowledgement. Now we have a spectrum of autistic disorders, all of which contributes to the complexity of the problem.

So have we got the policy wrong? Are more children, not fewer, being disadvantaged socially as well as educationally by our wish to see as many as possible educated within mainstream schools? I am sure that the answer to that question should still be "No". But despite the considerable efforts in some areas, and considerable improvements over the past few years in some areas, the report shows how much work there is still to do.

Much the most important factor is the need for a joined-up-government approach—very much at the heart of the Minister's thinking. We need to use every kind of resource available, statutory and voluntary, at both central and local government level. Almost certainly the families most in need of help will be from poorer, more disadvantaged, often dysfunctional backgrounds. They should all have been identified, although clearly this has not happened and not early enough, through splendid schemes such as Excellence in Cities and Sure Start.

On the voluntary side, this should be a major target area for established organisations and for those such as the Experience Corps, which is doing so well in recruiting the new wave of retired volunteers. Home Start, on the voluntary side, is exactly the kind of hands-on practical support needed, with individual, confidence-building relationships developed and practical help given where needed.

Finally, I turn to the teachers themselves. As I read and agreed the report's recommendations, my heart sank. I think I have supported almost all of this Government's attempts to break the Keith Joseph "cycle of deprivation" and yet I am beginning to feel we are asking teachers to take on far too much simultaneously. They need—and must have—more time and resources to tackle these requests and, above all, to do the actual teaching they are qualified to do. That is why we must look hopefully for a fast-growing number of assistants to be involved in classroom work in future.

I close by emphasising that these key people—the teachers and those who work with them and, dare I say it, ahead even of those responsible for our health—should have the resources, proper pay and respect that reflects the vital role they play in our society.

My Lords, as usual in debates of this kind, I declare my interest as the father of a mentally handicapped daughter, with Down's syndrome, who is now 22.

I join other noble Lords in thanking the noble Baroness, Lady Warnock, for introducing the debate and particularly for her support for parents of children with severe learning disabilities who want those children to go to special schools, including boarding schools. My own daughter was very fortunate in being able to go to such a school.

I trust that it will find favour with your Lordships if I reveal that I said most of what I would otherwise say tonight as recently as 18th December of last year (at cols. 755 to 758 of the Official Report) and feel sure that noble Lords will be relieved if I do not repeat it all again now, especially as some of your Lordships participated in that debate. The debate was an Unstarred Question in the name of the noble Lord, Lord Ashley of Stoke, to ask Her Majesty's Government what consideration they were giving to introducing legislation to protect people with mental incapacity. I devoted most of my remarks to the very distressing situation which is being created—perhaps, one should say, made even worse—by the recent Special Educational Needs and Disability Act with its emphasis on mainstream education for all children, however handicapped, if that is what their parents want. The distressing situation to which I refer is that parents of children with mental handicap or severe learning disabilities are finding it even harder than before to place their children in special schools if that is what they want to do because they believe it to be essential for their children.

In the debate, I quoted the assurance of the noble Baroness, Lady Blackstone, when the Special Educational Needs and Disability Bill was going through your Lordships' House early in 2001, that parents who want special schools would not find themselves in a worse position as a result of the Bill. I drew the Government's attention to a substantial article in the Daily Telegraph on 12th December 2002 and I quoted from a letter in the same newspaper on 14th December from Mr Mic Carolan, headmaster of Hurst Special School in St Helens, both of which set out the detail of the difficulties I have mentioned.

The debate on 18th December was focused on the many problems surrounding mental incapacity in general and was answered, therefore, for the Government by the noble Baroness, Lady Scotland of Asthal, on behalf of the Lord Chancellor's Department. I did ask the noble Baroness to do her best to make sure that her colleagues in education took note of what I had to say and of the article and correspondence in the Daily Telegraph. It is entirely understandable that the noble Baroness did not confirm in her winding up speech that she would do so, and so my purpose in intervening briefly tonight is merely to make sure that the noble Baroness, Lady Ashton of Upholland, and her colleagues in the Department for Education are indeed aware of what I said on 18th December and will take it into consideration in their deliberations on the future of special education needs in this country. The noble Baroness nods her head. So on the assumption that she will feel able to do so, I need trouble your Lordships no further now.

My Lords, I, too, thank the noble Baroness, Lady Warnock, for initiating the debate and for raising this important if challenging question: whether the process of statementing has outlived its usefulness.

Two years ago, we were debating the Special Educational Needs and Disability Bill, now an Act. For the most part, we were united in our vision of the inclusive society that we wanted to see in which each child was treated as an individual and his or her needs met within the school system, either mainstream or special schools. I agree with the noble Lord, Lord Pearson. The noble Baroness, Lady Blackstone, assured us that the special schools system still had a place, even though she and other noble Lords wanted to see a more inclusive approach within mainstream schools.

However, at the time we warned that such a vision needed resources to match it. The vision of a mainstream school which is thoroughly inclusive was mentioned today when the noble Earl, Lord Listowel, referred to Star Primary School. It is a primary school that I, too, have visited. I was enormously impressed. But it is a primary school in an Excellence in Cities programme, receiving vast resources. That two children who are not statemented can be given classroom assistance indicates that the school has resources for that purpose. Most mainstream primary schools do not have the resources to devote a classroom assistant to an individual child unless they are statemented. That is one reason why schools and parents are anxious to get children with special needs statemented: it brings extra resources into the schools to enable them to cope with those problems.

We warned the Minister time and again that in some senses the aspirations and visions set out in the Bill required resources. By and large, at the time the Minister and the Government were willing the end but not the means. The estimates of the costs of implementing the Bill were grossly inadequate.

In the two reports received last year, the Audit Commission gives a good snapshot of what has been happening. It considers the question of resources. A number of noble Lords have asked whether there are enough resources. My answer is no. When debating the Special Educational Needs and Disability Act, it was clear that many noble Lords believed that resources were insufficient. However, it is not the Audit Commission's role to say whether resources are sufficient. Its main job is to consider the resources available and to advise local authorities on whether those resources are being spent wisely and whether we are getting value for money. It is clear from the two reports that at present the commission feels that even if there are not enough resources, the resources available are not always spent wisely. The question that many of us have been hit by is why 70 per cent of the resources are being spent on the small minority of children with statements. Is that right, or do we need more resources in the system as a whole?

Among the issues that the Audit Commission has identified as being unsatisfactory in the present use of resources is, first, the arbitrariness of provision. Whether needs are met varies enormously between local authorities and schools. There is a complete postcode lottery in that regard. Secondly, the Audit Commission has made it clear that the early years agenda is hardly being addressed, as the noble Baroness, Lady Howe, said. Thirdly, there remains a big problem of interagency co-operation. Fourthly, there are major shortcomings in training. A huge effort needs to be made to ensure that all staff have some understanding of how to cope with the challenges of children with special educational needs and to put best practice into practice.

Fifthly. there are major tensions in schools between the performance and inclusion agendas, as highlighted by the fact that a disproportionate number of children with special educational needs find it difficult to gain admission to the school of their choice and, subsequently, a disproportionate number tend to be excluded.

Lastly, but by no means least, it is extremely difficult to monitor what is happening because there is no coherent monitoring of what schools are doing with special educational needs.

In the time available, I shall consider four of the issues from that list. First, on the matter of the tension between performance demands that are made on schools and the special educational needs agenda, only a couple of weeks ago the schools Minister reiterated that in the light of the disappointing STATS results for key stage 2, the Government would renew their pressure on teachers to get better performance from children. That is a most unsatisfactory approach. We know that those statistics are unsatisfactory because they are crude at the moment. Yes, we are beginning to receive value-added statistics but, if the secondary school value-added tables are anything to go by, they will not be worth much more than what we have now.

Why do we have to go on treating children as statistics rather than as individuals? The whole purpose of the inclusion agenda is to treat children as individuals, as we should be doing. As the Audit Commission says, there should be a separate plan for each child; each child needs to be monitored according to its own plan, not according to set performance indicators from Her Majesty's Government.

Secondly, I want to address the issue of early intervention. It is clear that the sooner that one identifies needs and starts to meet them, the lesser are the problems that must be met. One has only to consider the costs—not only to society. When children are emotionally and behaviourally disturbed, as an increasing number are, if one could nip that in the bud one would save on the enormously high costs of hooliganism, of sending children to special schools and at a later stage to what used to be called borstals and now to prison. If we could intervene early enough and help the child and parent, all those costs might be saved. Surestart is a marvellous programme, but we need to follow it up.

That brings me to my next point, which is the need for joined-up thinking and interagency working. As the Audit Commission said, the fact remains that teachers and schools are not involved alone. One needs to bring together health and social services and frequently the housing authority, because many problems may stem from housing difficulties. However, we know perfectly well that there is an enormous shortage of social workers and educational psychologists. In a school where I was a parent/ governor, I remember the head saying, "We try to get these people together, but when I ring up the social services and ask them when I can come along, I am told in six weeks time. If I have a problem today, I need these people now for a case conference. It is no good making it in six weeks time".

