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Noble Lords: Follow that!

Lord McNally: My Lords, it makes one feel plum inadequate, does it not? At any rate, I am jolly glad for that history lesson from the noble Lord, Lord Saatchi. I suppose that we should all be relieved that the Conservatives have now reached 1928 in their economic studies. I suspect that their next new policy initiative will be to come off the gold standard.

I do not think that the gracious Speech quite yet qualifies for the term "a range of exhausted volcanoes", but, on listening to it, it struck me as a rather dull and technocratic speech—as the type of thing which grey bureaucrats would produce for an interim government, rather than as a radical agenda for a government of conscience and reform. Indeed, the only vision that the speech provides in some of its law and order proposals is the type that one might get at a Surrey golf club on a Sunday morning.

I am tempted to follow the noble Lord, Lord Saatchi, in his economic analysis; as noble Lords who have looked at my CV will know, I am in fact a BSc Econ. I should, however, perhaps add that when I received my degree and went to see my economics professor to ask him for a reference for a job I was seeking, he said, "Tom, I will give you a reference for any job you apply for so long as you never describe yourself as an economist". It was a deal that I made and a promise that I have kept to this day. Nevertheless, even with that little experience—and as we shall perhaps see as this debate unfolds—I have come to believe that economists are men trained to predict the past. The only comment about economics with which I really agree is that by the noble Lord, Lord Healey—that there are only two kinds of Chancellors: the failures and those who got out in time.

I shall not address in detail the economic aspects of this debate. However, as I see that the noble Lord, Lord McIntosh, is in the Chamber, and that the noble Lord, Lord Campbell of Alloway, is ready to speak later in the debate, I cannot resist reminding them and

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other noble Lords of our debate on 22nd May, when the noble Lord, Lord Campbell, moved his Public Services (Disruption) Bill, to which I gave a little support. I recommend that debate to the House; indeed, the reply for the Government by the noble Lord, Lord McIntosh, was an exercise in complacency that should become a classic study. The complacency which we saw six months ago about dangers and disruption to our public services is the chicken that has now come home to roost for the Government.

I shall not twist the tail of the noble Lord, Lord McIntosh, too much—I hope that I can leave that to the noble Lord, Lord Campbell—but I remind him that, in that debate in May, he promised us that a review of the Employment Relations Act 1999 would begin in June. Will he tell us in his reply how that review is progressing and when it will be published? I shall leave the other economics issues for my noble friend Lord Newby to address in winding up.

I shall deal with two areas of the gracious Speech. First, there is the Licensing Bill, to which the noble Baroness, Lady Blackstone, referred. In the main we welcome it. All parties in the past 10 or 20 years have supported the gradual deregulation of our leisure industries by removing from the statute book those pieces of legislation that the noble Baroness rightly said were aimed mainly at making moral judgments. Governments tried to legislate for how people should behave, rather than taking the view, as became the practice under the previous Administration, and as has been carried on, rightly, by this one, that people should have the right to choose how they spend their leisure time and their disposable income without governments trying to make moral judgments.

However, there is a difficulty and contradiction in the gracious Speech. The first half deals rightly with taking the most firm action against anti-social behaviour. The linkage between alcohol consumption and anti-social behaviour is beyond doubt. I worry whether we have the right measure of joined-up government to ensure that the consequences of deregulation and its impact on anti-social behaviour will be properly considered. When the Bill is debated, we shall have to consider carefully its impact. It is all right giving people the freedom to drink until dawn, but that must not make it a living hell for residents in the vicinity. It is interesting that both Amsterdam and Dublin—cities with a reputation for being open-all-hours—are now looking at the problems for residents that are caused not least by parties of young visitors who are there to enjoy the freedoms available. We shall have to consider that balance carefully when we debate the Bill in this House.

The other legislation to which I want to refer is the Communications Bill. I had the pleasure and honour of serving under the noble Lord, Lord Puttnam, on the pre-legislative committee. I look forward to the contributions later in the debate of the noble Lords, Lord Hussey and Lord Crickhowell, who were comrades-in-arms on the committee. We made a commitment to make a good Bill better. I have not had a chance to look at the Bill in detail—it has only been

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published today—but I can tell the Minister that the commitment from these Benches is to make it better still in the next few months.

The committee quickly realised that the world is divided into "techies" and "fluffies". In dealing with the "techies" and the technological developments in the industry, we were convinced that the combination of powers contained in the Communications Bill and the competition and enterprise Acts would lead to the vigorous competitive regime that the noble Baroness said was the Government's aim. At the other end—dealing with the so-called "fluffies" of television, broadcasting and radio—we need to have a more interventionist role.

Recently the Independent Television Commission said that

    "the Communications Bill will shape the economic, social and cultural potential of the sector".

I agree, but I would go further. The Bill which is about to come before Parliament will shape the economic, social and cultural potential of everyone, in the same way as the creation of the BBC did three quarters of a century ago. The establishment of the BBC as a public corporation under Royal charter, with a remit to inform, educate and entertain, had an impact on our democracy, culture and national identity for the rest of the 20th century.

Although our approach is far from being: the BBC, right or wrong, we want a strong, independent BBC to emerge from the Bill and the review of the charter. The BBC is already under attack. Mr John Whittingdale again referred to the licence fee as a poll tax. I prefer the definition of the Secretary of State that it is a venture capital for all Britain's creative industries.

The noble Lord, Lord Lipsey, was reported in the Observer as being critical of Mr Greg Dyke for his commercial thrust, while ignoring the fact that it was the Government who asked the BBC to be more commercial at the time of the previous settlement. I am sorry that the noble Lord, Lord Lipsey, is not in his place because the Observer described him as a "broadcasting expert". I know the noble Lord, Lord Lipsey; Lord Lipsey is my friend; Lord Lipsey is no broadcasting expert—except in the way in which this House has 600 broadcasting experts, with another 600 down the Corridor. That has always been a problem when debating broadcasting. We are all experts.

When the Bill comes before Parliament, we shall see its shape. We shall have to discuss issues, such as the settlement for local radio. I welcome the greater flexibility and look forward to the contribution of the noble Lord, Lord Gordon. Beyond the various precise issues, such as foreign ownership, the role of must offer-must carry and intricate issues that we shall be discussing, we must realise that there will be massive vested interests putting great stakes on the table with great winnings at the end. I am thinking of Mr Rupert Murdoch. What I admire most about him is that he looks after his shareholder interests. It is the duty of the House to ensure that the Government guard the public interest as assiduously as Mr Murdoch guards his shareholder interests.

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One thing that came out of the Puttnam Committee was the idea that we should encourage self-regulation in advertising, the Internet and the print media. The Bill will offer the opportunity for accredited self-regulation to look at the objectives, independence, transparency and accountability of self-regulating bodies. I firmly believe that the Press Complaints Commission should have such a relationship with Ofcom. That would not be a slippery slope to press licensing but a firm basis on which to underpin a free and diverse press.

I do not believe that the Bill and the way in which we handle it should be a party matter. The Liberal Party took an early interest in broadcasting in its relationship with Marconi.

Noble Lords: Oh!

Lord McNally: My Lords, I am glad that there are a few historians in the House.

The Conservative Party has a proud history on broadcasting. It was a Conservative government who introduced the BBC; they created ITV with a strong public service remit and a regional basis; and it was a Conservative government who created Channel 4. There is no reason to have a holier-than-thou attitude on this matter. We must realise that the Bill will shape our cultural identity and democracy into the 21st century. I look back on the creation of the BBC and see the impact that it had on our society for the rest of the 20th century.

I believe that this Parliament has a similar responsibility in looking ahead to the impact that communications will have on our society. I believe that this House in particular, with its independence and its experience, can have a tremendous impact on making this good Bill better still.

4 p.m.

Lord Puttnam: My Lords, I will, if I may, restrict myself to commenting on the merits of the Communications Bill, having always known that, if the good Lord spared me long enough, the day would come when I could be of service to this House by speaking to a subject on which I could offer at least a modicum of knowledge and experience.

In truth, much of this knowledge is comparatively new found as a direct result of having enjoyed the privilege of chairing a committee of both Houses scrutinising the Communications Bill in its draft form. I start by paying tribute to the extraordinary commitment shown by every member of that committee towards making—as the noble Lord, Lord McNally, said—a good Bill a darn sight better. Judged by any measure, the work they put in was heroic. I feel that I learnt more in those all too brief 12 weeks than in the whole of my 30-year professional career. As a committee we were supported by a parliamentary team with qualities that, were it only possible to distil and bottle them, would assure this nation's economic and political future.

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Turning to the Bill itself, I have at this stage no more than half a dozen issues to bring to your Lordships' attention. The first is a very general point. There is at present a lazy tendency to confuse or conflate the rights of consumers, customers and citizens. These are not necessarily the same although it seems to suit different people for different reasons at different times to believe so. That confusion was all too evident in the draft Bill and, in fairness, efforts have been made to improve matters. But I need not remind your Lordships that while the rights of consumers and customers remain important, with regard to the dissemination of information it is the rights of the citizen that are absolutely paramount. This issue, or distinction, is one that throughout the passage of this Bill it may be necessary for your Lordships rigorously to scrutinise.

Another significant and worrying hole in the Bill is the lack of concrete provision for the funding of the competition component of Ofcom. I, no doubt along with others, will go into that concern in a good deal more detail when the legislation eventually finds its way to this House. We may well discover that the Government have found the means to put the necessary corrective measures in place. But, should that not be the case, the great good sense of this House will undoubtedly be brought to bear on this crucial, if somewhat complex, issue.

Much has been made, although not by me, of the emotive subject of so-called "foreign ownership". I think that our committee got it about right in recommending an "evidence-based" pause prior to a decision by Ofcom. However, to their credit, the Government moved quickly and, to a considerable degree, stole our clothes. A tightening of the existing regulations together with the anticipated outcome of the programme supply review to be published by the ITC next week are likely between them to have the effect of accommodating at least 95 per cent of my concerns. Every single instinct for good order would normally persuade me in the direction of reciprocity, but on this occasion we have far bigger fish to catch, and I for one prefer to keep my hook well baited.

One fish, or should I say shark, that will come swimming past revolves around the future of Channel 5 and cross-media ownership more generally. Without setting out their reasons the Government have chosen to reject the Joint Committee's recommendation that the,

    "prohibition on common ownership of a major Newspaper Group and Channel 5, should be retained".

Their thinking may well be immaculate, but it will need to be far better explained, far more evidential and extremely convincing before it is likely to find its way into the hearts and minds of many in this House.

Speaking of hearts and minds, I finally turn to the issue that has unequivocally excited the most positive response from all sides of this House. It concerns the committee's unanimous recommendations in respect of a plurality test in the case of mergers and take-overs. If I am to judge correctly from the feedback that I have received, your Lordships seem to find it inexplicable that a so-called Communications Bill could be

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published with so little attention being paid to the newspaper industry. We have, in our report, set out a number of recommendations which, taken together, would have the effect of persuading Britain's newspaper proprietors and their editors to join the rest of us in this difficult and demanding 21st century—a century, as they consistently and correctly remind us, typified by an ever more encompassing commitment to accountability and an unswerving belief in sustaining the trust of the electorate.

As the son of a journalist I bow to no one in my commitment to a free press, but in the words of the noble Baroness, Lady O'Neill, in her remarkable Reith lecture,

    "The press has no licence to deceive; and we have no reason to think that a free press needs such licence".

The Bill, as published, has taken a late stab in this direction. But our committee went further. We sought to require not only,

    "accurate presentation of news and the free expression of opinion",

but also to establish,

    "a clear differentiation between the two".

In a well-run world we should have no need to require it, but, sadly, obfuscation has in this respect been promoted to something close to an art form.

Additionally, the committee envisaged its plurality test being used not only for newspaper mergers but also for media ownership generally and, most specifically, cross-media ownership. In this sense our form of plurality test could well be the long-term solution to a seemingly intractable set of public policy issues.

I sincerely hope that, through the passage of the Bill, our great press barons and those who serve them will find it possible to navigate their way to a form of accountability not dissimilar from that which, day after day, they require of all others engaged in public life.

I have only one or two other relatively minor quibbles with the Bill as it stands, but nothing that a combination of good argumentation, cross-party support and tenacity cannot put right. I have for a number of years looked forward to the establishment of a genuinely powerful and committed regulator. Ofcom, under the chairmanship of the noble Lord, Lord Currie, has the opportunity to be exactly that. And we in this House have the expertise and the ability to ensure that he receives an unencumbered mandate to get the job done and done well.

This is a good Bill which could, with help, become possibly even a great Bill. I look forward to supporting its passage through this House.

4.7 p.m.

Lord Brooke of Sutton Mandeville: My Lords, it would be a privilege at the worst of times to follow the noble Lord, Lord Puttnam, who is not so much an eminence grise as a roi soleil of the culture and media world, but this is, of course, the best of times, following not only his speech but also his distinguished

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chairmanship of the pre-legislative scrutiny of the draft Communications Bill, and, therefore, my privilege is the greater, if under mildly false pretences.

In line with pre-Queen's Speech guidance, I appear in the batting order among what, to paraphrase the late Claude Raines in the film "Casablanca", might be described as some of the usual noble culture and media suspects in your Lordships' House and I acknowledge my place on the charge sheet as a discharged layabout (albeit noble) from the old Department of National Heritage, but I had sought to indicate an intention to speak primarily on economic affairs.

I have no problems with the hybrid mix of today's debate for it is now a commonplace of conventional wisdom that there will be further convergence of sectors such as financial services, utilities, media and telecommunications in the future, but I shall shortly diverge on to the economy. I am conscious, however, that personal past form means long hours ahead on the remaining stages of the Licensing Bill and the Communications Bill.

Of the latter, I recognise its seminal importance, and I congratulate the Government on bringing it forward, as have other noble Lords. Of the former, I must offer advance apologies to the Minister who opened this debate that I shall be in Manchester on Tuesday with the British-Irish Interparliamentary Body and therefore will miss the Second Reading of the Bill but also the opportunity then to animadvert on the Bill being a DCMS Bill when that is also the department responsible for tourism. Residents in inner cities, at least, have interests that can conflict with excessive and disproportionate leisure spending, and I am not clear, especially after seeing the department's guidance notes that accompany Clause 177, who in that department is the champion of the interests of residents, but I recognise that I shall find out.

Food safety was sensibly taken away from what used to be MAFF. I understand the principle of poachers making good gamekeepers but not, I would aver, at the same time. It puts one in mind of those pre-war films where George Arliss played Russell Thorndike's character, Dr Syn, an 18th century Romney Marsh clergyman who led the local smugglers, as in Kipling's poem:

    "Brandy for the Parson,

'Baccy for the Clerk ... Watch the wall, my darling, while the Gentlemen go by". At the risk of being pompous, I believe that I myself would have resisted the transfer of licensing from the Home Office to the DNH or the DCMS if I had been timeously the latter's Secretary of State.

I constitute a bridge in the debate between the perfectly admirable speech of my noble friend Lord Saatchi and the lower half of today's batting order. We hold this debate before the Pre-Budget Report and therefore I do not propose to play a funereal harbinger of economic or fiscal doom or, indeed, gloom. One of the pleasures of having the noble Lord, Lord McIntosh, respond to the debate is his intellectual generosity towards fair points made from this side of the Chamber.

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Therefore, let me say straightaway in sympathetic response that I admire the Chancellor of the Exchequer's historic macro-economic achievement and I acknowledge that in the year 2003–04 the envisaged figures could just about enable the Chancellor of the Exchequer to meet and sustain his "golden rule" on a cyclically adjusted basis. But, in the same breath, I have to say that in the first six months of the financial year 2002 current spending overshot while revenues fell behind their forecasts. The Chancellor of the Exchequer is not central casting's notion of the ideal Mr Micawber, but Mr Micawber did have his own pungent and synoptic view of that particular economic conjuncture, especially if it were to be continued. Moreover, at present the problem seems to have something of the structural as well as the cyclical about it.

In addition, as if corporation tax were not already contributing to the revenue shortfall, from April next we shall have the new NIC charges. Labour Back-Bench MPs are prone to defending these on the grounds that they are even-handed, falling on employee and employer alike. But that is an odd form of even-handedness, for an employee pays his national insurance contribution out of income whereas an employer pays his for the privilege of providing employment. If, in consequence, the employer opts to forgo that privilege, then national insurance contributions and income tax from the employees thus disemployed will also fall and add to the income-tax shortfall which the Treasury is already experiencing.

I am sure that, in preparing to respond to the debate, the Minister has in his head, if not about his person, the research report published earlier this year by the Institute of Chartered Accountants on small businesses and regulation. The findings are deeply depressing but I shall not sully the entertaining joys of culture and media in the debate today by rehearsing them all. It is, however, worth repeating that advisers to small and medium-sized enterprises estimate that the average cost of compliance with regulation is now the equivalent of 4 to 6 per cent of smaller businesses' total turnover.

I recall in the late 1970s the late Peter Shore's defence of rate excesses by Labour councils at that time as being small by comparison with the turnover of commercial ratepayers. But small businesses then, as today, could report that the comparison of the cost should be with profits rather than with turnover, often leading potentially to a negative profit figure. As Campbell Soup used to say in its annual reports in order to disguise its misreading of the British tomato soup market:

    "Internationally our costs continue to exceed our sales".

Finally, on regulations, I could not help noticing that that notable manufacturer, Mr James Dyson, when defending his recent decision to move his manufacturing to Malaysia, said of European manufacturing that it depends on a mobile labour force yet that ever-more intrusive European employment law had increasingly prevented supply

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and demand being matched. He went on to say that that had two effects: to make suppliers reluctant to expand and also to increase employment costs.

Moreover, on top of regulations, taxes and tax credits continue to become more complicated. In my maiden speech a year ago this week on the subject of financial services, I alluded to my nearest neighbour in Wiltshire. He is a retired agricultural labourer who left school at the age of 14 and was rendered disabled about three years ago. I learnt more about the benefits system in this country by filling out his various applications for benefit—he asked me to help him to do so—than I learnt in 25 years as a Member of Parliament in the other place. It is a salutary experience to fill out the forms oneself.

At least one of my noble friends, who served as a Treasury Minister once upon a time, honourably fills out his own self-assessed tax return in order to test its comprehensibility. One hopes that today's Ministers and their officials sometimes sit self-imposed examinations of the language of their taxes and regulations. They might in the process guess why, as this very day, there is, for example, a shortfall in minimum pension income guarantee take-up.

Following my noble friend Lord Saatchi, no doubt I shared the pleasure of others in your Lordships' House in reading the list of Treasury euphemisms paraded in The Times the other day to conceal the Government's failure to meet their targets tied to funding, which are the core of the public service reform programme. I follow my noble friend, too, in his quotation as to the principle reason why people had left the public service. But I add to it that the chart from which he quoted is also divided into the most important reasons as against simply reasons. The most important reason of all out of about 11 was that they felt undervalued by the Government.

In similar vein, the pages of Hansard record the vehement rejection by a Minister in the past year that the City would, in the end, need a sweetener before it forgave the Government for the precipitate closure of Railtrack. We all know what later transpired. The productivity of this great City would be transformed if we could stop talking about modernisation of the London Underground and get down to doing it. But the central cause of delay in this matter is the Government's own legislation in relation to the Greater London Authority.

Every Queen's Speech, of whatever party, necessarily sounds as though it has been dictated by Dr Pangloss. This particular Queen's Speech does however seem to foreshadow a year in which some of the Chancellor of the Exchequer's chickens may begin to come home to roost. Being optimistic rather than Panglossian, I hope for all our sakes that the returning chickens do not introduce salmonella into the economic food chain.

4.17 p.m.

Lord Hussey of North Bradley: My Lords, I am a little sensitive to the noble Lord's reference to the batting order. I played rather a lot of cricket during my life but never rose above number 11.

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When the Government set up the Ofcom committee to centralise the number of bodies involved in media regulation, most of us felt that it was probably in our interest to clarify to whom and from whom we could go for advice. Ofcom has brought together under one head five separate media regulatory bodies: the ITC; the Radio Authority; the Radio Communications Agency; Oftel; and the Broadcasting Standards Commission. Ofcom has now been created and an outstanding chairman appointed. To be successful, it must be well funded. The brief is wide and the best advice must always be available to it.

I must first declare an interest, being in receipt of a modest pension from the BBC after 10 years as its chairman. I hope that your Lordships will excuse my emphasising that one of the great tests of Ofcom will be how successfully it can establish relations with the BBC, guiding it into the future without offending its sensitive staff. It is about that relationship that I wish to talk to your Lordships.

The BBC, for all its faults—many of them exasperating—remains the most admired broadcasting organisation in the world. It is a unique national asset, appreciated by many millions overseas while incurring much criticism at home. How far Ofcom can win the confidence of the BBC will be a critical factor in its success.

As I am sure your Lordships know, the BBC began broadcasting in 1922. Eighty years later, those three letters are probably the best known in the world. It has proved to be a far-sighted and revolutionary institution which, in spite of many attacks, has survived and is accepted more readily abroad than at home. It offers a unique contribution to the understanding of what is going on in the world.

