rose to move, That the draft order laid before the House on 1st May be approved [18th Report .from the Joint Committee].

The noble Lord said: My Lords, I beg to move that the draft Broadcasting (Independent Productions) (Amendment) Order 2003 laid before the House on 1st May 2003 be approved. Section 16(5)(a) of the Broadcasting Act 1990 provides for the Secretary of State to specify by order the meaning of the terms "qualifying programmes" and "independent productions". The Broadcasting (Independent Productions) Order 1991 was made in June 1991 to define those terms. The 1991 order was amended by the Broadcasting (Independent Productions) (Amendment) Order 1995. This draft order further amends the 1991 order. It is being laid before the House under Section 16(7) of the Broadcasting Act, which requires a draft to be laid and approved by a resolution of each House. I am satisfied that this draft order is compatible with convention rights.

The effect of the Broadcasting Act 1990 is to require the BBC. the Channel 3 companies, Channel 4 and Channel 5 to ensure that in each year not less than 25 per cent of the total amount of time allocated to the broadcasting of qualifying programmes is allocated to the broadcasting of a range and diversity of independent productions. Part I of the Broadcasting Act 1996 applies a similar 10 per cent independent productions requirement to licensed digital programme services. Among other things, these requirements are intended to implement the council directive of 3rd October 1989 which makes provision as to the proportion of a broadcaster's programmes which are to consist of works created by producers who are independent of broadcasters.

Independent producers help to promote innovation and creativity within the UK programme supply market. It is widely considered that the independent productions quota has been working well providing competition and a stimulus for originality which has benefited programme supply in the UK. However, a number of issues relating to the detailed operation of the quota have been identified and the amendments made in this order are designed to deal with those issues.

I shall explain briefly each of the amendments in turn. As regards change of ownership, the aim of the independent productions quota is threefold: to promote cultural diversity and to open up the production system to new energies and voices; to stimulate the growth of small and medium-sized enterprises, promoting creativity and fostering new talent; and to tackle vertical integration within the UK programme supply market. However, under current provisions, restrictions on share ownership of a producer by a broadcaster or an associated company apply where there is no impact on the UK programme supply market because the broadcaster does not aim any of its services at the United Kingdom.

This order means that, rather than applying to broadcasters generally, the existing restrictions on share ownership of a producer will apply only in respect of any broadcaster who provides a television service intended for reception in any area in the United Kingdom—whether or not that service is also intended for reception elsewhere. Therefore where a producer is more than 25 per cent owned by a broadcaster, provided that broadcaster does not aim any of its services at the UK, that producer will qualify as an independent producer.

The second change affects the treatment of producers who lose their independent status. Currently, in order to qualify as an independent production the producer must be independent when the relevant programme is "made". The date on which a programme is considered to be made has been interpreted as the time of transmission. Therefore, even though a broadcaster may have commissioned a programme in good faith from an independent producer, if that producer subsequently loses his independent status before the programme is made, it does not qualify as an independent production. That has caused a number of problems for broadcasters.

By allowing a producer to qualify as independent on the date on which he was commissioned to make a programme, this order will allow him to continue to be so regarded as independent even were his status to change before the programme is transmitted. This is subject to the conditions that the relevant broadcaster must have commissioned the producer in good faith in the expectation that he would be an independent producer when the programme was made and that the programme was made within two years of the date on which it was commissioned.

The final change made by the order is a technical one. Uncertainty has been expressed as to the scope of the duties to monitor the broadcasting of independent productions by the Office of Fair Trading in respect of the BBC's digital programme services and those of the Independent Television Commission in respect of other digital programme services licensed under Part I of the Broadcasting Act 1996. This order makes it explicit that the definitions prescribed by the principal order apply to digital programme services. In our view, that includes the BBC's digital channels.

The Secretary of State is required to carry out a formal consultation under the Broadcasting Act 1990. The BBC, the ITC, the Welsh Authority and the Producers Alliance for Cinema and Television—PACT, the trade association—were consulted during the preparation of this instrument.

As the House is all too well aware, the Communications Bill is currently progressing through Parliament. The policy on independent productions was outlined at an early stage in the communications White Paper. It evolved following consultations on that White Paper and on the draft Communications Bill published last summer. In particular, major changes were made following the review by the Independent Television Commission of programme supply market, published in November last year.

Noble Lords will recall that the Secretary of State asked the ITC to carry out this review in response to concerns expressed during the consultation on the draft Communications Bill, in particular by the joint committee chaired by my noble friend Lord Puttnam, about the overall economic health of the UK programme supply market and the position of independent producers within it.

The ITC report welcomed the Government's proposals,

"to permit qualification for the quota to apply to broadcasters without a UK channel presence, and to producers who are independent' at the point of commission, rather than time of transmission".

These are the two main concepts contained in the order. I think it safe to say that the issues have been thoroughly considered and, accordingly, I commend the order to the House.

Moved, That the draft order laid before the House on 1st May be approved [18th Report from the Joint Committee].—(Lord Davies of Oldham.)

My Lords, as the Minister has said, this order has been drafted to reflect the recommendations made in the ITC programme supply review and consequently to amend the definition of "independent producer" in accordance with the review's recommendations. While we welcome the extension of that definition, we do not believe that this order is the correct mechanism through which these changes should be implemented. The Broadcasting Act requires that the terms "independent productions" and "qualifying programmes" are defined by order. The meaning of the terms was first specified in the initial 1991 order, which was subsequently amended in 1995. The order laid before the House today further amends the 1991 order.

It is not clear why the Government have chosen to amend the existing Broadcasting Act rather than introduce a relevant provision into the Communications Bill, which contains the requirements for the programming quotas for independent production. I would welcome further clarification on this issue.

The order amends the current definition of who may be regarded as an "independent producer" for the purposes of Article 3 of the original order in two ways. The limits on share ownership in Article 3(4) of the 1991 order will now apply only with respect to UK broadcasters. The effect of the order will be to apply a restriction to UK producers and not to other European producers. This indicates that the Government believe that it is acceptable to own a television channel or, for that matter, a number of television channels in other European countries and qualify as an independent producer, but if a producer owns a channel in the UK, it will be prohibited for quota inclusion.

The order therefore allows Endemol, for example, which has significant broadcasting interests in Europe, to be classed as an independent producer. However, the order still prevents Fremantle, formerly Pearson, from being regarded as an independent for the purpose of the quota because its parent company, RTL, owns 65 per cent of Channel 5. Fremantle provides less than a fifth of Channel 5's programming and will be significantly affected by being classed as a non-qualifying independent. Does that really make sense?

The Government have conferred powers on Ofcom through the provisions of the Communications Bill to ensure that the programming quota is adhered to. We believe that the independent producers not falling within the definition of "qualifying independents", as specified by the order, will suffer considerably as licensed public service channels will have to take account of whether the programmes that they commission fall within the quota requirement. The consequent effect will be to damage the non-qualifying independents and therefore distort the market for independent programme commissioning. We think it would be prudent to review programme commissioning from non-qualifying independents in addition to qualifying independents to ascertain how this independent production quota is impacting on the sector.

The second modification inserts two new sections into the 1991 order and relates to the status of the independent producer. We support the proposal that an independent producer's status at the time a programme is commissioned will dictate whether the quota will be met. In a constantly evolving industry such as independent production, this clarification of the producer's status will provide the necessary certainty needed within the sector.

I hope that the Minister will rethink the order and its consequent effect on programme commissioning. We wish to encourage growth and innovation and not to punish the large independents for their success. An alternative definition of independent producers would be preferable. We believe the proper mechanism for achieving that would be through the Communications Bill.

My Lords, I thank the Minister for his extremely clear explanation of what is involved in this order. Independent television producers with a protected quota are a healthy and creative feature of the broadcasting landscape, and have been so for a long time now.

As the Minister said, the order makes three changes. One is technical and relates to digital technology. The second also reflects the fast-changing landscape. It ensures that independent programmes are defined as "independent" at the time they are commissioned and completed rather than at the time of transmission, when ownership may have changed in these fast-moving times. That seems sensible to noble Lords on these Benches.

However, as the noble Baroness, Lady Buscombe, has already made clear, it is the third change that raises more difficult issues. It deals in effect with the special case of Endemol, a brilliant and, it must be said, essentially British independent programme-making company, but now financially owned by a Spanish broadcaster that does not broadcast in Britain. In our view and as the Government appear to believe, it is a deserving special case, but it is clear from the remarks made by the noble Baroness that special cases make dubious law. This needs to be looked at very carefully indeed. Certainly it is to be hoped that this precedent does not create difficulties for our own system from other continental European broadcasting organisations. The Government and the new Ofcom will need to keep a vigilant eye on the situation.

One of the difficulties is that all this will lead inevitably to claims for quasi-independent status for other broadcasting organisations in the United Kingdom, including quasi-independent status for small ITV regional companies. At the Committee stage of the Communications Bill I expressed a nostalgic and romantic affection for small ITV companies such as Grampian and Border. In the light of what the Minister has said, I should like to make it clear that the definition of independent status is one thing—it is a vital element in the whole system of an independent production quota—and the spread of regional programme production centres is a separate matter which is equally important for the health of the British broadcasting industry.

My honourable colleague in another place, Nick Harvey, put the matter succinctly. I am happy to rest on his remarks. He said:

"An independent production house should be just that. It should be independent of the broadcasting industry, and the programme supply industry and the broadcasting industry should be kept apart".—[Official Report, Commons, First Standing Committee on Delegated Legislation, 19/5/03; col. 016.]

I endorse that view.

In the days, long ago, when I was chairman of the Independent Broadcasting Authority, the original impulse behind the independent quota was to stop the abuses of vertical integration in both ITV and the BBC which produced some of the most ludicrous and wasteful restrictive practices in the history of the British trade union movement. It is that historical background which creates a difficulty for some of the remarks made by the noble Baroness, Lady Buscombe, about the more domestic aspects and implications of the order.

In our view, it will remain an important responsibility of Ofcom to preserve, on the one hand, the purity of the independent system—it is better to keep that absolutely clear cut—and, on the other hand, to promote vigorously regional distribution of television programme-making, both among the independents that enjoy the protection of the quota and the BBC and ITV. Ofcom will need continually to remind broadcasters and programme makers that the real broadcasting regions in the UK lie a long way beyond the M25.

My Lords. I shall be brief because I do not wish to impede the smooth progress of the order. I know that the Minister will reflect on today's brief debate when we come to the Communications Bill. I agree with the noble Baroness, Lady Buscombe, that it would be highly appropriate for the Government to produce an amendment to the Communications Bill. Frankly, if they do not do so, other people will. I am sure that a government amendment would be much better drafted than anything I, for a start, could attempt.

I disagree mildly with the noble Lord, Lord Thomson. He suggested that we should not import this principle domestically. In my view, if you accept the logic of article 3(a) of the draft order—that is, that a production house owned by a foreign broadcaster is not interfering with UK broadcasting—the same logic would apply to an ITV company acting as an independent producer for the BBC.

There is a very simple definition of independence. You are an independent producer where you are not able to influence the placing of the contract for the making of the programme. It is as simple as that and I commend the definition to the Government. I hope that they will bring forward an amendment to the Bill.

My Lords, as I expected, given that our minds are honed to these issues because of the passage of the Communications Bill, we have had a short and precise debate. I have heard the representations that have been made and I have noted the indications that the Communications Bill may give rise to further discussions on this subject. So be it.

Let me reply to the point made by the noble Baroness, Lady Buscombe, and perhaps persuade my noble friend on the matter. The advantage of the order as opposed to the Bill is that it gives greater flexibility in rapidly changing times. This is the second order related to this issue since the Broadcasting Act 1991. Noble Lords will have noticed that, by a happy coincidence, another Communications Bill is passing through the House at the present time and that it would have been 10 years since change had been affected. Most of us will recognise that the process of change is accelerating all the time and that we need an order on these issues to give us the necessary flexibility to adjust to changing circumstances. Although I have not the slightest doubt about the merits of the debates and the amendments to the Bill—they help in establishing accurately the basis of the legislative framework—changes of a more limited nature enshrined in orders will increase flexibility.

The noble Baroness raised the issue of the definition of independent productions and referred to Fremantle in particular. We do not see the order as the end of the story. The issue is still very much at the centre of our desire to maintain and continue to develop a healthy vibrant programme supply market where the contributions of all creators are recognised and rewarded.

As will be recognised from our deliberations on the Bill—which we will happily continue next week—we see a very important role for Ofcom and its annual factual and statistical report in considering aspects of the programming quota for independent productions. So, through the framework of the Bill and the envisaged role of Ofcom, we are also engaged in a careful evaluation of the quotas and how they are working. Combined with the flexibility contained in the orders derivative from the legislation—assuming that the Bill is enacted—we shall have a framework for addressing these issues. We recognise that, wherever the line is drawn, there will be compelling arguments on just the other side of that line. The noble Baroness made a forceful point in that regard.

I am grateful for the remarks of the noble Lord, Lord Thomson, in support of crucial aspects of the order. The issue is not only about Endemol, although the noble Lord is right to identify that as the issue that came most sharply into focus in establishing the independent quota when it was taken over by a foreign company. It should be established that where the parent company is not broadcasting into the UK and not in any way, shape or form affecting UK transmissions, the issue of ownership is quite different and it would be appropriate to regard companies such as Endemol as independent.

That then raises the next question in regard to where the line is to be drawn: why are not other independent television companies regarded as sufficiently independent to be considered as independent producers for the quota? Our anxiety is obvious. The problem with a definition that would allow a regional ITV company producing a programme for the BBC—and allow the BBC to produce programmes for ITV—to count as independent cannot be squared with the broad objectives that underpin the whole concept of the independent quota—which is how we in this country, with our resources, increase competition, multiply the sources of supply and stimulate creativity and new talent.

I am not in any way, shape or form seeking to deny the role of the BBC or the independent television companies in terms of fulfilling criteria on creativity and talent, but the independent quota is designed to assist fresh sources of supply to be generated. The moment one translates the international position into the British one, the big broadcasters could effectively be competing in the quota area by their offshoots, defined as independent. That is our reservation.

The order contains merits which I think are recognised on all sides of the House. But circumstances are rapidly changing. This is an exceedingly exciting industry to regulate. It is enormously important to our nation. We know the significant role that television plays in our national life. I identify the order as having the merits of addressing particular issues at this time which need the case made out for them while pursuing a course in which we recognise, in our discussions on the Communications Bill, that we need to retain areas of flexibility for considering the very powerful arguments of where our lines are defined. On that basis, I commend the order to the House.

rose to move, That this House takes note of the report of the Select Committee on the Constitution on Devolution: Inter-Institutional Relations in the United Kingdom (2nd Report. HL Paper 28).

The noble Lord said: My Lords, it is a particular pleasure to move this Motion. The Constitution Committee was established by your Lordships' House in February 2001. It has been a very busy committee but this is the first report that it has recommended for debate. Because of the debate's change of date, a number of members are not able to be present and have asked me to convey their apologies.

Our inquiry was a major undertaking. It was made possible by the commitment and expertise of members of the committee, to whom I pay tribute—it is a splendid committee to chair—as well as by the exceptional efficiency of our then Clerk, Andrew Mackersie, and our specialist adviser, Alan Trench, whose knowledge and understanding of the subject were invaluable to us.

Let me begin by explaining what we do not cover in the report. We are not concerned with the principle of devolution. We have taken devolution as a fact. Nor are we concerned with the internal operation of the devolved administrations. That is not a matter for us. Our focus is inter-institutional relationships in a United Kingdom context. Given that, we necessarily concentrate on institutions that have been brought into existence. We do not have a separate institution, or institutions, for England, so we have not explored the English dimension.

I turn to our findings and recommendations. Our principal findings are summarised in the conclusion on page 51. First, each devolution settlement is different. We should speak of devolution settlements rather than refer to a generic devolution settlement. That may appear an obvious point, but it deserves stressing. Secondly, devolution has bedded in with remarkably few problems. However, problems attach to each finding. The differences in the arrangements for the devolved bodies have given rise to complaints. The commission under the noble Lord, Lord Richard, whom I am delighted to see in his place, is presently considering the workings of devolved arrangements in Wales. There are, of course, pressures for the English question to be addressed.

It is, however, on the second finding that I wish to concentrate. Crucial to devolution bedding in smoothly has been the good will on the part of those responsible for inter-institutional relationships. This good will can be attributed to the dominance of one party in the administrations in Westminster, Edinburgh and Cardiff; to the fact that many of those involved in establishing the new structures had shared experiences as MPs at Westminster and therefore not only understood the processes of British government but knew personally those involved; and to the professionalism of the Civil Service. The good will has facilitated a high level of informality in the contact that takes place. Issues are resolved on the basis of personal contact and without the need for a great many formal meetings.

The problem we identified is prospective rather than immediate. Conditions will change and, in some respects, are changing. One cannot proceed on the basis that one party will always dominate the administrations in Westminster, Holyrood and Cardiff Bay. The number of Ministers in the devolved administrations with experience of Westminster is diminishing. We now have a Scottish First Minister who has not been a Member of another place; few of his Ministers have been MPs. In the Welsh Assembly government, only the First Minister, Rhodri Morgan, has sat at Westminster. Although one retains the high level of professionalism of the Civil Service, one cannot proceed on the basis that the good will that underpins relations and gives rise to a high level of informality will continue.

Given that, we believe that preparations need to be made for the time when there will be administrations in place of different political persuasions. In particular, we see the need for relations to be put on a more formal basis, and on a more transparent basis. One of the problems of informality is that little is open and recorded.

We stress in the report that it is important not to wait. We think it prudent to anticipate and to start taking action now. For that reason, we recommend that further use should be made of the formal mechanisms for intergovernmental relations. These encompass regular meetings of the formal Joint Ministerial Council, the regular updating of concordats and a strengthening of the devolution unit in the Office of the Deputy Prime Minister.

In order to achieve greater transparency, we want more put into the public domain about meetings of the JMCs and also more information supplied about the funding arrangements. It is not always clear, for example, what increases in funding devolved administrations are entitled to under the Barnett formula. We would also like to see a dispute resolution procedure introduced to deal with disputes arising outside the scope of the Barnett formula.

There are also changes that we recommend to the arrangements made within UK government for dealing with inter-institutional arrangements. Again, we believe it important to look at the process as a dynamic one, rather than taking a single snapshot approach. The roles of the Secretaries of State for Scotland and for Wales were important in delivering the devolution settlements and enabling the devolved arrangements to bed in. but our report said that we were sceptical about the value of the political role of the Secretaries of State. In each case the Secretary of State is not accountable to Parliament for what the devolved administration does, has no financial responsibility for how the devolved administration spends its funds and has little direct involvement in policy-making. The relationship that does exist is primarily between the devolved administration and the relevant UK government department.

Although some important roles remain, we were not convinced that they need to be fulfilled by three Secretaries of State. We therefore recommended that the Government consider the appointment of one Minister with responsibility for intergovernmental relations overall, possibly supported by Ministers of State to deal with particular policy sectors or devolved areas.