The fact is that all local authorities are squeezed by the Government in terms of the local authorities settlement. The situation is extremely difficult, particularly in the South East, and I view the matter very much from the Surrey point of view. We do not have enough social workers. Social services are squeezed. Even to stand still we must increase the council tax by 13 per cent. If we were to fulfil our agenda entirely, we would have to increase the council tax by 20 per cent. It is a difficult agenda. It is made the more difficult by the fact that the money that used to go to schools directly from the DfES is now incorporated within the SSA. For all that the Minister says that the money is there, it is there in the SSA but it is not there on the ground, as it used to be.

Fourthly, I have little time left in which to speak but I wish to say a few words about training. Training requirements are clearly extremely important. We need to train teachers and we need to be aware that specific training is available on each aspect of special education. Teachers have to be put through these training programmes and that takes time. Time is the most precious resource of teachers these days. The headmaster of one of the big local secondary schools told me of a two-year training course on the needs of the visually impaired. Two of his teachers are undertaking that course but they have to do it largely in their own time. As the headmaster said, those teachers are voluntarily undertaking to do that course in their own time. Different training courses are needed across the spectrum of special needs. We expect our teachers to devote an enormous amount of time to such courses. As I say, time is a scarce resource.

I have run out of time myself. However, I should like to finish by coming back to the question posed by the noble Baroness, Lady Warnock, when she asked whether it was time to review statementing. I believe that we need a review. I make two points on that. First, we need to allow time for the Special Educational Needs and Disability Act 2001, and the codes of practice that were introduced subsequent to that Act, to shake down, to put it colloquially. Much change is occurring in the system at the moment and we need to see whether it is working. Secondly, I think that a review is probably needed, but we clearly cannot change the system until after such a review has been held. As the noble Baroness, Lady Darcy de Knayth, said, the statement is a lifeline for parents to ensure that they can exert their rights. It is important that that lifeline remains. We must not take it away until a new lifeline is introduced.

My Lords, I join noble Lords who have thanked the noble Baroness, Lady Warnock, for providing us with the opportunity to have this debate. We have very much more to thank the noble Baroness for. I refer to the enormous amount of work that was done in the 1970s, the Warnock report and the Act that followed it. We are enormously grateful to the noble Baroness for that. The great strength of this House is the ability of its Members to select a subject and to provide such informed and expert opinion. It is always a joy to participate in these debates.

The noble Baroness, Lady Warnock, calls for a new look at the framework in which special educational needs are identified and met. The work that preceded the Warnock report and the Act that followed took place almost 30 years ago. The noble Baroness. Lady Warnock, is right to argue that the world has changed and that assumptions made all those years ago should be challenged today.

Many points have been made tonight to which I should like to respond. But, alas, as the noble Baroness, Lady Sharp, said, time is our enemy. I cannot do justice therefore to what I consider has been an extremely important debate that needed to be held.

Two main issues need to be considered separately: first, the statutory framework and whether it is timely to call for another fundamental review; and, secondly, the current system, its strengths and weaknesses. I support the call for a review. However, it would take a long time. Therefore, the present system has to be sustained and has to be made to work more effectively. The safety net of the statementing system is important and has been argued for cogently by my noble friend Lord Astor and the noble Baroness, Lady Darcy de Knayth.

My noble friend Lord Astor concentrated on the condition of autism and the spectrum of related disorders. My noble friend made the case for more effective statementing but I couple with that the concern for non-statemented children who also have special educational needs. Because the system demands it, there is a tendency to focus attention on statements and statemented children. The challenge for teachers in the classroom are those children who are non-statemented. But the problem arises—this was picked up in the report—from both the perception of, and the actual incidence of, the system not meeting the requirements of children who have needs over and above the norm. That is where I believe more effective teacher training is absolutely crucial.

I am attracted to the idea of learning centres outlined by the noble Baroness. I believe that having such centres of excellence would help enormously in many areas. Such centres could help in a practical way but could also help to develop teachers' expertise. The noble Lord, Lord Addington, mentioned autism. I do not believe that he chided my noble friend Lord Astor about autism but he was absolutely right to say that it is not a new condition.

I was particularly moved by the programme which told the story of the life of young Prince John. In addition to suffering from epilepsy that young boy probably suffered from autism or a related condition. As one watched the programme it was clear to see how easy it is to become very angry and cross with a child who looks insolent, disaffected or something else. In the same programme one saw what progress could be made by someone who understood, empathised with and worked with the condition of the child. Although it is newly discovered, we have a very long way to go towards identifying and picking up those signs early.

I have some concerns that I hope will be picked up in any review. There is the issue of statementing and non-statementing. I believe that it creates unnecessary tension and dissipates energy. It certainly dissipates resources. It tends to concentrate on statements and not on the needs of the other children who fall short of needing a statement.

I am also concerned about those who are philosophically opposed to specialist schools providing for children with special educational needs. I do not believe that we should have a philosophical hang-up either way. We should focus policy on the appropriate provision for children with special educational needs whatever they may be.

The IPSE point is very well taken; it is to make the distinction between those children who are failed by the system simply because the LEA, the school, the teacher or someone in the system is disobeying the law and those failed by the system because it needs reform. Those are two very different things.

I hope that the review will focus on the 20 per cent. As I understand it—and I stand to be corrected—it refers to the fact that at any given time approximately 20 per cent of children in the system need special attention. Two to 3 per cent will need continuous, almost lifetime, attention because they are at the severe end of young people with disabilities. But it also includes young people with a temporary condition. It also includes children who simply did not learn to read early enough. It includes children who received poor teaching early on and those with parents and families who did not work in concert with the school. Therefore, there are innovative ways of looking at how some of the needs of quite a large part of the 20 per cent could be met.

The other issue is exclusions. One sees some very depressing statistics. The vast majority of young people excluded from our schools are children who have special educational needs. Very often they are needs which have not been identified and where there has not been effective attention.

I agree with my noble friend Lord Lucas that teachers deserve to be trained better to identify special educational needs. Quite a number of them could be dealt with in the classroom. My right honourable friend Iain Duncan Smith, and my honourable friends Damian Green and Eleanor Laing in another place, who is responsible for special educational needs, held a conference six months ago with all interested parties. They said much the same as we are saying now. They certainly would have supported much of what the noble Baroness, Lady Warnock, said.

I say to the noble Lord, Lord Rix, that yesterday my honourable friend Eleanor Laing went to see a Mencap project in Birmingham. I believe it was called The Transaction Project. It is a pilot project where young teenagers without special educational needs are brought together with young people with such needs. They are learning ways in which to make the transition from teenager to adult life more straightforward and effective. She was extremely impressed with the project.

In summary, a fundamental review is timely and I hope that that can be supported. I believe that there is scope for improvement in the delivery of the current provisions and that more attention should be given towards obeying the law. The noble Baroness is right. In 1981, 1993, 1996 and in 2002, we passed legislation. However, there are two serious problems with it. One is that a policy of inclusion is very expensive, and to resource it would create great tension. The other is that the law is frankly being ignored. Simply passing law does not make the system any better.

There should be a fundamental review, an improvement in the delivery of current provision and more research, especially into what works. To pick up a point made by the right reverend Prelate, there should be more research into what we would define as good practice. First, the research should say what good practice is, and, once that has been identified, it should be disseminated. We also need more research into autism and related conditions.

The right reverend Prelate also made a point about the exploration of greater flexibility. There are many ways to meet the special educational needs of the young people concerned. We should have many more structures in schools, such as separate units, clustering children and using learning centres. All sorts of ways can be explored; we could do more. We should certainly improve teacher training.

Whatever the outcome of the review, however long it takes, and whatever comes at the end of the exercise, early identification and effective early intervention will always be the key to addressing special educational needs of young people. We thank the noble Baroness for the opportunity to discuss an absolutely fundamental subject.

My Lords, I too thank the noble Baroness, Lady Warnock, for initiating the debate, for the work that she has done, and for her on-going work with dyslexia. I associate myself with the remarks made by the noble Baroness, Lady Blatch, about this House. I also say that I have never thought of the noble Baroness, Lady Darcy de Knayth, as fuddy-duddy, which is how I think that she referred to herself.

I want to begin by putting on record what we mean by children with special educational needs. I am fully aware that the expertise in the House at present means that that may be unnecessary, but it means children who require additional or different help, in order to access the curriculum and to make progress, from the provision normally available in maintained mainstream schools in their area.

I can tell the noble Baroness, Lady Blatch, that my figures—they correlate well with what she said—state that about 16.8 per cent of children with special needs do not have statements, and have their needs met by their schools with occasional help from local education authorities. I hope that figure clarifies that point.

The committee of inquiry that the noble Baroness, Lady Warnock, chaired in the late 1970s laid tile foundations for the statutory framework for special educational needs. We have built on that framework, most recently through the changes introduced by the Special Educational Needs and Disability Act 2001. The purpose of the 2001 Act was to broaden access and opportunity for children with special needs and disabilities by giving them a stronger right to mainstream places in schools, where that is appropriate, and extending the Disability Discrimination Act to education.

I agree with all noble Lords that now is a good time to take stock of where we have reached, and to consider what steps we can take to improve support further for children and young people with special needs and disabilities, and, in doing so, for their families as well.

