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Lord Clinton-Davis: My Lords, will the Minister indicate why this pertinent question was asked by Price Waterhouse in relation to this privatisation measure? I quote:

15 Feb 1996 : Column 722


    "Why was the business sold at such a discount to net assets, in particular a profitable and cash generative one?"

Will he also indicate--

Lord Hailsham of Saint Marylebone: Reading!

Lord Clinton-Davis: Of course I am reading. I am going to quote. Will he also indicate why a memorandum was sent by a senior civil servant in the Department of Transport criticising the BR vendor unit which managed the sale for,


    "operating without satisfactory guidelines"?

He also asked whether there were,


    "any similar skeletons in any other completed sale".

Perhaps the Minister will address himself to those two questions.

Lord Mackay of Ardbrecknish: My Lords, I shall repeat the point I made to the noble Lord, Lord Harris of Greenwich. I am astonished that the noble Lord is also prepared to found his case on leaked documents. But never mind about that. As far as the sale is concerned, clearly if the cash had been removed from this company--the Eastleigh BRML--the price obtained for it would have been that much less because it was part and parcel of the assets and liabilities of the company for which the private sector and indeed the management buy-out, which was successful in this case, were bidding. The answer to the noble Lord is that if the cash had been removed the price obtained would have been a good deal less.

Lord Harris of Greenwich: My Lords, as the Government constantly proclaim their enthusiasm for open government, why was this procedure used in the first place? Why are the Government so secretive when it comes to issues involving taxpayers' money?

Lord Mackay of Ardbrecknish: My Lords, that takes us back to the original Question. I have to tell the noble Lord that there is nothing secretive about the rules I read out. They were contained in a number of letters. The most recent I have is one from the Treasury to the accounting officers of the departments dated 1988. What I have just explained was the subject of a parliamentary Answer in 1985 to Mr. Bryan Gould, who was then a leading member of the party opposite. In fact, the rules I expounded have been in operation with the NAO since its beginning. They were in operation in the preceding body, the Exchequer and Audit Department, for a very long time before that, including times during which the noble Lord himself was a Minister in the last Labour Government.

Lord Ezra: My Lords, it is difficult for some of us to follow what information is being provided to the NAO and what is not. Can the Minister unequivocally state that the Government regard the operations of the NAO as serious; that they will provide it with all the information needed to conduct its inquiries; and that they will treat the resultant reports with the gravity they deserve?

Lord Mackay of Ardbrecknish: My Lords, we consider that the NAO has a vital part to play in looking

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after public funds. We take its reports very seriously indeed. As I explained, the convention is of very long standing. It is clear and open. Parliamentary Questions have been asked about it and answered in full, as I have done today. Departments regard the convention as something they must apply correctly. Their internal audit units are responsible for checking that the convention is being properly operated and they report to the accounting officer straightaway on any abuses which are found. The NAO also monitors the use of the convention as part of its normal audit work. I hope that that reassures the noble Lord.

Security Service Bill

3.26 p.m.

Brought from the Commons; read a first time, and to be printed.

Humber Bridge (Debts) Bill

The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen): My Lords, I understand that no amendments have been set down to this Bill and that no noble Lord has indicated a wish to move a manuscript amendment or to speak in Committee. Therefore, unless any noble Lord objects, I beg to move that the order of commitment be discharged.

Moved, That the order of commitment be discharged.--(Viscount Goschen.)

On Question, Motion agreed to.

Business

Lord Strathclyde: My Lords, with the leave of the House, my noble and learned friend Lord Fraser of Carmyllie will repeat a Statement to be made at 3.40 p.m. in another place on the Scott Report. In order that the Statement may be repeated to your Lordships at the earliest opportunity, I beg to move that the House do now adjourn during pleasure until 3.45 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 3.27 to 3.45 p.m.]

Scott Inquiry

The Minister of State, Department of Trade and Industry (Lord Fraser of Carmyllie): My Lords, with your Lordships' permission, I should like to repeat a Statement being made in the other place by my right honourable friend the President of the Board of Trade, on the Scott Report.