Its secret has lain in two revolutionary concepts. The first is in the system of funding: a licence fee paid by anyone owning a television set—

    "a compulsory levy enforced by criminal sanctions",

in the immortal words of the noble Baroness, Lady Thatcher. It yields 2.53 billion a year. The manifold benefits of the licence fee are widely criticised, not least by those organisations that have to fight for their revenue. The second concept is the system of governance, handing control of the BBC to 12 people of distinction but lacking media experience. They have the ultimate power but, not surprisingly, are reluctant to use it except in defence of the BBC's independence.

This is the body with which Ofcom will have to deal, bearing in mind its unusual structure set against its world-wide reputation. Currently, under a dynamic director-general, the BBC is winning the ratings war but is in danger of losing its purpose to achieve quality programmes across the full range through news, drama, humour and sport; to be more efficient than its competitors; to show commercial enterprise; and to win the confidence of its staff and the support of its listeners and viewers by extending the choice of programmes available to them—objectives achieved more successfully by radio than television.

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Handling this unlikely giant will be one of the main duties of Ofcom. How widespread are those duties is demonstrated by the activity of the committee which has reported to your Lordships. It was a long and arduous experience during which, in an action-packed 12 weeks, we interviewed over 100 witnesses and scrutinised over 200 papers of evidence.

Ofcom will install in one building five separate bodies, each used to their own premises, executives and policies, and will preside over a wide range of the communications industry. I was concerned that that might lead to internecine turf wars but hopefully the chairman will rapidly exert his authority and maintain order.

Your Lordships may or may not have been impressed by the volume of work that the committee had to encompass. I was exhausted. I think that all who took part felt that it was a mammoth task which proceeded pretty smoothly. To have achieved our report in so short a time would not have been possible without the wise guidance of an outstanding chairman, the noble Lord, Lord Puttnam. His experience, knowledge and understanding of the media, together with his sensitive regard for the feelings of the 12 constituent members drawn from all three main political parties, contributed enormously to its success. For me, the only Cross-Bencher, it was a fascinating experience.

The success of our report can be judged by the almost unanimous praise with which it has been received. Ofcom will not of course concentrate exclusively on the broadcasting media. It will cover all of our communications businesses, which are much more than just businesses. These are the companies and corporations with the power to influence not only British culture and the way other nations see us, but the very democratic process that brings us all here today.

Ofcom will have powers to advise the Secretary of State on mergers, over control, and over content. This wide brief will include the newspaper industry, where the increasingly down-market content invites justifiable concern. But we must remember that what may appear unsuitable to our generation is not so unsuitable to younger generations. Standards, attitudes, language and behaviour have changed mightily in the past two decades. What we may regard as unseemly may be accepted as normal and uncontroversial by our children and even by our grandchildren.

The Government warmly welcomed our report and were generous in their appreciation of what it had entailed for the chairman and the members of his committee but, above all, your Clerks, who responded with a speed, accuracy and quantity of output which, even by the standards of your Lordships' House, was exemplary.

We do not seem to have fallen out over many issues, except on the Government's view that opening the doors to United States and non-European ownership would result in new, valuable investment in original

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United Kingdom production from, incidentally, areas where our broadcasters have already established an international reputation. This has not resulted in immediate agreement. I hold the view that while the United Kingdom market should be open to foreign content, the foreign ownership of broadcasting channels and newspapers is a more delicate issue, not least because of the political influence that accompanies media ownership.

Our chairman is firmly of the belief that the future of the BBC lies most securely in a well-led Ofcom. I agree that to leave the BBC outside Ofcom would invite unnecessary difficulties. The secret of the BBC's success lies in maintaining the standards laid down by the first director-general, Lord Reith, that its purpose was to inform, to educate and to entertain, in that order, offering creative and challenging programmes that the market would rarely provide. That remains its objective.

In this increasingly commercial world there has to be a place for a powerful media influence in the pocket of no individual proprietor, interest group or advertiser, which does not give paramount weight in choice of programmes to what will earn the most money, but which offers instead schedules to tempt audiences and to uplift their interest and understanding. That should be the objective of Ofcom—to strive for quality across the media: newspapers, radio, television and film. Ofcom's objectives and those of the BBC should coincide. No doubt there will be problems. There are always problems, but with sensitive handling I see no reason why Ofcom and the BBC should not together seek to achieve the same worthwhile objectives. I wish them good luck in so doing, and maybe we shall end up with a better BBC.

4.27 p.m.

Lord Bragg: My Lords, first of all let me declare an interest. I am contracted to make television programmes for Granada Television; I am also contracted to make radio programmes for the BBC.

The Communications Bill is very timely. My right honourable friend the Secretary of State, Tessa Jowell and the Minister my noble friend Baroness Blackstone, are to be congratulated. It is to be widely welcomed and applauded in its attempt to get to grips with an extremely fast-moving industry. Its ambition and its comprehensiveness are exemplary and I hope and believe, as does my good friend the noble Lord, Lord McNally, that great things will flow from it. Everything I shall say will be in the context of that welcome and that enthusiasm for the Bill. I also congratulate my noble friend Lord Puttnam for the excellent and thorough work of his committee.

I intend to concentrate on television. There seems to be a tension, a paradox, and even a dilemma at the heart of the Bill—all three. On the one hand, the Government are very properly, and at last, seeking a lighter touch—less regulation—which will release energy. Yet on the other hand they are also seeking to

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ensure the public good and the welfare of the consumers—in short, standards. To enforce standards we need regulation, but how much?

To hold those two in balance seems to me to be the central test: how far should we deregulate and how far should we regulate, how far should we enforce standards and how far should we let this rapidly moving industry run freely into its best competitive form? The Government have set themselves an extremely ambitious target in fully confronting those two forces. For example, hundreds of new television and radio channels do not in themselves necessarily guarantee quality. As we know, they are all competing for the same heads and the same pounds and that has to mean "grab the audience", which can mean lowest common denominator and often does. Nor, curiously, do they guarantee diversity. In fact, because they are all competing for the same audience and the same markets and usually the same age groups, there is an inexorable tendency to do much the same programmes. Regulation is essential for variety as much as for excellence. My right honourable friend the Secretary of State, Tessa Jowell, said that,

    "public service broadcasting is more important than ever".

I welcome that she said that so strongly.

Most people I think will green flag the proposal for freer rules on ownership. In the end I suggest that it does not matter who owns a television licence, so long as the conditions of that licence are fully delivered and so long as those conditions are sufficient to protect the viewers and listeners and to give them the quality that the regulators rightly demand.

There will be a great argument about the opening up of television companies to non-EU institutions. So there should be. It is, though, a little odd that we can be taken over by Germany or Italy but not by America. I can see the arguments here, but it is difficult to follow the logic. Surely, our institutions must be made robust enough to handle the impact of any takeover, including that of global vertically integrated companies.

To do that we need safeguards in three areas: first, in programme production in order to protect the UK programme base. If we stick to the figure of 65 per cent home-based production we cannot go far wrong. That is the key. Secondly, advertising sales must be safeguarded. Finally, there is programme acquisition, which again must have strict quotas.

If these three safeguards are properly addressed— although we may have worries about America taking us over rather than, say, France—it is difficult to find a rational ground for that. As I say, this has to be argued over very carefully.

I return to the particular in this country and to the proposed merger between Granada and Carlton Television. I, like many others, believe that the merger is essential if ITV is to compete with a better-funded BBC and with Sky. The merged company, let us call it ITV, will mean a more effective and efficient programme making outfit and will, I am sure in the

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end, once the problems are ironed out, provide a better and sounder basis for programme makers, hence audiences and hence advertisers.

A merger will mean more money for British made programmes—50 per cent of them in ITV's case—sited outside the M25. To a certain extent, just as historically art has always followed wealth, so good television programmes always follow the money. The recent BBC successes are clear evidence of that and there is much evidence of it in the past. "Civilisation" was expensive, so was "Brideshead", as today are "Daniel Deronda" and "Dr Zhivago". In this area, as in many others, the BBC needs a big programme-producing competitor—if not to keep it honest, then to keep it at full stretch. A single ITV will at the very least give it a run for its money and it is the only serious challenger to BBC1 around or likely to be.

Like many noble Lords, I applaud the creation of Ofcom under my noble friend Lord Currie. Good luck to him. It has potentially tremendous clout and can, if anything can, square the circle between a lighter touch and an enforcing of public interest and high standards—quality and quantity, one might say. It can also establish another balance, that between the big players and the small players. That is crucial, especially in an industry which has benefited so much through the emergence of vigorous, innovative and successful small players which are often threatened to be snuffed out by the big movers. They need protection and help.

We of course have a current safeguard for public service broadcasting, which is the BBC. It is a great institution—as the noble Lord, Lord Hussey, pointed out—and British broadcasting in my view needs it as the essential rock. It is I think at the moment particularly well run by its Director General, Greg Dyke. He is currently under fire and often spuriously criticised in some quarters for being too successful. He has completely turned around the morale of the BBC, stripped down its administration and put it in various fields where it can be a great benefit; and I can think of no one else in British broadcasting who could have done so much as quickly and as effectively. There are shortfalls and there are problems. There is a problem looming in the BBC's involvement in the commercial area. That has to be addressed in the Bill.

So far as Ofcom is concerned, I am beginning to think that it might be in the public's and the BBC's best interests for the BBC to come to the table on this one. Without the BBC, Ofcom will be a glass half full. We will most likely have Ofcom in battle against the BBC if they do not join together. Conflict, if they do not join, is inevitable. It could be nasty, especially as the BBC is now entering into commercial ventures where the ground is ripe for strife and confrontation of the most damaging kind. The BBC is such a major player and under Greg Dyke has developed so extensively that its activities now impinge on many smaller and some bigger commercial players.

Perhaps I may therefore suggest that while it is proper for the BBC governors to continue to be custodians of the BBC's special public service purpose

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in broadcasting programmes, it is also proper for Ofcom to have complete authority over all the BBC's commercial activities—if only in the interests of transparency. Personally, I should like the BBC to surrender itself totally to Ofcom. I cannot see that occurring before the charter review in 2006. Yet, before that review I think that it is important to have a declaration of intent. With the BBC inside Ofcom it would be a formidable force for good in British broadcasting.

There is also public service broadcasting outside the BBC—welcome to the worlds of ITV and Channel 4. The public service aspect of ITV does not get much of a hearing or much sympathy in your Lordships' House, but for 40 years I suggest—and I think that I can prove it if your Lordships have an hour or two to spare—ITV has challenged BBC1 again and again as a public service broadcaster. And over the past 20 years Channel 4 has challenged BBC2 again and again as a public service broadcaster. Yet, both ITV and Channel 4 are commercial. The public service commercial interest of those two companies is not sufficiently recognised in the Bill. In drama, in religion, in children's programmes, in science, in documentaries, in arts, in news, and in the regions these channels have taken on the BBC—sometimes won—and given the viewer serious options where it matters.

For instance, Channel 4 puts on a news programme at 7 o'clock in the evening—an analytical, serious, lengthy news and news discussion programme—that is commercial suicide. Yet it does so because although it is commercial it has no obligation to shareholders and it chooses to do so. If that is not public service broadcasting, it is difficult to find out what is.

ITV in the regions—to take just one of many examples from ITV—is similarly exemplary in its public service broadcasting. It has a 50 per cent commitment to out-of-London production, much more than any other channel and it makes more regional programmes than BBC1 and BBC2 put together. The impact of the regional studios and regional programmes on the local economy, local employment and stimulation of local broadcasting and arts-related industry is considerable. If that is not public service broadcasting, I do not know what is.

Moreover, while I am dealing with the regions, I suggest that they operate at a huge disadvantage because their productions do not count towards the commissioning channels' 25 per cent independent quota. The BBC ought to recognise that these small regional operations are just as valid as independent companies as are the many independent companies in London. Not being commissioned for the national channels will lead to a slow starvation of initiatives in the regions and a drain of talent from the regions. They need access to these national channels.

The BBC spends well over 70 per cent of its budget in London, as does Channel 4. Channel 5 spends 90 per cent of its budget in London. ITV spends only 50 per cent. It would be very helpful for the regions if a definition of independent production allowed any programme to count as independent when the

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producer is independent from the commissioning channel in ownership terms. It could be introduced in the Bill or via secondary legislation.

I emphasise regionality because, having worked in two regional companies—one in Newcastle (Tyne-Tees) and the other in Carlisle (Border Television), I know how extraordinarily important it is that the regional programmes are seen to be part of a national channel. Being part of the great ITV network gives them an authority and an interest that no fragmented local regionalism can bring to the table.

Time is short and so I would simply like to put down one or two markers. There is the "must carry" issue which cannot be allowed to enable Sky to exploit its position at the programme and business expense of the BBC and ITV; there is the problem of the unfair, over-regulation of content and the milking of ITV—still paying a 300 million licence fee on top of its tax—based on days long gone when it was a rich monopolist.

It is outside my brief, but I should like to comment on the issue of newspapers, so eloquently referred to by my noble friend Lord Puttnam. I endorse fully what he says. Also, from my discussions in both Houses and generally outside, there is enormous and urgent interest in the whole area of newspaper accountability and this is the time to raise it fully and to address it.

Finally, I stress again that I think that a public service based ITV and Channel 4 is as necessary to this country as a publicly funded BBC1 and BBC2. Should the terrestrial commercial sector be downgraded and unfairly depressed, there is no doubt that the sort of slide will occur which most people who wish British television well will be gravely concerned about.

To come back to the beginning, this is a tremendous Bill. One way or another it will be a landmark Bill. There is much more to say about the Bill. I am sure that much that is helpful will be said in this House. Like many noble Lords, I wish it well.

4.39 p.m.

Lord Crickhowell: My Lords, the debate on the Queen's Speech always creates an alignment of topics that tempt one to range wider than is possible in the time available. Today, before I turn to my main subject, I cannot resist the temptation to follow yesterday's powerful speeches by my noble friend Lord Fowler and the noble Lord, Lord Oakeshott of Seagrove Bay, on the subject of the catastrophic situation that now confronts a whole generation of pensioners.

The stock market crash, mismanagement in the industry and regulatory failure have all played their part. On top of that, the Government have made their own, massive contribution to a disaster that seems likely to blight the lives of hundreds of thousands, perhaps millions, of people. First there was their raid on pension funds in 1997, which was rightly described in The Times last Saturday as,

    "an outrageous breach of public trust".

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Then the Government encouraged the idea that they were likely to reduce pension tax relief and stubbornly refused to scrap the obligation imposed on pensioners to buy an annuity before they are 75.

I welcome the fact that there is likely to be another attempt in this Session to get a reform of annuities Bill through Parliament. The promised publication of a Green Paper in the relatively near future will provide the opportunity for a full debate on these hugely important issues.

I turn to the Communications Bill. I have not yet read the Bill, which was published today. The workload that fell on those of us from both Houses who served on the Joint Committee was immense, but it was all made bearable, and even fun, by the matchless skill of our chairman, the noble Lord, Lord Puttnam. It was a privilege to serve under him. He clearly still has pretty effective control over me, because he identified three subjects covered in our report to which I, too, want to refer. We, and, indeed, Parliament, also owe a huge debt to our clerks and special advisers. If I can pick out one, it is the contribution of the Commons clerk, Mr Colin Lee. The draft that he produced for the committee was a work of outstanding brilliance. In a fairly long public life, I have never seen better drafting.

When our report was published on the last day of July, the initial reaction of the Department of Trade and Industry and the Department of Culture, Media and Sport was distinctly unhelpful. Perhaps those with experience and good sense had left on their holidays. The tone was such as to cast a shadow over the whole future of pre-legislative scrutiny. The line was that the committee was not supposed to deal with major policy matters already decided by Ministers, but only with narrow drafting points.

Fortunately, things have moved on since then. In their formal response, Ministers have welcomed the report as,

    "an invaluable contribution to the development of a key piece of legislation",

and have accepted, in full or in part, more than 120 of our 148 recommendations.

Mind you, a little caution and scepticism is called for in the face of those soothing assurances. We shall need carefully to consider the Bill when we have the chance, especially when the acceptance of our recommendations was qualified or partial, and there will be plenty of grounds for debating those parts of the Bill where our recommendations have been rejected. I make no claim that the committee has got it right in every case. The service that we have rendered in each and every instance is to have clearly identified the arguments and to have marshalled a mass of relevant evidence that will inform the scrutiny process of both Houses.

I shall pursue the question of foreign ownership to which the noble Lord, Lord Puttnam, referred. On 1st August, the Secretary of State said:

    "We firmly believe that our proposals for foreign ownership will give the best of both worlds—high levels of new investment, high standards for the industry and the public".

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In their formal response, the Government are more cautious, stating:

    "We do not believe that there is a strong case for delaying the policy ... As we are sure the Committee will understand, no prediction can be made about the level of foreign investment".

Furthermore, the Government now,

    "recognise the Committee's concern about the risks posed to the UK broadcasting ecology".

Like the noble Lord, Lord Puttnam, I welcome the fact that Ministers have now agreed to tighten content regulation, and especially that they have accepted our recommendation that the Bill should be amended to define original production as programmes commissioned with a view to their first showing in the United Kingdom and Europe. I also welcome the fact that they promise to consider any new evidence arising from the Independent Television Commission review of programme supply, which will be published next week.

However, that does not deal with 95 per cent of my concerns. Judging by the vigorous discussion that took place among the large number gathered last week in Great George Street under the auspices of the Westminster Media Forum, the debate is by no means over. Yes, we have moved in the right direction, but I hope that before dismissing the case that we made for caution, Members of both Houses will read with care our detailed comments and, perhaps, Greg Dyke's pungent views expressed in paragraph 546 of the minutes of evidence. For me, the feature that weighed especially heavily was that Ofcom must be given time to establish itself as an effective regulator before we make a move that creates real risks in exchange for unproven advantages.

The Bill is being introduced at the conclusion of a period of profound change in competition law that began with the Competition Act 1998 and concluded earlier this summer when the Enterprise Act 2002 received Royal Assent. We now have competition powers with real bite and, hopefully, a culture of enforcement to match. I say hopefully because, as we pointed out in our report, for many years, economic regulation of the communications sector has been hamstrung by the deficiencies of competition law and its enforcement. The noble Lord, Lord Puttnam, made the point that if we are to have swifter and better regulation under competition law, there must be a properly resourced competition unit at the heart of Ofcom—preferably funded directly by the Treasury.

Against that background, two issues stand out as priorities. The first concerns the need to have regard to plurality—also a subject raised by the noble Lord, Lord Puttnam—in considering mergers and competition issues. The committee considered that to be so important that we recommended,

    "that plurality be specified as a consideration in respect of which the Secretary of State may serve a public interest intervention notice".

We proposed a definition of public interest that included,

    "the promotion and maintenance in all media, including newspapers, of a balanced and accurate presentation of news, the free expression of opinion and a clear differentiation between the two".

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Of course, we expect newspapers to express strong opinions, but a deplorable trend has developed among some national newspapers of so mixing opinion and news that it becomes impossible to separate the two. News is reported only in a manner that fits editorial opinion. We should surely resist that trend.

The second great issue is where the BBC fits into all of this. The impact of competition law in broadcasting is greatly affected by the dominant market role of that publicly funded broadcaster. We thought it right to emphasise that the BBC is subject to competition law, and to draw attention to the way in which the BBC Fair Trading Commitment will be relevant to consideration by Ofcom of complaints about anti-competitive behaviour.

The Government's response informs us that the provisions of the revised agreement between the Secretary of State and the BBC,

    "will mirror those of the Bill wherever appropriate. The Government aims to make available a draft for consideration by Parliament alongside the relevant provisions of the Bill".

I hope that the Minister will be able to tell us when we can see the draft agreement. However, even if it is produced in time to be considered alongside the relevant clauses, Parliament is still faced with a highly unsatisfactory situation.

The current BBC charter does not expire until the end of 2006, and the Government plan to begin the task of reviewing it only in 2004. The BBC ball is being kicked far into the long grass, while everyone else must play a rough, tough competitive game under new rules. Yet, as the noble Lord, Lord Hussey of North Bradley, said, the relationship of the BBC with Ofcom will be of immense importance. That point was reinforced by the noble Lord, Lord Bragg. It seems inevitable that the future of the BBC will play a more central role in the debates on the Bill than either the corporation or the Government may like.

I conclude where the committee started—with its recommendations about Ofcom's duties. We thought that,

    "the rhetorical commitment to 'light-touch' regulation is in great danger of becoming an albatross around the new regulator's neck".

We preferred the words,

    "proportionate, consistent and targeted only at cases in which action is needed".

That is the balance to which the noble Lord, Lord Bragg, referred. We said:

    "The draft Bill, as it stands, does not provide the clarity of duties and obligations that the Government itself has sought. It would be an abdication of responsibility by Parliament and the Government to set out fifteen general duties without a clear hierarchy".

We proposed a new primary duty that, we believed, would properly reflect the breadth of Ofcom's responsibilities, both economic and cultural.

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The Government say that they are revising the drafting of the general duties clause but stick to their principle that each duty is of equal weight. Yet, in the Green Paper of July 1998, they said:

    "The regulatory process starts with Government. Regulators must have a clear legislative framework within which to operate. With greater clarity of duties and objectives comes improved accountability for their delivery to Parliament, to Ministers and to consumers".