The Audit Commission's recent report, referred to by most noble Lords, is timely. It provides an overview of the key issues and recognises the action that the Government are already taking. It highlights how, as said by the noble Baroness, Lady Warnock, implementing some of the statutory processes can be time-consuming and bureaucratic. However, it acknowledges the assurance that they offer parents, and that they are the safety net referred to by the noble Lord, Lord Addington, and the noble Baronesses, Lady Darcy de Knayth and Lady Blatch.

We believe that the statementing process offers assurance not only to parents, but to schools in helping them plan and make provision. We recognise the value that it has in ensuring that severe or complex needs are carefully assessed.

The noble Baroness, Lady Warnock, supported by some noble Lords including the noble Baroness, Lady Blatch, argued for a wide-ranging review of the statutory framework for special needs. I do not believe that making further changes to the legislative framework at this time is the right way forward. As the noble Baroness, Lady Sharp, said, we must ensure that the new changes have time to bed down, and we must evaluate their impact. As the right reverend Prelate said, we need to look at the sharing of good practice and ensure that we focus on what the practical measures are to help our schools—that was referred to by every noble Lord who spoke. We must also look carefully at the role of and support for local education authorities and their partners in order to improve the quality of provision for children with special educational needs.

However, I agree with the noble Baroness, Lady Warnock, that there is a focus on the statementing process; some parents see that as the only option available. We all desire a better system that addresses that issue.

We announced in answer to a question from the noble Baroness, Lady Walmsley, in December an SEN action programme. The purpose of the programme will take forward some of the work that is already under way and address many of the areas highlighted in the Audit Commission report and by noble Lords this evening. All of the action areas that we will examine have been mentioned this evening. They include: earlier identification of special educational needs and early intervention; the co-ordination of education, health and social services; support for schools in meeting diverse needs, including managing behaviour, autism, dyslexia and dyscalculia; the attainment and achievement of children with special needs; and their transitions to further education, work and adult life. The programme will consider the future role of special schools. It will include measures designed to enable schools and local education authorities to develop their arrangements for monitoring performance and sharing effective practice. We will be consulting widely on its development and hope to publish it later this year.

A number of noble Lords discussed the complex issues of early identification. I wholeheartedly agree with the noble Baroness, Lady Blatch, that we stand a much better chance of addressing the needs of children with special needs if we identify those needs early on. Despite what the noble Baroness, Lady Sharp, said, we are investing heavily in ensuring that we do so. We already have a £25 million package in place to provide special needs co-ordinator support, SEN training and experts for early years settings. Moreover, there is £3 million to support early years development and childcare partnerships for low incidence special needs; that rises to £8 million next year. We are also promoting good practice through Together from the Start, which is guidance for professionals on identifying the needs of disabled children aged nought to two and co-ordinating services for their families. There is also an early support programme to test out the principles of the guidance and related guidance on early intervention for children with hearing impairments and their families. It is being piloted in 28 local areas. We want to evaluate those programmes but they are essential tools to ensure that we have the early intervention that we want.

I agree with the noble Lord, Lord Rix, that early intervention is essential and critical. Within the SEN code of practice, we must ensure that we offer appropriate guidance to our early education settings. We have a range of materials to help teachers to support pupils with special needs. That is being provided through the national literacy and numeracy strategy. They are important developments, but I agree with all who said that there is more that we need to do. We want to put this at the heart of our Sure Start programme. We recognise, as the noble Baroness, Lady Howe, said, the value of the Home Start programme. We also recognise that we need to look at issues of childcare for families with disabled children and ensure that our childcare provision is able to assess children with special educational needs and ensure that those needs are met. We hope to provide family support for those children in the children's centres that will be developed to ensure that those children get the best that they can.

A number of noble Lords rightly indicated the need for better integration and co-ordination of education, health and social care. I say to the noble Earl, Lord Listowel, that I agree completely that regular contact with mental health professionals is an essential part of that. We are working closely with the Department of Health to ensure that child and adolescent mental health services can work as close to schools as possible. We know that for parents getting help to meet their children's needs can be very frustrating. They want the professionals to be integrated and joined up. For too long we expected families to join up the professionals, but we need to do that for them.

I also accept that we need to get better at recognising how the services can integrate. We are promoting a co-ordinated approach to the children's national service framework, which will set new national standards in health and social care and in links to education. I hope that the noble Lord, Lord Rix, will be pleased that the national service framework, especially the strand on children with disabilities, is collecting data at last on those children.

When services are joined up we recognise that the benefits are enormous. Our communication aids pilot project, which offers fast-track assessment and access to ICTs for school-age children facing significant communication difficulties, illustrates what can be achieved. We hope that the children's trust pilots, announced yesterday, working in collaboration with our colleagues in the Department of Health, will model local joined-up planning. They will enable services to be commissioned and delivered for children with special needs and disabilities across education, social care and health. We believe that that will answer some of the issues noble Lords have rightly raised.

Many noble Lords talked in detail about ensuring that we supported our children in meeting their diverse needs. I agree with the noble Baroness, Lady Warnock, and the noble Baroness, Lady Blatch, about increasing the diversity and range of provision by allowing schools to collaborate and do things differently, providing centres of excellence and so on. I will read with care their comments in Hansard to ensure that we are fully addressing those issues. We need to ensure that our teachers have access to the knowledge and resources that they require.

I did not completely agree with the noble Baroness, Lady Warnock, when she said that schools have no incentive to support these children. Many schools support them incredibly well. But I agree that we must ensure that we have, for example, the right quantity and quality of speech therapists. We have been considering how to involve other professionals in providing ongoing speech therapy support, working closely with qualified speech therapists.

We offer training and support through the SEN Standards Fund, to which I believe the noble Lord, Lord Rix, referred. I recognise that we must give far more support to teaching assistants. I am in discussion with the Teacher Training Agency about how to improve the quality of training for teachers, recognising the issue of time and the importance of not taking teachers out of the classroom so much, as the noble Baroness, Lady Sharp, said. We are looking closely not only at teachers' training years, but also at their induction years.

I am also interested in ensuring that teachers have the opportunity to talk to each other, either through ICT in a virtual forum or in other ways, so that they can learn from each other. There are many teachers with many years' experience of working with children with special educational needs. That experience is locked up in their particular schools and I am keen to help new teachers or those new to a particular kind of special need to use that informal mentoring support, which can add a great deal to their work.

We often discuss whether we should give money directly to schools. I notice that the noble Baroness, Lady Sharp, is unsure about our putting money directly through to local authorities. Where schools have the resources—going back to the point of the noble Lord, Lord Lucas—they are able to make choices, particularly for children who are not statemented. They can use the support that they are able to purchase with their own resources flexibly and effectively and in a way that will benefit such children, whom they may be unsure about classifying as having special educational needs.

As the noble Baroness, Lady Blatch, said, children come in and out of the system in terms of their special needs requirements, which needs to be recognised. I am concerned—and noble Lords have raised this issue—that we ensure that for low incidence or complex special educational needs resources are available at LEA level to move with the pupils so that their needs can be addressed. I hope that I shall have more to say on those issues as we develop the system.

Dyslexia and autism will feature prominently in the work that we do. Further work with national literacy and numeracy strategies will take account of the needs of children with special educational needs, and will offer a key means of support for children with dyslexia and dyscalculia. We have already provided targeted help for teachers.

I can tell the noble Lord, Lord Astor, that the Medical Research Council estimates that 60 per 10,000 children under eight have autistic spectrum disorders. We know that improvements in identification of ASDs mean that every school is likely to have a child with an autistic spectrum disorder. Seventy three per cent of parents who have been surveyed by the NAS said that they were satisfied with the education provision made for their children. That means, of course, that 27 per cent said that they were not satisfied.

I believe that we have to raise awareness of the issues of autism, Asperger's syndrome and the entire spectrum. We have to encourage the spread of good practice and to iron out the variations described by the noble Lord to promote greater consistency between schools and education authorities. We have published guidance, which has been welcomed. It is an important step forward. I was grateful to the noble Lord for supporting that. We are following it up with dissemination events, rather than just simply sending the guidance. We want to ensure that we have the opportunity to talk to teachers and schools about it.

We believe that a multi-agency approach, clear pathways of identification through diagnosis and early intervention are vital. We look forward to seeing the report from the national initiative on the identification and screening of autism, which will inform the autism exemplar under the national service framework for children. It will set national standards of provision for children with autism. I intend to pursue that issue. I am grateful to the noble Lord for raising those issues and look forward to discussing with him further what more I can do.

Noble Lords talked about the high expectations that we need to have in raising attainment and achievement levels for children, and the need to recognise that many children with special needs achieve very well. They fulfil the full spectrum of educational ability. New data are coming on stream that will help us to learn more about children with special needs. I agree with the noble Baroness, Lady Warnock, that we need a range of bench-marks to analyse the performance of children with special needs, some of whom will not reach the national targets.