We also recommended merging the devolution and English regions team, located in the Office of the Deputy Prime Minister, and those parts of the Scotland and Wales offices dealing with intergovernmental relations to create a single group of officials able to deal with the full range of intergovernmental issues. For rather obvious reasons, I shall return to those proposals.

Let me mention briefly other recommendations embodied in the report. We were struck by the fact that although intergovernmental relations are well developed, interparliamentary relations are not, and, furthermore, there is little scope for systematic scrutiny of intergovernmental relations. We recommend that a review of intergovernmental relations be conducted at least once every Parliament—or at least once every five years. We consider that this would be best undertaken by a Joint Committee of both Houses of Parliament.

We also believe that steps need to be taken to improve the process of dealing with Westminster legislation affecting Wales. We want to see greater consistency in how legislation affecting Wales is dealt with, and consideration given to how Members of the National Assembly can have a greater input into our deliberations. We also raise concerns about the use of Sewel Motions in Scotland and the fact that they are brought forward as the product of agreements between executives rather than between parliaments. That is something we think should be corrected. As part of our inquiry, we considered what lessons may be learned from the experience of Holyrood, Cardiff Bay and Stormont. The use of a business committee is something worthy of further consideration.

That is a brief introduction to our report. I turn to the Government's response and the recent announcements about the structure of government for dealing with devolution. The Government's response—published as Command 5780—is, in the committee's view, disappointing. Whereas the main message of our report is that, while devolution has bedded in, one has to anticipate what is likely to happen in the future, the Government's response essentially takes the line that things are fine as they are.

The response comments on our specific recommendations but fails to engage with the reasoning that led to the recommendations. Although the response states that the Government will review certain practices in the light of our report, its basic point is that there is,

"no overriding need to make greater use of the formal mechanisms for managing relations".

The Government believe that the current machinery has shown itself well able to maintain effective and constructive relationships between the administrations and that informal contact contributes to that success. At paragraph 2 we are told:

"The evidence to date supports this conclusion, as the Government has had productive working relationships not only with the coalition administrations in Scotland and Wales but also with the Northern Ireland Executive, which consisted of Ministers from parties which are not represented elsewhere in the United Kingdom".

That last part is the crucial observation. The parties in Northern Ireland are not competitor parties to those in Westminster. That is why they are able to co-operate as they do. One is not dealing with one's political opponents in the way that one would be if other parties gained control in Scotland or Wales.

There is no need for me to go through each of the Government's points in detail. If your Lordships read the response, you will see that the message is the same: there is no acceptance of the need for change, though occasionally there is the statement that the matter will be kept under review. That creates a worrying state of affairs. It is not sufficient to leave things as they are. I reiterate our point that it is important not to wait.

I turn to our recommendation about the posts of Secretaries of State for Scotland and Wales. The government response, published in March, said that the Prime Minister had,

"no plans to merge either the roles of the territorial Secretaries of State or their Departments".

On Thursday of last week, the Downing Street press notice announced that,

"there is no longer a requirement for full-time Cabinet ministers and freestanding departments to conduct the remaining Scottish and Welsh business within Parliament and Government".

The Scotland and Wales offices are to be located in the new Department for Constitutional Affairs. We have since had the letter from the Lord Chancellor and his colleagues explaining the new structure.

It follows from our report that we welcome the locating of the devolution team from the Office of the Deputy Prime Minister in the new department, along with the officials responsible for intergovernmental relations in the Scotland and Wales offices. We look forward to having details of the resources that will be made available to them and the structure of accountability. The change itself makes sense, for the reasons that we give in our report. Indeed, it appears that the new structure follows our recommendations in most respects but one—retaining the Secretaries of State for Scotland and Wales.

The government response to our report lists the responsibilities of the Secretaries of State, but on any reading of those responsibilities it is not clear why they could not be filled by a single Secretary of State. The Downing Street statement concedes that they are not full-time posts. That is reflected in the appointments made. Why, then, retain them in addition to the new Secretary of State for Constitutional Affairs? Why not follow the committee's recommendation and, in effect, do away with the posts, with Ministers of State responsible, if necessary, for each of the devolved areas? That would make for a more coherent, and integrated, structure.

I believe that the committee's report and the accompanying evidence volume—the two should be taken together as they comprise the source volume on inter-institutional relationships—provide important contributions to understanding how devolution is bedding in and the challenges that it faces. We believe that our report makes a constructive contribution to the debate. Now that we have the new Secretary of State for Constitutional Affairs, I hope that he will be able to offer a fresh response. In the absence of the Secretary of State, we look forward to the noble Lord, Lord Filkin, detailing the contribution that he believes the new department can make to inter-institutional relations in the United Kingdom. I beg to move.

Moved, That this House takes note of the report of the Select Committee on the Constitution on Devolution: Inter-Institutional Relations in the United Kingdom (2nd Report, HL Paper 28).—(Lord Norton of Louth.)

My Lords, I start by thanking the Chairman for chairing this very interesting session of the Constitution Committee. I should also like to thank our Clerk and our adviser, Alan Trench.

Examination into aspects of the progress of devolution by the Constitution Committee provided the opportunity not only to consider the subject in the title of the report, but to consider the devolution settlements more widely. It is important to read the report as a whole, together with the substantial and informed evidence that was presented to the committee.

As the report states in paragraph 6, devolution is now treated as a settled part of the UK's constitutional arrangements, as reiterated by the noble Lord, Lord Norton. Polling evidence produced by the Electoral Commission towards the end of last year confirms that, indicating that there was greater trust in the devolved bodies to act in the best interests of Scotland and Wales than there was confidence in the UK Parliament. That is not a surprising fact, as decision-making is brought closer to the people, which is what devolution is about.

Support for devolution has risen in both Scotland and Wales since the referendums were held. That support was echoed by all those who gave evidence, irrespective of political persuasion. As the noble Lord said, the committee was therefore right not to get into an argument about the concept of devolution but to concentrate on its implications on a more day-to-day and practical level.

I intend to concentrate my remarks on Scotland and Wales. I do not intend to discuss the Barnett formula—which the noble Lord, Lord Norton, did not discuss either—over which we spent interminable hours. However, I reiterate the words of the report that the committee did not have a neat ready-made alternative to Barnett. There may be a time when a review is necessary, and thought needs to be given over a period of time to how we should replace Barnett, appreciating the complexity of a needs assessment process. We should also appreciate that my noble friend Lord Richard's commission is considering the issue.

I do not intend to follow the noble Lord, Lord Norton, on commenting on the new ministerial arrangements, except to say that it is clear that there is no longer the requirement for a full-time Secretary of State in both those areas. Instead, I want to put on record a bit of the background to the devolution legislation.

Paragraph 7 of the report refers to the question of asymmetry, and the consequent fundamental differences between the settlements for Scotland and Wales. Certainly, at the beginning of our deliberations there was concern about the possible effects of those differing settlements, which one interviewee referred to as a haphazard system. That negative attitude was wrong. Differing societies do not fit into nice neat little boxes.

Account has to be taken that the history, dynamics, local needs and local circumstances of Scotland and Wales are quite different. Scotland has always seen itself as a sovereign nation; the Treaty of Union in 1707 was seen as a marriage of convenience between two sovereign nations. It was asserted by one witness that devolution works well in Scotland, because it has always been part of Scotland's agenda.

The committee was reminded by the interesting and informative memorandum of Professor McCrone, professor of sociology at the University of Edinburgh, that the Scottish Parliament simply provided direct democratic accountability over the extensive apparatus of government that already existed. The situation in Wales could not have been more different. Mr John Osmond, director of the Institute of Welsh Affairs, referred to the Scottish Parliament as being the keystone in an arch of an already existing institutional structure, while the National Assembly for Wales, rather than being the keystone to the arch, had to set about building that arch. The institutions as in Scotland did not exist; rather the Welsh identity is built around a sense of locality, language and culture.

Wales has also historically been much more closely integrated with England, and its systems reflect that closeness, the Welsh Office being in effect an administrative arm of Whitehall departments in Wales. Scotland had been planning for its Parliament through its convention for about 10 years. Wales went into devolution comparatively unprepared, so started from a lower baseline. A crucial difference is that Wales did not have a distinct Welsh legal system. Therefore, I marginally disagree with the noble Lord, Lord Norton, because I think there was a logic for the differing administrative and legislative arrangements and for the differing devolution settlements.

The consequences of those very different backgrounds are that the Scotland Act defines all matters which are reserved, while the Government of Wales Act defines those matters which are devolved—basically, the Assembly taking on the powers of the Secretary of State for Wales. Crucially, paragraph 11 of the report reminds us that although all the devolution arrangements differ, they are against the fundamental background and position that the UK Parliament at Westminster retains its sovereignty and continues to be able to legislate throughout the United Kingdom. However, during passage of the Scotland Bill, it was laid down that by convention Westminster would not normally legislate on devolved matters without the consent of the Scottish Parliament. The Sewel convention, much talked about during our weeks in Scotland, was born on that occasion. The Scottish Parliament agreed to more than 40 Sewel Motions, I believe, during its first Session. So the legislative pattern as it affects Scotland is reasonably clear cut and understood.

However, it was pointed out to us that that was not necessarily the case in Wales. Mr John Osmond took us through what he described as a very complex formulation. To work out what the powers of the Assembly are means trawling through very many different Acts, the functions being spread over 300 Acts of Parliament and statutes and a transfer of functions order which runs into a massive number of pages. He was also of the view that there was some confusion over the means by which legislation affecting Wales is presented and there was sometimes difficulty in interpreting the legislation as it affects Wales.

However, those were not the views of the leader of the Welsh Assembly, Rhodri Morgan. He stated that experience on the legislative process had so far been reasonably positive, whether it be by a Wales-only Bill, Welsh clauses or a clearly demarcated section on Wales in an England and Wales Bill. He said:

"it is an odd bit of a settlement, when you think about it in theory, but in practice it is not that bad".

I think that we have to bear in mind the difference between theory and practice. Disappointment was expressed all round, however, that in the bid for Bills, Wales has to date been allocated only one Bill each Session. We make recommendations on those issues in the report, in Recommendations 14 and 15, and the issues are also under consideration by the Richard commission.

In welcoming my noble friend the Minister to his new post, may I ask him whether he believes that there is not a need for greater consistency in the way in which legislation in respect of Wales is framed and how sympathetically the Government would look at a demand for greater legislative powers for the Assembly?

I should like to comment only briefly on the queries around the effectiveness of the inter-institutional relationships as they have already been outlined in detail by the chair, the noble Lord, Lord Norton. We were told by the Ministers we interviewed that the arrangements set out in the memorandum of understanding are robust and flexible and that the informal inter-relationship arrangements were working well and smoothly. Of course we would not dispute that. However, I also appreciate that we cannot always foresee the future. But like the noble Lord, Lord Norton, I think that the question still has to be asked. If the waters were to become choppy, would the current arrangements be robust enough? I am sure that all problems ultimately would be resolved, but my concern is that the process would become protracted and that would have serious consequences for the progress of the legislative programme.

Does not my noble friend the Minister believe that one should not wait for a problem, but rather prepare for it and hope that one never has to use that preparation? Perhaps we need to examine the experience of the Canadians, who looked at more formal arrangements which were established pragmatically and over a period of time.

The final point I wish to raise relates to the section of the report—paragraphs 144 and 148, already touched on by the noble Lord, Lord Norton—on the lessons for Westminster on practices and procedure. In Scotland, pre-legislative scrutiny is not a matter of determination for each individual Bill but is an established and integral part of legislation. It follows through, I think, their long-term commitment to a civil society. The 17 parliamentary committees hear from civic groups, business interests and other stakeholders. They meet in different locations and so allow different channels to be engaged in the political process and provide, I believe, for greater democracy.

Both Scotland and Wales determine their business arrangements through business committees. Those are formal committees involving all party groups, but are considerably more open than our procedures through the usual channels. The business is more clearly determined in advance while at the same time still allowing for emergency changes to be made to the timetable. The programme of business is seen to be based on consensus and provides for much greater transparency and understanding.

Another feature in both Scotland and Wales is that of greater accessibility for the media and the public. As the report states, the arrangements in Westminster are getting better, but the resources for dissemination of information and for public relations pale beside those enjoyed by the Scottish Parliament. Those points may be seen as peripheral to the overall picture and to the volume of the report, but I firmly believe that increasing public engagement with democracy and bringing greater openness and increased participation of the stakeholders in the process of government could help to overcome the low esteem in which politics and politicians are currently held.

I close with the words of Sir Richard Wilson, Secretary of the Cabinet, in his evidence. He said:

"I think the implementation of devolution policy has been a remarkable success".

My Lords, I, too, begin by congratulating the noble Lord. Lord Norton of Louth, on instigating today's debate on the Select Committee's report on devolution. which I read with great interest.

I would not have been taking part in this debate if I had not attended an event in Cardiff last weekend. Before I became a Member of the House, I was able regularly to visit both Scotland and Wales, and to a lesser extent Northern Ireland, as part of my union work. I always enjoyed those occasions. Sadly I am no longer able to participate in them. However, last weekend I took part in a memorial lecture held to remember a dear friend and former union National Executive Committee member, and I had the pleasure of renewing contact with many of my friends and acquaintances in Wales. Your Lordships will realise that, on Friday last, feelings in Wales were running quite high. As an Englishwoman going to Wales I wondered what I was going towards. However, there was the usual Welsh welcome.

There was confusion about the proposal relating to the Wales Office and in particular to the position, or non-position, of the Secretary of State for Wales. Of course there had been conflicting reports. The first reports appeared to say that the Wales Office had been subsumed under the new constitution department. which was to be headed by our new Lord Chancellor, and that there was no longer a post of Secretary of State for Wales. By the time I arrived in Wales, thank goodness, the second round of reports and the Secretary of State himself. Peter Hain, had made it clear that the position had not been abolished and that, indeed, he was exceedingly alive and well in his post. Yesterday I was greatly pleased to hear the noble and learned Lord the Lord Chancellor tell the House that he could confirm that he could not override the wishes of the Secretaries of State for Wales and for Scotland and that there were no plans to change devolutionary powers.

At the event in Cardiff. I was pleased to share the platform with a very old friend who is now a member of the National Assembly for Wales. Edwina Hart, who is the Minister for Social Justice, is a strong and extremely competent woman. She gave us a rundown of what the Assembly had achieved in the fields of equality and social justice since its inception—issues close to my heart and to the hearts of many others present today. I cannot today outline all that she said, but she spoke for a considerable time about the issues and the progress which had been made. It made very good listening indeed. She also proudly pointed out that the Assembly for Wales now has gender equality within it, which certainly made me envious. I yearn for the day when we can say the same for another place.

On speaking to friends later in the day, it was obvious that there is a great deal of satisfaction with the way the Assembly is working. Indeed, there is not just satisfaction but great pride in the way it is working. I noticed the difference particularly because I had not visited Wales for a couple of years. I was told that the Members of the Assembly respond more positively and quickly to local issues than Westminster can. I was told that they understand what local issues and wishes are about and why they have come to the forefront, and that they want to make the Assembly a success for the people of Wales. That was not said lightly; it was impressed upon me by a number of those with whom I spoke.

I came away from Wales deeply impressed with how devolution appeared to have empowered the people of Wales in a most tangible way. I also felt that the dynamics within that process in no way diminished their linkage with other parts of the United Kingdom, rather they enhanced that. I always thought that there was a logic in the devolvement of power to Scotland, Wales and Northern Ireland. Unlike some, I did not believe that devolution would lead to the break-up of the United Kingdom.

My visit to Wales reinforced my feelings about the importance of devolution; hence my short speech this morning. I read the report of the Select Committee, and the Government's response to it, with interest. It struck me as I read it that the recent changes affecting both the Wales Office and the Scotland Office would be welcomed by the committee, and the noble Lord, Lord Norton, confirmed that this morning. It is a move to bring the devolved institutions closer together and yet they retain their voices in the Cabinet, which is very important. In both cases, Scotland and Wales have people who know and understand them to champion their causes.

I have three issues which I should like to raise stemming from the report's recommendations. First, I welcome the assurances which were given yesterday by the noble and learned Lord the Lord Chancellor that the close workings of the devolved administrations would continue. I hope that my noble friend will be able to rebut the suggestions in the Select Committee's report that the Government have been rather too complacent because things are working well.

Secondly, has the Minister any further information about improving Westminster legislation which affects the National Assembly for Wales? For example, in their response the Government stated that they were considering expanding the advice in the devolution guide affecting Wales. My third point was referred to by my noble friend Lady Gould. Does my noble friend agree with the committee that there are lessons that can be learnt from the various devolved assemblies which may benefit our deliberations here in the Houses of Parliament?

I have concentrated my contribution on Wales but I believe devolution settlements generally to be a most positive step forward, and one which is here to stay, as noble Lords have already stated. I have enjoyed taking part in the debate.

My Lords, this subject has become more exciting since the Motion was originally tabled. The changes have occurred with which we are all familiar and which other noble Lords have mentioned. That indicates the great importance of devolution. It is a policy that does the Government credit. It is perhaps the boldest and most radical thing that the Government have done in six years along with their other measures of constitutional reform. Curiously enough, there is little discussion of it. Constitutional reform seems to me a kind of elite issue. It is not widely discussed and does not attract large attendances in this House. Therefore, it is valuable that the Select Committee produced the report. It is to its credit and, if I may say so, very much to the credit of our chairman. We are extremely fortunate in having the noble Lord, Lord Norton, as our chairman. He embodies a combination of fine scholarship and good humour, which is greatly to our benefit.

Devolution has been a success. It has made government more democratic and more locally responsive. It takes the Labour Party back to its older roots of local civic accountability and to the message of the ILP, Keir Hardie, George Lansbury and, indeed, the young Aneurin Bevan before the Labour Party embarked upon the bureaucratic centralism of the view that, "the gentleman from Whitehall knows best". Devolution has been a success. It has also been a success for the Conservative Party which resisted it but has found in both Scotland and Wales that it now has a constructive role that it has not had for many, many years; indeed, in the case of Wales, since Mr Gladstone won the election of 1868, which is quite a long time—precipitate reform!

The appendix to the report questions—this is an important point—how popular devolution is and how much interest it attracts. Clearly there is much more to be done. The polls are low. There is a theory that the low polls show that the Assembly and the Parliament are as little regarded as people in Westminster, so it is almost a kind of triumph. But that is a specious argument. Clearly we have to do more to make devolution acceptable. I am sure that in Wales a major problem is that the Assembly does not do enough, and that there would be much more interest in the Assembly if it had more effective powers. One matter that I believe is a very welcome feature of devolution is divergence. That is the whole point. The fact that there are separate policies on the elderly and student fees, and so on, in Scotland, and in Wales on prescription charges, for example, and also on student fees is welcome. As the noble Baroness, Lady Gibson, said, forecasts of the break-up of the United Kingdom—what one of our civil servants called "the nightmare scenario", by which I think he meant an SNP government in Edinburgh—have not been fulfilled.