    "I should like to make a Statement about the report published today of the inquiry by Sir Richard Scott, which my right honourable friend the Prime Minister commissioned in November 1992, following the end of the Matrix Churchill trial.

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    "The Government have arranged for the report to be debated in both Houses of Parliament on 26th February. During the past three-and-a-quarter years the inquiry, with the full co-operation of the Government, has received many tens of thousands of pages of documentation from government files and has taken written or oral evidence from 268 witnesses. All Ministers, former Ministers, and civil servants who were asked to give evidence, did so conscientiously and thoroughly. The detailed procedures of the inquiry were left to the discretion of Sir Richard Scott himself.

    "The House will realise the diligence with which Sir Richard Scott and his team have scrutinised the events covered by their remit, and for which the Government are most grateful. The report is wide-ranging and detailed, extending to five volumes and some 2,000 pages. In addition, the inquiry will be making available as soon as possible several thousand copy documents.

    "The House will recall that the essence of the inquiry, as reflected in its terms of reference, was to establish whether the relevant government departments, agencies and Ministers operated in accordance with the Government's policies and to report on decisions by the prosecuting authority in the Matrix Churchill case and by those signing public interest immunity certificates.

    "Let me now turn to the question of whether arms were supplied to Iraq. The report confirms, and I quote:


    'the Government was not prepared to countenance the supply of lethal equipment to either Iran or Iraq'.

Sir Richard Scott goes on to say in his report, and again I quote:


    'Ammunition, guns, tanks, bombs, mines and the like were not licensed for export to Iraq. Nor for that matter were they licensed for export to Iran'.

    "The inquiry also considered whether defence equipment supplied to countries other than Iraq might have been diverted to Iraq's armed forces. During the 1980s some evidence existed that certain other countries might have diverted goods to Iraq. As far as British goods were concerned, steps were taken to counter this. No British arms or ammunition were found in Iraq at the end of the Gulf War. Sir Richard Scott investigated a number of allegations to the contrary and found no evidence for them.

    "On more general non-lethal defence equipment, Sir Richard Scott recognises that the Government strove to balance the interests of employment in this country with the objectives of our foreign policy. He makes no criticism of the Government's policy. He does, however, make strong criticisms of what he sees as a lack of openness on this, to which I shall return later. Nevertheless, the Government's restrictive policy on exports is in sharp contrast to many of our international competitors who, during the eight-year conflict between Iran and Iraq, in addition to non-lethal defence equipment, were also content to sell fighter aircraft, guided missiles, munitions and other lethal equipment. This country did not.

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    "I now turn to the most important reason why my right honourable friend the Prime Minister set up the inquiry in the first place. This is the grave allegation that Ministers, by signing public interest immunity certificates, conspired in a way which could have sent innocent men to prison. Sir Richard Scott's report demonstrates that this allegation is false and without foundation.

    "I quote from Sir Richard's words:


    'Finally, I must refer to the charges made and repeated in the media that the Ministers who signed the PII certificates were seeking to deprive defendants in a criminal trial of the means by which to clear themselves'.

Sir Richard Scott concludes, after over three years of painstaking investigation, that all Ministers who signed PII certificates did so without any impropriety. There is no criticism of them for so doing. There was no attempt to gag. There was no conspiracy to gaol innocent men. Ministers who signed PII certificates did so in the knowledge that the judge was the final arbiter of what should be disclosed to the defence. There is no case for them to answer. As Sir Richard says, and I quote,


    'The charges to which I have referred are not, in my opinion well-founded'.

    "This conclusion gives the lie to the many scurrilous comments by honourable Members on the Benches opposite and by many in the media.

    "For three years, several of my right honourable friends have had to endure repeated abuse and attacks upon their honour and integrity of the most offensive and unpleasant nature over their signing of public interest immunity certificates. They now stand wholly vindicated by the report.

    "As one example, I remind the honourable Gentleman, the Member for Livingston, that he said on 7th November 1995 in respect of the PII certificates--I quote:


    'Once again we see Ministers caught trying to cover up their role in arming Saddam Hussein'.