Parliament's task, in the coming weeks, will be to create that clear legislative framework.

4.52 p.m.

The Lord Bishop of Wakefield: My Lords, I share with the noble Lord, Lord Hussey of North Bradley, the experience of being eleventh in the batting order. I am the eleventh Bishop of Wakefield, and I am about to become the eleventh Bishop of Manchester.

There are many aspects of the Government's Communications Bill that are welcomed on these Benches. I think of the quality remit for all public service broadcasters and the move to place the consumer and citizen first. Certainly, there is an area for scrutiny, as the noble Lord, Lord Puttnam, indicated. I take the opportunity to congratulate the noble Lord, Lord Puttnam, on his recent installation as an honorary lay canon of Durham Cathedral.

From the Churches, we also welcome the strengthening of the content rules, including the promotion and protection of local and regional content. We welcome the framework for the quality of news provision; the emphasis on the culture of discussion and argument for a democratic society; and the commitment to a plurality of radio ownership, especially—again—at local and regional level. We welcome also the controls to prevent the abuse of economic and non-economic power. So, in common with other Christian Churches, we on these Benches warmly welcome those and many other aspects of the Bill.

We also believe, however, that the Bill should provide strengthened opportunity for a wide range of quality Christian and other religious broadcasting—both music and speech—on all UK radio and television. As your Lordships know, the BBC makes an excellent contribution to quality religious programmes, and we hope that Ofcom's content board will promote a similar commitment to religious programming at peak hours on all mainstream commercial TV stations. The noble Lord, Lord Bragg, eloquently drew attention to their public service broadcasting commitments. We suggest that individual commercial television channels be given specific public service broadcasting obligations, written into their licences, regarding high quality programme genres, and included in those genres should be religion.

We are grateful for the readiness of the noble Lord, Lord Puttnam, and his committee to listen to the views of the Churches. The new Communications Bill, to some extent, encourages the creation of an environment in which broadcasters will find it conducive to apply for and obtain licences to operate

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quality radio and television stations that are founded on the Christian ethos. Up to now, that has not been easy, so we welcome it, as far as it goes.

The Broadcasting Acts of 1990 and 1996 placed unnecessary restrictions on individuals and organisations that were perceived to be religious. Until now, Christians have been banned from applying for licences, with the exception of satellite television, satellite radio and local analogue AM/FM radio licences. Even those types of long-term licence are still at the discretion of the regulator. That means that only one section of the community in the United Kingdom—those of religious faith—continue to suffer an element of discrimination because of the remaining restrictions, which are not removed by the new Bill.

The Bill retains some of the disqualifications in the Broadcasting Act 1990, including that of an individual who happens to be an officer of,

    "a body whose objects are wholly or mainly of a religious nature".

We believe that the announced modifications, to be made under Clause 335, are a stage in the right direction. We are pleased that Parliament is to have oversight, under revised paragraph 2 of Schedule 2 to the Broadcasting Act 1990. However, it would seem that, even if previously banned persons were allowed to apply, Ofcom would still have the power to place further—as yet, undefined—restrictions. That needs further teasing out, not least because the international human rights conventions that this nation has signed say that there should be no national, governmental discrimination due to race, gender, language or religion. I accept that the Government have met some of the Churches' concerns, and we are grateful for that. However, the remaining disqualifications are unnecessary and discriminatory. I hope that the Minister will indicate that the Government are open to further exploration in that area.

All existing broadcasters, including Premier Christian Radio and the Vision Channel, already operate under the general provisions of the Broadcasting Act 1990, which prevent unfit persons, cults and those who would prey on the weak and vulnerable from applying for licences. The existing broadcasting codes more than adequately cover all eventualities. If the Government really have a problem in these areas of broadcasting, the way forward is to concentrate on the regulation of programme content, not the restriction of ownership.

Not only will the Government apply some ownership restrictions, they also claim that there is a fundamental problem of scarcity of broadcast spectrum. Why? For television, in the digital age, there is no spectrum scarcity. Already, a wide range of channels, including some religious channels, is available by satellite and on some digital cable systems. On the question of radio, the Government, for some reason, stick to an argument that has been used by British Governments for many years. At one time, it was said that there was enough spectrum only for the BBC and that there was no room for commercial radio. Yet today we have many stations—over 250 local, three national and a wide range of

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digital DAB-only commercial radio stations. We have all that plus a BBC who have their five national analogue stations, local radio and six DAB-only national stations. And there is the start of access radio as well.

Furthermore, in this age of digital radio there will be plenty of radio frequencies. There are 56 frequency blocks in Band III and L-Band allocated for the use of DAB—each capable of carrying at least 10 radio services. At present the United Kingdom is using 7 blocks: 217.5 to 230 MHz. There is also a waste of the radio frequencies with some of the BBC's existing services simulcasting their output on AM and FM as well as on DAB.

I understand that the Home Office has already recognised that Christians are much more likely to become involved in charity work in their communities than the average citizen. Therefore, is it not rather ironic, and certainly counterproductive, that when the Government are seeking to encourage faith-based social action projects—which I am delighted to say they most certainly are encouraging—a key communication vehicle to those very communities is still to be limited on the grounds of faith?

As the Government and broadcasting authorities know, there is a huge demand across the United Kingdom for broadcasting stations with a Christian ethos. In the light of that demand the Christian Churches believe that even though Ofcom is to be given the ability to lift some disqualifications, it is counterproductive to continue to disqualify people, in law, because they hold office in a church, synagogue, mosque, or religious charity. It is also counterproductive to restrict licensing by recourse to a fallacious argument over spectrum scarcity.

We have inherited a rich multi-cultural Christian heritage in this country. It has led to the religious and democratic freedom that we enjoy in our now plural society. However, in the area of broadcasting that liberty, even though now to be eased, will still be hindered. That leads me to say how vital it is that there should be a joint parliamentary committee on communications—as the noble Baroness, Lady Howe, has urged in an earlier intervention—and that it should have the power to investigate any complaints against Ofcom.

The Government have said:

    "We want to encourage competition and economic growth by being as deregulatory as possible".

Therefore, from these Benches we ask the Government to remove the remaining specific restrictions on Christian and religious broadcasting and to encourage Ofcom to facilitate a wide range of high quality programme content for all mainstream and specialist radio and television stations. When that happens viewers and listeners will have a real increase in choice.

5.4 p.m.

Lord Gordon of Strathblane: My Lords, it was indicated that today's debate would focus on economic and industrial affairs, culture and media. In putting one's name down to speak one was invited to

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indicate which of those subjects one would be speaking to. I ask the Government: which am I speaking to? I put down the Communications Bill. If the Government cannot make up their mind whether it is a DCMS or DTI matter I do not see why they should ask me to solve the problem for them.

Of course, the truth is that the reason that we have Ofcom and have rolled everything together is that all those issues are closely inter-related. However, it raises questions which might well be discussed now. The co-operation between the two Secretaries of State seems to have been admirable, but in five years time who is Ofcom going to report to? Is it still going to be reporting jointly to two ministries? Personnel in the departments might change and relationships might not be as good as they are now. We have not yet tested whether the relationship between the departments will stand the occasional reverse that the Bill might suffer as it passes through both Houses. Perhaps more importantly, it raises questions about what sort of organisation Ofcom is going to be in the immediate future. That is a subject I shall return to.

It is appropriate to thank the Government for so obviously listening during the production of the Bill. I am chairman of Scottish Radio Holdings Plc. It may interest the right reverend Prelate that when Radio Clyde opened with a prayer, it was richly rewarded by the microphone immediately failing. Apart from that, there was a good side. The Government listened, in particular, to the radio industry—for all that, frankly, it did not get its act together until the last minute. An exception to that is my own group of stations which have been consistent throughout in advocating what the Government have now proposed.

More important than that, the Government also listened to the noble Lord, Lord Puttnam, and his committee. They accepted 120 of 148 recommendations. That is a pretty good batting average to kick off with. I believe that it is appropriate that I echo thanks already expressed to the noble Lord, Lord Puttnam. Even on the few issues with which I took issue with his committee, the amount of evidence that he has amassed will make the report of his committee an essential vade-mecum for anyone following the Bill line by line, as I intend to do. They have done a great job.

I have mentioned that all those issues are inter-related. Undoubtedly technology, ownership and funding all have an effect on content. It is precisely because they have an effect on content that they are all rolled together under Ofcom. We would not be worried if it were a tin of beans that we are talking about. It is because of its content that we need separate legislation for the media. It is important that although technology is immensely important, we do not allow technology to dictate the priorities. We must decide what broadcasting and other services we want in this country and harness technology to deliver them. We must not allow ourselves to be taken in the direction that technology leads irrespective of the implications that that may hold for the systems that we have.

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At the obvious level, technology has changed the composition of the audience. I freely admit that when I grew up, listening was to one radio set in the corner and the choice of listening was, if not a parental one, certainly parentally approved. The advent of the transistor radio has made it the choice of an individual. Hence the upsurge in teenage buying power of records and so forth. In my day they were not consulted—probably quite rightly, given my musical taste at the time.

Looking at the influence on content of programmes, colour has made sport a great deal more popular. Video and satellite coverage have made news immensely more comprehensive than it was 20 or 30 years ago. When I was working in television we were working in black and white film. The cut-off time for any film was 3.30 because it went to a laboratory to be developed. Breaking news is now fed live into programmes. However, that poses its own problems. We still have a half hour bulletin, but now we compress news from all over the world into that half hour. Inevitably, that has created the soundbite, which most of us do not regard as an unmixed blessing.

The remote control has changed the way we watch television. The practice of public service broadcasters sandwiching the worthy programme between two popular ones in the hope that of viewer inertia and an increased listenership has tended to go. If all that one has to do is click on a remote control without leaving the chair, people will just switch over.

Universality of provision is an important ingredient brought about by a dedication to ensuring that television and radio signals are available to all corners of this country, however remote. That has been a force for cohesion in society. It would be a pity to have programmes which were available only to one group or another. That would not maintain cohesion in society.

On funding, I favour the licence fee because it avoids other than Queensberry rules competition between the BBC and the commercial sector. It is fairly raw, particularly when the BBC is largely run by former commercial people who still have strong competitive instincts, but at least it is a gentlemanly fight. If we were fighting for the same pot of advertising revenue, the gloves would be off.

I echo previous speakers in saying that it might be better for the BBC to be more fully under Ofcom. It is to a large extent. Stage three is not about the box ticking but qualitative judgments and it is essential that we have convergence of regulation to ensure that the interpretation of the same public service obligations is universal across the system. I honestly feel that it is in the BBC's best interests.

Believe it or not, charter renewal will begin in 2004. In other words, Parliament having richly exhausted itself with this Bill during 2003 will immediately enter a debate on the BBC. I am reminded of what happened with the 1990 Act passed under the previous government. I sometimes wonder whether if Mrs Thatcher had gone to the BBC first, ITV would have been left alone. As it was, ITV was messed around by

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auctioning licences and it still has not recovered. The BBC was left virtually untouched, but there were many internal reforms which the Government might have wanted in any event.

I am worried that if we do not deal with the BBC issues as the Bill is going through Parliament, there might be a backlash in 2004. Many people may wonder in what way the BBC is different from the commercial sector. The licence fee might be in danger and I would not like to see that because it is an important ingredient in public service broadcasting.

I turn to a fundamental issue. I entirely support the work of the BBC governors. I would want to see them retained, but, rather as my noble friend Lord Bragg suggested, they should be under Ofcom. Ofcom should ensure that they fulfil their obligations in safeguarding the public interest. I refer Ministers to the last White Paper produced by a Labour government in 1978 which made precisely that point. It showed that the obligations of both sectors were identical; all that was different was a source of funding. It also expressed a degree of surprise that where the commercial sector was regulated by an external regulator—at that point the Independent Broadcasting Authority—the BBC was judge and jury in its own house. That is not good for the BBC.

I am not one of those who give the word "popular" a pejorative force. It is important to stay in touch with public opinion if one is trying to elevate it, rather as a magnet must be in touch with metal before it can lift it. But siren voices are always persuading one, "I must be more popular"—or, in the case of politicians, "I must get elected"—"to do any good". And all too quickly the doing good becomes subservient to the business of being elected or having higher ratings than the opposition. It is important to have an external check, saying, "Hold on, this is not meant to be what you are all about". One would have to be superhuman to manage that without such an external check.

The more important argument is that the Secretary of State is not informed about the ecology of broadcasting if Ofcom can only fully advise on a system which excludes the biggest player in radio and television. That does not make sense. The source of wisdom on what the market can take and so forth must be Ofcom and Ofcom must be fully informed as to what the BBC is doing and wants to do. Furthermore, there is the effect on Ofcom. If the BBC were more fully under Ofcom at stage three, it would emphasise the important content role of Ofcom as well as its other many duties.

It is important that we do not concentrate only on broadcasting. There should be a duty of care on Ofcom to ensure that the system as a whole is healthy. It is easy for incumbents in any organisation to keep out more competition and I fully agree that the balance of doubt should always go to the people who want to start new services. However, in logic, there must come a point when another new service will break the camel's back and impair the ability of existing services to continue to provide proper broadcasting. Ofcom should be there to do something about that, otherwise we will

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have a situation similar to that in the United States, with an over-saturated market and huge changes necessary in ownership regulations to stop the whole business going bust.

As regards broadband, it is not a question of care but one of ensuring that it exists. I recently noticed that the broadband stakeholder group was working on a map of the UK under four categories. The first was, "There is plenty of competition". The second was, "We can get at least one supplier". The third was, "No service is currently available but potential for commercially sustainable broadband services. Market incentives required". The fourth category was, "Little expectation that the market will provide affordable services. Political solutions required". That sounds to me like very big incentives.

At what point are we going to try to translate into a reality the Government's admirable intention that we should be a world leader in this field? It is one thing to persuade those who already have the capability to access broadband that they should do so—that is a marketing job—but as regards the almost one-third of the country who do not, we need to timetable when they will get it and, if they do not, ask what we are going to do about it. That is at least as important a job for Ofcom as any of its more negative regulatory duties.

Perhaps I may throw in another couple of brief points. Licence renewal has been postponed but not solved. There is a proposal to leave it to 2014. I would advocate the system introduced by the Conservative government when independent radio was introduced; that of rolling contracts. In other words, any sign of failure, a yellow card; unless it is remedied within a year, you are ordered off. That safeguards the public interest and is fair to the existing contractors.

Secondly, I do not argue with any of the obligations the Bill places on broadcasters, but it might be better to take them out of the Bill and put them into an annual report of Ofcom. The first would be written by the Government by putting the existing clauses in the Bill into the first annual report and then requiring Ofcom to report to Parliament on any changes every two or three years. The honest truth is that things will change over the next five years and if something is written into an Act of Parliament, it will be difficult to change it. It would be better if we changed things through an Ofcom annual report mechanism.

Finally, I echo what my noble friend Lord Puttnam said in opening his report:

    "We must look more closely at the matter, since what is at stake is far from insignificant: it is how one should live one's life".

Without getting too precious about the importance of the media, we live in a democracy where almost by definition the vast majority of the electorate do not know the qualities, the track record or the likely intentions of the individual Member of Parliament for whom they are voting. It is therefore vital that the image transmitted to the electorate by the media is as accurate as possible. Frankly, unless we have that, the media will be the weakest link in the democratic chain.

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I endorse the point made by my noble friend Lord Puttnam that this is an important issue and must be given adequate time. A Bill with 395 clauses and 19 schedules and published in two volumes means—and I hope that the Whips are listening—a great deal of time in Committee in this House.

5.19 p.m.

Lord Gray of Contin: My Lords, I shall not follow the broadcasters, much as I have enjoyed listening to their remarks. The gracious Speech mentions energy several times, and provides the opportunity for comment on a reasonably wide basis. First, it indicates that draft legislation will be published on the management of nuclear liabilities. I was interested to hear the Minister say in her opening remarks that the Bill will be subject to pre-legislative scrutiny. I wholly agree. It is a subject that can only benefit from being considered in that way before it comes before the House.

But the proof of the pudding will be in the eating. It is no use having a legislative procedure which asks people to make comments if the Government do not take those comments on board. Therefore, we shall watch carefully in due course to see whether the points made have been absorbed in the legislation.

Two other areas were mentioned with which energy could have a connection; namely, tackling climate change and finding new ways to meet our energy needs. I declare a number of interests—all were a good many years ago but it is as well to put them on the record. In another place, I was Minister of State for Energy for four years, and in this House for three years I had energy responsibilities on the Front Bench. I advised Scottish Nuclear for one year prior to its privatisation and for 18 months after it became a part of British Energy. I acted as a consultant to a number of companies which had interests in both oil and gas. Finally, I advised a company engaged in the development of wave-power. So I have no prejudice against renewables.

Oil, gas and coal will continue to play a significant role in power generation and domestic needs; but, being fossil fuels, they will in due course be depleted and replacements will have to be found. Most worrying is the fact that, quite soon now, this country will cease to be self-sufficient in these fuels. North Sea oil has already peaked and, although we are favourably placed geographically to benefit from the huge Norwegian gas reserves in that sector of the North Sea, we shall also become dependent on supplies from eastern Europe and the Middle East, with all the political uncertainties of such arrangements.

Coal will continue to be used in this country, in small quantities by previous standards, but it will be used in vast quantities elsewhere, particularly in China—that is, until it is superseded by nuclear power, for the Chinese have no inhibitions about building nuclear power stations.

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Nuclear power, however, is of vital importance to our energy needs and is responsible for about 25 per cent of our generating capacity in the UK. In Scotland, the figure is even higher, at approximately 37 per cent. Even if we were to build no new nuclear stations, we should still require nuclear power for at least 20 years from now. In my view, we have not the remotest chance of meeting our Kyoto obligations without keeping our nuclear contribution at least at its present level.

Security of supply at all times is essential, and that can be guaranteed only by additional nuclear power, or at the very least by maintaining existing levels. In other words, nuclear should be replaced with nuclear.

The Government must be positive. A new nuclear power station ordering programme should be facilitated immediately. The lead-in time is so long that immediate action is required. Nuclear power world-wide is on the increase—its production was up 4 per cent last year according to the International Atomic Energy Authority. The total number of reactors engaged in power generation is no less than 438, operating in 30 countries; and in addition there are 32 new reactors under construction in countries as far apart as China, India, Argentina and eastern and central Europe.

The Government are being wildly, and in my view dangerously, optimistic in setting targets of 10 per cent by 2010 and 20 per cent by 2020 for the contribution expected from renewables towards power generation. There are two weaknesses in renewables: first, they are not constant; and, secondly, each is dependent on the elements. What happens when those elements fail to supply sun for solar, wind for windmills, or waves? In this country we frequently suffer a flat calm. This occurs in winter, usually as the result of high pressure, which means very cold weather and consequently increased power demand. Furthermore, the freak storms which have become so much more common in recent years indicate an even more unpredictable weather pattern. In future, exposed installations may well be at risk. It is certainly a possibility.

In order to avoid such a situation, it is necessary to provide back-up. Every electrical power system requires sufficient capacity installed to meet annual system peak power demand—likewise for a gas supply system. To provide this, it has to be designed to take much more than is normally required in order to cater for plant breakdown or other eventualities.

Professor M A Loughton, Emeritus Professor of Electrical Engineering at the University of London, stated in a recent article that in the UK today spare capacity is approximately 23 per cent, or between 12,000 and 13,000 megawatts. The back-up provided by conventional sources must be preserved at all cost.

I must emphasise that I am not opposed to renewables in any way, although I do believe that some of the claims for wind-power are rather far-fetched. Indeed, there are plans for a proposed wind-farm only a few miles from my home, to which I have not objected although I suspect that the environmental impact may be considerably more disturbing than is realised in a beautifully preserved scenic area.

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Renewables have an important part to play in power regeneration, but that role must be in partnership with conventional methods. The Government have given commendable support to renewables but I wish that they would be more even-handed in their treatment of other energy providers and remove the penalty of the iniquitous climate change levy from nuclear power. It is ludicrous that the cleanest providers should be subjected to a climate levy charge tax designed to penalise the burning of fossil fuels. Dr Robin Jeffrey, the chairman of British Energy, quite reasonably likened the situation to proposing that the owners of push-bikes should pay a tax on exhaust emissions.

One of the pluses about the development of renewables is that the more remote parts of the country have the opportunity of reaping some of the benefits during the construction stages, but planning authorities have a huge responsibility to ensure that those benefits are not at the expense of other assets in those peripheral areas—assets which in their own right attract visitors seeking peace and beauty to the hills, the straths and the unspoiled shoreline.

I should like to ask the Minister some questions. I have not given him notice and I appreciate that he may not have the answers to hand. I should be happy if he would write to me in due course. First, in the event of nuclear power stations not being replaced with nuclear—I hope that that will not happen—how do the Government envisage meeting their Kyoto commitment? Secondly, who pays the transmission costs from wind farms or other gathering locations in remote areas to the National Grid? We are told that existing transmission lines are inadequate to meet the volumes involved. Since it is proposed to have new supply lines underground, north to south on the east and west of the country, the costs are likely to be very high indeed. The energy White Paper expected early next year should give us further opportunity to consider those issues in much more detail.

5.31 p.m.