Our report calls for more coherence, for the Constitution Unit in the secretariat to be strengthened, for the Joint Ministerial Committee to be beefed up and for the Council of the Isles actually to meet now and again. I hope that the new ministry under the noble and learned Lord, Lord Falconer—perhaps my noble friend the Minister can respond to this point—will help to provide some of that coherence, and put intergovernmental relations in the United Kingdom on a new footing and be proactive. I hope that the new ministry will not be merely a co-ordinating, tidying-up ministry but something that will energise and give life, coherence and substance to this whole important process.

As the noble Lord, Lord Norton, observed, devolution has been a very British development so far. It has all been very informal with lots of good will. We always have good will in Britain, as we know; indeed, we have done over the centuries, except in the seventeenth. The report highlights that informal style. The system works partly due to the highly skilled, highly trained and professional Civil Service and partly, as the noble Lord said, through the political affinity of the various governments. But that can be overdone. We have heard from Rhodri Morgan of the "clear red water" in Cardiff. I assure the House as an historian that the political affinity between Wales and England can be highly exaggerated. But it seems to me that we need more open mechanisms, not merely because of possible points of conflict but to make devolution work. Informality in some ways works against devolution and, as it were, confirms the system that we now have.

I should like to deal with two particular problems, both of which were covered in some measure in the fascinating speech of my noble friend Lady Gould. As regards Secretaries of State, clearly the new moves are a recognition of the fact that the process of reform is still very much under way. Helen Liddell had no real job. That emerged from our report. She had 85 civil servants, compared to 41 in the Wales Office. I would be grateful if the Minister would tell me where those 85 people will go. It is not merely a question of under which roof they will operate, but what they will do, and I suppose one might ask whether they are necessary at all.

There is still a job for the Secretary of State for Wales but, in my opinion, as a transitional figure. Whoever he is—it has always been a "he"—it is very odd when he acts as a kind of Janus-faced intermediary between the Welsh Assembly and the Cabinet. He can present the Assembly's views, but also say that he does not agree with them. That seems unsatisfactory.

The Government's response—I agree that it is thin—talks about the Wales Office and the Scotland Office as centres of excellence. I am not quite sure what is implied there. However, I would be grateful to hear from the Minister precisely what will be the status of the new constitutional affairs ministry. What will be the conduit that transmits proposals or ideas, including even the report of my noble friend Lord Richard when it appears, from Cardiff to Westminster? What will happen if the two conduits disagree, if such a thing is physically possible? What will be the process?

My other point was admirably made by my noble friend Lady Gould. The legislative process of course reflects asymmetry—we understand the reasons for that—but also incoherence and instability in government. I do not wish to say much about Scotland, for the very good reason that I do not know much about it, but I observe that the famous Sewel Motions have been very much used—more so than anticipated. It would be worth exploring whether the excessive use of Sewel Motions does not mitigate against the process and principle of devolution.

The situation in Wales is totally unsatisfactory. I declare an interest as a member of the Institute of Welsh Affairs, headed by John Osmond, and I agree with what that institute says. The Welsh legislative process is all over the place. We sometimes have Welsh Bills; there have been two in four years. There are Welsh provisions dotted about in other Bills, such as the Communications Bill: indeed, one needs an extremely shrewd detector system to find out where the Welsh bits are in that legislation. Incidentally, I think it a great mistake that broadcasting does not come under the Welsh Assembly. Alternately, English Bills have separate Welsh clauses that can be struck down here, quite beyond the control of the elected representatives of Wales. There can also, of course, be extensions to secondary legislation. That is profoundly unstable.

The two Welsh Bills both show some of the problems. The children's Bill was actually rescued in this House after going through the processes of the Home Office, which had weakened the Bill and thereby diminished the original point established by the Welsh Assembly. Why the Welsh health Bill came to this Parliament at all I simply cannot imagine. It was side by side with a UK—England and Wales, at least—health Bill. That illustrates the lack of coherence in the process of Welsh legislation.

The Welsh Assembly has little control over output or outcome. As our admirable constitutional adviser Alan Trench explained the other day, it does not have control of compliance under the proposals made by Professor Rawlings on whether measures purporting to relate to Wales comply. That is a great problem. I am very grateful for the presence of my noble friend Lord Richard, whose commission will report. It has received important proposals from Professor Rawlings about the need for the Welsh Assembly to have primary powers comparable with Scotland. I hope very much that that will be the outcome. I hope that the Department for Constitutional Affairs will be of assistance and not an obstacle to that process.

Like my noble friend Lady Gould, I propose to say very little about the Barnett formula. It is like the Schleswig-Holstein question, of which Palmerston said that the only person who understood it was in a lunatic asylum. No doubt my noble friend Lord Barnett understands the formula. The main point is a constitutional one, rather than in terms of how the money is allocated—

My Lords, I am sorry to interrupt my noble friend, but did not Palmerston say that only three people had ever understood that question? One was dead, one was mad, and he himself had forgotten.

Yes, my Lords, that is right. In the interests of time, I shall merely say that I am most grateful to my noble friend. To be interrupted by him on history is a privilege.

The main point about the Barnett formula is a constitutional one. As the Government say, it is for the Treasury and the United Kingdom Government to decide the Treasury policy that describes the contours and the processes of the Barnett formula.

Devolution seems to be at the crossroads, more so with the European convention emerging and throwing light on the whole principle of subsidiarity in all the different countries, regions and sub-regions of Europe. One consequence that we do not cover in our report is the need for something to be done about England. It is astonishing that we have these great changes in Wales and Scotland—and, indeed, in Northern Ireland—but that nothing has been done about England. I hope very much that the proposals on regional referendums will promote that. I shall be most grateful if the Minister can explain why regional government does not come under the new constitutional ministry. The regions and the nations should fit together.

In a previous debate, the noble Lord, Lord Norton, rightly asked what the constitution was for. What is devolution for? Is it: Secretary of State plus, with a few unco-ordinated and unrelated expedients; or is it a move towards a more democratic and pluralist Britain? I hope that new Labour, moving towards the democracy. if not the socialism of democratic socialism, is promoting the latter and that the report will show that the reform process is continuing.

My Lords, as a non-member of the Select Committee, I am bound to thank the noble Lord, Lord Norton of Louth, and his colleagues on the Select Committee for their educative report. I congratulate the noble Lord on the way he has taken us through the main findings of his committee and given us the benefit of his observations on the Government's response, which I also found somewhat disappointing. It is a splendid report, and I should like to offer one or two comments on it before I come to detailed issues.

The committee has told us that this is the first comprehensive review of the practical working at inter-governmental level of the current devolution settlements since they came into operation in 1999. The evidence that the committee received from very senior politicians and civil servants directly involved in the working of the settlements, and also from highly respected scholars, is authoritative. I believe that it is the best available evidence. The report has picked up with unerring exactitude the main challenges emerging. It contains findings that require further considerable thought by the Government, and also by all those who have at heart the future of devolved government within the United Kingdom. Therefore, the House was absolutely right to set up a Select Committee on the constitution.

I shall comment on four issues out of very many and I do so as a supporter of devolution. That is the only interest that I have to declare. First, I support the committee's first recommendation that further use should be made of formal structures of inter-governmental relations. That recommendation was emphasised by the noble Lord, Lord Norton, this morning. Paragraph 25 of the committee's report says,

"we are concerned by the sheer extent of the reliance on goodwill as the basis for intergovernmental within the united Kingdom".

Naturally, everyone welcomes goodwill—goodwill matters—but the committee wisely looked to the future, when the present of level of goodwill in the system may come under great strain or when goodwill will be absent. That could arise when the administrations are run by conflicting political parties in London and Cardiff or London and Edinburgh.

The First Minister of the National Assembly told the committee:

"It is not possible to estimate now how robust the present system would be if you did have a different party in power down here"

—that is, in Cardiff, —

"and Labour in Westminster, or not Labour in Westminster and coalition similar to ours down here. I do not know how that would work, to be honest".

No one quite knows what the future will bring, but it is always relevant to recall Murphy's law—if something can go wrong, one day, it will. Now is the time, therefore—when the relationship between the administrations, so we are told, is cosy and Comfortable—to put it on a more formal basis. Perhaps I may borrow the words of the Select Committee:

"It is important not to wait. We think it prudent to anticipate and to start taking action now'.

That is to be found in paragraph 194, but the same concern emerges in about seven or eight different parts of the report. The Government's statement passes over that precise concern of the committee in silence. I sincerely hope that in the coming weeks, the new department will give fresh consideration to that seriously worrying point.

I turn to the second issue; namely, the role of the Welsh and Scottish Secretaries of State. That issue is now obviously very much alive and has been addressed by the noble Lord, Lord Norton, and my noble friend Lord Morgan. We are bound to acknowledge that the role of the Welsh and Scottish Secretaries of State has changed almost beyond recognition. Their departments have greatly diminished since the setting up of the National Assembly and the Scottish Parliament. Sooner or later, changes along the lines of those announced last week were inevitable. The question is whether the change leads to a need for a further change. Perhaps I may ask the Minister whether the First Minister of the National Assembly had been consulted about that proposed change and its consequences. I have written to the Secretary of State giving notice that I intended to ask that question.

I believe deeply that the voice of the National Assembly should be an important influence on the decision to make the post of Secretary of State for Wales a part-time post. I base my opinion in particular on the written evidence of the First Minister to the committee. He wrote:

"from the Welsh Assembly Government's perspective, the role of the Secretary of State for Wales remains vital … That is particularly the case on issues relating to primary legislation …At present, it is hard to imagine this aspect of the settlement functioning well without a full-time Secretary of State for Wales".

That quotation comes from page 231 of the evidence in paragraph 8. In that extract, the First Minister was making an extremely important point, but it has not been mentioned in anything that I have seen or read which has been issued by the Government.

If the First Minister's conclusion is right—his words have been approved here today in another context—I believe that the loss of a full-time Secretary of State strengthens immeasurably the case for conferring on the National Assembly the power to enact primary legislation in the devolved fields.

That point leads me to the major issue, which is that of primary legislation for Wales, which was discussed in paragraphs 119 to 124 of the report, and which the noble Lord, Lord Norton, discussed in his excellent contribution. There is widespread criticism that the National Assembly is empowered only to pass subordinate legislation. That criticism is reflected in many scholarly articles, in particular those of Professor Rawlings and Professor Patchett.

It appeared to the Select Committee that in Westminster Bills, which also affect the responsibilities of the Assembly,

"Wales figures in such arrangements largely as an after-thought appended to a process driven by the UK Government's concerns and priorities, rather than those of Wales in general or the National Assembly".

Those words are to be found in paragraph 123 of the report.

In addition, there is the difficulty experienced by the Assembly in obtaining a Wales-only Bill, or Wales-only provisions in an England and Wales Bill. Of the four Wales-only Bills which it requested for the 2000–01 Session, one was accepted. Of the eight requested for the Session 2002–03, one was accepted. To be blunt, that does not seem to be a very good record, although I accept that it is quite impressive compared with the pre-1999 record of the Welsh Office.

Meanwhile, it is not being overlooked in Wales that the Scottish Parliament has passed 62 Public Bills, eight Private Members' Bills and one Private Bill. Of course, some of the Scottish Bills have their roots in Scottish law, but at least some of the rest tackle problems which in greater or lesser measure are common to the four countries of the UK, but tackle them in a Scottish way.

I am glad that the committee recommended that steps be taken to ensure a greater measure of consistency by Whitehall departments in their approach to primary legislation affecting the responsibilities of the Assembly. The committee has endorsed in particular the general principles advocated by Professor Rawlings as a very useful starting point. That is to be found on page 37 of the report. Of course there may be debate about the details of the Rawlings formula, if I may so describe the principles, but the case for such a formula has surely been made out. That is why I read with gratitude that the Government are not slamming the door on this recommendation.

However, the Rawlings formula is not the end of the story. As my noble friend Lord Morgan mentioned, Professor Rawlings has further pursued his thoughts, and in his written evidence to the commission set up by the Assembly and chaired by my noble friend Lord Richard, he has developed a powerful case for not denying to the National Assembly the primary legislative competence enjoyed by the Northern Ireland Assembly, and ultimately the legislative competence of the Scottish Parliament.

While I warmly welcome the Select Committee's endorsement of the Rawlings principles as,

"a very useful starting point'.

its recommendation will have to be looked at afresh in the light of last week's constitutional development and in the light of the report of the Richard Commission when it is to hand.

I was especially glad to note that the side title on page 7 of the report, "Reviewing the Barnett Formula", is immediately followed by a question mark. I am glad that the question mark is in place and that the committee has an open mind on the need for a review.

I conclude by repeating my thanks to the noble Lord, Lord Norton of Louth, and the members of his committee. The Select Committee is on track to achieve the target suggested by the very respected Oxford scholar, Professor Vernon Bogdanor; that is to say, to establish for itself the authority of a delegated powers committee.

My Lords, this has been a short but rich debate, with some outstanding contributions from members of the committee and from two noble Lords who were not members of the committee. The noble Baroness, Lady Gibson, gave us the benefit of some perceptive direct observation of Welsh institutions in action, and the noble Lord, Lord Prys-Davies, put questions of wisdom and penetration.

As a member of the committee—I declare an interest as Chairman of the Hansard Society for Parliamentary Government—it has been a great pleasure to serve under the chairmanship of the noble Lord, Lord Norton, who shows in the chair a rare combination of scholarship and effectiveness. I hope that that is not an oxymoron. It has been evidence of the quality of the committee's work that the report has been commended by the House as it has. It was right that we took devolution, in depth, as our first subject. I regret the absence of the noble and learned Lord the Lord Chancellor, whom we had understood would reply to this morning's debate, but we are glad to see the noble Lord, Lord Filkin, in his place.

Perhaps it would be appropriate to pass on to the noble and learned Lord congratulations on his new responsibilities for constitutional affairs. He now has the most gloomily romantic role possible in British public life; he is "the last Lord Chancellor". That sounds like a novel by Edward Bulwer Lytton, or by Disraeli himself. It is not a role in which I readily see the genial and practical figure of the noble and learned Lord, Lord Falconer, but I am getting used to the idea, as I am sure he is. If he is not here today, let us hope that he has gone to Scotland or Wales to pursue government business.

I shall not be as reticent as committee colleagues on the Labour Benches. Unhappily, the Department for Constitutional Affairs over which the Lord Chancellor now presides seems to be a different story. It is uneasily poised between those two stages Karl Marx identified, of tragedy and farce; it is somewhere in the middle of that spectrum. It is extraordinarily difficult to conceive it possible to take such an important set of changes and execute them so ineptly, and to the great damage of the cause of constitutional reform.

As today's Financial Times reveals, the new department was cobbled together at the last moment, as an afterthought. It is certainly discourteous to Scotland and Wales; it may also be damaging. I reiterate my question to the noble Lord, Lord Filkin: were the First Ministers of Scotland and Wales consulted by the Government before this announcement? It is alarmingly ill-thought out in detail—and as always, the devil is in the detail—and appears to be the product not so much of joined-up thinking—that much vaunted attribute of the Government—as dismembered improvisation. For those of us—certainly all on these Benches—who support the thrust of the reforms, who are committed to greater separation of powers, who have for years regarded ourselves as close allies in the great causes of devolution and constitutional reform, the coming and going of the past week has been discouraging. I say that plainly to the Minister.

Moving on, it was not the task of our committee to review devolution as a whole. However, I should like the noble Baroness, Lady Gould, to say a word about where devolution now stands. It seems that devolution at least has not lived up to the fears of those who opposed it so bitterly, and who saw it as the slippery road to independence. The opinion polls in the appendix to the report show, if anything, that the slippery road to independence has become somewhat firmer as a result of devolution. It is not a ratchet that moves inexorably in one direction, as some of its opponents feared.

It is clear that no political party in Scotland wants a reversal of devolution. It is clear, despite a relentless campaign of hostility by elements of the Scottish press—including, sadly, that once great newspaper. the Scotsman—that the Scottish public have a high level of acceptance of their institution, even if, as the same polls show, it has not lived up to its greatest promises. Nevertheless, the institutions are well on their way. The most interesting thing about them is that, although devolution is demonstrably working. it is working in an untested way. It is untested because of the party alignment of the parties in government in Scotland and Wales—still a coalition in the case of Scotland—and because of the great professionalism of the Civil Service which serves all three Governments.

The noble Lord. Lord Prys-Davies, is right to warn us that this is the time to test the mechanisms, as the committee recommended, to make sure that should the party alignment change and tensions of interest arise, the institutions can continue to work as relatively robustly as they have done so far.

I understand why we all shy away from the Barnett formula; on a Friday morning it is enough to frighten the horses. Nevertheless, it is important to recognise that there is a first stage to devolution. Although Scotland and Wales have considerable discretion on spending, they do not have any responsibility—save a marginal responsibility in Scotland—for raising revenues. There is no representation without taxation and government becomes real at the point politicians have to consider what taxes they should ask for from citizens to support their purposes. That is not the stage we are at in Scotland and Wales.

It may take some time to reach that stage—some would say that it should be never. However, it will be interesting to know from the Minister, first, whether the Government are reviewing the Barnett formula and by what process and over what time-scale we may hope to hear what "son of Barnett" is. We would like to know, secondly, whether the Government can envisage within the new Department for Constitutional Affairs a way of considering an evolution of the status of government in Scotland and Wales so that it becomes more fully responsible to its citizens in the way I have described.

I have one detailed question in connection with the homogeneity of the Civil Service. Civil servants have a loyalty to the Crown and in that spirit they can deal with governments of different political complexions in an impartial and professional way. To what and how should civil servants in Scotland, Wales and the Northern Ireland Civil Service, which is separate, express their loyalty to the settlement? Let us suppose that there were a conflict between the demands of the centre and those of Scotland, Wales or Northern Ireland and the settlements that have established the form of government they have. How would they mediate that? For instance, would it require specific amendments to the Civil Service code in respect of civil servants in Northern Ireland and Scotland?

Finally, I want to move to a topical matter. It was reliably reported on the BBC and in some newspapers today that the colleague of the noble and learned Lord the Lord Chancellor, the Leader of another place, who appears to moonlight as a junior Minister responsible for Wales, is to make an interesting speech tonight. It is reported that he is to speak about income tax. I suppose that the Chancellor of the Exchequer is having a wretched enough weekend without my dwelling on that. But I want to ask about the constitutional issues which the Leader of another place is intending to raise and whether they are the position of the Government.

It is reported that he will say tonight that his commitment to a second Chamber with a substantial elected element remains undiluted by his translation. Is that the position of the Government as a whole? Members of this House would like to know whether that is the latest word on constitutional thinking.

And what about proportional representation? Your Lordships are well accustomed to hearing that tune from these Benches, but the Leader of another place seems to be in favour of proportional representation. He appears to believe that it is an important part of the Scottish and Welsh settlements. It is clear from our observations that that is part of what makes it work in Scotland and Wales. It has saved the Conservative Party from oblivion in Scotland and Wales, although it seems reluctant to draw the appropriate conclusions from that.

Moreover, it seems to represent a change of mind on PR by the Government as a whole. I understand that Mr Hain will say that it should be introduced for Westminster elections. That is music to the ear of these Benches, but if it is the position of the new Department for Constitutional Affairs—although I shall be most interested to hear what it is, I recognise that the Minister may be slightly on the back foot—can we expect a full Statement from the Government on this interesting development in policy?