The quotation continues:


    'Not only did they try to arm Saddam Hussein and keep it quiet but they were willing to cover up even at the expense of sending businessmen to court, knowing that those businessmen would be convicted, and knowing that if convicted they might well have gone to prison'.

    "The same criticisms were made by others on the Benches opposite. As recently as last week, the right honourable Gentleman the Deputy Leader of the Labour Party said, and I quote:


    'Next week, we'll have more evidence with the Scott report. Showing how Ministers were prepared to send citizens to jail to cover their own backs'.

    "There could hardly be a more serious set of charges levelled against Ministers of the Crown; and they are now shown to be utterly unfounded. There was no conspiracy. There was no cover-up. Such charges were reckless and malicious and should never have been made. The House will now expect to hear them withdrawn without reservation.

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    "Sir Richard Scott has cast his net widely and examined a whole range of issues. He has made recommendations in a number of areas, and he has also made some criticisms. I should like to comment now on the subjects of these recommendations and criticisms, including in particular export control legislation; the law on public interest immunity; the ministerial guidelines on exports; the Matrix Churchill trial; and ministerial accountability.

    "The report deals with the legislation which has governed the control of imports and exports since 1939. This legislation has, since the Second World War, served its purpose effectively in allowing controls to be imposed on the import and export of certain categories of goods.

    "Sir Richard criticises the continued use of wartime emergency legislation by both Labour and Conservative Administrations over the past 50 years.

    "The appellants in the Ordtec appeal in early 1995 challenged the 1939 Act, praying in aid Sir Richard Scott's views which he had first expressed a year earlier. However, in the Court of Appeal hearing on 22nd May, before the Lord Chief Justice, the orders made under the 1939 Act were declared lawful. We will, however, wish to consider further the future arrangements in this area in the light of Sir Richard Scott's comments.

    "I turn now to the interpretation of the common law as it relates to public interest immunity. The inquiry has suggested that the law did not support, in the period of the Matrix Churchill and Ordtec trials, the concept that Ministers had a duty to sign public interest immunity certificates nor that these certificates could be used in criminal prosecutions.

    "The Government followed well-established case law, backed up by independent legal advice, that Ministers both had a duty to sign PII certificates and that such certificates were applicable in criminal trials. It was then for the judge to decide which documents to release. The Attorney-General took advice on this from independent and eminent counsel and the Government's handling of PII was, incidentally, endorsed by three defence counsel in the Matrix Churchill trial. That PII claims were a matter of duty was supported by authoritative judgments of such distinguished judges as Lord Scarman, Lord Donaldson of Lymington, and Lord Justice Bingham. The applicability of PII to criminal cases had been established by a decision by Lord Justice Mann. It has since been confirmed by a series of decisions of the Court of Appeal presided over by the Lord Chief Justice, Lord Taylor of Gosforth.

    "In his report, Sir Richard Scott does not in any way question the personal integrity of the Attorney-General. He does, however, express criticism of the adequacy of the instructions to prosecuting counsel conveying the views of the then President of the Board of Trade, and in particular that the Attorney-General should personally have supervised them. It must be a matter of opinion whether that was something which the Attorney-General could reasonably have been

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    expected to do. Sir Richard does, however, accept the genuineness of the Attorney-General's belief that it was not. In any event it made no difference. The judge exercised his discretion, as the Attorney-General had said he would, and ordered the release of the relevant papers to the defence counsel.

    "The Government remain firmly of the view that the advice given at the time to Ministers by my right honourable and learned friend the Attorney-General was correct and there is no doubt he acted throughout with complete propriety and integrity.

    "The distribution of intelligence material within and between government departments is an area where the inquiry has found failings to have arisen in the 1980s. We accept that there is substance in this criticism. The report makes it clear, for example, that the junior Ministers who approved the Matrix Churchill licences for which the directors were later prosecuted did so without the benefit of intelligence reports which would have shown the intended military use of the items covered. Sir Richard concludes that the Ministers took their decisions on a false footing, which he makes clear was not their fault. Substantial revisions of procedures have already been made to prevent as far as possible a repetition of such failings. Sir Richard's report recognises that improvements in this area have been made.