I remind the noble Baroness, Lady Sharp, that the purpose of key stage 2, level 4, is that we are confident that children can access the secondary curriculum effectively. It is important that we know where our children with special needs are. We have made some progress with the introduction of scales to measure the performance of children who are not expected to reach level 2. Guidance and target-setting for pupils operating at that level have been distributed. I agree with the noble Baroness, Lady Warnock, that there is much more work to do in that area. We know that Ofsted inspections can be valuable. They are important, but we must also ensure that schools that are strong on inclusion and support do not feel disadvantaged by the performance tables. I accept what the noble Lord, Lord Addington, said. We know that valued-added measures can help, but we have a long way to go. I shall be considering the matter carefully as part of the action programme.

I am not sure about the proposal of the noble Lord, Lord Lucas, about SEN-friendly schools, partly because I think that all schools should be SEN-friendly. It is important, however, to recognise and celebrate their achievements, which I think is the point that the noble Lord was getting at.

I was pleased that a number of noble Lords raised the issue of the future of special schools. We are committed to a more inclusive society. We recognise that an inclusive education system is paramount to that. All children can benefit from an inclusive education. It is not only those with special needs or disabilities who can do so. Our policy is that children should be taught in mainstream schools when parents want it and it works for the child, the school and the other pupils. I agree with the noble Lord, Lord Rix, that many disabled children thrive within that atmosphere. Increasingly children with special needs are being taught in mainstream schools. We are looking again at the more diverse range of provision.

The right reverend Prelate the Bishop of Hereford described a good example of co-location. That is something that I am keen to encourage. I pay tribute to the work of many of the Church of England schools in developing those new models. I am also aware of the links that the Star primary school has with special schools. I have not yet had the good fortune to visit the school, but I have met the head teacher with the noble Earl, Lord Listowel. That is again something that we want to encourage.

I shall read what was said on 18th December and shall come back to the noble Lord, Lord Pearson. I say to him and the noble Baronesses, Lady Blatch and Lady Warnock, that there is a vital and continuing role for special schools as centres of expertise and as part of the community of schools, both special and mainstream, working together with other schools and other partners. It is crucial that noble Lords and noble Baronesses understand that that vital role is there.

I know that the inclusion agenda has made some of our special schools very unsure and unclear. Therefore, a few months ago I established a working group to help us to develop a clear vision of the future role of special schools, involving special schools. It focuses on the practical measures to support the role of special schools and to celebrate their achievements. It will present its report to us shortly and I shall be glad to come to your Lordships' House to discuss it with noble Lords. It will, of course, form a huge part of the action programme. I stress that special schools are critical and important. I say to the noble Baroness, Lady Warnock, that at present 11,000 children are in residential schools.

The noble Earl, Lord Listowel, mentioned the issue of children in care. We have deliberated on that subject many times. I say to the noble Earl that from next year—2003–04—we shall introduce a new vulnerable children's grant, which amounts to £84 million, including matched funding from local education authorities. I believe that that will have some significant advantages for children in care, many of whom—26 per cent—have special needs, as the noble Earl knows.

I was delighted that the noble Baroness, Lady Blatch, mentioned the issue of transition to adult life. We have the Social Exclusion Unit report, Bridging the Gap, and are looking to see what we can do within the 14-to-19 strategy. As noble Lords will be aware, Mike Tomlinson is advising us on this matter. We have 25 14-to-19 Pathfinder projects with a strong special educational needs focus. We shall ensure that we learn more about that.

I was interested in the proposal that secondary schools should be smaller. I shall be glad to pass on that idea to my honourable friend the Minister for Schools. Of course, I cannot comment on the Scottish system, but I watch it with great interest.

Finally, I agree that we must get better at monitoring performance and sharing effective practice. I believe that our special needs regional partnerships will make a difference to that work. I carry out a continual review to ensure that we work with our parent partnerships to support parents in finding their way through the system.

Again, I am grateful to the noble Baroness, Lady Warnock, for introducing the debate. It has, as always, been extremely useful for me. I look forward to continuing the discussions and to doing more to support these children.

My Lords, I am extremely grateful to the Minister for her very careful and sympathetic response to all the points raised. I am also deeply grateful to all noble Lords who have stayed and contributed to the debate. I have learnt an enormous amount from it and, for that, I am grateful.

I believe that we still need what is rather sadly called a "safety net", but we probably need it just as much for the non-statemented children as for those who have statements. I still believe that we should soon grasp the nettle and start to question some of the assumptions that we now make about the conceptual framework within which the delivery of special education is made. But, meanwhile, I beg leave to withdraw the Motion.

rose to ask Her Majesty's Government what is the comparative significance of the euro and the United States dollar to the United Kingdom economy.

My Lords, the answer to the Question on the Order Paper of the noble Lord, Lord Pearson, depends on which way we are looking. If we look backwards in time, it is obvious that the US dollar has been of unique importance to the United Kingdom economy. I agree with the noble Lord, Lord Pearson, on that.

With the demise of sterling under the burden of financing the last war, the dollar became the world's principal trading and reserve currency. Commodities became priced and traded in dollars, and the Bretton Woods arrangements confirmed the global supremacy of the dollar. With the UK economy's dependence on foreign trade, managing the relationship between sterling and the dollar has been of critical importance to successive British governments over the past 50 years.

If, on the other hand, we look forward in time, we have to consider two scenarios. The first is one in which the UK remains outside the euro. In those circumstances, the importance of the euro to the UK economy is likely to grow in significance from—I agree with the noble Lord, Lord Pearson—a lowish base at present and may well come in time to rival that of the dollar. It is likely to involve a delicate balancing act between the two.

If, however, sterling does become part of the euro, then the answer to the Question of the noble Lord, Lord Pearson, is simple: the dollar will undoubtedly be the most significant currency relationship for the euro-land economy. as it is already.

But the Question of the noble Lord, Lord Pearson, is not really about currency relationships but about creating arguments as to why we should not join the euro. The noble Lord's views on Europe are well known to your Lordships and we have heard them again today. I do not share them. I am one of those who have long supported the European adventure and Britain's full participation in it. I believe in the desirability of building a genuine single market in Europe. I do not believe that a genuine single market can be achieved without a single currency. Britain should be part of it, although the timing of our entry is critical and it may be best left until the current political and economic uncertainties are somewhat reduced.

The potential benefits to the UK economy of joining the euro are much more than simply giving transparency to pricing differentials across the Union and the convenience of common notes and coins saving conversion costs and currency risks. A more macro economic benefit is the reduced exposure of the whole economy to exchange rate fluctuations. At present, about 40 per cent of UK GDP is in foreign trade, compared with around 14 per cent for euro-land as a whole and around 11 per cent for the United States. Foreign trade is thus less important in the euro-land economy and the economy is less exposed to external trends. The domestic economy becomes paramount, as it is already in the United States for that reason.

In Europe we are creating a domestic market of 350 million, rising to 500 million, people. This represents a massive pool of savings available for the financing of enterprise and, particularly, of research and development, all this contributing to the availability of cheap capital resources. The euro could also come to rival the dollar as an international reserve currency, providing euro-land with still further resources.

A single, seamless market in financial services, which we certainly have not yet created, means that private and institutional investors and pension funds would have a much wider choice of equity and fixed interest investment, free of exchange risk, from which to choose.

I believe that these are all fairly substantial potential benefits. But there are, of course, risks. I do not wish to deny that. Such a linking of currencies between nations has not been attempted before. But, in my view, the risks are worth taking.

We learnt from bitter experience in this country in the last century that printing money is a great temptation to politicians. We learnt that competitive currency devaluation is no recipe for economic salvation. Britain within the euro would mean four world currencies—the euro, the dollar, the yen and probably the Chinese renminbi. Capital flows would increasingly dominate the rates of exchange between the four blocs and might well cause unwanted distortions and volatility.

Therefore, if, as we all hope, the euro experiment proves to be a success, I believe that later in this century we may see moves to create a single world currency. It is late at night, my Lords, so this may be just a dream.

My Lords, I rise with considerable timidity to contribute to the debate on this important subject, which was opened by my noble friend Lord Pearson with characteristically well informed and powerful argumentation.

One reason that I speak with such timidity is that this is the first time that I have participated in a debate in your Lordships' House on the European Union. I was prompted to do so because I have listened to or read many of the previous debates on this subject, which has such momentous significance, and have become increasingly concerned. One of the reasons for this concern has been the asymmetry between the detailed and compelling evidence and arguments put forward again and again by those who may be designated Euro-sceptics, such as the noble Lords, Lord Stoddart of Swindon and Lord Bruce of Donington, and my noble friends Lord Willoughby de Broke and Lord Pearson of Rannoch.

By contrast, the responses of Her Majesty's Government and their Euro-enthusiast supporters have often seemed less convincing. They have at times seemed deficient in their lack of detailed counter-argument and evidence. What is worse, argument has at times been replaced by derision, leading me to suspect that the Euro-sceptics have the stronger case.

This has prompted me to do some homework, and my concerns have developed into a tentative commitment to the Euro-sceptic position. My contribution is therefore my first test of the validity of my perception, and I shall listen with deep interest to the Minister's reply to the points raised by my noble friend and perhaps to my own exploratory contribution.