My Lords, first, I thank my noble friend Lord Norton for bringing this report to your Lordships' House and all noble Lords who have taken part and made for such an erudite and interesting debate. I am grateful for this opportunity to discuss the important issue of the stability of the devolution arrangements.

There is certainly no room for complacency, given that the turnouts in the recent elections to both the Welsh Assembly and the Scottish Parliament fell below 50 per cent—38 per cent and 49 per cent respectively.

While these declining turnouts will be, in part, a reflection on the performance of the Scottish and Welsh administrations over the past four years, we cannot reject out of hand concern among the public about the devolution settlement itself.

I noted with interest the findings of John Curtice's survey, included in the Select Committee's report at Table 14, of public opinion about devolution. It is significant that the survey finds that only 35 per cent of Scots believe that the way Britain as a whole is governed has been improved by the creation of the Scottish Parliament, with 54 per cent saying it has made no difference and 8 per cent thinking that it has been made worse.

This debate on the report of the Select Committee on the Constitution is most timely. It is of paramount importance that the roles of the Scottish Parliament and the executive—and their Welsh and Northern Irish counterparts for that matter—are both clearly understood by the electorate and are stable and durable in the long run.

One of my principal concerns is the arrangements for intergovernmental relations in the United Kingdom, which are discussed in chapter 1 of the report. During the 1997 devolution referendum debates and subsequent consideration of the Scotland Act in this House and in another place, many concerns were expressed about what would happen in the event of a fundamental disagreement between governments in London and Edinburgh. The noble Lord, Lord Prys-Davies, made those points.

However, I am happy to concede that, bar one or two skirmishes which are part and parcel of parliamentary and governmental life, significant conflict between the two has not materialised. That is unsurprising. As the report notes, governments of the same political persuasion pursuing broadly similar objectives have been in power in London and Edinburgh since 1999. It is reasonable to expect that that would minimise disagreements.

Furthermore, it is pertinent to note that personal familiarity among both Ministers and officials between the two governments has also facilitated a relatively smooth operation—a product of the infancy of the arrangements, I suggest.

While this is all well and good, the absence of significant problems does not mean that the concerns are no longer valid. The questions asked are still very pertinent. The Select Committee's report notes:

"we are concerned by the sheer extent of the reliance on goodwill as the basis for intergovernmental relations within the United Kingdom. We are also concerned that goodwill has been elevated into a principle of intergovernmental relations: it is used to explain the avoidance of disputes and to justify maintaining the present informality of the system".

Later, having reviewed the use of concordats and the three mechanisms for resolving devolution-related disputes, the report notes:

"We have an unresolved concern that these mechanisms may not prove adequate to the challenges arising from a highly-charged political dispute, especially if the parties are accustomed to informal rather than formal dealings with each other".

Is this another area of government policy where we are left to "hope and pray" for the best in the future? Is it not essential that much greater thought is given to this matter? If and when a serious dispute arises, is it not right that everyone should at least know where they stand and understand the process for resolving the matter? The report acknowledges that steps should be taken to achieve just this in "peacetime" when everyone is friendly and all is peace and quiet.

Perhaps I may paraphrase the committee's recommendations: it urges greater use of the formal mechanisms already in place. It is hard to disagree with that, but I wonder whether it will be sufficient. I cite the issue of concordats as an example. The report recommends that concordats,

"be made for a fixed term only, capable of being varied during that term if necessary but to terminate at the end of that term and be renegotiated. During that term, it would not be open to a party to withdraw from or repudiate a concordat".

That is an eminently sensible proposal and workable when the two governments are in broad agreement and only minor practical issues need to be resolved. However, will the concordats be of any use in the event of serious conflict? On what legal basis are they agreed? Could either side not unilaterally withdraw from a concordat, irrespective of its terms?

I do not wish there to be serious dispute between the two governments, but we must surely have effective conflict resolution mechanisms in place in order to minimise the damage that such disputes could cause.

I do not have time in this relatively brief contribution to detail a comprehensive package of such measures, but I wish to elaborate on one important issue, already touched upon by the noble Lords, Lord Prys-Davies and Lord Holme; that is, the future role of the Secretary of State for Scotland. The recent reshuffle—"shambolic" reshuffle, I might say—has profound implications for the representation of Scottish and Welsh interests in the United Kingdom.

I regret to say that, even now, many details of the new structure are unclear. It appeared initially that the Scotland Office and the Wales Office, along with the Secretaries of State for Scotland and Wales, were to be abolished and their functions taken over by the new Department for Constitutional Affairs. Then it appeared that the offices would be under the auspices of the DCA but would survive as separate entities. Now, according to the Government's newly published list, Alistair Darling will be part-time Secretary of State for Transport and part-time Secretary of State for Scotland and Peter Hain will be part-time Leader of the House and part-time Secretary of State for Wales. Anne McGuire will be Parliamentary Under-Secretary of State for the Scotland Office and Don Touhig will be the Parliamentary Under-Secretary of State for the Wales Office.

If the media are to he believed—and they are not always, by any means—the hand of the Scottish First Minister has been strengthened by these changes. With the office of Scottish Secretary very much diminished, direct bilaterals between the Scottish Executive and the UK Government can be expected to increase. I think that the noble Lord, Lord Prys-Davies, made that point in relation to the Welsh Office; the noble Lord, Lord Holme, certainly did.

There are still, however, many unanswered questions. For example, does the Secretary of State for Constitutional Affairs have any kind of veto over decisions made by the part-time Scottish and Welsh Secretaries? Who is ultimately responsible for such important legislative issues as the re-opening of the Scotland Act, which is primarily to amend provisions for the number of seats in the Scottish Parliament?

That confusion, unhelpful as it is, will no doubt be cleared up in the fullness of time. I am more concerned about whether this diminution of Scotland's and Wales's voice in the Government is strategically desirable. It is true that the end of separate Scottish and Welsh offices and Secretaries of State is a proposal that the committee, in its report, urges the Government to consider. Superficially, it may seem both logical and desirable to parcel up into one the offices of the Scottish and Welsh Secretaries and Ministers responsible for devolution in the English regions.

It is also true that in the past my party has considered that approach. On paper, and in the absence of problems, it may seem ideal, but I doubt whether it is as well suited to the dynamics of devolution and the current realities of politics. Certainly, it is clear that the Prime Minister's proclamation last Thursday and his reshuffle were not thought through.

Critically, the devolution model varies considerably in Scotland, Wales, Northern Ireland, and the English regions. The Scottish Parliament has primary legislative power; the Welsh Assembly does not. The English regional assemblies, should they ever be created, will have different powers again, and what Northern Ireland will end up with remains to be seen. I hope it will be legislative.

The primary role of the Secretary State for Scotland is to be the interface between the Edinburgh and London governments. He or she should be lobbying for Scotland's interests in the United Kingdom.

It was revealed in the recent debate in another place that the Secretary of State and the Under-Secretary of State for Wales sit on 25 Cabinet committees. Will the fact that there are now only part-time Secretaries of State for Scotland and Wales inevitably mean that such representation will be diminished? There are also potential conflicts of interest. When key transport decisions have to be made, will Alistair Darling he acting in the best interests of Scotland or for the transport needs of the UK as a whole? As a Scottish newspaper recently commented:

"Who in the cabinet should lobby the transport secretary over better cross-border rail and air links, or the upgrading of the A l? The Scottish secretary, of course. And what if the transport secretary and the Scottish secretary are the same man? Darling is on to a loser—damned by the Scots if he doesn't give them what they want and damned by the English if he does".

These are important considerations in the day-to-day political issues that arise. I suggest that they are doubly so when strategic issues are being decided.

I turn now to an issue which has been avoided by all other noble Lords. I shall do the same in part. The issue is the Barnett formula. Whatever the future course of the financial relationship between the Scottish and UK governments, is it not the case that Scotland needs a direct voice in the UK Cabinet to make its case and that that voice should be unfettered by Welsh or English regional interests, which may or may not be consistent with Scotland's?

The Select Committee's report is a most timely and helpful contribution to the ongoing debates about the dynamics of devolution. I have only touched on a few of the areas covered by the report. There has been reference to several others. However, we have also had a considerable amount of repetition, which should help the Minister to answer the key points.

I may not be entirely in agreement with all the committee's recommendations, but, in summary, I believe that the report highlights key areas of concern; principally, that there needs to be more robust liaison arrangements between the Scottish and UK governments and parliaments. We believe the report is a sound basis on which further debate may be founded.

My Lords, I am very pleased to respond to the debate initiated by the noble Lord today on the report of the Select Committee. It could not be more timely, given both the importance of its contents and the announcement this week of the establishment of a Department for Constitutional Affairs. I have read the committee's report with interest. I acknowledge that it has had—and I trust will continue to have—a valuable and important role in its oversight on constitutional affairs.

I am particularly pleased that the Select Committee emphasised the smooth transition that took place to devolution in 1999 and the successful way in which the first term has gone. That is indeed a tribute to all those involved. But we are talking about a process so far of success.

We also saw the second devolved elections take place on 1st May. I congratulate the incoming administrations in Scotland and Wales. I also take the opportunity to assure the House that the Government will continue to work closely with the devolved administrations to deliver for the people of Scotland and Wales.

As the Prime Minister made clear in his Statement on Wednesday, it is precisely because devolution is operating smoothly that it makes sense to combine the roles of Secretary of State for Scotland and Wales with other Cabinet posts. My right honourable friends the Secretaries of State for Scotland and for Wales represent Scottish and Welsh interests in Cabinet and account for them in another place. They are assisted by the Scotland and Wales Offices, which continue as distinct entities reporting to those Secretaries of State but located in my department.

My noble and learned friend Lord Falconer is responsible for the overall devolution settlements and overall government policy on devolution, a responsibility previously that of the Deputy Prime Minister—including the Memorandum of Understanding, the Joint Ministerial Committee and the British-Irish Council. The team of officials responsible for co-ordinating devolution issues has moved from ODPM to the Department for Constitutional Affairs.

The noble Lord, Lord Norton, acknowledged many of those facts. He acknowledged that the settlement is working well and that there is no present problem. but he and the committee raised the question of whether there will be a problem in future. That is a perfectly proper question. Governments and parliaments should look to the future, rather than simply considering whether things are presently satisfactory. First, having just had elections, and not facing new elections to the Scottish Parliament and the Welsh Assembly until 2007, it seems unlikely that there will be an immediate problem. Of course, that does not remove the need to reflect, but one can hardly say that that is something that is about to hit us in the face.

Secondly, I emphasise that there is existing strong formal machinery. The impression has been given that this is all done between chums and that there is no structure or system of government in place to try to ensure that it works. First, there is a Memorandum of Understanding—about which I shall not go into detail. Secondly, and importantly, there are bilateral concordats with the devolved Administrations. Thirdly, there is a Joint Ministerial Committee chaired by the Prime Minister and including the First Ministers of the devolved administrations to oversee the operation of devolution, which meets in both plenary and functional sessions. Taking the two combined, there have been 16 meetings of the JMC in its various guises.

Fourthly, the Government emphasise that we will keep the operation of those liaison arrangements under review. I shall return to that later. Lastly, as has been recognised, we have a common UK Civil Service. I think that all parts of the House share the belief that that is important in making the United Kingdom constitution work in the circumstances. The way in which they have co-operated and continue to co-operate through and between the devolved administrations and central Government is a tribute to civil servants.

I turn to the role of the Secretary of State. The noble Lord, Lord Norton, also acknowledged—I thank him for this—that there is no sensible case for three separate full-time Secretaries of State. Perhaps with one exception, I have heard no one argue the case for that. Obviously, there was a case for a full-time Secretary of State for Scotland and for Wales before devolution—the UK Parliament was running many matters concerning Wales and Scotland.

There was an arguable case for keeping a full-time Secretary of State for Wales and Scotland during the period of bedding in of the devolved settlement, so that we could monitor how things were going and ensure focused political attention. But there is now hardly an informed or respected commentator who does not recognise that the world has changed since 1999 and that there therefore is no justification for a full-time Secretary of State for either Wales or Scotland. That leaves only two alternatives.

My Lords, will the Minister comment on the comments of the noble Lord, Lord Holme, and I about the moonlighting of Secretaries of State? We do not argue for one Secretary of State for Wales and one Secretary of State for Scotland; from these Benches, we say that to have a senior Secretary of State for one of the major departments moonlighting, to use the terminology, as Secretary of State for Wales or Scotland cannot be right.

My Lords, I am no senior wrangler, but it seems to me that there are three options: no Secretary of State for Wales, a full-time one or one who shares some of his responsibilities between Welsh and other issues. There are no more than three options. So one must take the position that there should be a full-time Secretary of State for Wales, even though no one seriously thinks that there is sufficient work for one; or that there is no need at all for a Secretary of State for Wales in the Cabinet, which is not the Government's position; or, logically, that there should be a Secretary of State for Wales in the Cabinet who, sensibly, undertakes other functions as well.

I fear that that is the only sane answer to the allegation of what is a rather loose use of the term moonlighting".

My Lords, I am grateful to the Minister for setting out the alternatives, but the burden of our report was that there should be one Secretary of State responsible for the devolved parts of the United Kingdom. He did not address that in his schema of alternatives.

My Lords, I grant that there is a further option, which is to bundle them all in together and have one Secretary of State. The Government's view is that it is clearly better to have an identifiable Cabinet Minister who is seen to speak for Wales and for Scotland, arguing that case simply and clearly in Cabinet. We have taken a view on that and we think that we are right.

My Lords, if the Secretaries of State have to share their functions with other government departments, will they also be answering to Select Committees in respect of Scotland and Wales and taking parliamentary Questions? That all begins to add up to a substantial addition to their current burdens.

My Lords, there has been no change whatsoever to the responsibilities of the Secretaries of State for Scotland and Wales. They still carry the functions that they carried two weeks or so ago. The Government are in a reasonably good position to make an assessment as to the weight of those responsibilities, because they have been carried out during the past few years since the devolution settlement. We judge that, supported by the two other Ministers for Wales and Scotland in the Commons, there is no problem with my right honourable friends Peter Hain and Alistair Darling carrying out all of those responsibilities, including answering, either themselves or through their relevant junior Ministers, to Select Committees.

I turn to the question raised by the noble Lord, Lord Norton of Louth, about improving the process for legislation affecting Wales and Scotland. That is a correct challenge, to which I shall return in more detail. We have not reached perfection there; there is room for progress.

The noble Baroness, Lady Gould, raised the thorny issue of the Barnett formula, to which many members spoke. Is there a better way? One thing about the Barnett formula is that, compared to the distribution settlement for local government, it is relatively simple and clear. It may seem complicated, but it is a masterpiece of clarity and simplicity compared with some of the alternatives. I suspect that that is why the committee, which is not alone in this respect, found it difficult to find something that was a wonderful improvement on it. We have no current plans to change it; on the other hand, one always keeps an open mind on such issues.

The noble Baroness also spoke in some detail about the importance of addressing improvements to the handling of legislation. As I said, we are actively reflecting on that. For example, we are considering how to make more explicit in explanatory memoranda to Bills the exact effect on Wales or the powers of the National Assembly. The Welsh Affairs Select Committee recently made several further suggestions to improve procedure and the Government are considering their response to those recommendations—including on the relevance of the so-called Rawlings principle.

We do not think that there have been significant procedural difficulties in relation to Scotland. Nevertheless, our guidance makes clear that the Scottish Executive must be consulted on all relevant legislative proposals, whether or not the Sewel Convention applies.

My Lords, I apologise for interrupting my noble friend, but I should like to ask about Wales. It is not simply a matter of procedure. The point is trying to establish or carry into effect the wishes or will of the Welsh Assembly. How can it be satisfactory when it asks the Government for eight Bills and gets none?

My Lords, I do not think that the influence of the National Assembly for Wales can be measured in terms of the number of Bills that it gets in a parliamentary Session. As has been signalled already, there have been two since the devolution settlement. The Government have passed a considerable number of Bills that have had major implications for Wales. There is an active process, which I indicated earlier, for intergovernmental discussions on those issues.

We are not complacent; we do not believe that necessarily the arrangements are perfect. Let me give a homespun example in how this House scrutinises UK-wide legislation on Scottish issues. The noble Baroness, Lady Carnegy of Lour, who appears against me on the other Benches on various Bills, makes powerful contributions about how Scotland would be affected. She constantly raises those issues. That seems extremely important and necessary.

Furthermore, we have also looked to bring key civil servants down from Scotland to discuss with noble Lords from opposite parties how a Bill would affect Scotland—even before we move into Committee—in an attempt to inform our considerations in Committee. That illustrates the need for us to keep an open mind on how we improve the process of UK-wide legislation and how we consult and involve devolved nations.

The noble Lord, Lord Morgan, made the general comment that the process has been a success, as most people in the debate said. He gave a rather novel argument as to why it had been a success, saying that Conservatives now have a stronger role in Wales. As a pluralist, I must acknowledge that argument, even though it is slightly against my natural mindset.

As to whether the Joint Ministerial Committee is to be beefed up, in essence, it is government machinery that can be taken up or down according to necessity and demand. I was asked where the civil servants would go. There is a relatively clear answer: politically, civil servants in the Wales Office or the Scotland Office report to the respective Secretaries of State as they have always done. Departmentally, for pay and rations purposes, they are in the Department for Constitutional Affairs. We do not want to have to move them between departments every second the Secretary of State might move. Physically, they are in the great historic office buildings that they have occupied for some time—well may that continue.

Noble Lords asked questions about the report of the noble Lord. Lord Richards, on the National Assembly for Wales. If, as we would expect, the National Assembly for Wales refers it to the Government, they will respond as a Government when the Secretary of State speaks. Secretaries of State speak for the Government, not just their department—I do not need to tell the House that. Formally, the Secretary of State for Wales, in that instance, will respond on behalf of the Government.

I must not detain the House for too long. I was slightly saddened by some of the points that the noble Lord, Lord Holme, raised. I cannot believe that he was saying the Government were wrong to indicate that after a proper process of consultation and legislation they would move towards a supreme court, an independent judiciary, at least offering the House of Lords the opportunity to elect its own chairman or, presumably, to oppose stronger arrangements in Government for overviewing constitutional relationships—that will be my department's responsibility. In a sense, it came down to a presentation issue. If that is it, so be it. But, in essence, I would have hoped—

My Lords, I am grateful to the noble Lord for giving way. The sadness is probably more on my side that a set of reforms that we on these Benches support—as I made clear—had not been thought through in detail. They were not simply presented badly but in a process that betrayed that they were more an ad hoc reaction to events than a thought through set of constitutional changes.

My Lords, I hear the noble Lord's point. I do not agree with it. Those issues have been argued by many commentators. They are changes that should have been made for many years. I would have hoped that the Government's indication that they will now do so would receive a warm welcome. In response to a further question, we have no current intention to change the Barnett formula.