Lord Laird: My Lords, I rise with a heavy heart because I propose to return to a subject that I have aired in your Lordships' House before. I did so at length on 11th March this year. Having worked day and night, with considerable political and other difficulty, to implement the provisions of the Belfast agreement, I must report no progress on one area in particular, even after four years and much pressure. The agreement promised parity of esteem and equality for all sections on the island of Ireland. It placed a spotlight on Irish and Ulster-Scots culture and identity.

I am the chairman of the Ulster-Scots Agency, which is part of the cross-Border machinery set up after the agreement. I am tasked and funded by the Government of the Republic of Ireland and by Her Majesty's Government to promote Ulster-Scots culture, history, language and identity. The task has been uphill. Consider the case of BBC Northern Ireland, for example. There is a commitment by the BBC at national level to acknowledge and

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accommodate cultural diversity. I pay tribute to the director general, Greg Dyke, for championing this view. On 7th April 2000, he said:

    "I want a BBC where diversity is seen as an asset and not an issue or a problem ... we need a new vision and central to that vision is that the BBC must serve Britain's broad and diverse population ... In the words of Chris Smith, the BBC is 'the UK's most important cultural institution' ... If we are to live up to that role we must change and learn to reflect the true cultural richness of the whole UK in the first decade of the 21st century ... we must extend the range, reach and appeal of our services above and beyond what we already know and do".

In March 2000, the BBC appointed a head of diversity. A press release stated that her role would be to,

    "co-ordinate the efforts throughout the organisation to make sure the BBC reflects fully and fairly, the diversity of the United Kingdom in its programmes and within its workforce".

The press release quoted Gareth Jones, director of human resources and legal affairs, as saying:

    "Diversity is a big issue for the BBC and we are determined to be at the leading edge of change".

It also noted that the BBC would have,

    "the right policies to address the needs of increasingly diverse audiences".

In July 2000, the BBC chairman, Sir Christopher Bland, at a seminar for BBC governors, outlined how cultural diversity lay at the heart of the BBC's role. He said:

    "Our programmes should mirror the world in which we live".

Those principles are also set out in The BBC Beyond 2000, in which the BBC published its vision for the future. The document sets out a commitment to serve Scotland, Wales and Northern Ireland better. The BBC, in its statement of promises, committed itself to work harder to reflect the wide interests and varied cultures of the whole of the United Kingdom and to reflect the diversity of traditions and cultures within changing social patterns. It promised to continue to provide a broad range of general television and radio programmes that reflects the interests of the Province and the diversity of local communities. BBC Northern Ireland has not delivered on those promises. It has failed to reflect the varied cultures of the whole of the United Kingdom, the diversity of traditions, the interests in the Province and the diversity of local communities. The BBC's vision, as set out, is clear. But is it being delivered in Northern Ireland?

In Northern Ireland, there are three major cultural traditions: Irish, English and Scots, often referred to as Ulster-Scots. Ethnic minorities constitute 1 per cent, or around 175,000, of the population. Each has its attendant language and culture. BBC Northern Ireland treats Irish and Ulster-Scots differently. It broadcasts between 200 and 300 hours of Irish language programmes per year. In 2002, it had 2.5 hours of Ulster-Scots programmes. However, in some years, such as 2001, there were no Ulster-Scots language programmes. The ratio is 100:1.

On some occasions, BBC Northern Ireland is actively hostile to the Ulster-Scots community, its culture and language. Despite undertakings by the local controller after the Belfast agreement that current affairs programmes would take Ulster-Scots

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culture seriously, a recent programme—"Talkback" on 4th November, 2002—was grossly offensive to Ulster-Scots in a way that it would not be to the Chinese community. Despite complaints, no apology, written or broadcast, has been forthcoming. For Ulster-Scots, the BBC in Northern Ireland is unfriendly, sometimes hostile and intolerant. It has policies that cause unjustifiable inequalities. In one case, a journalist was blacklisted because he was an Ulster Scot. No work for him has serious consequences for his career.

Committees of visiting experts monitoring human rights have criticised BBC Northern Ireland's treatment of the Ulster-Scots language. In 2001, the advisory committee of independent experts monitoring the Council of Europe's Framework Convention for the Protection of National Minorities criticised the BBC's lack of provision for broadcasting Ulster-Scots. It also noted the importance attached to linguistic diversity under the Belfast agreement. In the context of international agreements, BBC Northern Ireland's programming policy breaches the UN Convention on the Rights of the Child, the UN Covenant on Civil and Political Rights, the UN Declaration on the Rights of Persons Belonging to National or Ethnic, Religious and Linguistic Minorities, the Council of Europe's Framework Convention for the Protection of National Minorities, the Oslo Recommendations Regarding the Linguistic Rights of National Minorities and the Council of Europe's Charter for Regional or Minority Languages.

The Belfast agreement recognises the importance of Ulster-Scots along with Irish and the languages of ethnic minorities as part of the cultural wealth of Ireland and the need for respect, understanding and tolerance. The obvious outworking of this was the establishment of the Ulster-Scots Agency and the ratification of the European Charter.

Equality legislation in Northern Ireland requires that the policies of public bodies should not discriminate either directly or indirectly and that they should be monitored. Although BBC Northern Ireland is a publicly funded body, it is not subject to the equality legislation and so can treat a substantial section of its audience less favourably than another without fear of any sanctions. I suggest that it is timely now to make the BBC in Northern Ireland subject to the equality legislation.

The BBC in Northern Ireland is out of step with the norms for support for minority languages throughout Europe, and that will also increasingly apply after enlargement; the internationally accepted human rights governing access to the media; the Belfast agreement and its support for linguistic diversity; and the norms of equal treatment set out in the equality legislation, as well as the needs of its audience.

The policies of BBC Northern Ireland are divisive and undermine the attempts by responsible citizens to build social cohesion in a fragile community. Such policies alienate a large section of the community, and affirm the prejudices of others. The BBC would not do

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it to any other ethnic minority in the United Kingdom. BBC Northern Ireland's policies on language and culture are no longer appropriate in the world of the 21st century. Worse, I believe that BBC Northern Ireland is a threat to the peace process.

There are other sections of the so-called "establishment" which should honour the commitment to the new society that we are trying to build in Ulster. Many of us feel that government departments and agencies are interested only in the Irish agenda; and, indeed, that they block the Ulster Scots community's progress. All of this adds to the current feeling of mistrust. I plead with the Government to take hold of areas of the unfairness, and to set targets for equality in media and cultural activity.

This is a subject which must be of interest to the current Government who have invested so much politically, financially, and time-wise in the Belfast agreement. I plead for action, and I want action sooner rather than later. Perhaps action could be considered inside the framework of the new proposals before Parliament—if not before that.

5.42 p.m.

Lord Harrison: My Lords, it is sometimes said that most of us think of sex at least once every 15 minutes. Sadly, as I get older, this is no longer the case. Try as I might, I find my concentration going and I start day-dreaming about other things—like, for example, future government policy. Green Papers, White Papers, and, yes, even statutory instruments, capture my imagination and fill my waking hours.

Imagine then my joy on first hearing the gracious Speech—a veritable cornucopia of legislative longings, enough to satisfy any red-blooded Peer eager for change and the building of a better Britain. Indeed, it is a very good Queen's Speech, which I wholly support. However, my reservations relate to two omissions: the lack of an enabling Bill for the referendum on the euro and the lack of a comprehensive Bill updating the development of Britain's tourism industry.

I wholly understand the Government's measured caution on the euro and their aspirations to await the Chancellor of the Exchequer's judgment on the five economic tests. But recent figures from the United Nations tracing the decline of inward FDI into Britain, showing a fall from 54 to 12 billion dollars, should really trouble us. Procrastination is the thief of time and of jobs. I understand the Government's desire to see public sentiment move positively towards acceptance of the euro, but we cannot delay for ever.

I believe that I have some good news for the Government. Britain may never come to find the euro sexy, as was once suggested by EMU Commissioner Yves-Thibault de Silguy—a man of unusual day-dreams—but, as the noble Lord, Lord Hurd of Westwell, might put it, the euro is seeping into the nooks and crannies of the British way of life. Perhaps I may give noble Lords some random examples.

The big fine art houses in London now regularly express estimates in their catalogues in euros as well as in sterling. The National Trust, that stalwart guardian

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of Britain's heritage, now accepts the stealthy euro in its stately homes. Student unions—my old stamping ground—also use the euros in their bars and shops, thus recognising the reality that Britain's higher education system is part of our export economy, with Greeks, and other EU students, bearing bountiful euro gifts.

In my home town of Chester, a tourist city par excellence, the first hotels and guest-houses are displaying signs that read, "Euros accepted here". They, rightly, seek a competitive advantage with other hotels and tourist destinations. Taxi drivers throughout Britain are pocketing fares and giving change in euros—something that happened recently to a noble friend of mine on the opposite Benches, much to his surprise and my delight. When the taxi drivers of London exhibit knowledge of the euro, our home-grown eurosceptics should doubt their hackneyed antipathy to the euro.

This is the position. Britain has not yet learnt to love the euro, but it no longer finds it a turn-off. Indeed, we can say that the economic argument has been won in the minds of the British people. On holidays on the Continent, they have seen the future and it works. So now we must turn to the political argument.

The gracious Speech omitted mention of any enabling Bill preparing for the euro referendum. That may yet be brought forward. But, in the interim, while the Treasury toils over the financial tests, the political dimension must be acknowledged and anticipated. This Government's mantra that the decision to enter the euro is wholly economic has served us well since 1997, but it is no longer a sufficient condition. For example, political decisions have economic reverberations and help to reinforce economic decisions. Any politician worth his or her salt knows that to embark on an economic path without political backing is perilous.

First, how could Britain's entry into the ERM ever succeed when its principal actors had no faith in their lines? Secondly, the politics of the euro do not supplant or replace its economics. The decision on the euro must be bicameral. It must satisfy both parliaments of political wisdom and economic integrity. Thirdly, although we must always take these political decisions independently, we cannot ignore the wider international scene. Not only is public sentiment in Denmark and in Sweden warming to the euro, but euro enlargement will also introduce 10 more continental countries to euroland. Can we afford our present splendid isolation and continental drift? The euro is a political reality that must be subject to a political argument and a political decision.

Forty million visits were made by Britons to euroland during the past year. As a result, thousands of euro piggy banks have been placed on mantelpieces throughout the country, as people wisely retain euro notes and coins for future continental visits. That brings me to my second comment on the gracious Speech. The euro has made life easier for British visitors abroad. It is time that we made life easier for those visiting Britain, and not just by joining the euro.

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My noble friend the Minister has heard me complain before that we appear to set a low store by our home tourism industry. Britain's biggest industry is not even incorporated in the title of the Department for Culture, Media and Sport. But in the wake of FMD, the message of the past 18 months has surely been that tourism in terms of employment, prosperity and future growth is more important to Britain than agriculture. Yet the disparity between the support and funding for each remains wide, despite the fact that they often share a common constituency in rural Britain. Tourism's measly 20 million for the million visitor campaign had to be match-funded by the tourism industry. Conversely, farming's financial harvest is counted in billions, whether sterling or euro-denominated.

It is time to get our priorities right. It is time for a new Development of Tourism Act to follow Labour's groundbreaking 1969 legislation and to build on the Government's excellent Tomorrow's Tourism, published at the end of the 20th century. A new Bill should, of course, address funding, but it should also deal with structure. Is the recent proposal to merge the British Tourism Authority and the English Tourism Council born of a thorough and long-term strategic review?

A new Development of Tourism Act should take account of devolution—of Britain's nations and regions. It should promote sustainable tourism to enhance the environment. As I said, tourism can help Britain's rural areas: it reaches the parts that other industries do not reach. The new legislation should tackle the problem of improving education and skills for the workforce in an industry which has seldom received adequate grants or been confronted with the notion of top-up fees. The Bill should address Britain's tourism industry in the light of the single European market, the completion of which would be the springboard of economic success for this most 21st century of industries.

A new Act should, finally, address tourism's wider role in the world, including its capacity to develop. I say this to those who believe that concern for tourism is frivolous at a time of world anxiety and uncertainty: tourism has a role there, too. In its finest manifestation, tourism has the capacity to broaden the mind; terrorism only to close it. The essence of tourism is the expression of cultural difference whereas the essence of terrorism is suppression.

My 15 minutes are almost up. Before I beat my Andy Warhol retreat, I should like to thank noble Lords who have listened for their attention. As for those who were not listening, I can only hope that the doodlings of their minds were confined to the other aspects of this otherwise excellent gracious Speech.

5.52 p.m.

Lord Campbell of Alloway: My Lords, it is a great privilege to follow the noble Lord, Lord Harrison—who actually had five minutes more—but, fortunately, not to follow him on the subject of the euro, on which I cannot share his enthusiasm. I shall speak in this

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debate on economic and industrial affairs, and, in that context, on disruption of our public services, which has a devastating effect on our economy and on the well-being of our people.

The noble Lord, Lord McNally, made a certain taunting reference which I shall not follow up about twisting the tail of the noble Lord, Lord McIntosh of Haringey. However, the noble Lord, Lord McNally, was political adviser to the noble Lord, Lord Callaghan, between 1977 and 1979, encompassing the "winter of discontent", and has some practical experience of these affairs.

At the outset, may it be said that this assuredly is no occasion on which to discuss the dispute of the Fire Brigades Union—which may be settled only by triangular resolution, albeit at some premium, in wholly exceptional circumstances and, one must hope and pray, before some terrorist attack.

Assuredly, however, that dispute focuses our attention on wholly disproportionate disruption in other public services. The gracious Speech envisages reform of the public services as, it says, a main principle. However, it makes no reference to disproportionate disruption taken at the behest of an entirely new brand of militant leader of some public service unions who are committed to confrontation which has now all but become—one has to face it—the order of the day. As The Times leader put it, on St Valentine's Day,

    "The Cuckoos have now returned to the Crows' Nests of the Public Service Unions."

Earlier this year—it was about January—both right honourable gentlemen, the Prime Minister and the Leader of the Opposition said that something must be done, but they did not say what should be done; and nothing has been done. Indeed, it would appear from the speech made by the noble Lord, Lord Macdonald of Tradeston, on 18th April, and by the noble Lord, Lord McIntosh of Haringey, on 22nd May, that there is no need to do anything because "partnership allied to investment"—or PPP or PFI policies, as they are called—would remove the need to strike. That is what the noble Lord, Lord Macdonald, said. And the noble Lord, Lord McIntosh, said that there was no problem. However, both reasonings are at odds with reality because they cannot support government inaction. This is not taking an offensive action to either noble Lord; it is merely an aspect of plain reasoning. They offered no support for government inactivity.

It is true that this is no new problem; it arose in 1977 to 1979, in the "winter of discontent", and toppled that administration. The miners toppled restoration of the Heath administration, and at one time sought to unseat the Thatcher administration—the administration which redeemed us from what we had become: the sick man of Europe, stricken by militant industrial action.

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Now, here we are again. Now, the public service unions confront government. Again, government must resist such abuse of union power and assert the authority of government to govern. Any government in this situation has to do that. The battle lines of confrontation have been drawn up by leaders of the public service unions over very many months. There has been massive disruption by the transport unions in particular.

On 18th April and 22nd May, when supporting the introduction of a new regime of mandatory arbitration to prescribe disruption of the public services by collective action at the behest of a union (save as sanctioned as proportionate by the court) among other things, the noble Lord, Lord McNally, said:

    "It would be prudent for trades unions . . . to think of ways of building into our system a means of getting social justice . . . that does not involve punishing the public at large. There is a limit to the public's patience".—[Official Report, 22/5/02; col. 867.]

He said that the public do not like to see power being used as a weapon in industrial disputes in which they have no part and that,

    "they will demand action and protection from the government of the day. If the Government cannot or will not provide such protection, then the public will replace the Government of the day with one willing and able to do so".—[Official Report, 18/4/02; col. 1154.]

I agree with the noble Lord.

Assuredly, the ghost of this recurrent nightmare will not be laid by resort to no strike agreements in this climate of confrontation in which the economy and the people are held hostage, either to oppose government policy or to secure extravagant demands. These agreements may not be imposed, may not be made. If they are made, they may be cancelled or reneged upon. In any event, they are not readily enforceable to inhibit disproportionate disruption of our public services—they afford no viable option—and it is not understood that they have been considered by the Government as such.

A mandatory arbitral regime was proposed in a Private Member's Bill which passed your Lordships' House but which has, as yet, not been taken up in another place. This is no occasion on which to rehearse any detailed argument. Suffice it to say that it would only be enforceable against officials of trades unions and trades unions' funds. Albeit that disruption of designated public services—designated as such by Parliament—would be proscribed, if at the behest of a union the freedom of the individual to withdraw or withhold labour would always be preserved. The regime would apply only to public services designated as such by Parliament.

It remains to be seen whether, on reconsideration, the introduction of some such regime—perhaps as an emergency measure of safeguard while under the threat of terrorist attack—will commend itself not only to the Government but to the trade union movement, the status of which is recognised and respected as being of essential value to the economy and to the maintenance of industrial stability. How

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else shall the Government deal with this wee clutch of militant cuckoos to protect that nest, the economy and the people?

6.3 p.m.

Lord Roll of Ipsden: My Lords, one does not expect the gracious Speech to be an economic dissertation but it was fairly thin on economic matters. If I remember rightly, the first two paragraphs referred to the economic objectives—which are impeccable—and the third paragraph referred to the highly desirable consequences that will follow from the achievement of those objectives.

So far, so good. When I saw that, I concluded, at least provisionally, that it was a reflection of the Government's view that there was nothing very much wrong with our economy. Sure enough, in the past two or three days the Chancellor—who is, after all, if not the only begetter of economic policy, certainly the principal one—has come out with a highly upbeat account of our economic situation, referring to growth, employment and unemployment, the absence of undue inflationary and deflationary pressures, and so on and so forth.

Let me say at once that I agree entirely with this picture. At the moment we are in a situation which, although we have not reached the Holy Grail, is better than we have experienced for quite some time. If the Government, and particularly the Chancellor, wish to take credit for that, they are entitled to do so. In a highly interesting, confident and courageous speech, the Minister has enlarged the area covered by the economic news that we have had so far.

So far so good. On the other hand, having observed this rather peculiar economy of ours for many decades now—sometimes with pleasure but more often, I am afraid, with considerable grief—I cannot help drawing attention to the transitory nature of so much of what we have experienced in this area. We are, after all, a highly dependent economy, and when we look round the world—heaven forfend that there should be any schadenfreude—we find that there are some very serious problems elsewhere which, sooner or later, will affect us. The weakness of the American economy, for example, and the unprecedented length of the weakness of the Japanese economy will, sooner or later, affect us too.

There is not very much that one can do about that except to keep our economy in good shape. That we are doing. The public finances are probably as good as they have ever been, certainly in my experience. As I said, the Chancellor has pointed to growth indices, employment and unemployment and the absence of inflationary and deflationary pressures. All those are highly precious. If we can preserve them against the shocks that may come from elsewhere, we can look forward with some confidence to the immediate future.

I had intended to say a few words about economic and monetary union and the euro, and to express some surprise that the subject had not been touched on to any extent in the debate. Happily, the noble Lord,

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Lord Harrison, has made it unnecessary for me to say much about it. Not only has he spoken at length about the euro, but he has expressed sentiments which I share completely.

If there is anything that I can say it is that it is widely believed, rightly or wrongly, that there are many members of the Cabinet who, while naturally paying attention to the political uncertainties, in their heart of hearts share the views of the noble Lord, Lord Harrison, and myself on this matter. If this is so, I strongly urge the Government to jettison any traces of timidity that still remain. I know that this is a subject which divides opinion. I also know that the Conservative Party appears at the moment to be flirting with the idea of making opposition to our membership of the economic and monetary union and the euro official party policy. I would find this most regrettable. I am fairly confident that it would turn out to be a very serious political misjudgment. My advice, if I may offer it to the Government on this issue, would be courage, courage, courage.

6.9 p.m.

Lord Paul: My Lords, may I first declare my interests as the chairman of a manufacturing company and the chairman of the Economic Policy Council of the Engineering Employers Federation.

I would like to congratulate Her Majesty's Government on delivering economic stability. However, somehow, the state of our manufacturing industry escaped any mention in the gracious Speech. Manufacturing industry needs urgent attention. Manufacturing output in September was still below the level in 1995 and the sector has been in technical recession since the end of 2000.

It is not well recognised that more than half a million jobs have gone in manufacturing in the past five years. We cannot sit back and let those trends continue. Manufacturing is vital for the health of the economy overall. To say that it merely amounts to less than 20 per cent of the economy does not do justice to the sector's contribution to the economy. I will let the numbers speak for themselves. Manufacturing provides just under 4 million highly skilled jobs, 60 per cent of UK exports and 85 per cent of all business R&D, and value added per employee is higher than the UK average and higher than that in the service sector. Even those numbers do not do the sector justice, as they do not take into account the links between manufacturing and other parts of the economy or the dependence of other jobs and value creation on the manufacturing sector.

The difficult times that manufacturing faces are the result of a combination of a host of factors. Yes, the sector faces tough competition from across the globe, from countries that are lower cost and those with higher productivity, but we have to question the lack of a policy for manufacturing in this country for the past 20 years, and, even more worryingly, the obstacles that continue to come in its path.