    "I turn to the Government's policy from the outset of the Iran-Iraq war in 1980. Our policy was to remain neutral in the conflict and not to sell lethal weapons to either side. Further, the Government took steps to ensure that non-lethal defence goods that could have had an impact on the way the war was prosecuted were controlled. In support of that policy, and to assist in its application as events unfolded, a set of guidelines was established in 1984 by my noble and learned friend Lord Howe, then Foreign Secretary.

    "The guidelines established that export orders which would, and I quote,


    'significantly enhance the capability of either side to prolong or exacerbate the conflict',

would not be approved. Following the ceasefire in August 1988, these guidelines had to be applied in changed circumstances. Opportunities for expansion of legitimate trade began to emerge. At the same time, relations with Iran and Iraq were affected by concern over the hostages in Lebanon, human rights in Iraq, the fatwah against Salman Rushdie, the execution of Farzad Bazoft, and the safety of British nationals held in both Iraq and Iran. Ministers and officials were obliged to react to circumstances which were continually changing.

    "Sir Richard Scott concludes that, following the ceasefire in 1988 but not before, government policy towards the export of non-lethal military goods changed in a way which, he believes, should have been drawn to the attention of the House. Both Ministers and officials believed at the time that they were applying policy in a way which remained within the existing guidelines and Sir Richard expressly accepts that they were sincere in doing so. However,

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    he does not agree they were correct in their belief. On this basis, he concludes that a number of Ministers' letters and answers to parliamentary Questions were inaccurate because they restated what Ministers understood to be the policy but which Sir Richard believes, in retrospect, had changed.

    "Discussion about the guidelines took place on several occasions in late 1988 and early 1989 between junior Ministers and officials at the Foreign and Commonwealth Office, the Department of Trade and Industry and the Ministry of Defence, as the situation developed. Those Ministers reached no settled decision to change policy which they regarded as requiring the approval of senior Ministers or an announcement to this House. As I said, Sir Richard disagrees with them but accepts they were sincere in their belief.

    "The crucial issue is whether these junior Ministers intended to mislead this House and the country. Sir Richard gives an unequivocal answer on this. He accepts that the Ministers believed they were avoiding a formal change to the guidelines and that, in holding this belief, they had--to quote his words--no 'duplicitous intention'. In respect of my right honourable friend the Chief Secretary, who was at the time one of the junior Ministers concerned, Sir Richard goes on to say that--and I quote again--


    'he did not intend his letters to be misleading and did not so regard them'.

My right honourable friend is therefore absolved of the charge that he intended to mislead members of this House or anyone else.

    "The House will recall that the Scott Inquiry was set up following the collapse of the Matrix Churchill trial in 1992. Sir Richard has scrutinised this prosecution.

    "The inquiry finds no evidence of impropriety in the way in which the Matrix Churchill prosecution was brought. There was no conspiracy and no deliberate withholding of material known to be relevant that might have helped the defence. It is worth emphasising too that the court itself at the time expressed no criticism of the way in which the prosecution, with the advice of independent and well respected counsel, was brought and conducted. But, as Sir Richard Scott says, with the benefit of hindsight this was a trial which ought never to have commenced. I stress, as Sir Richard Scott himself does unequivocally, that this is a judgment with the benefit of hindsight.

    "While Sir Richard dismisses the serious allegations of personal impropriety that have been made about the conduct of Government Ministers, there is a continuing line of criticism running through the report of what he describes as the,


    'consistent undervaluing by Government of the public interest that full information should be made available to Parliament'.

One of his major recommendations is that there should be a review of the long-standing parliamentary convention whereby Questions on certain subjects are not answered or are not fully answered. He

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recommends that this review should take account of an enhanced need for Ministers to provide full and accurate information to Parliament.