On civil service loyalty, the Civil Service code was amended in 1999 before devolution took effect to make clear that civil servants in the Scottish Executive and the National Assembly for Wales owed their loyalty to the administrations that they served. The Civil Service code also provides that civil servants must comply with the law, as one would expect.

I can confirm that both First Ministers were told in advance about the DCA. Both were happy and are happy with the arrangements.

The noble Lord, Lord Glentoran, asked whether the arrangements were risky for the future. I have signalled already that formal structures of government are in place that can be expanded or contracted to deal with future events.

It is germane to the establishment of the Department for Constitutional Affairs to say that we now have a department led by my noble and learned friend Lord Falconer, who very much wished to be with you today but is on pressing business in the North. He would like to have responded to the debate in person. I am pleased to have had the opportunity to do so because, working to him, I will have a ministerial responsibility for these issues. I am afraid that noble Lords will not escape from me on these issues today.

I will be pleased to have further discussions, both with the committee and with leading members who have spoken on these issues, if there are any matters of interest or concern to them. That is an offer. My noble and learned friend Lord Falconer would also wish to say that he will be most pleased to talk further with the committee of the noble Lord, Lord Norton, at any time that suits it, about issues that concern it now or its future work programme.

I shall conclude on that note. The Government's commitment towards devolution, which was not always universally applauded, but is respected around the House, has succeeded in Scotland and Wales. Nobody ever says that any change you make—at least in our constitution—is rigid and firm for all time. Devolution seems to us to work, although there is a responsibility to keep matters under review, both in Government and aided by the Select Committee.

As signalled by several speakers, we must learn from different practices of government, politics, consultation and public involvement in the devolved administrations. There are good lessons to be learnt, and I hope that we get guidance on some of them from expert research and advice. The process of pre-legislative scrutiny in Scotland, particularly as it has a unicameral system, must be strong. But it works well, and people in Scotland value that. We should look at the process and listen to it.

I am not convinced at this stage that there is an urgent need to set up new bureaucratic structures. However, there is a responsibility on the Government, the Department for Constitutional Affairs, my noble and learned friend Lord Falconer and me to keep under active review, and to monitor, how the devolved relationships are working and, respectively, how they might work in future. I am therefore pleased to take the kernel of the Select Committee's advice, albeit with a slight difference of emphasis on the exact mechanism for responding to that advice. It seems right that the Government should look forward, consider what might happen and put in place suitable contingency arrangements come the day. I am therefore very glad to welcome the report. I look forward to working with the committee on future studies.

My Lords, I thank everyone who contributed to what has been a short but very rich debate. There have been some excellent contributions. 1 echo the words of the noble Lord, Lord Holme, in commending especially the contributions from the noble Baroness, Lady Gibson of Market Rasen, and the noble Lord, Lord Prys-Davies, which were much appreciated.

The subject of our report is extremely important, but, as the noble Lord, Lord Morgan, said, it is not widely discussed. It deserves and needs to be discussed. I hope that this debate will contribute significantly to the discussion.

I am most grateful to the Minister for his response to the debate. He covered a great deal of ground and offered a much more positive response than that of the command paper. I welcome that. The machinery is in place; we are not suggesting new machinery, our concern is that it is working intermittently. At present, with the new structures I am not clear about who controls the switch. I welcome the Minister's offer on his own behalf, and that of the Secretary of State, to assist the committee. There are a number of issues that we would welcome the opportunity to pursue.

I emphasise the point touched on by the Minister and drawn out by the noble Baroness, Lady Gibson. Our recommendations are not simply confined to being directed at Government; we are raising a number of recommendations directed at Parliament. There is a lot that we must consider and that we can learn from devolved bodies. At the same time, we must look at how our machinery works, particularly in dealing with legislation affecting Wales. I emphasise that a lot is to be done by Parliament and not just by the Government. I reiterate my thanks to those who have taken part. It has been a helpful debate. This is not the end of a process but prompts further discussion and consideration.

rose to move, That this House takes note of the report of the European Union Committee on The Future Status of the EU Charter of Fundamental Rights (6th Report, HL Paper 48).

My Lords, I express my gratitude to your Lordships, the so-called "usual channels", who have arranged this debate on the Select Committee's report on the charter. Time and events have overtaken the report, which was published on 3rd February. Its purpose was to discuss the pros and cons of the various alternatives for incorporating a Bill of Rights into the proposed new constitution for the European Union.

We wanted the comments of the Select Committee, and of this House if a debate could have been arranged in time, taken into account both by the Government in deciding what representations they would make in the course of the negotiations, and by the Convention on the Future of Europe, chaired by Valéry Giscard d'Estaing, and by its working party. Time has moved on. We received the Government's response to the report on 29th May, which was some four months after the report's publication.

In the meantime, a number of conclusions had been reached in the convention and by the convention's working parties. The final text of what the convention proposes for the new constitution, or at least the part of it that incorporates the provisions dealing with the charter, were handed over to me this morning. I doubt whether any other Members of the House, other than the noble Baroness, Lady Scotland of Asthal, will have had an opportunity to see the provisions.

The original date proposed for the debate was 10th June, some 10 days ago. However, the noble Baroness was at that time, and for some days thereafter, engaged in negotiating in Brussels the final terms of the provisions that found their way into the Giscard proposals, and so the debate was postponed until today.

The result of that postponement is that, instead of considering the contents of the report and the pros and cons discussed on the alternatives, your Lordships are able in fact to consider the actuality of what is proposed by the convention.

The first issue of note arising out of the report is whether the new constitution should have a Bill of Rights incorporated into it. The question assumes that there will be a new constitution. We did not go into that assumption in the consideration of the report; we took it as read. It is a safe assumption. The contents of the existing treaties plainly need adjustments to cater for the advent of 10 new member states.

There are two main arguments in favour of incorporating a Bill of Rights into the new constitution. First, there is at present no formal human rights limitation on the way in which the European Union institutions exercise their variety of powers. Each member state is a signatory to the European Convention on Human Rights. The European Union is not.

In December 2000, the member states agreed to the terms of the Charter of Fundamental Rights of the European Union. The member states agreed to preserve its provisions, but they did not incorporate the charter into European law. Nor, in the UK at least, did it become domestic law. It had legal influence nonetheless. It has become the practice for all legislative and regulatory measures of the EU to be checked for compatibility with the provisions of the charter. The European Court of Justice has, on a number of occasions, referred to the charter to assist it in identifying fundamental rights to be respected in the Community. Domestic courts in this country have referred to the charter for much the same purpose. It has had no formal legal force. It does not legally bind European institutions, nor does the European Convention on Human Rights formally hind European institutions.

The first conclusion that Sub-Committee E—which I had the honour to chair—came to when considering this issue preliminary to preparing a report was that it was high time that formal requirements of the observance of fundamental rights were built into the constitution, whatever it may become, so as to become binding on European institutions. I have not yet heard any sensible argument against that. It remains to be seen whether one will be forthcoming.

The second reason is the fear expressed by a number of witnesses who gave evidence to the sub-committee that the absence of a Bill of Rights in the proposed new constitution may undermine the credibility of that constitution. All new constitutions tend to have Bills of Rights incorporated into them. That is why it may be said that that should apply also for the new EU constitution.

In their answer to the recommendations in the report, the Government expressed disagreement with the proposition that the new constitution should have a Bill of Rights. It did not accept that that should be so. This remains therefore a major and fundamental issue that must be resolved at the intergovernmental conference in Greece later this year. Perhaps the Minister will indicate the Government's current thinking on the issue. Apart from saying that the Government objected or did not agree—objected is perhaps too strong—that there should be such an incorporation, the reason for that view was not expressed.

Assuming that the new constitution will have a Bill of Rights, what form should it take? In the report, we considered three possible alternatives. One was that the European Convention on Human Rights, to which all member states already adhere, should become by accession on the part of the EU the European Union's Bill of Rights as well. There is clearly logic in that.

Another alternative was that a charter that was prepared some two or three years ago with the EU expressly in mind should be incorporated into the constitution to become the Bill of Rights. The third alternative was that both the other two should be combined: both accession to the European Convention on Human Rights and incorporation of the charter becoming the solution.

The present proposal from the Convention on the Future of Europe is the double-barrelled solution, the third alternative I mentioned—both accession to the European Convention on Human Rights and incorporation of the convention. It is proposed that the EU should have legal personality and enable itself to accede to an international treaty such as the European Convention on Human Rights. The convention would then become part of European law, binding on European institutions as it is already part of domestic law in this and other member states.

Secondly, the Giscard convention proposes that the articles of the charter, more or less as they stand—I shall return to the "more or less" later—shall be incorporated into the constitution. The charter provisions would thereby become part of European Union law. The Government's comment on that double-barrelled option was that they,

"would have many objections to putting [it] into practice".

The Government did not explain what those objections were or why they had them. What is the nature of their objections? Perhaps they are the same objections—no more nor less— than their objections to having any Bill of Rights at all. We await further information.

I draw your Lordships' attention to several textual points about the charter. First, it was not drafted as a document intended to have direct legal effect. As I said, it was not incorporated into European law at the time that it was formally proclaimed. It was drafted to express any policy aspirations that all member states shared rather than providing precise legal rules. That feature of the charter is apparent from its contents, the following examples of which are taken at random. Under the heading "Freedoms", Article 13 of the charter states:

"The arts and scientific research shall he free of constraint",

which is a broad definition. However, there are some forms of scientific research, such as the cloning of humans or embryo research, which is a topical example, that nearly everyone accepts must be subject to some constraints, albeit of varying degrees of strictness. Article 13 simply cannot mean what it says.

Secondly, under the heading, "Equality", Article 21 says:

"Any discrimination based on any ground such as"—

and there is then an enumeration of matters including—

"sexual orientation shall he prohibited".

but everyone accepts that the activities of paedophiles must be prohibited and restrained, so Article 51 also cannot mean what it says.

Under the heading "Citizens Rights", Article 42 states that any citizen of the EU has a right of access to documents of the Union's institutions. That is carrying freedom of information to a fine degree. The breadth of that right is not expressed in the charter to be subject to any restrictions at all. However, Article 49 states:

"A European law shall lay down the general principles and limits which, on grounds of public or private interest, govern the right of access to such documents".

So Article 42 cannot mean what it says.

The report draws attention to those and other examples of the inappositeness of the charter articles for precise legal application. The question of a possible re-drafting was mentioned, but it is accepted, for practical political reasons, that the charter cannot be subjected to a wholesale re-draft.

The convention's solution to the problem is to propose that each of the charter articles in turn should be accompanied by an official commentary explaining the intended function and scope of the article. The preamble to the charter has had a sentence added to it from its December 2000 form. It states that the charter,

"will be interpreted by the Courts of the Union and the Member States with due regard"

to the official accompanying explanations. Thus, the explanation accompanying Article 13, the article about "arts and scientific research" being "free of constraint", states that the right is to be exercised subject to the limitations authorised by Article 10 of the ECHR. As many of your Lordships will know, Article 10 of the ECHR permits constraints to be imposed for various purposes, such as the interests of public safety and the protection of health and morals. So that cuts down the charter articles. Anyone who reads it would not understand them without also reading the accompanying explanation.

Article 21, the no discrimination article, is accompanied by an explanation which says that it,

"does [not] lay down a sweeping ban of discrimination in such wide-ranging areas",

which limits the scope of the discrimination ban. The explanation accompanying Article 42—the right of access to documents—states that the right only applies within the limits for which provision is made in Articles 1–49(3). There one finds provision made for the expected public security, national security restrictions on the right.

The articles of the charter as incorporated do not mean what they say; they must be read in conjunction with t heir respective explanations. So far as it goes, the technique of accompanying legally imprecise articles with explanations that give them precision is to be welcomed. I think that the Government also welcome that technique. However, the text of the official explanations is not yet settled. The version to which I have been referring, dated 3rd June, was supplied to us by the noble Baroness. Lady Scotland. However, it contains a request for comments and suggestions to be made by 10th June. That date has now passed and presumably some were made. What the end result will be, those suggestions having been taken into account, we simply do not know.

If the charter is to be incorporated into the constitution, in my view, and in that of both the sub-committee and the Select Committee, it is of the highest importance that the articles should be accompanied by explanations that lend satisfactory legal precision to their intended effect. Otherwise, there will be a field day for lawyers, although riot for anyone else. We believe that the Government share that view and hope that their representatives at the IGC will rigorously examine the commentary with that in mind.

The next point of concern is related to the vexed issue of competencies. It is a feature of the charter articles—as it is of the articles of the ECHR —that their language is such that they are capable of applying to matters that are outside the competencies of the EU and its institutions, but to matters that are within those competencies. It is essential, and this is also a view shared by the Government, that any entrenching of these articles in EU law via the new constitution should not lead to any extension of those competencies. If they are to be extended, it should be as an intended variation of the present arrangements, not via some sort of competence creep that might emerge from application of the new Bill of Rights.

Outside the competencies given to the EU and its institutions under the new constitution, it must remain for member states to pay whatever regard to the articles of the charter or the European convention may be required under their respective domestic laws.

On the so-called "horizontal clauses" in the charter, Articles 51 and 52 are intended to deal with the potential problems of "competence-creep", and they have been subjected to amendments specifically directed to that end. The official explanations that accompany these two amended articles are lengthy, complicated and important. Sub-Committee E has not yet had an opportunity to subject them to the scrutiny they undoubtedly deserve.

Subject to that need for scrutiny, my present impression is that the amended Articles 51 and 52, coupled with the explanations, ought to prevent the incorporation of the charter from producing the competence creep that I mentioned. It is certainly essential that that should be so, but the Minister's comments on this aspect of the proposals would he valuable.

The fifth issue relates to the implications of the incorporation of the Bill of Rights for the European Union's Courts and their jurisdiction. The purpose of a Bill of Rights must be to provide citizens with new protection and new rights against abuse of power or excessive or wrongful exercise of power by Union institutions or bodies. Where that has happened one would expect to find that the aggrieved citizen would have an effective right of recourse to the European Courts and effective remedies once he got there. But at present, under the treaty, a citizen's right of access to the European Courts is distinctly limited. It is dealt with under Article 230(4) of the treaty establishing the European Communities.

In order to institute proceedings in the European Court, a citizen must show that the action to which he objects is of "direct and individual concern" to him. The words "and individual concern" have been strictly interpreted by the European Courts so as to prevent an individual from bringing an action alleging invalidity of some European Union legislation on the grounds of access to competence or on any other grounds. He must show that it would affect him personally and not just in a general way as a citizen along with others.

The Giscard convention, responding to the point that the incorporation of the Bill of Rights requires an amendment of the restrictions imposed by Article 230(4), has proposed to add words which would allow an individual to institute proceedings in a European Court,

"against a regulatory act which is of direct concern to him without entailing implementing measures".

I read that slowly because I am by no means sure what it means. It is obviously intended as a relaxation. The requirement that the action complained of be of "individual concern" has gone, but the relaxation applies to an objection to a "regulatory act" only. What is meant by regulatory act is unclear. It may be that it is directing itself to subordinate legislation and that it would not allow an objection on this relaxed footing to be taken to an item of primary legislation. That is a guess; it may not be right. What the words, "without entailing implementing measures" mean, goodness knows. I do not. The amendment is highly important. It is very new. We have not yet had the reaction of the Government to it. I do not know whether the noble Baroness has a better view than I of what it means. If she has, I hope that she will tell us; if she has not, I hope that she will take steps to have it elucidated. It will be of great importance to citizens to know what right of access to European Courts they will have under the new constitution.

I should like to make one final point on the jurisdiction of the European Court. At present, the Court has no jurisdiction on second pillar matters common foreign and security policy matters—and a restricted jurisdiction only on third pillar matters of justice and home affairs matters. I suggest to the noble Baroness that any matters within the competence of the European Union or its institutions will, if the present proposals go forward, be within their respective competencies, need to be matters in respect of which the rule of law can be seen to apply by complaints being justiciable before the European Courts. The European Union, in all its competencies, should be subject to the rule of law.

Whether the final constitution will involve any extension of Union competencies in second pillar and third pillar matters we do not yet know. Maybe it will not. I understand that the Government are to oppose any such extension. If that opposition carries the day, the need for an extension to the European Court of Justice's jurisdiction will not be so pressing. But if the competencies of the Union and its institutions are to be extended and if the new Bill of Rights is to be incorporated, there is a very strong argument that the jurisdiction of the ECJ should be correspondingly extended. It would be helpful to have the Minister's comment.

I have mainly directed my remarks to the incorporation of the charter into the constitution. The accession of the European Union to the ECHR, if that comes about, will raise much the same issues. It will raise the same need to prevent competence creep, the same need to consider an extension to the jurisdiction of the ECJ and the same arguments for and against will apply. I do not need to repeat myself as to that.

The political practicality of accession to the ECHR may be an obstacle to that being achieved. All the signatories and not simply the member states—there are signatories that are not member states—will need to agree any consequential changes that the accession of the European Union might involve.

In summary, is the Union to have a Bill of Rights? Should it be the charter? If so, what attention can be paid to the explanations to the horizontal clauses and to European Court of Justice jurisdiction? Should the European Union accede to the ECHR and what should the jurisdiction of the ECJ be, having regard to these changes? These are all matters which require attention. They are issues of potentially very great importance to all the citizens of this country and therefore to Parliament. They deserve and, I believe, will have your Lordships' careful attention. I therefore commend this report to the House. I beg to move.

Moved, That this House takes note of the report of the European Union Committee on The Future Status of the EU Charter of Fundamental Rights (6th Report, HL Paper 48). — (Lord Scott of Foscote.)

My Lords, in taking part for the first time in a debate on a report based on the work of Sub-Committee E, of which I am a member, I take some consolation from the words of the noble Lord, Lord Morgan, in the previous debate—namely, that constitutional change should not be an elite concern. I certainly would not consider myself to be among the elite on this issue.

I shall speak largely about incorporation but perhaps from a slightly different perspective. As a person, on the matter of incorporation of the European Charter of Fundamental Rights into the new constitution I support the general view expressed by Professor Arnull that,

"a constitution for the Union which did not contain a Bill of Rights—could be regarded as undermining the statement in an earlier provision of the Treaty on the European Union that the principle of respect of fundamental rights is one on which the Union is founded".

I am aware that not everyone shares that view although most of our witnesses did.

The noble and learned Lord, Lord Scott of Foscote, laid before us in great detail some of the legal difficulties involved in the incorporation of the charter into a constitution. In layman's terms, the main benefit of the charter is that incorporated into the new constitution it would offer citizens a wide range of justiciable rights.

In written evidence, Justice, at page 77 of the report, stated that,

"given the increasing capacity of EU institutions to affect individuals' human rights, a binding catalogue of fundamental rights guarantees is an essential part of the constitutional structure of the Union".

I find it difficult to understand why anyone should, in principle, oppose such rights of the citizen against the Commission, the Council and the Parliament. Surely, European Union civil servants and European Union institutions should be liable to challenge if they abuse their powers. A practical problem—again, the noble and learned Lord, Lord Scott of Foscote dealt with this in detail—arises from the need to reform the operation of the European Court of Justice to enable effective access to legal remedies available under the charter.