I begin with an historical perspective and parallel. It is generally accepted that Britain's return to a fixed exchange rate system in 1925 was disastrous. The fixed rate system in question was, of course, the gold standard. The locking-in of the pound to the currencies of Britain's major trading partners and competitors led ineluctably to the general strike of 1926, then to severe unemployment and its attendant hardships. Only when Britain left the gold standard in 1931 did her economy recover.

The story of that disastrous decision has been well told by the late Lord Jenkins of Hillhead in his magisterial biography of Churchill. In 1925, Churchill was Chancellor and Norman was Governor of the Bank of England. This is how Roy Jenkins told the story:

"Nearly all the bien-pensant sources of advice were unanimous that it was Britain's interest and duty to return to the Gold Standard … Churchill's minutes were masterpieces of pungent questioning whereas the replies took refuge in a misty higher wisdom … The direct replies to the Churchill minutes … were splendid examples of substituting superior wisdom for rational argument … Norman, the great Governor, was even more sublimely bland. In the opinion of 'educated and reasonable men' he wrote, 'there was no alternative to a return to Gold … if not the Chancellor will be abused by the instructed and posterity—.

Churchill lost the battle, as we know. Roy Jenkins went on:

"The momentum of conventional wisdom swept his support away … the whole story was a remarkable example of a strong not a weak minister nonetheless reluctantly succumbing … to the near unanimous, near irresistible flow of establishment opinion … [and] the ability of such a near unanimous concentration of advice to be wrong … as a result there was committed what is commonly regarded as the greatest mistake of that Baldwin government".

The parallels with the present are obvious. Lord Jenkins was not only a distinguished Chancellor, he was a supporter of all things European. I cite the phrase about,

"the ability of such a near unanimous concentration of advice to be wrong",

because it may hold lessons for the present debate about Britain's membership of the European Union.

I shall leave discussion of the current short-term economics of Britain and the euro to colleagues far better qualified than I am. My focus is the longer term: the next 50 years. It is no use just looking at present-day economics, vital as they are, because joining the euro, as the Treasury quite rightly keeps on reminding us, is for all eternity. The decision we may be about to take must be the right one: not just for the next five months or five years, but also for the next 50 years at least.

What is the prognosis for the next 50 years? The European Commission has just hazarded a guess in its review of the EU economy in 2002 which came out just before Christmas. It predicts that by 2050 the current 15 EU members states' share of world output will have shrunk by 44 per cent, from their present 18 per cent to 10 per cent.

Meanwhile, the United States' share of world output will increase from 23 per cent today to 26 per cent in 2050. One of the reasons for this projected divergence between the EU and the United States is the sharply contrasting demographic paths which each is predicted to follow. I shall cite projections produced by the United Nations Population Division, as they are probably as impartial and bias-free as any. Perhaps I may highlight some examples of the implications of projected demographic changes drawn from the Global Britain Briefing Note No. 18, entitled Demographic Change 2000–2050.

The projected EU 15 over-60s population in 2050 is 53 per cent higher than today. However, the projected working-age population of the EU 15 in 2050 is 28 per cent lower overall than today—a loss equivalent to the combined working populations of nine existing EU members: Austria, Belgium, Denmark, Finland. Greece, Luxembourg, Portugal, Spain and Sweden.

Enlargement to include the 10 nominated first wave countries would exacerbate the overall percentage decline in working-age population. The position of other potential European candidates for accession—for example, Bulgaria, Romania or Ukraine—is even worse.

The economic and social implications of such projected demographic changes are far-reaching and disturbing. Time permits me only to highlight a few examples. First, at the geo-strategic level, the United States of America will become even more powerful than it is today. economically, militarily, politically and culturally. Europe and the EU will decline relatively, economically, militarily, politically and culturally.

Secondly, at the geo-economic level, growth in GDP, market size and equity returns will occur outside Europe whereas the EU single market will be a shrinking market, unattractive to foreign investors.

Thirdly, at the EU level, even with enlargement, the tax base will shrink; tax rates and debt will have to increase. Shrinking and ageing populations mean more demand for healthcare and pensions, with fewer people to provide them. Most EU member states will see falling demand for houses, schools, factories and shops, with falling asset values and investment. This will affect the financial and equity markets on which pension provision depends. Sharply diverging demographics within the EU will make EU-wide one size fits all policies even more inappropriate in many spheres—monetary, tax, labour market, agricultural, asylum, immigration, environmental and so on.

In conclusion, the demography-induced fiscal and budgetary implications of joining EMU, and indeed of staving in the European Union at all, will grow even more alarming. Therefore, it follows, I believe, that no matter what the short-term economics of joining the euro may be, searching questions must be asked about the wisdom of this country tying its fortunes to a grouping —the EU—whose future looks so problematic. The Prime Minister says that our destiny is Europe, but the last three centuries tell a different story. From looking at the evidence, I can only conclude that our interests are more global now than at any time in our long history and it is far from self-evident that those interests point to ever-growing, greater integration with Continental Europe.

Does the Minister disagree with, or can he disprove, any of the figures I have presented; or does he disagree with the implications of those figures I have identified? I welcome any reassurances he can give which will assuage my concerns—concerns which opinion polls show are now shared by a growing number of people throughout this country.

My Lords, first, I welcome the maiden speech of the noble Baroness, Lady Cox, on the subject of Europe. We all listened to it with great interest and respect. It was knowledgeable and to the point. I sincerely hope that in the future we shall hear a great deal more from her on the subject. Secondly, I thank the noble Lord, Lord Pearson, for raising the issue and the manner in which he did so. Again, his speech was full of knowledge, statistics and good sound common sense. I support his praise for the noble Lord, Lord McIntosh. The noble Lord is the rock on which the Government in this House stand. I do not know what they would do without him. He is so versatile. He can be tough; he can also be soft; and he is always polite. We are indeed grateful to him for the enormous work he puts into everything he does in this House.

I should like to pick up on one or two points raised by the noble Lord, Lord Pearson. The first relates to trade and jobs. It is repeated time and again by government spokesmen that 3 million jobs will be at risk if we do not do this or that, if we do not go into the euro and if we do not become further integrated into Europe. They are trying to frighten the people of this country into believing that they could lose 3 million jobs if we do not join the euro and scrap the pound. Of course, it is a nonsensical argument. It simply is not true. If 3 million jobs are at stake in this country, more than 3 million jobs are at stake throughout the other countries of the European Union. Those countries are just as dependent on their exports to us as we are to them. If all exports and imports stop, they would be at the losing end because they export more to us than we export to them. So the idea put abroad that our trade with Europe will cease simply and solely because we will not scrap the pound or do everything the Europeans want us to do simply does not make sense.

Indeed, our adverse balance of trade with the EU runs at about £4 billion per annum. If one translates that into jobs on a value added basis of, let us say, £15,000 per capita that means that we are 300,000 jobs in deficit. In other words, if we were not in the EU, we might very well have more jobs rather than fewer. I wish the Government would stop using this ridiculous argument. It has been used before. It was used during the only referendum held on whether we should join a Common Market, not a European Union. Again, it was bruited abroad that to save our jobs in the car industry, or any other industry, we must join the Common Market. Of course, that has not happened—it has not worked, as we all know.

I remember Harold Macmillan saying that the reason why we had to join the Common Market was that British industry should feel the chill wind of competition. British industry—he referred to the manufacturing industry—has indeed received the chill wind of competition. Manufacturing industry has reduced from 32 per cent of GDP in 1972 to 18 per cent, and employs fewer than 4 million people. That is the result of what happened, so let us hear no more about the 3 million lost jobs.

As the noble Lord, Lord Pearson, remarked, only 12 per cent of our GDP is involved in exports to Europe. That is why small businesses are not in favour of scrapping the pound. They fear what will happen if we scrap our pound, and scrap our control of our economy, and give them over to a bunch of bureaucrats in the European Central Bank and elsewhere in Europe.

The overall balance of payments deficit is sustained to a large degree by inward direct investment. Again, allowing for the Netherlands distortion, the largest part of that inward direct investment comes not from the EU but from the United States and Canada, which provide 58 per cent. The rest of the world, outside the EU, provides 17 per cent. Only 25 per cent comes from the EU.

If one considers the UK's investment in other countries, one finds the same thing. The United States and Canada receive 35 per cent of our investment overseas, the rest of the world 43 per cent, and the EU only 22 per cent. As the noble Lord, Lord Cobbold, said, our trade with the rest of the world is very important and large—but it is with the world, not simply with the European Union.

I should claim an interest as one of the founder members of Global Britain. Like the noble Lord, Lord Pearson, I shall put one of our briefing notes, giving details of inward direct investment, into the House Library.

We do not have to peer into the future to know what could happen if we were foolish enough to give up our currency and go for the euro. We have only to look at Germany, which once had the strongest and most vibrant economy in Europe. What is happening to Germany now? It is on the verge of recession. Production has increased by only 0.2 per cent, which means that Germany will go into recession very shortly. But Germany can do little about it because it does not have control of its own currency. Things are going to get worse because of that. Just at the very moment when Germany needs a bit of a devaluation and just at the time when it needs its currency to reduce in value, it is going up in value. That will hurt Germany very much indeed because it depends very much on its exports and, of course, it will be more difficult to export because of the rising value of the euro which is the only currency it now has. That is an example of what could happen in this country if we lost control of our monetary policy, which would eventually lead to the loss of our fiscal policy as well. As I say, Germany needs an increase in the value of its currency, which is now the euro, like a hole in the head.