    "This subject will form an important aspect of parliamentary consideration of the Scott Report. This Government have made advances in the openness of Government which go beyond the position of any of their predecessors. Nevertheless, it is right that we should debate these issues further in the light of the findings in Sir Richard Scott's report, and the Government are ready to do so. In the light of that debate, the Government will consider whether any amendments to current practice should be made. It would be unrealistic, however, if I did not say at the outset that there are bound to continue to be areas, particularly in the field of international diplomacy and commercial operations, in which a degree of confidentiality will sometimes be necessary.

    "Sir Richard Scott's report contains a substantial section of recommendations. The Government have already taken action on a number of the issues on which the inquiry now makes recommendations; for example, on intelligence handling.

    "We are able to accept others straight away, such as those relating to export controls and licensing procedures, where a consultation paper will be produced, as Sir Richard Scott recommends.

    "Other recommendations, such as those on changes to the law, for example, relating to prosecution practices and the approach to public interest immunity, are technically complex and will need careful and detailed consideration. They will receive it.

    "In sum, all Sir Richard Scott's recommendations are under active consideration and a number have already been accepted.

    "The House will recognise that the Scott Inquiry has been long, searching and thorough. It will want to consider the report fully and to discuss the issues raised by it. There are lessons to be learned from the inquiry and Sir Richard Scott has made a number of important recommendations which the Government will now pursue. The inquiry has identified areas where systems and procedures can be improved, and these will be closely and urgently studied. The overall picture which emerges is that, while mistakes were made, Ministers and officials acted honestly and in good faith. This country went to enormous lengths rigorously to enforce a self-imposed ban on the supply of all lethal and other offensive weapons to either combatant in the Iran-Iraq war and to remain neutral in the conflict.

    "Our policy towards the combatants in that terrible war was sound and principled. It stands very favourable comparison with that of any other nation. It was conducted and sustained throughout with integrity.

    "Not only did Britain sell no lethal weapons to Iraq, but as Sir Richard Scott's report makes absolutely clear, neither was there any conspiracy among Ministers to send innocent men to gaol. Those who

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    alleged otherwise should now withdraw unreservedly and apologise to the House and to my right honourable and honourable friends whom they have defamed".

My Lords, that concludes the Statement.

4.8 p.m.

Lord Richard: My Lords, I must confess to a certain sense of anger when I listened to the Minister reading out that Statement. I have not had an opportunity to read the report. I obtained it about 20 minutes ago in the same way as other Members of the House obtained it. But in that very short time that I had before I came into the Chamber I managed to look at three or four sections of the report. I have to say--I shall read it out in due course--that the Statement, and the gloss that has been put upon that aspect of the report, at which, as I say, I have had five minutes to glance, is frankly totally misleading and a travesty of what the report says.

I did not obtain a copy of the report earlier because, as the House will know, I was offered the chance to look at it in a controlled environment at the Department of Trade and Industry in circumstances which I regarded as totally unacceptable and insupportable. I was going to read the letter that I received from Mr. Lang. That is an argument that we have already had in the House, and so I shall read just two sentences from the letter:


    "You will be met in the car park by an official of the Department. This official will escort you throughout your visit. This is for your own convenience and security".

I wondered from whom I was going to be secured: hordes of irate civil servants, no doubt, armed with their copies of the Scott Report about to attack the Opposition spokesman in the Lords.


    "You will be escorted to a room in the conference suite where you will be able to read the report. You will be in an adjacent room to that of Mr. Cook as indeed will Mr. Blair. Your escort will be just outside your door".

I was then asked to give certain undertakings about the report itself--on disclosure and not to make any copies--which frankly I regarded as totally unacceptable and demeaning.

I hope that the House will therefore understand why I wrote back merely to say that I regarded the suggestions made in their letter as quite outrageous and that I was not prepared to attend on that basis.