In paragraph 163, the committee concluded that in order for citizens to be able to avail themselves of the legal remedies theoretically available under the charter the operation of the European Court of Justice should be reviewed and, where necessary, reformed to give practical effect to the incorporation. I confess that I am disappointed with the Government's negative response to that conclusion and I hope that the Minister will he able to elaborate on the reasons for it.

A more serious problem is the wide coverage of the European Charter, incorporating as it does a large part of the ECHR together with economic and social rights taken from the Social Charter and from various existing international texts. An argument can certainly he made that even if one accepts that citizens have a right, for example, to equal access to education, to a pension or to decent healthcare, these are all aspects of rights that are best satisfied via the relevant government policies and actions, as provider and enabler.

Furthermore, it raises the whole thorny problem of subsidiarity. The British and, no doubt, other member states hold fast to their own rights and duties to ensure the well-being of their people in these matters. The question is whether, in incorporating the charter within the new constitution of the European Union, we are doing something that will encourage competence creep from the member states to the Union. Perhaps I should reassure the House that, as an enthusiastic supporter of the European project for all of my adult life, I have no wish to see the Commission encroach upon the powers of member states tin less there is a convincing reason for overturning the principle of subsidiarity.

The Convention Working Group on the Charter was alive to this problem and proposed a solution in the form of the so-called horizontal clauses. Noble Lords will have seen that we paid a good deal of attention to them and proposed several trenchant amendments, to be found on page 25. In particular our suggested amendments to sections 1 and 2 of Article 5 I spell out plainly that the operation of the charter should respect the limits of the power of the Union as conferred on it by other parts of the treaty and that the charter does not extend the scope of application of Union law beyond the powers of the Union.

Of course we are not able to debate the clauses today in the final form decided on by the convention working group. I have not seen the relevant horizontal clauses so I do not know what they now say. Perhaps the Minister will be able to enlighten us. Indeed, in a sense it is difficult to debate our report outside its true context, that of the constitution itself. Personally, I found that the attitude of the Government towards incorporation of the charter was not particularly helpful during the course of our committee's work. The Minister could not offer us any real sense of the Government's opinion on the incorporation. Not for the first time I was left thinking that, in a sticky situation, I should like to have the noble Baroness, Lady Scotland of Asthal, on my side.

The government response to our report makes it clear that they are still in what I would call a state of hostile neutrality towards incorporation. I do not think that I can follow the noble and learned Lord, Lord Scott of Foscote, in hoping that the Government will negotiate vigorously and even in a slightly hostile manner on the charter during the process of discussion now about to take place at Council and IGC level. I hope that the Government will use their negotiating power and credit on other matters where they may be more likely succeed, because in my view the incorporation of the charter is extremely likely to go ahead, it having been given a fair wind by many institutions within the Union as well as by member states. There may be better issues on which energy and credit could be spent.

I look forward to hearing what the Minister has to say. I hope she will tell us that the Government are adopting a more positive attitude to what is in my view a very important issue.

My Lords, I hesitated about whether I should say anything this afternoon because I was confident that my noble and learned friend Lord Scott of Foscote would say everything about the committee's work that needed to be said. I, too, am a member of that sub-committee. I do not know whether noble Lords noted a recent aphorism from Signor Berlusconi, the Prime Minister of Italy, who said in relation to a friendly state that that state—I need not identify it—missed a good opportunity to remain silent. As a general test to apply to one's interventions, that might not be a bad rule. Your Lordships will be the judge of whether I am transgressing and have missed the opportunity.

I have only one major point to make about the charter and what is proposed in the latest text from Giscard d'Estaing and his colleagues: this matter is becoming very complicated and difficult and we are going to lose the average citizen having any knowledge at all of what we are now talking about. People have heard of the Convention on Human Rights; that has hit home, perhaps not down at the Old Bull and Bush, but it is a known fact out there. But if you ask someone whether they have heard about the Charter of Rights, I venture to say that even in your Lordships' House you will receive what might be called a "non-response" unless they happen to serve on the appropriate committee. A kind of blaze of apathy meets discussions of the kind we are now having on this extremely important matter.

The aspects of complexity to which I want to draw attention are fourfold, on each of which I shall say a few words. First, I turn to the notion of both a charter and a convention; secondly, the actual status of what is written in the charter; thirdly, the status of the Explanatory Memorandum; and, fourthly, a word about remedies. In relation to the last, unlike the chairman of our committee, I have not received the latest word. What I have is the text of Parts I and 2 of the convention, but I have not seen the latest proposals on remedies, so noble Lords will be relieved to learn that what I have to say on them will be extremely truncated.

On my first point concerning the charter and the convention, my noble and learned friend Lord Scott referred to Article 1.7 covering fundamental rights. Paragraph (1) of that article states:

"The Union shall recognise the rights, freedoms and principles set out in the Charter of Fundamental Rights which constitutes the Second Part of this Constitution".

The next paragraph states:

"The Union shall seek accession to the European Convention for the Protection of Human Rights and Fundamental Freedoms. Accession to that Convention shall not affect the Union's competences as defined in this Constitution".

For the ordinary citizen, things are already becoming rather difficult. The EU itself will apply to become a party to the convention, and thus the Strasbourg convention along with its caselaw and so forth will all become part and parcel of European law. That is in addition to what will happen forthwith once the constitution is adopted; that is, the charter will come on board.

Again, the man in the street might think, when it states that:

"The Union shall recognise the rights, freedoms and principles set out in the Charter",

that it is a resounding declaration and proclamation of what is actually going to happen, but when one reaches the horizontal clauses, one finds a more complicated situation. Qualifications appear in relation to that declaration. Thus Article 51 states:

"The provisions to this Charter are addressed to the institutions, bodies and agencies of the Union with due regard to the principle of subsidiarity and to the Member States only when they are implementing Union law".

I shall skip the second sentence and move on to the second paragraph of the article, where it states:

"This Charter does not extend the scope of application of Union law beyond the powers of the Union or establish any new power or task for the Union or modify powers and tasks defined by the other parts of the Constitution".

That immediately calls into question what any earlier article might have said. Article 14, for example—I pick these examples at random—is headed "Right to Education". It states:

"Everyone has the right to education and to have access to vocational and continuing training".

In the second paragraph of the explanation it states:

"It was considered useful to extend this article"—

beyond Article 2 of the protocol to the Strasbourg convention—

"to vocational and continuing training".

It then refers to point 15 of some other document.

The process for someone trying to make head or tail of this is very difficult. It looks as though you have a declaration of all these rights, and then you come across language which clearly underlines that some of them may not mean what they say at all—the noble and learned Lord, Lord Scott, referred to the obscurity of the language—because you have not got an EU competence within which they could he articulating a rule or principle. It is a difficult and complicated concept.

As to the status of the explanatory memorandum, to which the noble and learned Lord referred, the original text stated in part 2 that the explanatory memorandum was of "no legal value". That is not perhaps a perfect translation but I suspect that the thought behind it was that it was not intended to be a legal document defining what was said.

But, as the noble and learned Lord pointed out, we have now moved beyond that to the revised form of the preamble—it is, of course, in draft form—which now states that the charter will be interpreted by the courts of the Union and the member states,

"with due regard to the explanations prepared at the instigation of the Praesidium of the Convention which drafted the Charter".

So some kind of status is now accorded to the explanations.

I find the explanations quite difficult. Let me take the issue of double jeopardy as an example. Under the heading of "Right not to be tried or punished twice in criminal proceedings for the same criminal offence", Article 50 of the charter states:

"No one shall be liable to be tried or punished again in criminal proceedings for an offence for which he or she has already been finally acquitted or convicted within the Union in accordance with the law".

That looks like a straightforward, good old-fashioned declaration against double jeopardy, an issue we have debated quite recently in your Lordships' House.

However, if you look at the explanatory note, there is a reference to Article 4 of one of the protocols to the convention, the second paragraph of which states:

"The provisions of the preceding paragraph shall not prevent the re-opening of the case in accordance with the law on penal procedure of the State concerned, if there is evidence of new or newly discovered facts, or if there has been a fundamental defect in the previous proceedings which could affect the outcome of the case".

I can hear the ordinary innocent man saying, "What is the effect so far? I have had a declaration of what the right is and I now have a quotation from another piece of human rights law". Further in the explanation, at the end of that paragraph, it states:

"The very limited exceptions in the conventions permitting the Member States to derogate from the 'non his in idem' rule are covered by the horizontal clause in Article 52(1) of the Charter concerning limitations. As regards the situations referred to by Article 4 of Protocol No 7"—

which I have just read—

"namely the application of the principle within the same Member State, the guaranteed right has the same meaning and the same scope as the corresponding right in the ECHR".

I hope that I am being completely fair when I say that that material is incredibly difficult. You state a right which is not fettered; there is then a quotation from something which purports to fetter it; and then you are told to look at the power in Article 52 to derogate on certain terms.

I do not have time to elaborate on that issue in great detail. I reinforce the point made by the noble and learned Lord. Lord Scott, about the commentary on these horizontal clauses, which are extraordinarily long. Article 51 has more than a page of commentary; and the explanation on Article 52—which is another horizontal clause—runs to about four pages and introduces some extraordinarily difficult concepts.

I take my last example from the text on page 59 of the latest document we have. Paragraph 5 of Article 52 clarifies the distinction between the rights and principles set out in the charter. According to that distinction, subjective rights shall be respected whereas principles shall be observed. At the end of the paragraph it states that in some cases an article of the charter may contain both elements of a right and of a principle, and gives some examples.

I have probably said enough to indicate the tremendous difficulty and complexity of having these two documents side by side. Will the Minister give some consideration to the plea that if you are going to have a charter at the forefront of a new convention, you should do your best to make it clear, simple and effective? The method that has been adopted is almost the worst possible method that could have been adopted.

As to remedies, it is essential that there should be adequate remedies. One has to study the small print of the latest proposal, but it does not look as if it goes as far as the Advocate General, Francis Jacobs, would have wanted it to go when he gave his testimony to the committee. Those are my observations.

My Lords, we on these Benches welcome the report. It expresses a balanced and sensible view on complex and controversial issues, as the noble and learned Lord, Lord Scott of Foscote, and the noble Lord, Lord Neill of Bladen. have said.

Before turning to the substance of the debate I should like to express our concern about the delay in obtaining it. The report was adopted by the EU Committee of your Lordships' House on 3rd February, four-and-a-half months ago. It dealt with a very fast moving target. The work of the convention is now finished and the convention president, Mr Giscard d'Estaing, will present today or tomorrow the draft constitution to the EU summit at Thessaloniki. Many of the issues raised in the report have already been decided as far as the convention is concerned.

1 recognise that the report itself is more likely to influence opinion than the debate in your Lordships' House on the report. Secondly, the draft constitution will, of course, have to be considered by an intergovernmental conference which will have power to amend it. Having said that, I believe it would have been more appropriate to have had this debate before the Easter Recess. I certainly support the idea of making arrangements to ensure that reports which deserve a debate in your Lordships' House should be debated more quickly, perhaps by arranging a debate in Grand Committee while something else is proceeding on the Floor of the House.

I turn to the substance of the report. The main issue is whether the existing charter of fundamental rights should be incorporated into the constitution. The report does not come to a firm conclusion, but says in paragraph 45:

"That any EU Constitution should include a Bill of Rights, specifying rights of the citizen and limiting the powers of the EU institutions seems beyond argument".

I agree with that absolutely. The need for a Bill of Rights arises because of the black hole so far as human rights attach themselves to the work of the European Union. Each member state is, of course, party to the European Convention on Human Rights and is hound by it. The EU itself is not bound by the ECHR and cannot at present be a party to it. Therefore, EU legislation cannot be directly challenged on human rights grounds. That could put the courts of member states into an insoluble conflict over EU legislation: they would be bound to implement that legislation under EU law but forbidden to do so by the European convention.

Sub-Committee E of the European Union Select Committee looked at the charter in 2000, when it was being drafted and negotiated. I was a member of Sub-Committee E and of the parent committee at the time. In our report published in May 2000, we recognised the existence of the black hole but had some concerns about the creation of a legally binding charter, particularly about possible conflict between the terms of the charter and the ECHR. We recommended, at that time, as the best solution, the accession of the EU to the ECHR so that it would become a single Bill of Rights, binding both on the EU and, by virtue of their separate participation in the ECHR, on the member states.

In the event, when the charter was adopted in 2000, it was given a merely declaratory status—that is, not itself declaring the law but treated as a statement of what were understood to be existing human rights recognised by the member states. It was at that stage denied formal legal status, due, to a considerable extent, to pressure from the United Kingdom, applied through the presence of the noble and learned Lord, Lord Goldsmith, now the Attorney-General, but then the representative of the United Kingdom Government on the convention which originally drew up the charter.

The status of the charter is now being reconsidered. It has been recognised that the black hole has to go and that a charter with merely declaratory status is not good enough. As I have already said, the committee has said in its report that the EU must have its own Bill of Rights.

In addition, the status of a declaratory charter is ambiguous. Its provisions, as statements of existing human rights generally recognised by the EU and its member states, are unlikely to be ignored by the courts. Indeed, they have not been ignored but have been considered, as the noble and learned Lord, Lord Scott, said, on a number of occasions.

I come back to whether the draft constitution should incorporate the charter of fundamental rights as the Bill of Rights or adopt the ECHR as a Bill of Rights through providing for accession. The creation of a new Bill of Rights, as distinct from the charter, is theoretically possible but, in practice, impracticable.

In practice, as the noble and learned Lord, Lord Scott, told us, the Giscard convention has fired both barrels: it has incorporated the charter but has also provided for accession to the ECHR. As the report points out, there are practical problems with accession. It will require amendments to the ECHR and the consent of all 44 member states of the Council of Europe. It would therefore plainly take years to achieve. The advantage of incorporating the charter is that if the constitution is adopted by the EU, the charter will be adopted as part of it and come into immediate effect. I now believe, having changed my mind somewhat since 2000, that this is the right course, mainly because accession to the ECHR will certainly take a long time and may well not be achieved at all.

I also feel that the risk of conflict with the ECHR has been reduced by the incorporation of Article 52.4 of Part 2 of the convention, which provides that, in so far as the charter contains rights corresponding to rights guaranteed by the ECHR,

"the meaning and scope of those rights shall be the same as those laid down by the said Convention".

Further, the charter must apply only to the EU itself and its institutions and agencies. That is an issue that is absolutely central to the status of the charter. It should apply to member states only when they are implementing the law of the European Union. That is provided by Article 51.1. Article 51.2 provides:

"This Charter does not extend the scope of application of Union law beyond the powers of the Union or establish any new power or task for the Union".

We have what appear to be strong safeguards against the possibility of what the noble and learned Lord, Lord Scott, referred to as "competence creep".

The charter does not extend the power of the European Union and its institutions; indeed, it limits them by requiring the use of existing powers to conform with human rights as laid down in the charter. The report says in paragraph 98:

"The Charter's impact on Member States' freedom of action is therefore circumscribed. It is not intended to fetter the powers of Member States outside the field of Community/Union law to pursue whatever policies they choose".

I therefore believe that the charter should be welcome not only to pro-Europeans who recognise a Bill of Rights as a necessary part of the constitution, but also to reasonable Euro-sceptics, as I would describe them, because it limits rather than expands the exercise of the powers by the European Union. I am therefore very pleased that the report is published in the name of, among others, the noble Lord, Lord Neill of Bladen, whom I know to be in the category of reasonable Euro-sceptics.

The charter is of course far from perfect. I entirely agree with the criticisms of the noble Lord, Lord Neill of Bladen, concerning the awkward relationship between the charter and the commentary, which is certainly a prospective source of great confusion. The charter contains some provisions that appear to fall outside the competencies of the European Union. For example, Article 25 states:

"recognises and respects the rights of the elderly to lead a life of dignity and independence and to participate in social and cultural life".

That is a perfect description of the functions of your Lordships' House.

The charter also contains some rights that are not significant enough to justify inclusion in a Bill of Rights. For example, Article 29 states:

"Everyone has the right of access to a free placement service".

A more important defect is the procedural difficulty that individuals will have in enforcing rights under the charter. As the report states in paragraph 142—and I entirely agree—

"If incorporation … is to confer any real benefit on individuals, the rights that will have been created will need effective remedies in order to give those rights substance and make them meaningful".

I strongly agree with the report's call for the re-examination of Article 230 of the Treaty of the European Communities, which puts barriers in the way of applications by individuals to the European Court of Justice. I agree wholeheartedly with the report's conclusion in paragraph 156:

"It seems to us essential that the creation of a Bill of Rights for the Union … should go hand-in-hand with the development of effective judicial remedies available to individuals in the event of any breach by the EU or any of its institutions".

The noble and learned Lord, Lord Scott of Foscote, referred to a new amendment intended to enlarge the rights of individuals. That amendment is so recent that, like the noble Lord, Lord Neill of Bladen, I have not seen it, although I have what I thought were the latest documents. Like the noble and learned Lord, Lord Scott of Foscote, I find it—certainly as he read it out—extremely difficult to understand.

We welcome the report and the charter and its incorporation into the draft constitution of the European Union as a Bill of Rights. However, we want steps to be taken to strengthen the ability of individuals to enforce it. The Government have succeeded in clarifying and strengthening the provisions that restrict the operations of the Bill of Rights to the institutions of the European Union and the implementation of European Union laws. I hope that as a result the Government feel able to accept the incorporation of the charter into the draft constitution.

My Lords, I should like to add my congratulations to the noble and learned Lord, Lord Scott of Foscote, and his committee on this excellent report and to say how pleasing it is to have two of the members of his committee—the noble Lord, Lord Neill of Bladen, and the noble Baroness, Lady Thomas of Walliswood—speaking. My noble friend Lord Howell of Guildford would normally have spoken for the Opposition in this debate, but he is unavoidably absent.

My first point is a general one connected with the draft of the European constitution of which the charter forms part. When the Charter of Fundamental Rights was conceived, in 2000, the Prime Minister stated, ahead of the Biarritz summit, that any charter of fundamental rights was only a political document and would not have legal standing. It is now included as part 2 of the constitution where, if enacted, it will be fully binding and under the jurisdiction of the European Court of Justice. That is despite the Government's response when, in paragraph 2, they agreed that the charter was not drafted in a form suitable for legal status. The noble and learned Lord, Lord Scott, has of course expanded the point in some detail.

In that connection I am slightly disturbed to read in paragraph 11, on page 9 of the report:

"It seems to be generally accepted that, excepting the horizontal clauses, there is no practical possibility of changes being made to the text of the Charter. It may be right that this is the present political reality but it is regrettable. The text of the Charter has been criticised, even by some of its most ardent supporters. Revision is desirable. And, post-incorporation, any amendment of what would have become part of the Union's constitution would be very cumbersome and much more difficult to achieve. This state of affairs underlines the importance of the horizontal clauses and the proposal that the Charter should be supported by an explanatory commentary".

Of course that last wish is in the process of being granted.