Finally, it has surely now become clear that scrapping the pound is not only about economics and finance but about the creation of a European superstate dominated by the great duumvirate, France and Germany, who have made their intentions very, very, very clear only this month. It really is time for the Government to re-examine their policy of "me tooism" and make a start by recognising that scrapping the pound means scrapping the UK's monetary and fiscal independence and would put our very existence as a nation at risk. It really is time not to mess about with the euro but to say no to it.

My Lords, my noble friend Lord Pearson casts his Rannoch fly over deep waters of the lochs of Europe again and again. We must admire his persistence. Unlike many people, he is no turncoat.

I must begin my latest address on the European subject by reminding noble Lords opposite of the lengthy period of time when the Labour Party refused to send anyone to the European Parliament and was totally anti-European until the moment when it felt that there was a political benefit to be gained from Europe. At the time of the referendum I believe that the theme that was cast around was, "Britain in Europe: it is our business to be there". Those of us who were involved in trade and the financing of trade rather wished that the government had kept out of things because we could trade anywhere. We had all the mechanisms necessary and all we wanted was political stability.

I take your Lordships back to those days long ago when we had exchange control and the dollar premium and when we ourselves were perhaps the best in the world at calculating all that. That wonderful department in the Bank of England headed by Miss Hiscoth suddenly one day disappeared from view. All we looked for were stable currencies. We found that one of the biggest problems was sterling itself because sterling had become a reserve currency, possibly unwittingly and unwillingly in the post-Empire days. We found ourselves in conflict with the dollar while we were—as the noble Lord, Lord Cobbold, pointed out—still paying not for one world war but for two. We found ourselves stretched and pushed and we could not understand the movements of the eurodollar. That was due to the introduction of interest equalisation tax in the United States which led to a pool of dollars being kept abroad to finance other people's trade.

Sterling in general had been used to finance a large chunk of trade world-wide, but as our world role fell back, and the instability of sterling became so desperate, fewer and fewer people used sterling for trade finance. Now we come to that strange thing, the ecu. When I was on the Council of Europe I used to support Sir Brandon Rhys Williams in his desire to introduce the europa. Your Lordships will recall that in Henry VII's or Henry VIII's time there was the first golden ecu of the sun and the ecu doré for financing trade. When we came to the re-introduction of the ecu, it was felt that it had certain political overtones. My colleagues in the banking world advised certain senior British officials. We proposed the introduction of the parallel ecu, which could be used for financing trade and the reserve currency against which other countries could set their benchmarks, including ourselves.

The policy of noble Lords opposite and of their Government is most confusing. Not one of the five tests which they would like to apply could work at the present time. We live in troubled times. We look at what may happen to people's savings, the stock market, and currency fluctuations. I recall as a young boy often being lectured by my great uncle, Stafford Cripps, who had the awful job of devaluing sterling for the first time. The currencies of the world would always find a level against each other against which people could calculate. It would be 1:1, 1:2 or 1:3. As noble Lords know well, the dollar is now one dollar to one euro. The relationship between the kilometre and the mile is exactly the same; a euro is two-thirds of a pound. These currency movements often stabilise and that is where we are at the moment.

I remind the noble Lord, Lord Stoddart of Swindon, of that most interesting time when we were on a committee together studying what would happen when oil ran out. I believe it was Select Committee B. We asked that if manufacturing industry disappeared, what was going to replace it. Someone said that if there were service industries, probably we would have to service someone else's manufactures. The fact is that today we do not manufacture anything. We assemble, or as some people have been known to say, we down-size and out-source and we put things together. We service and we service, and often we do not say please and thank you. Our manufacturing base has gone. We have shifted from having for nearly 100 years a surplus income from manufactures to having our first deficit. That deficit grows and grows.

To say that we should concentrate on linking our currency to one within the continent of Europe is strange at the moment. The noble Lord, Lord McIntosh, will recall something he said some time ago. What happens when one tries to bring currencies together and not all parts of the economy come together? There are underlying pressures that do not emerge at first; they emerge later.

The pressures we face with are that most of the continent of Europe has already spent substantial amounts on infrastructure. They have roads and railways which work; they have hospitals and schools. We have fallen so far behind on capital investment for infrastructure that it would have a major impact if we tried to link our currency too closely to others at this time.

Another matter is the wonderful word "arbitrage" which only emerged when there were differences between currencies or prices. Our currency was no longer linked to gold so the Bank of England sold all the gold it possibly could. Now we find that the value of gold has shot up at an almost incredible rate. Had we retained it we would have been better off. No one believed that we would return to gold because we believed that there would be stabilisation within stock markets and that currencies would remain stable.

We also forgot that as different taxation demands, which are not harmonised, emerged within countries, so it became cheaper for every country to buy in a foreign currency particularly if they could do it gris or noir without being accused of speaking French. It is not a good idea to buy certain agricultural machinery in one country when you can buy it cheaper in another. We know the argument about motor cars.

These differences in prices are rising all the time and now also apply to food. This is due to pressures of differential levels of taxation, the burden placed on employment or to the restriction on wages and the requirement to create better benefits and shorter working weeks. The differences between the countries are greater than they have ever been. My old friend Sir Basil de Ferranti worked hard on the question of non-tariff barriers. We have so many of them at the moment, which is unbelievable, but very few are legal.

What do governments do? They seek to govern by rules and regulations and it is those regulations themselves which are now starting to throttle large chunks of our own commercial sector, which in general is extremely honest.

I find it very interesting at this moment, and of particular importance, that the wild boar shooting season came to an end yesterday, I believe. The wild boar has suddenly become rather intelligent and does not get shot so often, so there has been a lower puntering of wild boar this year than ever before on the continent of Europe. Yet there are more and more of them.

What most people deem important to them is their way of life. I carry ecus and use ecus. There is no problem about a British company invoicing in ecus, dollars or anything else. It only needs a little calculator, which people can buy and have no worries. What concerns people is that, if we are in a scene with the potential of war, we do not have stability, and instability breeds fear. It is also a happy hunting ground for the noble Lord, Lord Pearson. If he keeps promoting his ideas, he will find a time when he will be absolutely right and a time when he will be absolutely wrong. For the moment, I conclude that no one is absolutely right. It is a time to sit back, watch, think and wait and see what happens.

My Lords, if noble Lords will consult their stopwatches, I undertake to speak well short of the three minutes that I am informed are permitted in this gap.

I was driven to take part with one purpose only, which was to underline something that the noble Baroness, Lady Cox, said in quoting the late Lord Jenkins's quite excellent biography of Winston Churchill. He recounts that in 1925 the great man, against his own judgment and yielding to the predominant expert opinion, restored the pound to its pre-1914 value. I think that I recall from student clays that that was 4.866 recurring dollars. Among the results, as she said, were the general strike, record unemployment and so on, which were not relieved until 1931, when a so-called coalition government devalued the pound from that level to something a shade over four dollars to the pound.

The trouble with the euro is that the initially fixed rate is, as the noble Baroness said. for ever. The possibility of a later adjustment to meet changing circumstances is completely ruled out. When we contemplate joining, it is no consolation to me to think that the Germans in particular, and also the unhappy Irish, are now themselves suffering from a false rate of exchange between their natural currency—in Germany's case the mark—and the euro. They cannot change that rate of exchange and it dooms Germany, at least for the foreseeable future, to unemployment, retarded growth and all the other associated miseries. I believe that that logic reinforces the lesson that the noble Lord, Lord Pearson, has raised tonight.

My Lords, I would like to follow the noble Lord, Lord Selsdon, in his almost philosophical journey through our monetary and trade history, but I want to concentrate on the two main points raised by the noble Lord, Lord Pearson. I think that we are all grateful to him for raising the issues because he makes us think about fundamentals. The only snag is that I had some difficulty in following part of his argument.

Let us start with the background of our trade in goods and services. I shall take the figures from the Pink Book as I have them for 2001, which show that our exports to the Euro 12 were 50 per cent of our trade, with 3 per cent added for Sweden and Denmark. That makes the total for the EU 53 per cent. In comparison, the United States was 17 per cent, so we start with the proposition that our trade with the rest of the European Union is at least three times as much as that with the United States. The others are divided in different places.

This matter is important because the impact of a single trade area is considerable, especially if it is fortified by a single currency. The single currency means that trade is increased. For example, it is interesting that when there is no single currency, as between Canada and the United States, the average Canadian province trades 20 times as much with another Canadian province which is equidistant and about the same size as it does with one of the states of the United States because there is not the same currency. If one compares that with the figures for the European Union, one finds, for example—I take my figures from Eurostat—that in 2001, France's trade with other EU countries was more than 30 per cent and that the same was true of Germany, whose figure was 32 per cent. In both cases, the amount of trade has increased since the euro was introduced. In the case of the United Kingdom, our share of trade with other EU countries as a proportion of GDP has slightly declined since the euro was introduced, from 23.2 per cent to 22.8 per cent. Trade tends to be increased in a single currency area.