Let me take this opportunity to refresh the memory of noble Lords on the kind of obstacles that manufacturing faces. UK business has traditionally

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enjoyed the advantages of low levels of regulation and taxation, but international comparisons show that its rating on labour regulation worsened most among G7 countries in recent years. The rising costs threaten to erode the UK's advantage of lower levels of taxation, and the burden of corporation tax is now higher than the EU average. The rise in national insurance contributions next year is a large part of the growing burden on business. An EEF survey shows that that rise will hit margins and jobs hardest at a time when the pressure on the sector could not be greater.

Manufacturers are facing a range of other rising costs at a time when global conditions have severely depressed operating margins and weakened cash flow. Both cyclical and longer-term factors have pushed up the cost of the different forms of insurance taken out by manufacturers—such as employers' liability, product liability, general and property—by around 50 to 60 per cent, with some firms even seeing rises of more than 100 per cent.

Some companies are experiencing huge problems even obtaining compulsory employers' liability insurance and there are strong reasons for the Government to intervene. They are that there are clear signs that the market for employers' liability insurance is not functioning well and that receipts from insurance premium tax are rising as a result of the rising premiums. May I suggest that the Government return that windfall to the corporate sector?

The problems that many companies face due to the increased cost of providing company pension schemes are well known. New research from the EEF and the CBI shows that the net impact of the climate change levy—that is, after the NIC reduction is taken into account—is a rise in costs of 150 million. What is particularly perverse is that the net impact of the levy on the service sector is actually to reduce costs by 60 million.

Perhaps the most worrying aspect of the current climate is that it is undermining the investment that is vital for the future competitiveness of the UK manufacturing base. It is clear that the UK is not devoting enough resources to investment in manufacturing. There has been a significant gap in capital per hour worked compared with our key competitors in manufacturing for many years and the situation is getting worse. Manufacturing investment in the second quarter of this year was nearly 15 per cent below the level that applied a year ago.

There is clearly an opportunity for the Government to reduce the pressure on cash flow and availability of internal finance for manufacturers through the tax system; I refer, for example, to capital allowances. The need for such intervention has hardly been greater. While those cost burdens weigh down the manufacturing sector, it also struggles against the disadvantages of the skills base.

The global climate and overvalued sterling—or undervalued euro, or whatever noble Lords would like to call it—have led to the most rapid contraction in the UK's manufacturing output since the early 1980s.

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Rising global competition has meant that over the past 40 years we have seen the developing world come from nowhere to claiming almost a quarter of worldwide manufacturing production, and we congratulate those countries on their success. We should not think that rising global competition is a negative for UK manufacturing. On the contrary, there are huge opportunities for companies with the vision to spot them and the agility to exploit them before someone else does.

The key issue is how we use all of our capabilities to protect—and, indeed, nurture—our competitive advantage as a nation. To be successful in the new and changing global environment, manufacturers will have to continue pursuing excellence in their chosen field. They will need to stay focused on their core values and skills and be continually innovative. But we must remember that the key issue of our competitive advantage applies not only to companies but also to the Government.

The Government must help manufacturers as they strive to build a pathway to future prosperity. That means ensuring that there are no further cost increases that will undermine competitiveness. We must reduce the impact of the rising costs that I have outlined: employers' liability insurance, pensions and the climate change levy. The Government must also help to stimulate manufacturing investment. What could be a better time to act perhaps than next week's Pre-Budget Statement?

6.20 p.m.

Lord Stevens of Ludgate: My Lords, I propose to comment mainly on economic affairs. Our economy continues to grow, albeit in a spluttering and uneven way. But as the noble Lord, Lord Roll, has already said, there are many international uncertainties and our trade is nearly a third of GDP.

Indeed, under this Government, we are doing better than most of our competitors, particularly in the EEC, where not only is growth slower, or even non-existent, but unemployment is substantially higher. However, our official unemployment figures also need to be considered, as the noble Baroness, Lady Hollis, told us on Monday, together with an additional 4 million people of working age who are out of the labour market, and many of whom are on incapacity benefit, from a total work force of some 27 million.

Are there hidden dangers in our current economic situation? The answer, I am afraid, is yes, and more not so hidden. In the last year of the Conservative government, spending was 290 billion. By 2006, it is planned to be more than 500 billion. Where will all the extra money come from? We know where it is proposed to go.

Companies are about to suffer from even more accounting standards. Accounts used to be simple to understand—at least by me. We looked at profit after tax, all other expenses and depreciation. Now, because goodwill is amortised, we look at EBITDA—in other words, earnings before interest tax and depreciation—in order to make the figures look better. Hopefully, we shall soon concentrate on cash flow.

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What is the Chancellor doing? He has created government accounts, with, as I understand, off balance sheet items. We are now told that private finance initiatives are more than 100 billion but the Treasury does not disclose any potential extra liabilities. Borrowing and other liabilities are not appearing on the balance sheet. We have heard that somewhere else recently. For example, the 9 billion of debt held by Network Rail is guaranteed by the Treasury. If anything goes wrong the Treasury will pay. So the expenditure side of the equation is not correctly presented. But what about the revenue?

The Chancellor thinks that the economy will grow by 3¼ per cent next year. As my noble friend Lord Saatchi might say—another missed target. I hope, however, that the Chancellor is right. So far revenue has more or less held up, but how? While manufacturing has been declining, and continues to do so, the service sector has been strong, but now the latter is weakening. More than 70,000 jobs have been lost in that area in recent months. The big financial services bonuses and high pay levels are things of the past. The windfall gains from the sale of 3G telecoms licences are no longer available to pay down the national debt and reduce interest charges. A large reduction in personal saving from 11 per cent in 1997 to less than 4 per cent now has sustained an unsustainable level of domestic expenditure enhanced by the highest ever level of personal borrowing per head of population. Present tax revenues will therefore fall from current levels. For the first time in many years the numbers in employment are falling, despite the Government employing 100,000 more people.

What is the driver of the economy? It must be employers and employees who create employment, profits and revenue for the Government, who now take more than 40 per cent of GDP. Let us look at business. This year's Budget was powerfully anti-business. There were increased national insurance contributions, a higher tax on North Sea oil and other earlier measures, a windfall tax on utilities, the removal of tax credit on pension funds—let alone increasing regulation. There were more than 4,600 measures in 2001 alone—many of course from that bureaucratic nightmare, Brussels. But for every piece of red tape from Brussels, the Government impose four of their own. We have the directives on temporary workers and stakeholder pensions, which are so complicated that only a small proportion who are eligible have taken them up. There are new health and employment regulations and parental leave. All those can be paid only from employment and company profits. The rate of return for manufacturing and service companies has been declining consistently since 1997 according to the Office for National Statistics. The Chancellor should therefore cut his growth forecast, but then the books would not balance.

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The UK economy is out of kilter. There is increasing household consumption financed by a reduction in savings and increased debt, especially on houses. This is not maintainable. The Government are now taking over as the main contributor to rising consumption. Low interest rates are encouraging the housing market. Sooner rather than later this will have to be corrected and in a low inflation environment the correction will be more severe.

A large amount of negative equity will re-emerge. The extra consumer expenditure, which may well have accounted for at least half of the GDP growth on some estimates, will no longer be there as consumers repay debt and increase savings, if they can.

Having given control of interest rates to the Bank of England—a widely applauded decision—what can the Chancellor do to get out of the tightening noose? He can hope for a slow and gradual correction. A Christmas surge in sales will turn into a slow spring. Unemployment may well gradually rise. He could bring in serious and simple measures to increase savings and make the stock market a more attractive place to invest, thus enabling corporate money-raising activity to pick up. Such measures could include the simplification of the tax system on savings, for example, by increasing the PEP limit, or having flat rate of capital gains tax, however long or short an asset is held. Stakeholder pensions could be simplified and pension fund tax credits could be restored. The red tape on companies could be reduced, allowing management to concentrate on developing and growing their businesses.

In the meantime the books do not balance. Sadly, seeking to make them do so by increasing taxation will not work because the non-government part of the economy no longer has the capacity to produce the revenue.

A further deterioration in competitiveness will be inevitable. While the Government's efforts to improve health and education are welcome, just increasing substantially the money spent will not solve the problems without long-term planning for more doctors, consultants, teachers and other trained and untrained staff. We all know that this will be a long and hard road. If the Government's plans to get spending levels to top-country standards are to be achieved, can this be afforded in an economy whose growth is very largely dependent on reducing levels of personal saving and increasing consumer debt?

Turning for a moment to the media—I declare that I am a retired Chairman of United News and Media—a change in regulation and regime is welcome. However, I hope that the BBC—this implies no criticism—will come wholly under the regulation of Ofcom, as a number of speakers have said. The present desire to improve its ratings, while in some respects desirable, is not in my view consistent with its role as a public service broadcaster. If the BBC's objectives have changed, the system of finance—the licence fee—should be reviewed.

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I also cannot endorse the proposal that US companies can take over British broadcasters if there are no reciprocal rights. Now is the time to negotiate this—not after the Bill becomes law.

6.27 p.m.

Lord Skidelsky: My Lords, the questions that I want to ask this afternoon are: what do we require of government and what may we expect of them in the light of the global economic slow-down? As my noble friend Lord Roll said, it is a slow-down that is bound to affect this country. Indeed, it has already affected us.

We are currently in the midst of one of the deepest and longest world-wide bear markets in history, which has followed the bursting of the American bubble. Since January 2000 the NASDAQ index has declined by almost 80 per cent, the Standard and Poor index has lost 40 per cent and our own FTSE has lost 40 per cent. By late summer, the Dow Jones was nearly 40 per cent off and the German DAX index has halved this last year.

It is already one of the deepest bear markets that we have experienced, but it is not just the extent of the decline, but also its length. The biggest one-day crash occurred on "Black Monday", 19th October 1987, when the Dow Jones lost 22 per cent in a day. But, the next day there was strong recovery and, within a year, all the lost ground had been recovered. The same pattern of sharp fall and quick recovery was experienced in 1997–98. The typical bear market usually reverses itself within a couple of years.

Much more insidious is the death by a thousand cuts. The prime example of that was the bear market that followed the Wall Street crash of 28th October 1929. Three years later, the Dow Jones had lost 80 per cent of its value and the market took 20 years to recover. The Nikkei in Japan has followed this pattern, losing 75 per cent of its value since 1989.

Today, of course, is not as bad as then. The Dow Jones would have to fall from 9,000 to 2,000 to equal the fall between 1929 and 1932. But we have now had a bear market for almost three years and, despite last month's rally, we cannot be very confident that the market will reverse itself quickly. If anything, prices are still somewhat overvalued relative to earnings and we have the shadow of Iraq over us.

The point of this little history, which is much less amusing than that given earlier by the noble Lord, Lord Saatchi, is that prolonged bear markets are bound to drag down the real economy in their wake. The slump in equities is bad for capital spending and the loss of wealth will sooner or later impact on consumer spending. In fact, had not monetary policy already been aggressively loosened in both the United States and in Britain in order to support the housing market, our economies, I venture to suggest, would already be in recession. As it is, the growth of capital investment has stopped and in some industries is negative. British and American growth rates this year

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will be little over 1 per cent—well below trend—and next year's forecasts are being constantly revised downwards. So we are certainly in recession territory.

Keynes taught us that slumps can be prevented by the prompt use of "circuit breakers"; that is, through monetary and fiscal policy. But since Keynes we have also learnt something else: that the effect of these policies is highly dependent on how people view a country's monetary and fiscal system. If they think that it is basically unsound, further measures of expansion may destroy confidence, not restore it. That has happened time and again in Latin America. The truth is that any instrument can be blunted or perverted through misuse. We now understand that you have to have monetary and fiscal rules. It is only in the context of such rules—in the expectation that they will be followed—that expansionary policies can achieve their desired results.

How does Britain's monetary and fiscal regime measure up to this challenge of potential recession? The answer is: extremely well. No praise can be too high for the way the Chancellor of the Exchequer has set up a rule-based system both tough enough to command the confidence of markets and flexible enough to be used to offset recessionary forces. In fact, given the long history of mismanagement of British macro-economic policy, the return to political maturity and technical skill in these arrangements is little short of amazing. That is in contrast to the euro-zone, whose over-rigid monetary and fiscal rules are a major cause of the long stagnation of its main economies.

I do not want to say anything today about monetary policy—the admirable reports of the Economic Affairs Committee have given us previous opportunities to discuss that. It is fiscal policy anyway that may well have the hard work to do for the next two or three years. The Chancellor has stuck to his golden rule that tax revenues should cover government spending over the cycle—the modern version of the Victorian balanced budget rule, if you want to think of it that way. It is the Chancellor's willingness to pile up surpluses in the upswing that gives him his room for manoeuvre in the downswing. I am not alarmed, therefore, by the emergence of a deficit: as long as we have a business cycle, it is the natural counterpart to previous surpluses and performs an essential balancing role. In periods of falling demand, deficits on government account can help to maintain profits on private account.

Since 1999 the accumulated surplus has been 50 billion. This year's April Budget predicted a surplus of 19 billion over the next three years. Even if this is turned into a deficit of 50 billion in the next three years—a swing of 70 billion—as seems likely, the Chancellor would still not have breached his golden rule. No euro-zone Finance Minister of a major country starts the possible slide into recession with such a strong inherited fiscal position. We ought to recognise that. It is an achievement that, in the light of Britain's recent economic history, is astounding.

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There is a second feature to applaud in Mr Brown's management of our business. In his April Budget the Chancellor promised a 43 per cent rise in National Health Service spending over the next five years, equivalent to 40 billion. Overall, British spending on health is set to increase by about 3 per cent of GDP over the next five years. It is a moot point how much better the National Health Service will become as a result of that extra spending. But there is no doubt that it will have an extremely beneficial macro effect in present circumstances. In particular, the modernisation programme of the NHS will set up a demand for IT equipment that might well not otherwise have been forthcoming from the private sector. Much of that demand will be for British-made equipment.

It is particularly important that that extra spending be not frittered away in large wage increases. That is why I urge the Government to stand firm against the firemen's pay claim. If anything approaching 40 per cent is met, it will send a signal to other public sector unions that the Government are a soft touch, and will threaten a return of the "inflationary recessions" that we had in the 1970s.

Have I nothing to say in the way of criticism? I do. If only the Chancellor could display the same masterly inactivity in micro-policy as he has in macro-policy, we would all be so much happier. Having emancipated himself from delusion in macro-policy, he has, unfortunately, developed serious symptoms of that disease in his micro-policy. In micro-policy he is obsessively fidgety. He is always tweaking this tax or that tax, this target or that target, thinking up this or that clever wheeze. The process is never ending because every new device has unintended consequences or creates some distortion that has to be corrected next time round. The result is an increasing complexity in the tax system and an increasing burden of regulation that are the reverse of the admirable trend towards simplicity set by the noble Lord, Lord Lawson, when he was Chancellor, and the reverse of what British industry requires. As the noble Lord, Lord Paul, pointed out, it is one of the crosses that our manufacturing industry has to bear.

What is the explanation of that fidgeting? I suppose it is not just that Mr Brown cannot stand being underoccupied. I believe that he and his chief advisers genuinely believe that fine-tuning the tax and regulatory system can make the British economy more competitive, more efficient and can make it grow a little faster. I do not buy that. I suggest that it is profitability that drives a market economy; productivity is a by-product of profitability and not something to be aimed at directly. The truth is that we really do not know enough about the causes of economic growth in detail to be constantly fiddling with the incentive system in the way that we do.

In conclusion, I wish that the Chancellor could get himself to believe what Adam Smith once wrote:

    "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of things".

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If he could only act on that principle, he would get three cheers all round—at least from me.

6.39 p.m.

Lord Sheldon: My Lords, we listened with amusement and understanding to the most interesting speech of the noble Lord, Lord Skidelsky. He began by telling us about the pattern and history of bear markets. It was a useful, if rather depressing, history and something that I hope will never see the light in our lifetime. He introduced fervent praise for the Chancellor of the Exchequer, which I found welcome. The golden rule of the Chancellor of the Exchequer is still intact and I am an admirer of his macro policy. There are always a number of minor matters with which one can disagree, but I shall not deal with those in my speech.

I want to deal mainly with the issue of the single currency and joining the euro. In his Statement on 27th October 1997, the Chancellor of the Exchequer said that a decision on the single currency was likely to be the most important that this country would face in a generation. I agree with that. That is why I am surprised that we did not see rather more mention of it in the Queen's Speech because the real decisions will be made in this Parliament. The tests that were introduced were based on the situation in 1997. That is five years ago—probably six years before the decision will be made. The fact that the tests were based on what one perceived so long ago suggests that matters need to be brought rather more up to date.

Of course, there was great uncertainty in 1997 about the future economic prospects. The Chancellor of the Exchequer had only just entered into his inheritance. Kenneth Clarke, among many others, was deploring the state of the economy as it was being conducted by the Chancellor of the Exchequer. But, as I said, the situation in 1997 will not apply in 2003.

We have the five tests but we also have to ask at what value the pound will stand when we enter the euro-zone. In answer to a question that I raised, my noble friend Lord Macdonald said rightly that there is no sixth test. He is right. However, on the other hand, there is an overriding relationship between the value of the pound and all the five tests. The five tests can be met far more easily if we enter the euro system with a truly competitive pound. A major foundation of the success of the five tests will be the level of the exchange rate at which we enter the euro.

Let us examine the situation by looking, first, at the matter of investment. In the six months to June, United Kingdom inward investment fell from 20 to 16 per cent—a rather surprising fall of all European investment projects. Investors want to invest within the European Union. With a competitive pound and with English as our language, which is an enormous advantage in international economic matters and in international affairs generally, we have a great opportunity within the European Union to make our country an even more attractive place in which to invest.

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Let us consider another of the tests—employment. With investment come jobs and with a competitive pound come greater opportunities for exports, as, indeed, was stated by my noble friend Lord Paul. The growth of industrial exports will obviously proceed with the pound at a suitable level. In his Statement in 1997, the Chancellor said:

    "Currently Britain's business cycle is out of line with our European partners".

It was then. He continued:

    "Interest rates here are 7 per cent".

They were then. He said:

    "This is the level the Bank of England has set in order to achieve our inflation target. But in Germany and France interest rates are close to 3 per cent. Across the continent, because business cycles are more coincident, short-term interest rates have been converging for some time".

That is not a problem for us now because in those five years we have converged and the convergence is continuing. An appropriate exchange rate will give us more flexibility to provide convergence as well as economic change.

Let us see what the Chancellor has to say on the question of flexibility. In 1997 he said:

    "The Treasury assessment of the second test"—

that is, the test on flexibility—

    "is that, in Britain, persistent long-term unemployment and lack of skills"—

that was the situation that we were talking about in 1997; not the situation today—

    "—and in some areas lack of competition—point to the need for more flexibility to adapt to change"—

we would all agree with that—

    "and to meet the new challenges of adjustment. The Government has begun to implement a programme for investing in education and training, helping people from welfare into work and improving the workings of our markets".

That is the success that the Chancellor has achieved. In judging that success, we must also consider the situation as it applies to the ability properly to enter the euro-zone. We need to see some of the further advantages that we shall get. Foreign trade will have many advantages from entering the euro-zone. In foreign trade, exchange rate risks are debilitating and are a serious aspect of the situation.

There was a time when businesses placed fixed contracts for a fixed period of time. They were sold so many articles over a certain period of time and they could hedge against that. Hedging was possible against a fixed amount of money for a fixed period of time. But business does not operate like that any more. Things are done on a far more regular and continuous basis and people can cancel or slow things down at any time. Under those circumstances, exchange rate risks, which one cannot hedge against properly, are far more serious. Continuing business will be affected in that way.

Hedging against currency risks is difficult to achieve. Because so much of our future is linked with the European Union, that now becomes even more important. Forty-nine per cent of our trade is with the

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European Union 12; 16 per cent of our trade is with the United States. Therefore, my assessment is that entry to the euro-zone will depend fundamentally on the value of the pound when it occurs. I want the lowest realistic exchange rate. That needs to be negotiated.

I want the lowest exchange rate because I want a truly competitive rate. No one can doubt that the exchange rate situation in relation to Germany, which today stands at approximately 3.04 as against 2.95 deutschmarks to the pound when we exited from the exchange rate mechanism, makes clear that at present our exchange rate is very uncompetitive. Obviously, a realistic rate will need to be negotiated. Whereas the five tests are valid for a short time, if the value of the pound at entry were too high, that might create several years of unjustified constriction of the economy. It worries me a great deal that, as a result of entry, we might find ourselves unable to enjoy the advantages that are available.

Against that, I believe that the five tests require rather shorter consideration. The overarching or supreme test, which will determine the success or otherwise of the five tests, is the rate at which we enter. I should dearly like to know what indication the Chancellor of the Exchequer has of the likely rate at which we could arrange to enter the euro.

Another matter that I want to raise briefly is whether the fear of inflation will continue to be one of our greatest economic problems. With interest rates as low as they are, we are now approaching the situation where reducing interest rates may not be enough to stimulate the economy. If one wants to stimulate the economy, one simply reduces interest rates. That will not be so easy. There can come a time when even low interest rates, as in Japan and the early 1930s, referred to by the noble Lord, Lord Skidelsky, are not enough to stimulate an economy. As a result of that, borrowing and expenditure might well come into their own and Keynes may need to be re-read.