I was going to say that the latest version of the document is a good one, but then it was comprehensively taken to pieces by the noble Lord, Lord Neill. In view of the remarks of the noble and learned Lord, Lord Scott, that the drafting of the charter itself is on the relaxed side, it is absolutely essential, if this route is followed and the document is to have legal or quasi-legal status, that the commentary is a truly top-class document.

I would certainly welcome an explanation by the Minister of why between 2000 and now the Government changed their mind on the status of the charter. It raises justifiable fears among many people in this country that the charter and the constitution are being pushed through by stealth. The noble Lord, Lord Neill, spoke eloquently on behalf of the occupants of the Clapham omnibus on which, as he reminded us, some Members of your Lordships' House are occasionally passengers, too. They will not be all that impressed by the significance of the proposal that, in addition to the members states, the EU will become party to, for example, the Bill of Rights if it is enacted.

I also understand that the Government, when they get to the IGC in the autumn, intend to reverse certain items in the constitution—the "red lines", as we are told—but that the charter is not to be included in this renegotiation package and there is no intention of attempting to reverse any of its provisions. So we are stuck with a massive package of "rights", all indeed fundamental and admirable in themselves, but inappropriate to be the subject of enforcement anywhere save in the domestic jurisdiction of member countries. At the seminar on 17th June at the Foreign and Commonwealth Office, Mr Jack Straw and Mr Peter Hain sought to assure those attending that the proposed regulations did not impinge on national legislation on existing rights. Nevertheless, the fact remains that the safeguarding of many of those rights will pass from the member states to Brussels. Having said that, I shall attempt to be objective.

We have the Government's response to the committee's report, and I am pleased to note that many of the recommendations have been accepted. We are pleased to see that the Government fully recognise the importance of the horizontal clauses as a bulwark against the enlargement of Union and Community competencies—the competence creep.

I commend the clarity with which the various alternatives for the possible combinations of the charter, the ECHR and a Bill of Rights have been set out. I am grateful to the noble and learned Lord, Lord Scott, for further clarifying the matter in his excellent speech. I am, however, concerned by the Government's response to the recommendation at paragraph 163, page 39 of the report, in which they state that they are not in favour of individual right of access to the European Court of Justice, arguing that the issue of remedies for breaches of the ECHR is in their view dealt with adequately by the ECHR and the Human Rights Act. I note that this matter is addressed in the Framework of Proceedings of the Discussion Circle, paragraph 2, and the Minister's comments on that will be welcome. The latest document that we have may also be relevant in that regard.

I now turn to the horizontal provisions which the committee has highlighted. As many noble Lords have said, these are the essential defence against "competence creep" on the part of the Union. I note from the Minister's reply under Q219 on page 46 of the report that the Government are addressing the matter. However, in paragraph 91 on page 26, the Committee is unequivocal in its view:

"In our opinion, however, it is, in principle, unsatisfactory that the rights of the individual should, in effect, be curtailed by the horizontal clauses. Such an approach scarcely serves the interests of transparency or makes those rights more visible to the citizen".

It goes on in the next paragraph to state:

"It is essential to ensure that the horizontal clauses are as clear and as unambiguous as possible".

The Government must not stand accused by their citizens of in effect saying, "Don't worry, these horizontal clauses are here for your protection but I am afraid they come at a cost in the form of curtailment of your rights and loss of transparency". I shall welcome the Minister's comments on progress in that field.

Perhaps I may finally turn to the remedies proposed by the committee. The committee effectively says that the charter must have real teeth so that the rights conferred can be given real substance. The Government's reply is that rights are already available under national law—though I have to say in passing that this is a reflection on the need for the charter—but that it is for member states to agree what, if any, further remedies may be required at Union level, and these will emerge from the convention discussion circle. So much is riding on the outcome of their deliberations.

In the next recommendation covering paragraphs 146, 148 and 150 of the report, the committee states:

"No matter within the scope of the Charter and within EU competences should be outwith the jurisdiction of the ECJ",

and goes on to say that the court should have jurisdiction over the second and third pillars. Again, the noble and learned Lord, Lord Scott, made an eloquent case for that. But here the Government and the committee do not agree. I have to say that noble Lords on this side of the House are in agreement with the Government who state in their response that there is no ECJ jurisdiction in CSFP at present, nor should there be in the future. There are plenty of points on which we disagree with the Government as regards the charter and the wider constitution, but here the distinction between executive functions exercised at the international level and the legislative powers impacting on individuals is well made, and we support it.

As I said, this is an excellent report. We have studied the Government's responses, and we look forward to hearing the reply from the Minister.

My Lords, I join noble Lords in thanking the noble and learned Lord, Lord Scott of Foscote, and his committee for producing the report. I thank the noble and learned Lord for the erudite and succinct way in which he opened the debate. He gave a comprehensive exposition of the position in which we now find ourselves. However, it was a little unfair of the noble and learned Lord to say that we gave no reason for resisting the incorporation of the charter as it then was.

I absolutely agree with the noble Baroness, Lady Thomas of Walliswood, that it is important —as was said by the noble and learned Lord—for us not to have competence creep and that there should be clarity in relation to the way in which the horizontals are played.

In the relatively short time I have available in which to speak it may be for the convenience of the House if I focus my reply on the outcome of the convention regarding the charter and on Her Majesty's Government's policy in this matter. As many noble Lords will know, I had the privilege and pleasure not only of appearing before the committee but also of representing Her Majesty's Government in the negotiations relating to the charter.

Before I do so, however, I hope that I can reassure the noble Lord, Lord Neill, that the charter is not such an esoteric matter as he fears. In today's issue of the Sun, reference is made to it on the front page—not with the accuracy that we would wish or the tone that we would desire, but there it is. I am reliably told that 4 million citizens each day delight in reading that newspaper. The subject is on the agenda now.

My Lords, I am grateful to the Minister for that information.

My Lords, I want to set out the general policy. As regards the Government's policy on the charter, I confirm that there is and has been no change in our position. We have always welcomed the idea of a statement of rights and freedoms which should be respected by the Union's institutions. It is a matter of public record that we welcomed the charter in 2000 as a political declaration for that purpose. We made it clear then, as indeed I did throughout the convention, that we could not accept that the charter, in the form agreed at Nice, was drafted in a way suitable for incorporation into the treaties.

Our reasons were simple. They accord, if I may say so, with the findings of the distinguished committee whose report on the charter is the subject of the debate. Readability and legal precision are, alas, seldom natural bedfellows. It was clear from the exposition given by the noble and learned Lord, Lord Scott, why in this instance that was so. What is suitable for a political declaration is not always suitable for the law. Frankly, the charter lacked legal precision. If one looked only at the bare language of the charter articles, one would receive the impression that there was a wholly new catalogue of rights, going well beyond the agreed powers of the Union and competing with existing agreed rights. Like the noble Lord, Lord Neill, we could not accept that that was correct. I think that I heard a modicum of agreement in what was said by the noble and learned Lord, Lord Scott of Foscote.

There were two obvious alternative solutions to the problem. One could leave the charter as a political declaration, or one could amend the text of all the charter articles so as to bring about the necessary legal clarity. The overwhelming majority of our European partners, like the distinguished committee, take the view that the charter is an indispensable part of the new constitutional treaty. They also regard amendment of the charter articles as unacceptable and likely to do more harm than good. In short, both the obvious solutions to the problem that I described appeared to he unconscionable, or otherwise outwith the art of the politically possible.

I am glad to say, however, that it was possible to persuade our partners as to the merit of a somewhat more subtle approach, to wit to amend a part of the charter which does not contain statements of the rights. I am referring, of course, to the special rules about interpreting the charter which are to be found at the back of the charter in Title VII. I am pleased to say that our partners also proved amenable to work on the legal explanations concerning each charter article, as issued by the presidium to the original convention. I should add that, in the final outcome, I also found that our European partners were able to agree to elevate the legal status of those explanations, which have also been referred to by a n umber of noble Lords.

Virtually all noble Lords who have spoken said—it was mentioned last of all by the noble Viscount. Lord Bridgeman—that the explanations were extremely important so far as clarity was concerned. Making reference to them in the charter's introduction to Part 2 of the constitution is therefore a very important step indeed. The result is a charter which, on the surface, looks rather as it did at Nice in 2000, but which in fact forms part of a much more solid package. It is now much clearer. as a matter of law, that the charter in large part reflects existing rights in the ECHR and Community law. Where it does reflect them, it can mean no more than do those provisions. Where the charter goes beyond them, Title VII and the explanations help us determine how the courts are to treat charter provisions; for instance, as principles rather than rights, or in harmony with the common constitutional traditions of the member states.

Perhaps I may turn to the detail, because a number of noble Lords have indicated that that would be of interest to them. Substantial amendments have been made to Title VII of the charter, which is now entitled General Provisions Governing the Interpretation and Application of the Charter. Those amendments perform several important functions.

First, the changes to the wording of Article 51 further clarify that the charter does not extend the Union's powers and tasks. Then there are three substantive additions to Article 52. Article 52(4) requires rights resulting from the constitutional traditions common to the member states to be interpreted in harmony with those traditions.

My Lords, I thank the noble Baroness for allowing me briefly to intervene. I received a document on 20th June—that is, today—which set out the text of Article 51. Would that have incorporated the amendments to which she refers or would it not?

My Lords, it should have incorporated the amendments to which I refer. Contrary to what the noble Lord, Lord Goodhart, said, the convention has not been entirely completed. There are a few days left to perfect and bring certain matters together. There was a little more technical detail still to be finalised.

As I said a few moments ago, Article 52(4) requires rights resulting from the constitutional traditions common to the member states to be interpreted in harmony with those traditions. That is an important addition, because existing treaties already allow the court to infer fundamental rights as general principles of Community law from the constitutional traditions common to the member states. That should be done in a way that shows proper respect for individual national traditions. "In harmony" is a helpful way of describing how that interpretation work should be done. We do not want the court to strike discordant notes in the sensitive area of national constitutional traditions.

Article 52(5) is perhaps an even more significant addition to the charter. It confirms that the charter contains principles as well as rights and it clarifies that such principles become significant for the courts only when Acts implementing the principles are interpreted or reviewed. That provision is especially relevant to the social and economic provisions in the charter, not of all of which are clearly based on agreed existing provisions in Community law. Where that is the case, Article 52(5) helps avoid unnecessary misunderstandings. It is important to distinguish in the charter between references to principles and references to enforceable rights.

I turn finally to Article 52(6). That relates to the various references in the charter to national law and practices. It requires the court to have proper regard to such references—and quite right, too.

The noble and learned Lord, Lord Scott, made many references to the way in which the explanations further define the articles. If I may respectfully say, they are also an important addition. Very significant changes have also been made to the contents and status of the technical explanations, which address the legal basis for the charter's provisions. The explanations are now to be in the draft constitution as requiring the attention of the courts. They were formerly presented as having no legal value. They have been enriched in the light of the amendments made to Title VII. The United Kingdom and others were consulted about these changes, and we have suggested several further improvements. I expect the final version of the technical explanations to be issued at the end of next week, once the praesidium of the convention has approved them.

Noble Lords would not expect any lawyer, let alone me, to agree to anything without reading the fine print first. The fine print on the charter is not yet fully available. However, there is some cause for cautious optimism. I am encouraged by the changes already made to the explanations. For example, I liked the reference to the leading case of Annibaldi as regards interpretation of the phrase in Article 51 about implementing Europe Union law. I am also attracted to the various clarifications of individual articles; for instance, what is said about Article 21. That is a big step in the right direction, and that article was properly alighted upon in the comments of the noble and learned Lord, Lord Scott of Foscote.

The Government will reach a final decision about the incorporation of the charter in the context of the forthcoming intergovernmental conference. In the form in which we have got it, it may be seen much more clearly as a limitation on the powers of the EU institutions; member states would he affected only when they are implementing Union law as set out in the rest of the constitution. The charter should be welcomed as an important means of making sure that our traditional rights and liberties are respected whenever the Union acts under the powers member states have given to it. However, our work is not done yet. Before Her Majesty's Government are in a position to take a definitive view, that work must be completed.

I turn now to specific issues that were raised in relation to the sub-committee's work. To the noble Lord, Lord Goodhart, I say straight away that we have no intention of overlooking the work of Sub-Committee E. On the contrary, I hope that it will give noble Lords a great deal of pleasure to know of the high esteem in which the committee's work is held by the authorities, both here and in Brussels. The report we are debating today was made available to every member of the convention, and was referred to on several occasions by distinguished interlocutors there during the debate.

The timing of this debate has enabled the House to have the final proposals regarding the charter, and thus for your Lordships' views to influence what happens in relation to Her Majesty's Government's position in the forthcoming IGC. I make particular reference to the noble Lord, Lord Tomlinson, who was one of the representatives of the House in the convention, because it was he who, seeing the great value of the content and erudition of the report, thought it incumbent upon him to ensure that every member of the convention had the advantage of it, and formally submitted it into the evidence produced for the convention's consideration. Your Lordships certainly have not worked in vain.

I turn now to the remaining two matters; first, to EU accession in relation to the ECHR. As our response to the sixth report of the committee indicates, we have no great objections in principle to the EU joining the ECHR, but it must be done in a way that does not prejudice national positions. Our reasons are these and they are more than mere technical points. They are concerned with the impact that accession may have on EC/EU competence as regards the position of individual member states concerning the protocols, reservations and ability to derogate.

Although I can see some possible way forward on the issue of competence, I am not clear about the answer on national positions. At this stage, we do not know precisely how the relationship between the ECHR and the ECJ would work in the event of accession.

The noble and learned Lord and the noble Viscount, Lord Bridgeman, referred to Article 230(4) and specifically to the implications of the charter for judicial remedies. That matter was taken up by the noble Lord, Lord Goodhart. Future provisions regarding the European Court of Justice are set out in Part 3 of the constitution. This part is due to be debated by the convention soon. A small and narrowly focused amendment to what was TEC Article 230(4) is proposed, under which a lacuna in the current system is closed.

The effect of this is a very limited extension of the rule in individual access. It now states:

"Any natural or legal person may, under the same condition, institute proceedings against an act addressed to that person or which is of direct and individual concern to him, and against a regulatory act which is of direct concern to him without entailing implementing measures".

That retains the text of direct and individual concerns, but allows the individual to attack measures which do not involve implementation as such. And this is the legal lacuna in the current standing rules. Personally, I am not convinced that we need this, but I am listening to the arguments in my usual way.

I know that some would have liked to see more than this limited extension, but we must not forget that national judges are also judges of Union law and that the whole system relies on the principle of subsidiarity. It would be wrong to think in terms of replicating a complete national system at Union level, and we genuinely believe that justice should be kept as local as possible.

We think we have come a long way from the position we were in when the charter was a political document and there may be a little further to go. But the IGC will enable us to complete the journey.

My Lords, on my own behalf as well as on that of the sub-committee I had the honour to chair, I thank all noble Lords and noble Baronesses who have spoken. The comments have been extremely pertinent and will be of assistance to us in the further scrutiny exercises that we shall undoubtedly have to carry out in regard to revised drafts that come forward. I am most grateful.

I would like to pick up one or two points made by the Minister. As regards the proposed amendment to Article 230(4), when I addressed your Lordships earlier I expressed my difficulty in understanding what was meant by the words used in the addition, but the Minister has given no assistance on that point. I am not pressing her to rise and give it now because one would need to sit down with a towel around one's head in order to understand it. However, I would be grateful if she could consider the point and perhaps write a letter saying what she or the Government believe it means. Until we know what it is intended to do, we cannot react to it as a scrutiny committee.

The Minister said that the explanations that accompany the articles of the charter will find their way into the constitution. I know that there is the reference to the explanations in the preamble, but I do not know whether they will be referred to elsewhere or whether that is what she meant by saying that the explanations would find their way into the constitution. They should have as clear a status as their importance in the interpretation of the articles deserves. I am very grateful for the opportunity to have the debate. I thank the noble Baroness for the assistance that she has given.

rose to move, That the draft order laid before the House on 5th June be approved [22nd Report from the Joint Committed].

The noble Lord said: My Lords, I beg to move the draft Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2003, and, with the leave of the House, to speak to the three other orders which relate to these issues.

Before I turn to the orders themselves, it might be helpful if I set them out in context. The Government have already legislated to give the Financial Services Authority responsibility for mortgage lending and administration through the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which was laid before Parliament on 27th February 2001. That followed a wide-ranging consultation in the second half of 1999 and a further consultation in October 2000. Those provisions were due to be brought into force in September 2002.

However, the Banking Services Consumer Codes Review Group recommended that mortgage advisers and intermediaries should be regulated as well as lenders and administrators. In addition, the Government received representations from the industry and consumer groups calling for regulation of mortgage advice and advisers.

In parallel, it became clear that the Insurance Mediation Directive—the European Parliament and Council directive—was likely to be adopted before mortgage regulation came into force. That directive lays down rules in respect of insurance mediation, including that insurance intermediaries should be registered with a competent authority and comply with certain professional requirements. Most mortgage brokers also sell insurance and they would therefore have needed to be regulated by the FSA in any case.

In view of that, the Government announced in December 2001 that mortgage advisers and intermediaries would be regulated by the FSA. In addition, and in order to maintain a consistent and streamlined approach, the sale of general insurance products would also be regulated by the FSA. Brokers who deal in two or more lines of regulated business will deal with a single regulator, not several, and will be able to compete in European markets.

Since then, the Government and the FSA have worked closely with industry and others to design a regime that understands the market and is targeted precisely at maximising benefits to the consumer, and not loading industry and ultimately the consumer with unnecessary costs.

The purpose of these orders is to bring mortgage advisers and intermediaries and the sale of general insurance mediation within FSA regulation.

It might be helpful if I explain a little about decisions the Government have made following consultation on the Insurance Mediation Directive, which I know has been the basis for some critical comment. The Government's proposals to regulate various activities relating to the sale and administration of general insurance were published in a consultation document in October 2002. The Government received around 400 or so responses.

The directive requires the regulation of insurance mediation activities in relation to all contracts of insurance. However, insurance sold as part of a package, including travel insurance sold with a holiday, and some extended warranties that are contracts of insurance are exempt from the directive. Following extensive consultation, the Government decided not to regulate travel insurance sold with a holiday. That is because the consultation provided insufficient evidence of consumer detriment to warrant the extra costs of regulation, particularly for small independent travel agents.

However, the Government recognise that there are concerns about this market. For example, we have received evidence of some mis-selling from the Consumers' Association. The Government have therefore decided to hold a review of this decision two years after implementation of general insurance regulation in early 2007.

The directive requires the UK to regulate extended warranties, which are contracts of insurance costing more than 500 euros, or which are sold separately from the car, whatever the price. However, those costing less than 500 euros per annum are excluded from the scope of the directive when sold at the same time as the car. Some motor warranties cost more than 500 euros per annum and so will fall within the scope of the directive.

The Government have decided that all motor warranties that are contracts of insurance—whatever their value—should be regulated by the FSA. That is to ensure a level regulatory playing field and to stop retailers manipulating more expensive warranties to make them appear cheaper simply to avoid regulation—for example, by increasing the price of the car or reducing the cover provided. Most respondents agreed with that proposal.