Despite the vagaries from time to time in currencies, there seems little doubt that if one is a member of a single currency, there is greater stability of the currency itself. For example, in the years between 1985 and 2003, taking the value in 1990 as 100, the pound was as high as 110 in 1985 but by 1995 it had gone right down to 88; now it is back to 110 again. If we had been in a single currency at the time, figures show that the variation would have been very much less. In 1985, we would have been at the ratio of 88, for example, to the deutschmark and the same relation to the deutschmark would have been 92 today; however, the period between 1991 and 1998 would have been 100. Inside a single currency area, it is likely that the pound would have been much more stable.

The noble Lord, Lord Pearson, referred to the fact that more of our trade is invoiced in dollars than in euros. The figures that I take from Customs and Excise show that about 44 per cent of trade is invoiced in domestic currency, 32 per cent in dollars and 20 per cent in euros. The noble Lord, Lord Pearson, draws from that the conclusion that therefore the dollar matters more. That appears to be the most elementary error. The question is about the stability of the domestic currency in relation to its customers. If I sell in pounds—or, for that matter, in euros or dollars—the question is: what will the goods be worth when I get paid? That is particularly important in the case of long-term deliveries.

The issue at stake is: what is the relationship and the exchange rate stability in terms of our currency and our top customers? There is no doubt that the biggest currency, whichever currency it is financed in, is that of the European Union. Dollar invoicing is irrelevant from that point of view. The point is: what is the stability relationship between our currency and our most important customers? The euro is now the currency of our most important customers. Floating has not had the advantages that the noble Baroness, Lady Cox, suggested. The deutschmark has varied from 3.32 deutschmarks to the pound in 1989, down to 2.22 in 1995, back again to 3.30 and now it is again dropping.

Another real question is: what do outsiders think? What is the view of those who invest in Britain? The Japanese do not invest in Britain in order to export to the United States; they invest in Britain in order to export to Europe. Sales in Britain are relatively limited. American investors do not invest in the UK in order to export to the United States; they invest in the UK as a base for Europe. The same applies to German and French investment in the UK.

The United Kingdom may have certain special advantages, but if currency relations put them at a disadvantage because of instability, that investment will decline. It takes time; these things do not happen overnight. But the effect of our exclusion from the eurozone is becoming apparent. To take Eurostat figures, in the period 1997–98 when the euro effectively began, foreign direct investment in the United Kingdom as a share of the total investment in the European Union was 52 per cent. In the period 1999–2001 it dropped to 24 per cent. In 2001, foreign direct investment in the Netherlands was higher than in the United Kingdom.

There are also signs of UK firms relocating outside the United Kingdom. The Japanese have made it clear that if we do not join the euro there will be no more investment in the United Kingdom.

My Lords, the noble Lord will know that Honda has a great factory in Swindon. It has recently said that it does not matter what happens with the plan; it is going to stay there.

My Lords, the position has been made clear by Toyota and Honda: as far as they are concerned there will be no further investment in the UK if we do not join the euro.

Foreign investment is important for a number of reasons. There are three main arguments for the euro: stability, to which I have referred; competition, which has often been argued about; and foreign direct investment, on which I shall concentrate. It is not only a question of jobs and the enormous contribution it makes to our exports, but the most important factor is its impact on the efficiency of management. Multinational companies are far more efficient than domestic companies, largely because they face tougher competition. They give a lead on productivity and innovation—one only has to look at the number of patents obtained.

Foreign direct investment has had an enormous beneficial impact on this country. If we stay outside the European Union and the eurozone the figures demonstrate, as clearly as figures can demonstrate anything, that investment from abroad will suffer. It will affect our productivity and prosperity. If the recommendations of the noble Lord, Lord Pearson of Rannoch, were to be followed, the United Kingdom would be much the poorer.

My Lords, my noble friend Lord Pearson of Rannoch has done a great service by enabling us to have this short debate on an issue of vital importance. We can only touch parts of the picture in the time available, but it has been a good debate. If I may add a personal note, it has been a good debate so far for the noble Lord, Lord McIntosh. considering all the nice things that have been said about him. I hope that nothing that will be said in the final few minutes will upset that record.

As always with these issues and the underlying issue about the virtues or otherwise of euro membership, opinion is divided. It is divided in this House; among the captains of industry—although it seems to be tilting a little against at the moment; among the general public—although again the tilt is away; and among the media, some of which take one view and some another. One of the fascinating events of the past few weeks is the sign that the pink one, the Financial Times, has become distinctly more middling and less committed to the idea that it is vital to join the euro soon. That is a fascinating trend.

My noble friend Lord Selsdon and other noble Lords rightly made the point that we are trying to look at this one issue, although it is not a narrow issue, in the great economic sea against a background of enormous turbulence in the world economy. A vast recession is gathering force and, as everyone knows, the world's stockmarkets have a long way down to go.

Here in the UK, not only stocks, but house prices are far too high and are bound to crash. Budgets throughout Europe and the world are going awry. Huge trade deficits are building up in America to unsustainable levels. We have also had our share of enormity in our trade deficit. Trying to look at the issue of the euro, its virtues and positioning in our trade against that type of background, is like trying to row a small boat in a sea with enormous waves and with much bigger ones to come.

Every economist who tries to be objective knows that the famous five tests to which the noble Lord, Lord McIntosh, will no doubt refer, as he often does when answering questions in the House, cannot be unambiguous and clear. Every senior Treasury official—the people right at the top of the thinking apparatus of Government—has said that they are bound to be ambiguous and bound not to be clear. That is the nature of economics. We cannot possibly assume that even if the tests are carried out, they will be more than momentarily valid. What looks like convergence one day does not the next. That is the case in normal times, but it is even more so at present.

I may sound a little sceptical in general, aside from the sin or otherwise of Euroscepticsm, if I say that this is about the attempt to apply the so-called science of economics, which it is not, to the heaving changing scene. In my view—and I had the temerity to write a book on the subject—all economic statistics based on national aggregates are extremely dangerous and extremely unreliable, especially in the hands of political amateurs.

Nevertheless, having said all that, I shall now go into reverse and try to hang on to some specific facts that have come out of the debate. Fact number one, raised by my noble friend Lord Pearson, is the Customs and Excise official currency of invoice figures applied to the currency denominations of our trade. I am using the word "trade" in the broad sense of earning moneys from overseas by export and paying moneys overseas for imports of services, goods and other items—our overseas transactions in other words.

One would have to be almost a nihilist to deny that 32 per cent of UK trade is denominated in dollars, 20 per cent in euros and the rest in sterling and other currencies. There are less official views, some of which are put out by the organisation referred to by my noble friend Lord Pearson, that put the figure much higher. One has to take into account many commodities, including oil, that are priced in dollars. The noble Lord, Lord Taverne, rightly asked whether that was a relevant factor.

The figures are 32 per cent and 20 per cent, which appears to contradict the famous—I was tempted to say notorious—answers of 26th and 28th February last year when he said at column 1527 on the 28th that the US dollar comprises only 16.5 per cent of overseas transactions.

It must be a puzzle for the observer or spectator that there are two such contradictory perceptions. Not for one nanosecond would I suggest that the noble Lord, Lord McIntosh, was misleading the House. He is far too upright, assiduous and nice—well, most of the time—to go down that road. He would perhaps concede that somewhere up the briefing chain there was some misleading done by those who advise in dragging out the trade weighted sterling index as the guide to the general assessment of the importance of dollar trade versus euro trade or trade in other currencies. I believe that the figure of 16.5 per cent fails to convey completely the reality of the situation. As my noble friend Lord Pearson and others have pointed out, the TWSI covers only trade in goods. It excludes large areas of the world and is hopelessly out of date.

The fact is that manufacturing in the modern world—the making by hand of physical objects—first, accounts for less than half the UK external payments. Secondly, again, as some of us have tried to point out in the past, the whole concept of identifying a different area of the economy called "manufacturing" is probably out of date. Vast parts of the so-called "manufacturing economy" are in fact services, technology and software, and large parts of the software and service industry include the structure of physical objects and manufacture. The matter is vastly confused, and I believe that our statisticians do us no service by clinging to these outdated definitions of the catallactic of industrial activity. However, we must live with it. That is the first point to have come out of the debate.

There appears to be a complete conflict, and I believe that we must accept that either the trade weighted sterling index is not a very good guide or that the Customs and Excise official currency of invoice has simply got it wrong. I do not believe the latter. I am sure that, looking back at his remarks last year, we would all like to hear how the noble Lord, Lord McIntosh, now sees the situation.

The other issue that has come up—a vast range of issues is connected with our debate tonight and we cannot begin to debate them all—is the question of volatility, which is related to the question of dollar denominations of trade. The noble Lord, Lord Cobbold, referred to that, as did the noble Lord, Lord Taverne.

I believe that we know one or two facts rather than statistical opinions. We know that, against the dollar, in recent times sterling has been the most stable of all currencies. Indeed, this morning the Daily Telegraph—not always the most reliable newspaper, but in words which sound to me reasonably objective—states that, while other currencies fluctuate, measured by its trade-weighted average, which is surely the most objective way to judge its international value, the pound has hardly budged for years. It is, in short, one of the world's most stable currencies. That appears to be the record in a time of extreme turbulence. It is a time when, as the noble Lord, Lord Taverne, reminded us, the euro has been way down and way up and we are probably heading into a period when the dollar will slide away.