That offer was specific, and was designed to achieve a certain object. That object was clear when the Minister read out the Statement. The object is to read out a Statement which bears not a great deal of relation to the substance of the report so that the House, and indeed the country, may get an impression of what is in the report without yet having had any opportunity to read it. I warn the House, as I have done in respect of Government Statements on a number of occasions in the past, that it is terribly important, particularly in the present atmosphere, that one reads the report and does not rely just upon the Statement.

There is not a word in the Statement which the Minister read about the fact that no less than 27 times Parliament was told that the guidelines were not changed. There is not a word in the Statement about the

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paragraphs in the report which I managed to fish out in seven minutes. Perhaps I may read a paragraph relating to the public interest immunity certificates. It is on page 1396, for those of your Lordships who are prepared to pick up your four volumes and turn to it. It states:


    "Mr. Heseltine had taken his stand, not as a result of any legal analysis which he was not equipped to make, but as a result of an apprehension that justice might not be done if the documents were withheld from the defendants. Such an apprehension on the part of a senior Minister, charged, as is the Government as a whole, with the taking of decisions regarding the maintenance of national security and the promotion of the public interest, raised very serious issues, constitutional and legal, as to the role of PII Certificates in criminal cases. If the responsible Minister does not regard the withholding of the documents from the defence as being in the public interest, what is the function of the PII Certificate that he has, so it is said, a duty to sign?".
There is not a word about that in the Statement. That bit was glossed over so as to give it the governmental spin.

I turn to the summary on PII certificates. We were told by the Minister that the Government have been totally exonerated in that regard. During the five minutes that I had, I happened to look at page 1537, which states:


    "In summary, in my opinion, the making of the PII class claims and the preparation and signing of the PII Certificates in the Matrix Churchill case suffered from the following defects:


    (i) Class claims were made which were not, in my opinion, warranted by authority and which ought to have had no place in a criminal trial".

That is the opinion of Lord Justice Scott. The report continues:


    "Mr. Heseltine's reluctance to sign the PII Certificate in case he thereby deprived the defendants of access to material documents evidenced an instinct for the requirements of justice that was fully justified and corresponded, in my opinion, with the legal principles correctly understood.


    (ii) The Category B class claims included a number of documents [for claims of public interest immunity] of which no more could be said than that they were confidential and in respect of which, even in a civil case, a PII claim would not, in my view, have been warranted by any of the judicial authorities that have underwritten the propriety of class claims".

That is hardly a unanimous acquittal on the part of the inquiry of the Government's handling of the matter. It continues:


    "(iii) Ministers were led to believe that they were not entitled, when assessing whether the PII class claims should be made, to take into account that the documents in question had the degree of materiality in a criminal trial that would, bar PII, have required their disclosure to the defence.


    (iv) Mr. Heseltine was led to believe that it was his legal duty to make the PII class claim notwithstanding that it was his view that the overall public interest required the disclosure of the documents to the defence".

I am sorry that I have not had the opportunity of going through the rest of this fascinating bundle. In view of the brief glance that I have been able to take in relation to those items I suspect that I shall find some rather interesting ammunition in other parts of the report.

Where do we go from here? We shall have a debate on 26th February and I shall make only two or three simple points. In the end, the whole matter of the Scott Report and government behaviour comes down to two or three relatively simple points. First, were the guidelines changed? The answer to that is clearly yes.

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Secondly, was Parliament misled? The answer to that is clearly yes. Thirdly, was Parliament misled knowingly and intentionally? I do not quite understand the adverb in that connection. The fact of the matter is that, on the whole, people are deemed to know the effect of their actions. If the effect of the action was to mislead, those who misled must have known that that was what the effect would be. In those circumstances, it seems to me that the Government are culpable.

As regards Matrix Churchill, the issues again appear to be relatively simple. Did the Government know that the company was exporting those machine tools to Iraq? The answer to that is clearly yes. Did the Government try to ensure that the fact that they knew was kept from the trial court? The answer to that is clearly yes. Did the Government use public interest immunity certificates to try to achieve that end? The answer to that is clearly yes.

This is a murky and disreputable affair in which Parliament was misled and defendants were put at risk. Surely someone is responsible, and it is time that he faced up to it.


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