I want to raise one other matter because I see that my noble friend Lady Blackstone is here. I shall briefly mention the British Museum. Neil MacGregor went from the National Gallery to the British Museum. He is someone for whom I have a great regard. He is a splendid person and the British Museum did well to acquire him. I look forward to him resisting any attempt to restore the Parthenon marbles to Greece. He has my full support in that regard.

Neil MacGregor went to a museum which had free entry and which was not compensated as other museums were for their free entry policies. It was unfair for someone who had gone to one of the most important museums in the world to find himself with such a burden of debt. In view of the enthusiasm that my noble friend has shown for such matters, I hope that she will continue to show that enthusiasm to great effect.

6.50 p.m.

Lord Northbrook: My Lords, I declare an interest as an investment fund manager. In July when I spoke in the Finance Bill debate, I said that the Chancellor's

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forecast for economic growth looked optimistic. Four months later, in the light of global economic slowdown, my view seems even more justified. The Government's forecast of 2 to 2.5 per cent growth in 2002 for a start looks high, with the expected outcome being nearer 1.5 to 1.75 per cent. The forecasts for 2003 of 3 to 3.5 per cent, and 2.5 to 3 per cent for 2004, also look optimistic. I ask the Minister how much he believes that those forecasts will be scaled down in the Pre-Budget Report. As Lea Paterson wrote in The Times of 12th November:

    "there is a growing realisation in Whitehall that this year's PBR . . . will be much less about highlighting Labour's economic triumphs and much more about covering up its flaws".

The Chancellor's strategy is looking shaky as a result of the slowdown in growth. Towards the end of Labour's first term in office when the Chancellor started pumping money into public services, financing government spending pledges was easy. Tax revenues were rising much faster than the Treasury had been expecting. It also took time for spending agreed at ministerial level to filter through to the services on the ground. That may have done little for the Government's push for better public services, but it flattered the public finance numbers. The net result was that the Treasury coffers were left looking healthy at the start of Labour's second term.

Since then, however, things have deteriorated rapidly. Spending has picked up sharply, while growth has disappointed, leading to lower than forecast tax revenues. The tax take from the corporate sector has been particularly weak, with corporation tax receipts set to fall by 4 per cent this year.

It is not only the corporation tax take that has disappointed. While consumer demand and overall income growth have been more or less in line with forecasts, income receipts have been coming in below Treasury expectations. The explanation for that apparent anomaly is that it is the top end of the income scale—in particular the City—that has borne the brunt of the job losses. It is suggested that some 35,000 people have lost their jobs in the City. It is those on the very highest incomes who contribute the most in tax.

According to Dresdner Kleinwort Wasserstein (DKW) estimates, only 1.1 per cent of taxpayers earn more than 100,000, but that 1.1 per cent accounts for 23 per cent of all income tax receipts. While the tax take will almost certainly fall short of expectations, spending looks set to exceed government forecasts, so borrowing is set to rise. At the time of the Budget the Chancellor said that he was expecting to borrow 11 billion this year and 13 billion in each of the following two years. The City believes that the Chancellor will be forced to increase those estimates substantially. The respected economic team at DKW have recently increased their forecast of public borrowing from 11.7 billion to 16 billion in 2002–03 and from 17.2 billion to 21 billion in 2003–04. Does the Minister agree with me that there is a need to raise the government borrowing figures?

Those figures could well get worse. If the Government give in to the firemen's pay claim, other public sector workers will also make large wage claims,

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and thus government money will go into wage increases rather than into infrastructure improvements. Does the Minister agree that the figures will increase?

In this year's PBR the primary task ahead for the Chancellor and his aides will be to decide how to deal with the public finances shortfall. The options will be to raise taxes, allow borrowing to rise or to opt for some short-term presentational fix. In all likelihood the Chancellor's preferred solution will combine all those elements. Indeed the signs are that that three-point plan has already been set in train.

The short-term presentational fix began in April at Budget time, when the small print of the Treasury figures revealed that a variety of changes had been made to forecasting techniques. In particular, the Treasury upped its estimate of the economy's long-term rate of growth, allowing it to add about 1 billion a year to its revenue forecasts. Rising immigration was cited as the reason for the change, which the noble Lord, Lord Newby, also latched on to in his speech on the Finance Bill in July. But I am yet to be convinced of it. I ask the Minister for his opinion.

Forecasting changes is not the only way in which the Treasury has sought to improve the presentation of the public finances in recent months. The Government have signed up the taxpayer to a number of long-term financial liabilities yet have taken strenuous steps to ensure that these do not appear on the Government's balance sheet and so do not influence Labour's spending or borrowing projections. How can the Minister justify that Network Rail, for example, is a private body?

The Chancellor may well excel in presentational fixes, but I am sure that he will be aware that those measures will not on their own save the day. Of central importance is the fact that the Government may well have broken their own fiscal rules. Here I part company with the views of the noble Lord, Lord Skidelsky. While some of the deterioration in public finances in the past year may well be cyclical, as The Times of 12th November described it:

    "there are also early signs of a structural—that is, a permanent—weakening in the Government's budget position".

Those kinds of deficits under the Labour Government's own rules can only be dealt with by raising taxes or cutting spending.

What are the grounds for arguing about a structural deterioration in the public finances? To start with, spending appears to be exceeding the Government's own targets, but there have also been some worrying developments on the receipts side of the ledger book. In particular, there is tentative evidence that receipts are weakening faster than the overall level of economic growth would at first suggest. If next year growth recovers a little, which generally economic commentators suggest will happen through the Keynesian stimulus to the economy by government expenditure, it is far from clear that UK companies in general and the financial services industry in particular will enjoy their fair share of the upswing. That has worrying implications for tax receipts.

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I believe, in line with independent commentators, that it is likely to be some years before Britain's financial service industry and City wages recover fully from the boom period of the 1990s. That has clear knock-on effects for income tax projections. As far as the corporate sector is concerned, I believe, unlike the noble Lord, Lord Skidelsky, that we are in a new deflationary era, the like of which has not been seen since the 1930s.

In that new climate, due to the effect of globalisation and low cost competition from overseas, UK companies will be unable to increase their prices, whereas they will see their costs increasing due, for example, to increased regulatory costs (which I shall examine in a moment) and higher fixed costs such as local government charges. That means that their profit margins in the possible recovery are unlikely to be as healthy as in the past. As a result, corporate tax receipts are likely to continue to disappoint.

So what now is the Government's likely response to the difficulties of the corporate sector? They have decided to reverse previous policy and tax it more; and, secondly, to heap extra regulation on it.

That is a sad contrast to the more business friendly regime of Labour's first spell. As The Times stated on 12thNovember:

    "The effects of the prawn cocktail offensive by which Labour seduced the business world before they were first elected have long worn off".

The head of the CBI, Digby Jones, generally a supporter of the Labour Government in its first term, has calculated that by the end of Labour's second term of office business will have been hit by an extra 47 billion of taxes. That statement stung the Treasury to reply that the figure included the effect of the abolition of the dividend tax credit, which was sneaked into the first Budget and has contributed 5 billion a year to making pension funds poorer. But that is money that would have been invested mostly in British business had not the Chancellor grabbed it.

To make matters worse for companies, according to the Financial Times of 12th November, the Chancellor is expected to announce more taxes on businesses in order to meet environmental objectives; for instance, possibly increasing the climate change levy or landfill taxes. Let us also not forget the effect of the national insurance increases which come into effect next April for employers and employees.

For all the Government's rhetoric about the need for business to invest, improve productivity and encourage job creation, too many of their deeds prove to be a positive discouragement. Apart from taxation, Digby Jones's voice is one of the loudest in a rapidly increasing chorus railing against the increased regulatory burden on business. While our bureaucrats are no slouches at dreaming up expensive and unnecessary regulations on health and safety, much of what truly weighs down business—as other noble Lords have said—comes from Europe.

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The combined effect is to lessen gradually, but inexorably, the attractions of Britain as a place in which to do business. There does not seem to be any comprehension by the Government of the dangers we are gradually facing by forcing British companies into the straitjacket that already hampers much of Europe. Yet the increasing restrictions on our once flexible labour market are already taking effect. In a recent article in The Times, Patience Wheatcroft states that she met the head of an international leisure company this month who stated that the combination of the working time directive, equal benefits for part-time staff and a raft of other obligations are forcing businesses to one conclusion: they do not want to employ more staff in Britain.

In conclusion, the traffic lights are at amber. The Government's tax and spend approach is weakening the public finances, and if, as I believe, we are in a new era of deflation and growth continues to be anaemic, that could cause major problems for government finances in the longer term.

7.3 p.m.

Baroness Howe of Idlicote: My Lords, not least in the light of today's publication of the Government's proposed legislation to establish Ofcom, I very much welcome the opportunity to make a short contribution on the media aspect of today's Queen's Speech debate. They are seen rightly as an increasingly vital part of our economic as well as cultural international success.

I declare an interest as a previous chairman of the Broadcasting Standards Commission and as one who enjoys a small pension from that organisation.

Like other noble Lords who have spoken, I want to add my congratulations to the Joint Committee on the Draft Communications Bill and in particular, to its distinguished chairman, the noble Lord, Lord Puttnam, on an excellent report. Having attended some of the hearings as an observer, I have been able to witness at first hand the courtesy, as well as the expertise and quality with which the committee conducted the cross-examination of its witnesses.

I am grateful, too, for the committee's backing for a Lords Select Committee on communications, which it is hoped will be established once this legislation is complete.

I must also say that I am not in the least surprised at the extent to which the Government have rightly paid tribute to the Joint Committee's work: first, directly, by the number of recommendations they have accepted—120 out of 148, as already mentioned by the noble Lord, Lord Gordon; and, secondly, in the more general way that the Government have signalled in the Queen's Speech their intention to make greater use for future Bills of the pre-legislative scrutiny procedure.

I want to mention two aspects of the Bill, both of which will fall probably within the human rights area—the "fluffy" rather than the "techy" side of Ofcom's remit, as defined by the noble Lord, Lord McNally.

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On the first point I shall be extremely brief, not least because the right reverend Prelate the Bishop of Wakefield has already dealt with the whole subject so comprehensively and convincingly. Like many noble Lords and well beyond—including, I am glad to say the pre-legislative scrutiny committee—I find it difficult to believe that the Government are still largely insisting on maintaining their ban on those holding religious office from possessing a licence and barring applications from religious broadcasters for a national radio licence.

In a media world, where bad language and violence is routinely seen on our screens and where soft, and increasingly harder, pornography is also apparently seen by some regulators as acceptable, to put extra restrictions on those with a religious background from holding a licence for commercial radio stations seems to me, to put it mildly, quite out of proportion. A more accurate, if unparliamentary, description, would be "barmy".

My second point will take a little longer. I realise of course—and will therefore try and keep my comments short—that there will be other opportunities to expand further on these and other aspects of the Bill when it comes before us from another place in the spring, not least exactly what the future relationship of that splendid, if sometimes flawed, institution, the BBC—the history of which was so well described by the noble Lord, Lord Hussey—should be with Ofcom. My own views are on hold at the moment, although I have listened to the many who felt that it should come fully within Ofcom's remit. The other interesting point is whether the newspaper industry should be rather more fully within Ofcom's remit than it is at present.

I make no secret of the fact that I would have preferred the legislation to provide us with two communications regulators rather than the one giant Ofcom proposed—one to deal with the cultural and content issues and the other with the competitive, economic and technical aspects of the industry.

Already, as we know from witnesses, both sides are concerned that the other will be seen as the most important and will therefore get the lion's share of resources. That is despite the Government's insistence that Ofcom's,

    "duties must reflect the breadth of Ofcom responsibilities, both economic and cultural, and that each duty is of equal weight".

How all this will work out in practice, we will have to wait and see.

However, on the cultural side, it is the lack of independence, or potential lack of perceived independence, of the content board that concerns me most. I note that since the White Paper Ofcom, through the emergence of the content board, has been given a greater role in dealing with individual complaints about fairness and privacy, if not perhaps those to do with taste and decency. But whether the issue is one of taste and decency or of fairness and privacy, my question is: will the complainant see Ofcom's content board as sufficiently independent of Ofcom to be able to give an impartial as well as an informed ruling? We must remember that Ofcom will

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have the duty of granting broadcast licences, as well as agreeing the overall broadcasting content standards that, by definition, a complainant will be alleging have been broken.

A further point is whether the content board will have power to order any remedy—if not to award financial compensation—if a privacy and fairness complaint is upheld. Indeed, are exactly the same conditions that applied to complainants to the Broadcasting Standards Commission to apply under the new arrangements, not least that if action in the courts is being contemplated by a complainant the Commission will not entertain that complaint? I should be grateful for any information that the Minister has on that point.

I find it puzzling that there is such emphasis on the need for the consumer panel to be seen to be independent of Ofcom—even to the extent that the pre-legislative committee would have preferred members to be appointed by the Secretary of State—while, for the content board, even that aspect of visible independence is apparently not considered important. Two members of the main Ofcom board are now to be on the content board—one as the chairman. Yet the content board will oversee and, by its adjudications, uphold a far more important human right: the right of an individual who may have had his or her business or whole career irreparably damaged by an unfair broadcast programme. Surely, most people would agree that trial by media can be far more damaging even than a court case. One has only to think, for example, of the recent cases of the two broadcasters who both lost their jobs as a result of reckless, and effectively endless, mudslinging about their past lifestyles.

The Bill provides for what is called a much lighter touch style of regulation, with far more responsibility delegated to broadcasters themselves. However well intentioned they may be, they can hardly be said to be impartial. Given that, is it not even more important than previously that appeal procedures built into the Bill are seen even more clearly to be completely independent of those against whom, or in respect of whom, the complaint is made?

Despite the many excellent qualities of the draft Bill, I fear that I persist in regarding that aspect as its most important flaw—and the most adverse, and unjustifiable, departure from existing arrangements.

7.13 p.m.

Lord Haskel: My Lords, I agree with the noble Lord, Lord Roll: the gracious Speech was a bit thin, but it was to the point. It dealt with crime and anti-social behaviour. It dealt with reform in the health service. It dealt with devolving power away from the centre. But below the surface it seemed to me that it continued with a theme that is not new to this Government: it dealt with rights with responsibilities.

The Government seem intent on re-balancing rights and responsibility by asking for more responsibility from citizens and dismantling and delegating some of the rights of central Government. I welcome that,

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because it should create a fairer and a more involved society. There will certainly be rather less of the command society satirised by the noble Lord, Lord Saatchi.

However, rights and responsibilities need re-balancing not only in the criminal justice system and in public services but also in the economy: in the balance between government and business. That relationship has been getting a bit tetchy recently, so a re-balancing would not come amiss.

Where should the balance be struck between government and business? When we were in opposition, I had the privilege of working with the late John Smith and my right honourable friend Gordon Brown when they were shadow Chancellors. Indeed, I can tell the noble Lord, Lord Northbrook—I am sorry that he is not in his place—that I enjoyed a number of prawn cocktails on the famous circuit. At that time, business maintained that the responsibility of government was continuing low inflation and interest rates, keeping politics out of economics and delivering top-class education and skills training. In short, the Government should stick to the political development of the nation, driven by their values, while business attended to the development of the economy, driven by its values.

As my noble friend Lord McIntosh has reminded us on many occasions, much of that has been achieved. There is a question mark over education and skills, but Ministers are on the case.

Until now, the balance has been working reasonably well. Business has done a pretty good job of growing the economy, employing most of the population available for work and taking a more responsible attitude towards society and the environment. The noble Lord, Lord Skidelsky, told us that the Government have done well in creating the conditions for business to thrive so that ultimately business can deliver.

But that balance of rights and responsibilities has recently been lost in two areas: regulation and taxation, both of which have been mentioned. Every government I can remember have been accused of over-regulating. Several noble Lords have accused the Government of that in this debate. I read somewhere that there are about 2,000 new regulations a year. Many are minor—relating to weights and measures and other practical matters. But the fact ignored by previous speakers is that we now live in a more risk-averse, more complicated, more aware, more litigious and better informed society—a society that now believes that the Government have a duty to protect the public from every conceivable risk. People overreact to scare stories, which prompts the Government and Parliament to respond with regulation.

There is also the Government's responsibility to regulate where there is market failure—regulation to force business to act for the public good. In fact, we are one of the least regulated economies in the Organisation for Economic Co-operation and

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Development. Research proves that point. We have more voluntary codes of practice than most, and a commission of Ministers and officials considering every regulation, charged with identifying and eliminating those that are unnecessary. The Government try to regulate with a light touch. Only when it becomes apparent that voluntary codes of practice have failed do they tend to resort to legislation. Compare that with the United States and the rush to legislate on accounting practices.

I think that the balance between rights and responsibilities in regulation probably satisfies the public but leaves business unhappy. Business will have to learn to live with that, because regulation is inevitable as our society continues to develop.

Turning to taxation, rights and responsibilities certainly should be looked at. Corporation tax is lower here than just about everywhere else. My noble friend Lord Paul told us about other taxes that business finds onerous. Also, tax collection here is pretty effective. The concern seems to be that there is a revenue shortfall in the Chancellor's Budget of between 40 billion and 70 billion, depending on whose speech one listens to. The worry is that taxes will have to rise to pay for that. That is a legitimate concern, but there are other ways of raising the money. Raising productivity is one.

The noble Lord, Lord Skidelsky, says that profitability comes first; I think that productivity comes first. If industry raised its productivity by 1 per cent, the boost to the Chancellor's tax revenues would be enough to cover the shortfall, and there would be a boost to the profitability of business. I know that economists will point out that the effect is not immediate; there is a time-lag, and others things have to stay the same. But is it not worth rebalancing rights and responsibilities to achieve that?

There is plenty to go at. The gap is significant. We are told that our productivity is 35 per cent behind that of America and 10 to 20 per cent behind that of other OECD countries. That seems to apply mainly to our manufacturing sector, which now, as my noble friend Lord Paul told us, represents only about a fifth of the economy.

Today we have heard a lot about the excellence of our entertainment industry but nothing about its productivity. My noble friend Lord Harrison told us about the importance of tourism, but he told us nothing about its productivity. In fact, there is no real measure of the productivity of our service sector, but there are some indications; for example, in the year to September, inflation in services was 4.8 per cent, but in the same year, the cost of goods went down by 0.9 per cent. I know that the comparisons are not precise, but they indicate that there is significant room for the service sector to raise its productivity. If the leisure and entertainment industry is such a large part of our economy, a 1 per cent increase in its productivity could nearly fill any perceived gap in the budget.

I know that the DTI and the Treasury are making great efforts to assist and encourage the manufacturing sector to become more productive and,

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hence, more competitive. Is the same being done for the service sector? Until we can measure its progress, we will not know how effective the efforts of industry and the Government have been. The need is there. We read about call centres being contracted out to India and our airline tickets being filled out in China. I hope that my noble friend the Minister will look into the matter of measuring the productivity of the service sector.

Central to increasing productivity, of course, is investment. The Government do what they can to encourage investment, but investment is a matter of culture and attitude to risk in individual businesses. It is a management decision, and it is as much a matter of management as it is of economics. That is why the balance between rights and responsibility must move in the direction of business taking more responsibility in this matter. It is the responsibility of business and industry to provide the management and leadership to achieve the increase in productivity.

Rights and responsibilities need not be adversarial. In the case of productivity, they are the same side of the coin. It makes the tax increases unnecessary and increases profitability. In the case of regulation, the balance is the inevitable effect of free-market economics and of growing prosperity.

7.23 p.m.

Lord Layard: My Lords, by far the most important economic decision in this Session will be the decision on the five tests. Many of us thought that they had already been passed in 1997. However, even if they were not passed then, it is clear that they have been passed now. Everything that has happened since 1998 has borne out the predictions that we made at that time.

The basic issue is simple: does a separate currency impede trade and put us at a competitive disadvantage? It is as simple as that. Everything that has happened since 1998 shows that the answer to those questions is "Yes". Since then, trade between the members of the euro-zone has soared, while trade between Britain and the euro-zone has stagnated, relative to our GDP. At the same time, foreign direct investment from outside Europe has shifted substantially into the euro-zone. In the nine years before 1998, 40 per cent came to Britain; since 1998, it has been only 25 per cent.

The reason is that we are not in the position that we were in 1998; we are in a worse position. Before 1998, anyone who wanted to sell on the Continent faced a currency risk, if he sold outside his own country. Now, Britain is the only major country of which that is true. We face a currency risk, if we produce in Britain and sell on to the Continent, while anyone producing on the Continent and selling on to the Continent faces no such risk. We can see in the figures that a major reconstruction of the European economy is under way and that there is a concentration of production in the lowest-cost areas. We are being significantly excluded from the reconstruction of the European economy.

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The most important conclusion from that is that we should not wait and see. When the first phase of reconstruction is over, it will be more difficult for us to break in and establish our niche. It is the same situation as that faced by Britain in 1956, when the six decided to take the first step in getting together. We thought that we were doing fine and decided to wait and see. What happened? In 1956, Britain's GDP per head was 15 per cent higher than those of France and Germany. By 1973, when we eventually joined, it was 15 per cent below. Joining helped to stop the rot, but we have never reduced the gap that emerged in that period, and our output per hour worked is still 20 per cent below those of France and Germany.