The Government have decided to await the outcome of a Competition Commission inquiry into non-motor extended warranties on domestic electrical appliances before taking a decision on whether non-motor extended warranties that are contracts of insurance should be regulated.

Except in those two areas, those who carry on insurance mediation activities will be caught by the FSMA regime. For many intermediaries, that will mean that they will require authorisation from the FSA. However, the appointed representatives regime will apply to insurance mediation. That will allow representatives of FSA authorised persons to carry out regulated activities without themselves being authorised, provided that the authorised person has accepted responsibility for their conduct.

Following representations during consultation, that regime will be extended in relation to general insurance contracts. As well as being able to arrange and advise on contracts of general insurance, appointed representatives will also be able to conclude contracts of general insurance as agents. They will also be able to assist in the administration and performance of contracts of general insurance. Those changes reflect market practice and should make it easier for firms and individuals to become appointed representatives, if they and their principals so wish.

I turn to the orders themselves. I apologise for the length of my speech, but these four orders are important and, by grouping them together, I have a substantial case to make and. no doubt, some significant questions to answer. The purpose of this package of legislation is to expand the range of activities for which authorisation is required from the Financial Services Authority to include the mediation of certain mortgage contracts and of all contracts of insurance. "Mediation" in this context means making arrangements for a sale, advising on a sale or potential sale or—in relation to insurance only—entering into a contract of insurance as agent for another person or assisting in the administration and performance of such a contract.

These statutory instruments are also intended to implement the directive on insurance mediation. I should also mention that the Government have laid two negative resolution orders before Parliament: the Financial Services and Markets Act 2000 (Misleading Statements and Practices) (Amendment) Order 2003 and the Insurance Mediation Directive (Miscellaneous Amendments) Regulations 2003.

I now turn to the specific orders. The first brings into the scope of the financial promotion regime promotions relating to the activities of arranging and advising on the provision of regulated mortgage contracts. The financial promotion regime restricts the communication of an invitation or inducement to engage in investment activity.

Entering into an agreement the making or performance of which by either party constitutes a controlled activity amounts to engaging in investment activity for those purposes. The controlled activities to which the financial promotions regime applies are specified in the financial promotions order. Such communications must be made or approved by a person who is authorised under the FSMA. In addition, the Treasury may under the order specify circumstances in which the financial promotion restrictions do not apply.

Promotions by authorised persons are not subject to the financial promotion restriction but instead are governed by FSA rules. However, the FSA cannot impose on authorised persons restrictions that are greater than those imposed on unauthorised persons. The order will come into force in October 2004.

The Draft Financial Services and Markets Act 2000 (Exemption) (Amendment) (No.2) Order 2003 extends certain exemptions in FSMA so that they apply to the newly regulated activities in relation to insurance mediation and mortgages. The order also provides that Partnerships UK is exempt in relation to the carrying on of regulated activities relating to investment services. Finally, the order removes the exemption of the Treasury task force.

The order extends the exemptions of local authorities and certain bodies involved with the provision of social housing to include the carrying on of regulated activities relating to the arranging of, and advice in relation to, regulated mortgage contracts and activities relating to certain insurance contracts. The order comes into force on 31st October 2004 for mortgages, and 14th January 2005 for insurance mediation.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.1) Order 2003 gives the FSA responsibility for regulating the activities of arranging regulated mortgage contracts and advising on regulated mortgage contracts. It also makes various amendments to legislation made under the Financial Services and Markets Act relating to mortgages. Firms will need to be authorised or exempted in order to carry out the activities of advising or arranging regulated mortgages contracts. The order also makes consequential and necessary amendments to the Consumer Credit Act (CCA) to ensure that there is no dual regulation for the same activity.

A regulated mortgage contract is defined as a mortgage secured by a first legal charge on UK residential accommodation to be occupied by the borrower or their immediate family. Second and subsequent legal charges on property remain covered by the CCA. If approved, the substantive provisions of this order will come into force on 31st October 2004.

It might be convenient to mention that, as many noble Lords will know, lifetime mortgage—mortgage-based equity release schemes—will fall within the scope of FSA regulation when the FSA takes on responsibility for regulating mortgages in October 2004. However, under current legislation, another type of equity release scheme, home reversion plans, cannot be brought into FSA regulation, as those are sale and purchase arrangements rather than financial services products. They fall outside the definition of a regulated mortgage.

However, the Government have had informal discussions with stakeholders on the regulation of home reversion plans, but they provided no evidence of consumer detriment at present in this market. However, there are widespread concerns about the potential for consumer detriment in the future. The Government announced on 5th June that there is a need for a more in-depth analysis of the costs and benefits of regulation and that there will be consultation in the autumn. I seek to emphasise that the Government have an open mind about this part of the market.

The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2003 gives the FSA responsibility for regulating various activities relating to the sale and administration of general insurance products, whether carried on by intermediaries or insurers.

Part 2 of the order adapts the exclusions that already exist in the regulated activities order to ensure that they are compatible with the directive. In addition, the order creates new free-standing exclusions from the insurance mediation activities where permitted by the directive. For example, the order excludes from regulation travel insurance sold as part of a holiday package, implementing the equivalent exclusion in the directive. Article 11 excludes from regulation the provision of information in the course of carrying on a profession of business that does not consist of regulated activities. This order will also come into force on 3Ist October 2004.

The Government believe that regulation will provide major benefits to UK consumers in two large and important markets. Each year, UK consumers spend £26.4 billion on general insurance premiums and take out mortgage loans worth £219 billion. Consumer protection in those markets will be increased with regulation providing safeguards to consumers and introducing minimum standards of advice. Intermediaries selling a range of financial services products will have to deal with one regulator only—the FSA—rather than the current complex mix of statutory and self-regulatory arrangements. The Government and the FSA have been working closely with the industry and others to design a regime that understands the market and is targeted precisely at maximising benefits to consumers and not at loading industry and ultimately the consumer with unnecessary costs.

I am aware that the orders are not without some criticism and that there is an element of controversy to them. The Government's view, however. is that in this area, the case for regulation has been made. It should be recognised that the Government are approaching the matter as part of a coherent pattern, which ensures that there is reference to one regulator across the field. I commend the order to the House.

Moved, That the draft order laid before the House on 5th June be approved [22nd Report from the Joint Committee].—(Lord Davies of Oldham.)

My Lords, I am grateful to the Minister for giving us a full explanation of the arguments behind the orders. We could have saved him from having to make some of his speech. because he will recollect that when the Financial Services and Markets Bill was passing through the House the noble Lord, Lord Kingsland, from the Conservative Front Bench, and I argued strongly that the regulation of the provision of mortgage advice and services should have been included in the Bill. I am very pleased to see that three years on the Government have finally agreed with us.

In general, we on these Benches support the orders. However, as the Minister indicated, we have some reservations about them, and in particular with the very difficult issue of equity release reversion schemes. I understand that they do not qualify as mortgages within the meaning of the law and therefore cannot be covered. It surely is within the wit of the Treasury and its draftsmen to come up with some regulations in that regard. The Treasury's press release on the matter states:

"The home reversion market is estimated to currently be worth over £250 million a year and is growing rapidly. The target market tends to be"—

I stress that these are the Treasury's own words —

"elderly, and sometimes vulnerable, people who have paid off their mortgage".

It may well be that informal discussions with stakeholders show no signs of mis-selling, but I wonder how long before the pensions mis-selling crisis or the split capital trust mis-selling crisis we could have said the same thing.

To us on these Benches, it is simply not acceptable that the sale of what I will call quasi-mortgage products is not regulated when similar products just across what I may call the smart lawyer definition divide are regulated. Yet again, it will be the most vulnerable members of our society who are threatened as a result of the Government's lack of foresight. There is scope for a mis-selling crisis. Regulation should be about preventing mis-selling, not waiting until we have evidence that it is going on and then doing something about it. The Government should know that. On the back of pensions and the split capital crisis, it is essential that the loophole is closed rapidly.

My second reservation about the orders, as the Minister forecast, relates to travel insurance. As the Minister rightly said, travel insurance sold as part of a package will not be regulated. As I understand it, the situation will be reviewed in 2007. The ABI, the Consumers' Association and the General Insurance Standards Council oppose this. Their strong view, which we share, is that it should be included, to ensure consistent regulation and, in particular, consumer protection. The ABI has said that 60 per cent of travel insurance is sold through travel agents or tour operators. That begs the question: why bother, if we are going to regulate only 40 per cent of the market? If that 40 per cent is worth regulating, the other 60 per cent is.

Twelve million travellers a year purchase travel insurance. Some £300 million is spent on that insurance. I draw to the Minister's attention the Which? report published in April 2003, which said that every independent travel agent whom they visited was mis-selling insurance cover. I support the Consumers' Association position. It says:

"Under the regime, brokers and insurers who sell travel insurance direct to consumers will be regulated … their customers will have access to the Financial Ombudsman Service. It is not clear to what extent customers who buy their travel insurance as part of a package will be protected at all. While the Association of British Travel Agents (ABTA) does have a code of practice not all travel agents are ABTA members".

How do consumers seek rectification of complaints about the way in which their insurance was sold? They have no access to the Financial Ombudsman Service. The Government should think again on that.

With those two significant reservations, we support the orders.

My Lords, as this is my first opportunity to do so, I congratulate the noble Lord, Lord Davies of Oldham, on his promotion and his new responsibilities and wish him well in the future. Like the noble Lord, Lord Sharman, I welcome him to the debate on the Financial Services and Markets Act 2000. The Minister will understand that there is a long history here, to which the noble Lord, Lord Sharman, has already referred. On the back of many of the comments made by the noble Lord, Lord Sharman, I must say that it is a matter of regret on these Benches that the House is being asked to approve the orders. They contain legislation that is, to a substantial extent, unnecessary.

We are faced with a solution looking for a problem. For more than a decade, this Government and the previous administration resisted attempts in Brussels to adopt an insurance mediation directive. The reason, apart from the particular concerns that we are expressing this afternoon, is that there are no consumer protection concerns needing to be addressed. The measures will represent poor value for money for consumers, as they will pay the ultimate cost of implementation through higher insurance costs and reduced choice.

The official reason for the directive is that it will reinforce the single European market. In this case, sadly, cross-border traffic has never been great, although we need to redouble our efforts to secure a fairer market for UK-based companies. Also, there is no sign that legitimate demand has been frustrated by differing regulatory standards in member states. Putting it simply, general insurance broking has not been regulated by statute until now; it is a pity that it could not substantially remain so.

Given the directive, however, I join the noble Lord, Lord Sharman, in saying that it is doubly unfortunate that the Government should have chosen to make matters worse by implementing the directive in respect of travel insurance in an unfortunate way. This will be regulated now when it is sold as a stand-alone product by an insurer direct to consumers or through an insurance broker. But when it is sold as part of a holiday package, it is to be excused regulation.

It would be simple to argue that since the entire directive is unnecessary—I realise that I am saying that from these Benches only—the less its reach, the better. But by treating travel insurance in this differential manner, the Government surely have their priorities the wrong way around. Packaging products so that the buyer does not exercise choice is a prime cause of consumer detriment in many sectors and is surely well known to the authorities. By contrast, consumers buying travel insurance direct, either from insurers or insurance brokers, are more likely to acquire their insurance as part of a transparent process and often as a result of shopping around. Better value for money can often be achieved by this route. So I hope that the Government will reconsider their position. I shall come back to that issue in a moment.

I also reiterate the concern of the noble Lord, Lord Sharman, given the very strong representations made by a substantial lobby headed by the Consumers' Association, the British Insurance Brokers Association and the Association of British Insurers. Like the noble Lord, I quote from a letter to the Chief Secretary to the Treasury from all three bodies stating, quite simply, that the statutory regime which the Government are proposing,

"will act to the detriment of consumers".

The Minister sought to deflect some of the criticism by saying, "Well, we know we may have got it wrong"—I, of course paraphrase—"But don't worry because we shall look at it in 2007". That may reassure the Minister but it does not reassure us.

Why is it a matter for reaching a different decision now? The bodies that are putting forward these views have consistently argued that all travel insurance, if we are to move down this road, should be included in the statutory regime. If it is not, an unlevel playing field will be automatically created for the providers; confusion will be caused to the consumers; and consumers will be denied proper protection. It is as simple as that. Insurance brokers and insurers will have to bear the costs of FSA regulation. Travel agents will not.

Surely, therefore, this would tilt the competitive playing field even more in favour of travel agents. Over time, it would surely lead to more travel insurance being sold without the backing of FSA regulation. That would be a perverse outcome. As I understand it, the Minister is saying that all travel insurance is not included in the FSA regime because there was no evidence of systematic mis-selling of travel insurance sold as part of the package presented during the consultation process. As the noble Lord has already pointed out, and as I think the Minister conceded in a comment when he said, "Well, there may be some evidence", the Consumers' Association and Which? magazine presented evidence during the consultation which indicated that out of 28 travel agents surveyed, only one checked for pre-existing medical conditions, as well as explaining what the policy did and did not cover.

In 1996. Which? magazine contacted 35 sellers of travel insurance, including travel agents and direct sellers, and found that only three explained details of the cover and only two mentioned any exclusions. A 1999 survey of Which? members revealed that consumers are twice as likely to be very dissatisfied if they have to make a claim on insurance bought through travel companies and tour operators than when buying from banks and building societies and other specialist advisers. So what is the evidence to which the Minister referred when he stated that there is insufficient evidence of detriment to consumers? It would he helpful if he could indicate the evidence that he has which balances or outweighs the evidence put forward so strongly by the noble Lord, Lord Sharman, and myself.

I have a number of other points to make, although I want to keep my remarks reasonably brief. A further anomaly in the outcome of the consultation process is that, while those to whom I have already referred want to see a level playing field, that is not a requirement of the directive. Therefore, direct insurers will be covered by regulation alone. But I am not sure whether the Treasury carried out a cost-benefit analysis before reaching that decision. Although the Minister did not use that argument, I understand that it is a point from Her Majesty's Treasury that the justification for not regulating travel insurance sold as part of a package lies on cost-benefit grounds. However, if the Treasury took the decision not to regulate the direct selling of any insurance products not required under the directive without any form of cost-benefit analysis, how can it justify that inconsistency? It would be helpful to know which cost-benefit analyses were carried out and what were the results.

Several other points which need to be raised have already been referred to by the noble, Lord Sharman. The Minister referred to the deferral of the decision on whether to regulate extended warranty products on domestic appliances. I understand that the decision is to be deferred until we have the results of the inquiry into the market being undertaken by the Competition Commission. However, that is disappointing and I trust that the conclusions of the Competition Commission will be available for further consideration of this issue as soon as possible.

I hope that the Government will reconsider their decision on travel insurance. They have spoken previously about a consistent and streamlined approach. Can we have that on the matter of travel insurance, and will the Government please think again?

My Lords, I am grateful to both noble Lords for their participation in this brief debate and for their kind welcome to what feels at the moment like a baptism of fire. In the past, I have been responsible for one or two orders that have not been quite as controversial and subject to challenge as those now before us. I am also mindful of what the noble Lord, Lord Hunt, referred to as a history of participation in these issues. It is a long record of real achievement on the part of the two Opposition spokespersons, while I come as an ingénue to the debates. However, I shall do my best to respond to the particular points that have been raised.

I turn, first, to the issue which has been presented most forcefully and on which the greatest anxieties were expressed; that of travel insurance. I had hoped to deflect those concerns in my opening remarks, but it appears that I met with a conspicuous lack of success. Now I must address them in rather more precise terms.

I do not consider the question of cost-benefit analyses in quite the terms expressed by the noble Lord, Lord Hunt. It is the case that something like 18 to 20 million travel insurance policies are sold each year. For the year ending April 2002, some 884 complaints were received. Of course, any complaint may be a pointer towards abuse and certainly suggests mishap, enormous inconvenience and detriment to the consumer involved. However, that figure indicates the measure of the issue and it will be recognised that, under the present statutory provisions, it is not possible to bring this tidily under the remit of the Financial Services Authority. Therefore there is good reason for further consideration of the issue. Once again representations made elsewhere have been presented with considerable force in the House and I respect those contributions.

As to the issue of regulation generally, the noble Lord, Lord Hunt, is uncharacteristically pessimistic about British potential and British achievements in stressing that regulation and complying with the European directive ought not to be a high priority in an area where the industry has had limited impact across frontiers in the past. That is certainly so, but we all recognise the speed at which we are moving into a new age. Modern technology facilitates transfers and arrangements in a much more felicitous way than in the past and there ought to be legislative provision to guarantee that those who sell insurance in Britain are in a fully competitive position across Europe.

We all know that this is a part of the drive towards the single market. It is one area where, because of its unique features, the industry lags a long way behind other industries. It is surely right that we should set in place a system of regulation which encourages our industry to expand its range. There is no doubt that guaranteed regulation which fits within the European directive is a step towards ensuring that.

My Lords, I know that I am looking back, but my point is that we had in this country a system of self-regulation, particularly through the General Insurance Standards Council, which was envied throughout the rest of Europe. It is very sad that we are now moving towards statutory regulation.

My Lords, I hear what the noble Lord says and I recognise the value of the previous system of regulation. Although much admired, that does not mean to say that it meets the requirements of the new European single market. The new regulations clearly do.

I listened with great interest to what the noble Lord, Lord Sharman, said about the home reversion market. He is right; it is a growing market and there is a substantial amount of money involved. He is also right to point out that it affects the more vulnerable members of the community rather than conventional consumers because they tend to be elderly and, therefore, potentially more vulnerable.

He made the straightforward point that if we had total regulation against any conceivable ill, we would all be safer—but we would be paying a considerable price. The Government's case must be sustained. We recognise that it is a growing market on which we need to keep a close eye. There is a potential for abuse although we have not got evidence of widespread difficulties at the present time. I earlier gave an assurance that we intend to review the position and implement regulation if that unhappily proves to be necessary. I am conscious that, as ever with these issues, a measure of judgment is involved.

Another aspect of the cost benefit analysis is that it recognises that the travel industry has fallen on difficult times in the past couple of years. It goes without saying that there has been an enormous drop in the American market and that there are other difficulties.

Smaller travel agents seem to work on very tight margins indeed. A recent survey carried out by PriceWaterhouseCoopers indicates that they are operating on about 1.15 per cent of turnover. Therefore, additional costs of insurance, with regulation, would trim very tight profit margins. It is one of those industries which ranges from very substantial companies to a large number of small companies operating on very tight margins.

It is a question of striking a balance between the inevitable and proper protection that the consumer merits and ensuring that the industry is able to pursue its objectives and provide the service that it does.

I understand the points that have been made and recognise that the debate will continue, particularly in relation to the home reversion schemes. I commend the order to the House.

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

Moved, That the draft order laid before the House on 5th June be approved [22nd Report from the Joint Committee].—(Lord Davies of Oldham.)

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

Moved, That the draft order laid before the House on 5th June be approved [22nd Report from the Joint Committee].—(Lord Davies of Oldham.)

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

Moved, That the draft order laid before the House on 5th June be approved [22nd Report from the Joint Committed].—(Lord Davies of Oldham.)