Secondly, with regard to the issue of volatility, we have the extremely remarkable and learned report from the National Institute of Economic and Social Research, as has already been mentioned. It comes from Christopher Taylor, who is the former chief adviser to the European division of the Bank of England. The report repays study because it casts enormous light on the issues on which we are trying to focus this evening.

Mr Taylor's three most important conclusions out of a very learned and detailed paper are that, first, sterling has, always has had and is bound to have dual affinities to the euro and to the dollar. He sees the prospect of more polarisation between the euro and the dollar and believes that maintaining those affinities will become more of an aching, stretching job even than it has been in the past.

Secondly, he speaks of the likelihood of greater volatility of the euro against the dollar as time goes by. Thus, if we are riding the euro horse, we shall be rocked around against the dollar far more than we have been over the past few years.

Thirdly, he establishes that, when the split in trade between the euro and the rest of the world includes services and investment income, the figures are 48 per cent for the European Union and 52 per cent for the rest of the world. He goes into that in such detail that I honestly do not believe there is much point in arguing further about the precise percentages because they are very closely around those levels.

Mr Taylor's conclusion is that if we become euro members, volatility will only marginally reduce—that has been one of the main arguments of the supporters—and could, depending on a number of factors, worsen. Those appear to be the two hot issues of the debate. Many others have been raised, including foreign investment flows and the Japanese, which I would like to debate with the noble Lord, Lord Taverne, at another time, because in the words of Ernest Bevin, "I have heard different".

What we have heard tonight is important. If there is to be honest and open debate, the facts and conclusions should be clearly on the table. In the end, there will be a political decision. The British public know that, even if the politicians pretend that it is otherwise. It will also remain an extremely difficult decision, and I suspect that in the network world it will become more and more difficult to assess the final policy move on the euro.

The dual affinities are there; we are either doomed or blessed to live with them. I believe that we are blessed to be the land in between the great lumbering blocks. Giant blocks, like dinosaurs, have a limited lifespan, but that is the way it will be. It has been useful to discuss a part of the issue this evening.

My Lords, I have enjoyed the past hour, listening to three speakers quote so fully from the well written, but badly argued, papers by Global Britain. I have enjoyed seeing the noble Baroness, Lady Cox, added to the small but doughty band of Eurosceptics. They had better be careful if they want to hold on to her because she may be too rational and too respectful of facts to stay with them. Their numbers are declining. It would be sad if they died out because they give so much innocent amusement to the House.

The noble Baroness, Lady Cox, accused the Government of sometimes answering with derision the arguments of the noble Lord, Lord Pearson. I am tempted towards derision, but I shall try to avoid it. There were so many plain, vulgar errors in his analysis and his speech that I must point them out, but I shall have to try to maintain a straight face while doing so.

First, the noble Lord, Lord Stoddart, is right: we are a trading nation. Our exports of goods and services in 2001, the year for which we have the most recent figures, were 27 per cent of GDP and our imports of goods and services were 29.3 per cent of our GDP. Clearly, trade is important to us, but that does not reflect the measure of importance to us of the eurozone or the United States, or NAFTA, which I believe the noble Lord, Lord Pearson, wants us to join. A figure of 10 per cent of exports in goods to the euro 12 does not mean that they are not important and that 90 per cent of our trade goes somewhere else. That is plainly wrong.

My Lords—

My Lords, I do not have time for interruptions. We can correspond, as we do so happily.

Taking our exports in goods and services, our trade with the euro-zone is 13.4 per cent of GDP; our trade with the United States is 4.7 per cent of GDP. That is the balance. Even if we took NAFTA it would be only 5.3 per cent. Our imports in goods and services—I am not talking about only manufacturing but also about goods and services—are 14.2 per cent with the euro-zone and 15 per cent with the whole of the EU, but only 4.2 per cent with the United States and 4.8 per cent with NAFTA. Whichever way you judge the matter, it is clear that our trade with the euro-zone, as a percentage of GDP, and certainly as a percentage of total trade, is enormously more important with the euro-zone than with the United States.

Let me go on to the figures, as a percentage of trade, because that is the most realistic measure. The noble Lord, Lord Taverne, gave some of the figures. Our trade with the EU as a whole—exports of goods and services—constitutes 53 per cent; for the euro-zone it is 50 per cent; for the United States it is 17 per cent; for NAFTA it is 20 per cent. Of imports of goods and services, the EU accounts for 52 per cent; the eurozone for 49 per cent; the US 14 per cent; and NAFTA 17 per cent. By no stretch of the imagination can it be thought that the United States is more important to us.

The noble Lord, Lord Pearson, then tried to pull the wool over our eyes by talking about the currency in which we invoice. It is where we do the trade, not the currency in which we invoice, that matters. The noble Lord, Lord Taverne, made clear that a large proportion—I do not have his figure to hand—of UK trade is in sterling. That does not mean that we are trading with ourselves; that is international trade. It is just convenient to invoice in sterling. If we entered the euro, all that trade would instantly be invoiced and denominated in the euro.

Imports and exports of oil throughout the world have always been in dollars. Our trade in oil with the Middle East is denominated in dollars. That does not have anything to do with the importance of our trade relations with the United States or the volume and value of our trade with the euro. That is such a vulgar and simple error that it is difficult to believe that it has survived debate in this House until now.

The noble Lord, Lord Pearson, raised another confusion: the issue of the index of exchange rates. He is right about that: the Bank of England's exchange rate index is far from perfect. As he said, it is based on an assessment made many years ago; and it is based on manufacturing rather than manufacturing and services. However, it is the only index we have, and follows the methodology used by the International Monetary Fund, so we must use it. But it is not relevant to our argument, because no policy decisions are taken on that basis. Policy decisions on monetary policy are largely taken on bilateral exchange rates rather than on any such basket.

So on all the aspects on which the noble Lord, Lord Pearson, bases his argument, he is just plain wrong. He is wrong about the balance of trade between the United States and the euro-zone. He is wrong about interest rates. He is wrong about invoicing—as if invoicing were important. I do not want to hear that argument again; I have had enough of it.

Some other interesting things were said to which I should like to refer. I have not much to say to the noble Lord, Lord Cobbold, because I agreed with so much of what he said; I can say only, "Hear, hear". The noble Baroness, Lady Cox, gave us an interesting historical analogy with the gold standard. I recommend that she reads the 2002 Cairncross lecture by Ed Balls, the economic adviser to the Treasury, in which he goes into great detail about that point, pointing out that to a large extent what went wrong then was that a political timetable was set, rather than doing what we do now, which is to decide what is in the national economic interest.

I also enjoyed the history lesson given by the noble Lord, Lord Selsdon. The points that he and the noble Lord, Lord Cobbold, made were relevant. Yes, of course it was true that after the war the dollar was so dominant that it became and stayed a powerful denominator for international trade.

I was interested in what the noble Baroness, Lady Cox, said about demographic change over the past three centuries. I should like to think about the figures she produced. She challenged me to say whet her I disagreed with the figures or the interpretation. As they are new to me, I shall have to read them and respond to her in more detail.

The noble Lord, Lord Stoddart, is right about the decline of the manufacturing industry in this country. But, as I pointed out in response to a question from him, that decline in the manufacturing trade is common throughout the more developed world and not peculiar to this country.

A number of noble Lords rightly referred to the importance of inward direct investment, although they drew different conclusions. There was a minor point about the Netherlands effect and I shall write to the noble Lord, Lord Stoddart, about that—not because I cannot give the answer but because it is so long, detailed and incomprehensible that it would bore your Lordships silly. I believe the noble Lord's argument concerned the issue of intermediate holding companies and I should like to answer him in detail about that.

Certainly, it is true that direct investment in this country, as the noble Lord, Lord Taverne, said, does not come particularly from the euro-zone—although it does partly. However, when it comes from countries such as Japan, it does not come because of our trade links with the United States it goes directly there— but because of our trade links with Europe. It would be enormously serious if we were to put that at risk and we would be putting it at risk if we were to turn our backs on Europe in any way, whether in the form of the euro or in any other way. Clearly, direct investment is an important part of the argument. That is why it is one of the five tests.

As to the related issue, the noble Lord, Lord Howell, quoted Christopher Taylor of the NIESR. However, despite some of the things quoted by the noble Lord, the conclusion of Taylor in his paper was that,

"the findings in this paper support the view that UK high-frequency exchange rate volatility would be reduced by joining EMU".

That is another important argument and conclusion from a thoughtful and interesting paper.

I am not going to go through—I would not be allowed to— the arguments about the five tests, the preparatory work, the timing and so on. I do not need to. Everyone knows that I cannot say anything new—there is nothing new to be said. If there was anything new to be said, it would not be said by me.

I have enjoyed the debate. The noble Lord, Lord Pearson, as always, has been a wonderful opponent and I have enjoyed the opportunity to set the record straight.