Our economy is weaker than much of our propaganda makes us believe. The unpleasant fact is that Britain is not the greatest place to invest, if we judge by the obvious test of whether people invest here. In fact, more Britons invest abroad than foreigners invest in Britain. If we compare overall investment in our country to that in Germany and France, we see that it is 17 per cent of GDP in Britain, 22 per cent in Germany and 19 per cent in France. Despite all the evidence that I quoted about what has happened since 1998, we still hear the wait-and-see argument. It is the most dangerous argument around. It is as if we had no experience and no economic knowledge on which to decide and we were just about to start from scratch. What more evidence do people need?

The basic problem is not evidence. The basic problem is that people have been told, over and over again, that Europe is a basket case and that we should stay at arm's length. That is an extraordinary argument, and we read it regularly, even in the quality press. It flies in the face of everything that we see when we go there. Most countries north of the Mediterranean have better transport, better hospitals, better schools and fewer poor people than we do. We like to brag about growth, but here are some facts that, I hope, will not surprise the House: since 1998, when the euro began, income per head has grown as fast in Europe as in Britain. The figure is the same for the United States. If we take the 10 years before the euro, we find exactly the same; the rate of growth of income per head is exactly the same in Britain, Europe and the United States.

I do not know whether any reader of the quality press in Britain would believe those facts. The reason is that the main commentators pick on the weakest country—whichever it happens to be—in Europe. Currently, it is Germany, so we are always told about Germany; earlier, it was France, and we were told how awful France was. They also, of course, pick years, but I gave the House a reasonable pick of years, and the picture is fairly clear.

The other thing that the critics bring in is unemployment, which is certainly a serious problem for many European countries. However, there is no way in which we could import unemployment from abroad, any more than Holland, which has lower unemployment than we have, imports unemployment from Belgium or France, which have higher unemployment than we do. In fact, the euro-zone has

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many mansions and we would be another mansion in it. There are four euro-zone countries with less unemployment than us—Holland, Denmark, Austria and Portugal. France has 9 per cent and Spain has 11 per cent unemployment. Each country has the unemployment which its labour market institutions dictate and we would not import unemployment from across the Channel any more than south-east England imports unemployment from north-east England. It is a nonsense argument. It is important that it be dealt with.

Is there any serious point to be made against joining? Of course, one important issue is the loss of the interest rate as an instrument for economic stabilisation. I want to make two important points here. First, if we joined we would be in the same position as Texas vis-a-vis the monetary policy of the Federal Reserve.

How does Texas manage? It does not have an independent monetary policy any more than we do. Nor has it an independent fiscal policy, which we shall have. Like most US states it must balance its budget each year. That is an unfortunate situation because it means that in a recession it has to raise taxes or cut expenditure, and both are inappropriate. There is some help from the federal budget—which people are always pointing their fingers at. However, the automatic stabilisers in the federal budget are much less than those in the British budget. As far as the budgetary side of things is concerned we would be better placed in the euro than Texas, even though there is no federal budget in Brussels.

On the other hand, Texas has the advantage that there is more mobility between Texas and the US than there is between us and Europe. However, taking the fiscal and labour mobility issue, it is much of a muchness. I conclude that what is good enough for Texas is good enough for Britain. Moreover, the interest rate is lost because of the loss of the floating exchange rate which can act as an unguided missile and, during the past 20 years, has not acted as any form of stabilising device. It has been the reverse, which is why I am sure that Texas would hate to have its own currency.

Those are the main long-term issues. I have concentrated on them because the correct way to consider the five tests is by asking: what are the long-term issues and do we want, in principle, to join?

If the answer is yes, the second issue is when. This is obviously a good time to join. We have the same inflation rate and the same long-term interest rates. We are nearer full capacity employment, but our forecast growth rates are similar to those in euro-land for 2003. Therefore, it is as good a time as any though, of course, there is never a perfect time. If one is against joining in principle, one will always be able to find a reason why it is not the right time.

What I see is the resurrection of the famous Cardinal Morton who always found that, whatever the situation, people should pay up. In our case, Cardinal Morton would say that if things are going well, why

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join the euro? And if things are going badly, why risk joining the euro? That is the line of thought which we are fundamentally up against.

I read last week in the Economist about the housing market. The British housing market is such that it is doing so well that we cannot join the euro now. However, it is about to do so badly that we cannot join the euro then. We shall always have those arguments whenever engaging with people who fundamentally do not accept the long-term case. They use the timing argument because it is the only one that they believe can stick.

The noble Lord, Lord Sheldon, raised the issue of the exchange rate. That is a decoy. As he explained it will be a political decision. Our partners know that we have a balance of payments deficit of 1.5 per cent of GDP. We are obviously overvalued while the euro-zone is in a slight surplus. They accept that we have to join at a significantly lower rate. I do not say that the negotiation will be simple, but one can say that the problem of getting Britain into the euro is easier than the original problem of getting the 12 members into the euro at the same time.

At that time Eurosceptics said it would never happen. They said it would break up. They said that the notes and coins would cause revolt and scars on the hands, and so forth. However, all those problems were overcome. The reason is two simple points that I shall end on.

First, where there is a will there is a way, at least in matters of the EMU. It is clear that because there was a will all the problems were overcome in getting the original members in. Secondly, while we can criticise some features of the EMU, the Europeans are a competent lot and guardians of an economy that compares well with our own. When I try to understand where the Eurosceptics go wrong, I put my finger on the following. They believe that the Europeans are incompetent; they underestimate the competence of Europeans.

If we allow ourselves to do that and wait and see, we risk falling further behind the Europeans. Waiting and seeing would be to fall straight into that trap. I trust that the Government will not fall into the trap, but will pass the test with flying colours.

7.37 p.m.

Lord Hunt of Chesterton: My Lords, the gracious Speech included an impressive list of policies that Her Majesty's Government will be continuing and proposals for new legislation. Both are directed to the difficult task of making our country and the whole world a better place to live in for our own and future generations.

The Government need every assistance in their endeavours. I should like to point out the way in which, by stimulation and harnessing the work of scientists, mathematicians and engineers, they could be more effective in their programme. Neither science nor engineering were mentioned in the Queen's Speech, nor in the list of topics for debate. Science comes under the Department of Trade and Industry.

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Since it is so easily forgotten, perhaps my first suggestion is that the department should change its name to "Trade, Industry and Science". In fact, the science budget is about 40 per cent of that department's budget. It appears that it is rather like MI5 in the Prime Minister's department.

We should be encouraged by the very good showing of Isaac Newton, Charles Darwin and Isambard Kingdom Brunel in the top 10 of the recent BBC series of famous Britons. Perhaps I may remind noble Lords that this is an election that they can participate in.

The Government have developed and supported a hugely expanded and intelligent programme of scientific research, especially in universities. It is the envy of most of our European colleagues. My experience in government science was as head of the Met Office and now as an academic. As a professor at University College I declare an interest. I am also involved as a director of a company and chairman of an NGO, all of which are involved in science.

The Prime Minister has emphasised in a major speech how he sees the science programme contributing to the economic well-being and health of the United Kingdom. However, neither he nor Ministers have given an overall vision of how they see natural, social and medical science helping with the difficult decisions, implementation and political presentation of government policies. To take up the speech of the noble Lord, Lord Saatchi, simply setting and adjusting targets may be a convenient heuristic administrative tool, but its psychology is uncertain, as I can confirm from missing some targets when I was a civil servant and being criticised by the noble Lord, Lord Barnett, chairman of the Public Accounts Committee. But targets are not what most of us mean by science in government, which is a long way from Lenin's vision of rural electrification and an automaton society.

What are the big issues facing ours and other governments where science crucially needs to be applied? First, there is the danger to the whole planet of the possible impact from asteroids. Despite regular urging by the noble Lord, Lord Tanlaw, and an encouraging response by the Minister, practical steps by the British National Space Centre to co-ordinate and extend the efforts of UK scientists and institutions in an international collaboration have not yet been announced following the debate.

The next more immediate dangers are those to life on earth from environmental change. They were indeed mentioned in the Queen's Speech, the needs of Africa being particularly highlighted. There, as I learnt at a pre-summit conference in Nigeria this year, the deserts are extending towards the coasts at a rate of 15 to 20 kilometres a year. In the Arctic regions, where the UK has considerable expertise—and the NGO of which I am chairman is co-ordinating work in Russia—the permafrost is retreating in some areas at about 5 kilometres a year.

The Prime Minister said at the World Summit in Johannesburg that environmental decisions do not need rocket science. Of course, he was right, because

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rockets are more or less predictable in a Newtonian sense, but the environment is much more difficult. We need to apply science in all the most important ways. The appalling problems we have recently seen of the oil tanker "Prestige" exemplify the need for its application in critical situations. I hope that the lessons learnt there are not only by government agencies and international bodies but are shared by the wider scientific community.

Especially appalling was the idea of towing the ship and dumping it, as we read in yesterday's newspapers, between Senegal and Cape Verde islands, where the precious local fishing industry could have been damaged as badly as that of Spain. That would hardly have been consistent with the intentions of Europe and Her Majesty's Government to help with Africa's development, another point made in the gracious Speech. The NGO of which I am chairman is working with government to try to have a meeting on the Africa issues next year.

How do other countries address these vital science and government questions? It is interesting that the United States Government bring together their advice on atmospheres, oceans and fisheries into a single National Oceanic and Atmospheric Administration (NOAA). Although that point has been put to Her Majesty's Government, should it not be reconsidered and a more broadly based agency for geophysical environmental issues be formed, perhaps learning from the successes of the United Kingdom's Environment Agency and Food Standards Agency? The extensive scientific problems of the legacy of nuclear energy will be addressed in the new legislation, as mentioned earlier today.

The Government's efforts to improve wealth and our bodily and social health in the UK equally need input of science and mathematics. My noble friend Lord Desai has commented that, although weather forecasts have greatly increased in accuracy in recent years—and I can vouch for that—forecasting economic and financial trends is still making little progress. Perhaps in some sympathy with the economists, I am sure that weather forecasts would be more difficult if elected governments could interfere with the weather.

However, there is an astonishing inability of managers of major companies to take sensible decisions based upon a range of possible outcomes. That total incompetence, or perhaps dishonesty, has led to huge misery for employees, pensioners and shareholders. My question is: what lessons have the Government learnt, and are the departments and agencies of government expanding their efforts to use mathematical and econometric modelling to predict future trends in order to give advice appropriately?

One of the developments of weather forecasters has been to calculate the likely errors in their forecast, which depend critically on the type of weather situation—or perhaps economic situation. Surely, government agencies and the financial services agencies could have issued a warning in 2000 about some of the dangers of likely trends for people's

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pensions. At that time, at a large mathematical conference attended by His Royal Highness the Duke of Edinburgh, who takes a royal interest in applied mathematics, a very senior Scottish insurance expert was openly predicting what we have now seen. It is encouraging that the DTI is now funding a Faraday partnership in industrial and commercial mathematics. Perhaps it should be nudging the FSA and others to share with the public financial forecasts and possible future risks.

Before noble Lords smile too broadly at the criticism of financiers by a scientific academic on these Benches, they might recall last week's International Herald Tribune revealing that in the United States the academics of Harvard, Yale and Princeton were the most successful investors, making 15 per cent on their huge investments, beating Wall Street and our City by a mile.

Even now, much of Britain's wealth still comes from manufacturing industry, as we heard today from my noble friend Lord Paul. Again, scientific research, in part sponsored by the DTI, has been essential and successful. Despite the business difficulties described by my noble friend Lord Paul, there have been some remarkable success stories in applied science. For example, Rolls Royce has used UK and world research to gain now more than 30 per cent of the world's aero-engine market. There are many other examples that belie the gloomy picture given by some speakers today. One of the proud boasts of the Government has been the use of evidence-based methods as well as joined-up policies. Is that policy being pursued consistently?

The Queen's Speech gave examples where scientific research is needed to ensure that the elements of decisions, implementation and presentation of policy are successful. Surely the Economic and Social Research Council should be providing research data to guide the highly emotive debates we shall be having on the proposed slight reduction in the number of jury trials. Whose responsibility is it for providing such information? Similarly, why is the research on the different options of a drugs policy not being provided to us, especially when so many responsible voices are raised against the debilitating effects of present policies in the poorer communities of the UK?

A number of noble Lords in other debates raised other critical policy issues where decisions are urgent but difficult politically and where the research data are not being provided. Are the data not available? I give as an example the choices of future power and transportation systems, where it is essential that as much research information as possible is provided about economic, environmental health and regulatory aspects of different options. If the information is not available and research is needed, surely the Government need to be open about that. The research councils and other bodies might well take up the challenge.

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Research also needs to be joined up as well as effective. Such openness and joined-up thinking might well identify the major health and environmental issues where the basic medical or scientific and engineering information and techniques are available but where studies are needed into economic and administrative problems associated with our application. An example was given last night in the BBC news about the problems of the fast administration of heart treatment. One might ask colleagues around the House whether similar problems have been overcome in the House of Lords, where there have been serious incidents.

Another glaring example of regulatory problems seems to be inhibiting the Government's own aim, mentioned also in the Queen's Speech, to reduce carbon dioxide emissions and improve the efficiency of energy use, a point made by the noble Lord, Lord Ezra, in his powerful speech on Monday. There seems to be a considerable problem with adapting the National Grid system, which is the responsibility of the DTI, so as to encourage technical and commercial innovation and the use of alternative energy.

Let us look at the borough of Woking. I often pass through Woking and it is a tremendous place—all the world comes to Woking. Through an extraordinary sustained effort over the past 10 years, it has reduced its energy use in the borough's own buildings by about 40 per cent through combined heat and power and photovoltaic alternative energy systems. But it had to set up its own electrical grid in order to circumvent the anti-innovative pricing regime of the National Grid. That has enabled the borough to provide cheaper power to its pensioners than anywhere else in the UK. Companies developing wind power have similar complaints.

In conclusion, I look forward to hearing how the DTI, the Minister for Science, the Government's Chief Scientific Adviser and the chief scientists, chief engineers and chief mathematicians in government departments and agencies will ensure that the best science is used as effectively as possible for the Government's own activities. The research budgets of departments and agencies need to be maintained. Appropriate scientific research and studies by universities, the private sector and non-governmental organisations can assist government in this task, especially when they are encouraged and funded by government.

It is essential that the UK has world-class research schools, combining the best in our universities—which I hope the Government will encourage following the recent developments in London. It is essential to have world-class science based consulting, and non-governmental organisations can play a vital role in translating and applying science for the benefit of governments and international bodies.

Last but not least, what will the Government do to ensure that the best students become scientists, mathematicians and engineers? They will cease to do so unless they are paid at a rate that is competitive with other professional groups, as the recent Roberts report emphasised.

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7.51 p.m.

Lord Newby: My Lords, in a debate that has been heavy with historical allusion, I propose to begin and end with a reference to Adam Smith. I want to begin by demonstrating to your Lordships that on these Benches we have taken to heart at least one of Adam Smith's precepts. My noble friend Lord McNally and I exercise a rigid division of labour. I do not propose to speak about the broadcasting Bill, which he covered so well. I apologise to noble Lords if I do not refer to speeches on that subject.

In discussing the economy, I begin by agreeing with the noble Lords, Lord Roll and Lord Skidelsky, that there remain a number of major positive features in the short-term outlook for the UK economy, particularly in relation to inflation. However, there are two major imbalances.

The first is the imbalance between manufacturing and services. As the noble Lord, Lord Paul, said, since this Labour Government came into office we have seen the loss of some 500,000 manufacturing jobs. In the seven years since 1995, the economy as a whole has expanded by 20 per cent and services by 28 per cent, but manufacturing has fallen by 1 per cent. Returns in manufacturing are now down to 4 per cent compared to about 14 per cent in services.

Why is that the case? As the noble Lord, Lord Paul, explained, there are real issues in regard to regulation, particularly because, with increased globalisation, more companies are more footloose as to where they are located. In this respect, the dramatic growth in manufacturing output in China has probably been the most significant single recent development. But it is also the case that the high level of sterling continues to make it extremely difficult for many of our manufacturing companies to compete internationally. How might this level be reduced?

As the noble Lord, Lord Layard, said, one can envisage negotiations that would lead to a reduction in the level of sterling in the context of our joining the euro. But we can also expect that a simple announcement by the Government of their intention to join the euro would in itself lead to at least the beginnings of a correction. We saw something of this last summer when for about a week the Treasury was making positive noises about the possibility of our joining the euro-zone. Lo and behold, the value of sterling fell. At this point, Downing Street panicked and put out a statement saying that there was no change in policy and no suggestion of a quick entry into the euro-zone. Lo and behold, sterling rose again. That demonstrates the scope for a reduction in the exchange rate simply by saying that Britain intends to join the euro-zone.

There are many other reasons why we should join the euro without delay. The noble Lords, Lord Sheldon and Lord Layard, set those out extremely eloquently. I do not, therefore, propose to repeat them. Because we are confident of the positive outcome of the economic tests, we are looking forward to hearing it. The Government have been saying for a considerable time that this will happen by June. But

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they have not been quite so forthcoming about what happens next. Perhaps the Minister will say a little about that, given that we have a Bill that would allow us to hold a referendum. Would he like to speculate about how long that might take to complete its passage? Can he possibly give an indication as to when a referendum might subsequently be held?

If there is a major imbalance, as I believe there is, between manufacturing and services, the balance between consumption and investment is even greater. The levels of both consumption and investment are seriously sub-optimal and worrying.

In the case of consumption, most of the headlines have been about soaring house prices and the possibility that the boom is about to turn to bust. This fear was described only last night by Mervyn King, deputy governor of the Bank of England. He said—using deputy-governor-of-the-Bank-of-England-speak:

    "The immediate question is whether changes in asset prices have led to an imbalance within the economy that poses the risk of a large negative demand shock at some point in the future. I believe the answer is yes".

Higher house prices have been accompanied by a rapid growth in mortgage equity withdrawal and a rapid growth in non-mortgage debt—not only on the part of the better-off but also on the part of the poor. In the case of mortgage equity withdrawal the quarterly figures have risen from 4 billion in the first quarter of 2001 to over 10 billion in the second quarter of this year—an increase as a percentage of post-tax income from 2.4 per cent to 5.9 per cent.

At the same time, non-mortgage debt has risen rapidly. Recent research by the Institute of Fiscal Studies shows that in the year to September household debt rose by 13 per cent, the fastest rate since records began in 1993. Even among the bottom fifth of income earners—people earning less than 8,700—a third have significant debts which average well over 3,000.

If we are to see an increase in interest rates or an increase in employment, the high levels of debt that have been evident in recent times could quickly lead to a sharp reduction in private consumption and a severe downturn in the economy.

But while consumption rolls ahead, investment has all but stalled. Over the past year investment has fallen by 10 per cent and the outlook is for further falls. This fall is significantly higher than in the US, France, Italy and even Japan. The Chancellor cannot, therefore, simply hide behind international economic downturn.

Part of this fall can be attributed to the dramatic fall in inward investment. That point was made by a number of noble Lords. But the figures are very striking. In 1998, the UK took 28 per cent of all inward investment into Europe. This has fallen consistently since then, and the latest figures released yesterday by Ernst & Young show that we received only 16 per cent of this investment in the six months to June.

Part of the reason for this fall is that eastern Europe now appears a more attractive option for investors, not least because the date for enlargement has been fixed. But part of the reason, as is evidenced by a series

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of statements by chairmen and chief executives of global businesses, is that many companies are not going to invest further in the UK while we remain outside the euro-zone. Possibly the one positive result of the fall in inward investment will be to help persuade the sceptics in the Treasury that there is a major cost in staying out of the euro-zone and a potential major benefit in going in.

We shall have the opportunity next week to discuss the potential consequences of these imbalances in the Government's fiscal policy and the Budget judgment. I would, however, say that we on these Benches, along with the noble Lord, Lord Skidelsky, will be judging the measures to be announced next week on whether they simplify or complicate the tax system. We agree entirely with him that micro-tinkering with the tax system is almost always at best neutral and very often unhelpful.

I believe that we need to return over the coming months to what might be done, other than taxes, to moderate unsustainable consumer expenditure growth. It is not just a question of economic management; it is a question of consumer protection. I am sure that all noble Lords are bombarded regularly by aggressive marketing material from banks and other financial services companies encouraging us to borrow often very large amounts. It is hardly surprising that many fall for these blandishments.

The past year has not been good for the financial services sector, not least because of the bear market that the noble Lord, Lord Skidelsky, described. Confidence in the financial services industry is at a low point. I shall refer, first, to pensions and their future. Noble Lords discussed Equitable Life yesterday, which I do not intend to deal with in detail. I apologise to the Minister for misleading him, the House and myself when, in a supplementary question on Equitable Life a couple of weeks ago, I gave the incorrect date of a letter, causing maximum confusion to everyone concerned. Although I got that detail wrong, the principle remains the same. The Government have set in train several inquiries about Equitable Life that are slow, overlapping and muddled. We hope that Penrose comes to a conclusion quickly. But, if and when it does, the problem for Equitable Life pensioners remains. Reports do not solve the problems of companies going bust. The Government and the City should be considering how to ensure that Equitable Life does not go bust. If it did, that would have severe repercussions for confidence in the entire financial services industry.

The other two aspects of financial services in which there have been major problems have been mortgage mis-selling and the catastrophe of the split capital investment trust sector. I will not go into every detail of this big issue, but two major issues must be addressed. First, even people who have sophisticated knowledge of other issues do not take the trouble to understand the financial products that they are buying. Even if they do, it is often extremely difficult to make sense of the literature. I suggest that the financial services industry devotes a fraction of the effort that drugs

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companies devote to setting out on a single piece of paper the product, the risk factors and what it might do to us if things go wrong. That would greatly ease the worries of people buying financial services products. In addition, the FSA must be more speedy in dealing with systemic risks and individual complaints. The FSA has a problem in holding the balance between maintaining confidence in the system and taking decisive action. It is still struggling to get that balance right. By the end of next year, we will be looking at the workings of the Financial Services and Markets Act 2000. But we will have to examine some of these issues in more detail over the coming year, because they require urgent action.

Three references were made to events in the Soviet Union immediately after the revolution. The noble Lord, Lord Harrison, talking about the euro, said:

    "I have seen the future and it works".

Unfortunately for his case and mine, that phrase was first coined by Lincoln Steffens, an American journalist, who visited the Soviet Union soon after the revolution. He was so taken in by the propaganda that he said:

    "I have seen the future and it works".

We had better be careful not to use that phrase too often. The noble Lord, Lord Saatchi, detailed the problems of a Soviet-style command-and-control economy. Such an economy was long-lived to the extent that, as I discovered last week, even in the 1960s the Soviet Union had barter arrangements with India whereby it sold oil and other goods to India in return for textiles, including woolly jumpers. It determined whether the balance of the barter was right by weighing the textiles. As a result, unsurprisingly, many of the products were extremely poor quality. As the person who told me that story explained, often the sleeves were not necessarily the same length, even if they were on the same garment. That is a good indication of the weaknesses of certain types of measurement if we get them wrong. The noble Lord, Lord Saatchi, set out very eloquently why we sometimes get measurements wrong and why the Government have far too many targets. I agree with him that it is a major problem for public services.

The only way to deal with the problem is for Whitehall to loosen up; local government must have greater flexibility and more resources and the regions in England must have powers and an elected body to exercise them. It is not a question simply of telling a hospital or school that it can have more flexibility. Someone must exercise democratic accountability over how that hospital or school operates. That should be done within the framework of elected local and regional authorities. I hope that the noble Lord, Lord Saatchi, will seek to persuade his colleagues that their opposition to elected regional assemblies in England is seriously misplaced.

To sum up, the mood of the debate about the economy has been that storm clouds are gathering. There have been allusions to traffic lights at amber, chickens coming home to roost, and, if I heard him correctly, the noble Lord, Lord Campbell of Alloway,

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talked about, "militant cuckoos in the crow's nest". These do not sound very good to me. The Chancellor will have a relatively difficult year ahead. I shall finish by referring to Adam Smith's comments, which the noble Lord, Lord Skidelsky, quoted. He said that the key things were,

    "peace, easy taxes and the tolerable administration of justice".

In the forthcoming parliamentary Session, the Government will be faced with particularly difficult decisions that relate to all three legs of this tripod for prosperity.

8.7 p.m.

Baroness Buscombe: My Lords, I begin by acknowledging that we have had a most stimulating debate. It allowed noble Lords to explore the very broad subjects that come under the umbrella of "the economy". It is such a pity that I shall not be able to refer to all of the excellent speeches made tonight, but I shall do my best.

We are particularly pleased to have the opportunity to draw matters relating to culture and the media into this debate. Indeed, the differentiation between industry and culture and media is, at best, artificial, and in many ways unhelpful, given that the Department for Culture, Media and Sport covers some of our most successful and dynamic industries.

The communications industry is one of our flagship industries, as is tourism and all its related organisations and enterprises, many of which involve the arts and culture. Tourism is one of the largest industries in the United Kingdom, worth approximately 74 billion in 2001. Almost all of our cultural institutions, except the BBC, are commercial.

In short, the DCMS covers activities that are crucial to the well-being of our economy. It is right that we raise the profile of those activities in responding to the gracious Speech. I also noted what the noble Lord, Lord Hunt, said, with regard to the omission of the word "Science" from the title of "Department of Trade and Industry"—a point well made.

With regard to the economy, it is interesting to note that the Minister was dismissive of the current problems facing thousands of companies in this country, and the concerns of thousands of workers about the security of their jobs—problems that we know have been developing for some time. As the shadow Chancellor of the Exchequer stated in another place earlier this week in response to the gracious Speech, the engine of wealth creation in this country has been over-taxed and almost run into the ground.

The Government are now taking 115 billion per year more from the taxpayer, and for what? As my noble friend Lord Campbell of Alloway said, nowhere is the failure of the Government more clear than in their failure to grapple with the problems of our public services, as evidenced by the position with regard to the Fire Brigades Union.

Both my noble friends Lord Northbrook and Lord Stevens made eloquent speeches on the insecure state of our economy. They spoke about the worrying fact

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that the present growth of our economy depends upon a now shaky housing boom, with massive withdrawals of equity taking place and being turned into spending, together with a very high rate of consumer spending based on rapid growth of public sector spending and public sector pay.

I entirely agree with both the noble Lord, Lord Skidelsky, and the noble Lord, Lord Paul, who said that the Chancellor of the Exchequer is doing the reverse of what business requires. In 1997, the Chancellor said:

    "We will not impose burdensome regulations on business because we understand that successful businesses must keep costs down";

and yet there are now more costs. Moreover, 4,642 new regulations were introduced during the past year. This Session will bring in thousands of new regulations. The Institute of Directors estimates that those regulations will cost businesses 6 billion a year. We recall the passage of the Regulatory Reform Act two years ago in your Lordships' House. At that time, we asked why it was not called the "Deregulation Bill"; now we know.

Some noble Lords spoke about the damage to our competitiveness inflicted by more regulation, more complexity, and more micro-meddling. I entirely agree with my noble friend Lord Crickhowell who talked about pensions and the disaster likely to blight the lives of millions. In support of that view, Help the Aged has said that pensions have faced a disastrous year of chaos and confusion.

With regard to energy, I defer to the experience of my noble friend Lord Gray of Contin. We hope that the Minister listened with care and that he will respond to the questions raised this evening. The Government cannot postpone indefinitely decisions about nuclear power. The problems regarding funding, radioactive waste, nuclear safety, and security of supply, must all be faced.

My noble friend Lord Stevens talked about the decline in manufacturing, as did the noble Lords, Lord Paul and Lord Newby. As they pointed out, since 1997 half a million jobs in manufacturing have been lost. Indeed, jobs are now being lost at the rate of 12,000 a month. Only last week 3,500 went at Cable and Wireless. As the noble Lord, Lord Paul, said, we need a clear policy on the future of manufacturing to protect and nurture our competitive advantage. As my noble friend Lord Saatchi made clear, the Government's response to the state of the economy is to introduce yet more targets. One in particular summed it up. I refer to a target for the Department for Culture, Media and Sport, which stated the goal to:

    "Facilitate and promote our competitiveness both at home and abroad of the creative industries".

Apparently, that target has been met, which brings me conveniently to that part of the debate relating to culture and media. I turn, first, to licensing. It seems strange in many way to juxtapose our laws on drinking alcohol and culture. It rather reminds me of the famous cultural attache, Les Patterson, of Dame Edna fame! Indeed, I agree with my noble friend Lord

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Brooke, who said that it was a mistake to move control of licensing reform from the Home Office to the Department for Culture, Media and Sport.

While we are broadly in favour of the measures in the Licensing Bill, it is notable that the gracious Speech refers to a Bill to tackle anti-social behaviour which damages communities—we understand that this will include outlawing the dropping of chewing gum on our streets and other measures whereby bin men will be able to impose fines—but, two paragraphs later, also refers to streamlining the licensing system and to the abolition of fixed opening hours. I just hope that the Government have done their homework to produce sufficient evidence showing that while chewing gum on our streets is unacceptable, the consumption of alcohol for up to 24 hours a day, seven days a week, really will produce the practical improvements that the Government intend and which I am sure all noble Lords will wish to see.

We also want to be clear that the Licensing Bill contains sufficient safeguards for local residents, particularly in areas where there will be a high concentration of late-night drinking establishments—a concern expressed by my noble friend Lord Brooke. We are not at all convinced that the case has been made for the decision to transfer the responsibility for issuing licences from magistrates' courts to local authorities. We fear that this move may create a system which is slower and more bureaucratic than the current regime.

Will local authorities be given extra resources to fulfil their additional responsibilities, or are the Government expecting licensed premises to pick up the tab? Clearly, local authorities are concerned to ensure that these additional responsibilities are complemented with sufficient powers for them to be able to manage what is termed the "night-time economy" according to the needs of their respective communities. Perhaps the Minister can also explain how liberalising our licensing laws sits with the Government's drive to prioritise the health of the nation. We believe that this is another example of mixed messages which we fear will be cushioned by meaningless targets.

On procedure, one of the Government's mantras—the one about transparency and openness—has proved in recent days to be entirely false. I was somewhat surprised to learn of various stages of the draft Licensing Bill floating around in the weeks prior to the Queen's Speech, and indeed to learn two weeks ago about the department's proposed timing for the Bill's passage through your Lordships' House. Not wishing to be left out of this seemingly transparent loop, and keen as we were to prepare our response, we telephoned the office of the Minister for Culture in another place, Mr Kim Howells MP, and of the Minister, the noble Baroness, Lady Blackstone, to ask whether we might also have a copy of the latest draft. We were told by the Minister's office in no uncertain terms that we could not see the Bill until it was

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published. So it is absolutely fine to be open and transparent with everyone except Members of your Lordships' House.

I turn to the Communications Bill. Judging by the contributions of noble Lords, we can look forward to a lively passage through your Lordships' House. We welcome the Bill, which has quite clearly become a much better Bill for the hard work and commitment of the Joint Scrutiny Committee chaired by the noble Lord, Lord Puttnam. There will be areas of contention in the Bill for your Lordships to consider. On media ownership, for example, we very much support the Government's intention to allow greater cross-media ownership, consolidation and foreign investment and the move towards a regime whereby the media industries are subject to the same competition rules as other industries. We also heard the noble Lord, Lord Bragg, when he spoke of what one might describe as the "pivotal tensions" between the need for light-touch regulation and the public good. This matter will require considerable debate.

As for cross-media ownership and ownership by new players, the fact is that this country has always benefited from new players. As countries such as the United States, Canada and Australia have many similar cultural impulses to ours, why deny British media outlets the opportunity to be involved? Given that our broadcasting audience is accustomed to relatively high quality programming, a new broadcaster would not benefit from entering the market if the quality of the product failed to attract viewers. We entirely disagreed with the noble Lord, Lord McNally, when he said that Sky was interested only in its shareholders. We believe that Sky has driven innovation and broadcasting technology for the benefit of all of us. We also welcome last week's announcement by the Secretary of State that the Government intend to allow an even greater relaxation of the local ownership rules.

We have consistently argued that the BBC should be fully within the remit of Ofcom, and we are pleased that several noble Lords who spoke today—including the noble Lord, Lord Hussey, with his depth of experience of the BBC—take a similar view. It defies logic to pretend that this legislation can possibly fulfil its purpose if Ofcom's powers do not fully extend to the biggest player in broadcasting, commanding about 40 per cent of the television audience and an even bigger proportion of radio. The noble Lord, Lord Puttnam, spoke of the desirability of a genuinely powerful and committed regulator—a tough goal if the biggest player is off the pitch.

My honourable friend the Shadow Secretary of State for Culture, Media and Sport, John Whittingdale MP, following the gracious Speech in another place, said about the BBC that because of its dominance, because it is owned by the state and because it is financed by a compulsory poll tax, which

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is enforced by criminal law, it has obligations and duties which do not apply to any other broadcaster. He continued:

    "It has a public service remit and it is subject to strict controls on its commercial activities, yet unlike other broadcasters, responsibility for ensuring that it meets the requirements upon it for adjudicating on complaints about its activities rests not with the new regulator"—


    "but with its own board of governors. Yet the BBC is most in need of external accountability and independent adjudication".—[Official Report, Commons, 15/11/02; col. 331.]

Otherwise, as the noble Lord, Lord Gordon, said, the BBC, through its board of governors, will be judge and jury in its own house.

A number of noble Lords raised points on this issue. The noble Lord, Lord Gordon, also said that it may well be better if the BBC were to be within the remit of Ofcom. My noble friend Lord Crickhowell referred to the BBC's role with regard to Ofcom and the possibility of this issue being kicked into the long grass. The noble Lord, Lord Bragg, said that conflict, strife and confrontation are inevitable. He went on to advise that the BBC should surrender itself totally to Ofcom. My noble friend Lord Stevens spoke of the need for the BBC to be wholly under the regulation of Ofcom.

We believe that the position of the BBC has become more serious in recent months. At a time when the commercial broadcasting companies are struggling as a result of advertising downturn, the BBC is enjoying steadily increasing revenue, with regular injections from the taxpayer, and is adopting a more and more aggressively commercial approach. It is now competing in the market to buy rights; it is scheduling its most popular programmes with an eye to winning the ratings battle; and it is launching new channels and services which in some cases are almost carbon copies of those already available commercially. The noble Lord, Lord Hussey, referred to the dangers of ratings at the expense of purpose.

We believe that the position of the BBC would be much more secure and that it would give clarity to its role and its relationship both with other public service broadcasters and the wholly commercial sector if it was fully within the remit of Ofcom. How much better it would be to have the BBC inside the tent, serving its proper function as a benchmark for quality and diversity against which its performance and that of its commercially funded competitors could be properly compared and judged.

Turning to Ofcom's competition powers, the Bill's acknowledgement of competition as the key arbiter of quality and diversity is to be welcomed. What is not clear is whether Ofcom will have the powers, the expertise and, perhaps most importantly, as a number of noble Lords have said, the resources to ensure that it can be an effective and authoritative regulator of competition.

On a separate note, we entirely agree with the noble Lord, Lord Bragg, in regard to supporting the merger of Carlton and Granada. The noble Lord, Lord Laird, spoke with considerable passion about his view that

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the BBC Northern Ireland has not delivered on its promises in regard to culture and diversity—we shall listen with interest to the Minister's reply—and the noble Baroness, Lady Howe, was concerned about the perceived lack of independence of the content board.

Turning briefly to tourism, I referred at the beginning of my speech to the value of tourism as an industry which impacts on every village, town and city throughout the United Kingdom. It employs 2.1 million people and accounts for 4.5 per cent of GDP. It is an industry which has suffered seriously in the past two years as a result of the massive downturn caused by foot and mouth disease, which was then compounded by the effects of September 11th. The industry has fought to reverse the downturn, although belated support from the Government has been marred by an obvious shortfall for England as compared with the investment in Scotland and Wales. That said, additional funding directed to the regions, not England, was announced earlier this year.

The position has now been compounded by the Government's announcement last month of their decision to merge the English Tourism Council with the British Tourist Authority. Not only do the devolved legislators in Scotland and Wales have the powers and resources to help tourism in their own areas; they have also benefited from marketing by the British Tourist Authority.

England does not enjoy such dual coverage and there is a real danger that the new merged body could lead to conflicts of interest with internal pressures to be seen to be British diluting the English tourism effort and thus making England even more the poor relation.

We believe that the thinking behind that—unlike a good deal of government policy—is clear. The Government are obsessed with their regional agenda, which will simply add another layer of costs to the taxpayer and create more friction at local government level.

In conclusion, I was not in your Lordships' Chamber to hear the gracious Speech; I was at my desk on the Second Floor. I watched and listened to the proceedings on television. As honourable Members of another place were departing from this Chamber, David Dimbleby said,

    "now the MPs are returning to the Commons, the place where the real work is done".

I took that rather badly, as I hope your Lordships will. If the work that we did collectively in the previous Session alone is anything to go by, it is high time that we challenged those commentators who hold themselves out as knowledgeable on constitutional and legislative matters to come down from their celebrity towers to witness and appreciate where so much of the work is really done.

8.26 p.m.

Lord McIntosh of Haringey: My Lords, having listened with great attention to the debate for a number of hours, I am tempted to agree with the final remarks of the noble Baroness, Lady Buscombe. The debate has been exceptionally well informed on the culture,

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media and sport side and on the economy and industry side. I am hard put to answer even a significant proportion of the valuable points that have been made.

I am particularly hard put to answer the noble Lord, Lord Saatchi, because I cannot fit him into any category at all. He made a very witty and elegant speech, and I really enjoyed his lengthy fantasy about command economies but, at the end of it, I thought that he was making an after-dinner speech or an introduction. However, after 13 minutes of introduction, he sat down. He never gave us the benefit of his views on his party's policies on industry and the economy. He did not tell us whether he thought that our policies for funding public services were right or wrong. He made various comments about our requirement for accountability—he called them targets—without ever recognising that we were setting up independent accountability for the benefit of the people and the taxpayers rather than letting public services "go rip" with the extra money that was provided. He did not even—this was really astonishing—venture a view on whether the economic policies of the Chancellor of the Exchequer were or were not successful. I was enormously more impressed by the views of the noble Lords, Lord Roll, Lord Skidelsky and Lord Newby, than I was by those of some other noble Lords. Perhaps I should return to that after dealing with the DCMS issues.

I join all those who have spoken in adding my thanks to my noble friend Lord Puttnam and his committee; I congratulate them on their valuable work. So much of what they said has been incorporated in the Bill, which was published this morning. I am enormously encouraged to learn from my noble friend that he is now 95 per cent satisfied with the changes that are being made, particularly in relation to foreign ownership. He is clearly right that we need an evidence-based approach and we do not know what the result will be of the changes in the foreign ownership provisions. The issue is one of foreign ownership—of course foreign ownerships outside the EU are involved—but it is also mixed up with the issue of cross-media ownership. Although we do not say so, we must recognise that that is the case. The Bill's proposals for progressive tightening of controls—if and when there is an increase in market share—seem to have attracted some support, for which we are grateful.

We are of course grateful to the noble Lord, Lord McNally, and others, who said that the purpose of the exercise was to make a good Bill better. I am sorry, but one of the immediate consequences has been to make a long Bill longer. It is not just longer, but very much longer. We agree that it is important for the Government to retain their position as the guardian of the public interest.

Many valuable points were made for which I can record only recognition and a degree of agreement. The noble Lord, Lord Bragg, is right to point out the potential for conflict between a light touch in regulation and the maintenance of standards. We shall have to consider that issue in detail as we go through

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the Bill. He is certainly right to say that increasing the quantity of broadcasting does not necessarily increase the quality or, indeed, the diversity of broadcasting. There is a problem of regression towards the mean in broadcasting output.

I am referred to the issue of foreign ownership. Again the noble Lord, Lord Bragg, made a valuable point about the need for safeguards on content, advertising and acquisitions. I acknowledge the point that the noble Lord, Lord Hussey, made about the fact that there is no equivalence between foreign ownership and foreign content. One could have one without the other in either direction. Nevertheless, there is a legitimate view that if one opens up ownership as well as content, one draws from a larger pool of potentially better programming.

A good deal of debate took place about the BBC. I agree with the noble Lord, Lord Hussey, that there will always be a delicate relationship between the BBC and Ofcom. I was interested in what he said about the governors lacking media experience. There are some who would disagree. I listened carefully to what was said about the relationship of the BBC and Ofcom. I heard what the noble Lord, Lord Gordon, said about the need for tier 3 to be regulated. I heard what the noble Lord, Lord Stevens, and the noble Baroness, Lady Buscombe, said. And I heard what the noble Lord, Lord Bragg, said about the BBC's involvement in commercial business and the relevance of Ofcom controls to that part of it.

I think that the Bill is clear on those matters and as it goes through the House we shall continue to listen to the arguments. The important consideration is that public service broadcasting is, always has been, and always will be very much wider than the BBC. The point was made—again coming back to the noble Lord, Lord Bragg—about Channel 4 news and regional broadcasting in ITV.

The noble Lord, Lord Crickhowell, asked a specific question about the draft agreement and whether it would be available. It is our intention that it should be available for consideration as the Bill goes through. I hope that it will be in time for Committee in the House of Commons. The principles of the draft agreement are clear. It will mirror the Bill. The BBC will be regulated by Ofcom under tiers 1 and 2; there will be an annual statement of policy; and there will be the possibility of fines on the BBC.

Before I leave the BBC, I must acknowledge the passionate speech of the noble Lord, Lord Laird, about Ulster Scots. A great deal of what he said is for the BBC to reply to rather than the Government. I shall of course see to it that the BBC is acquainted with what he said and ask for a reply. If there are any government aspects in what he said, then, of course, the relevant government departments will respond to him.

The noble Lord, Lord Gordon, was right to say that content issues are of enormous importance. I am sure that that will emerge as the Bill progresses. It is not, as he said, a matter of marketing a tin of beans.

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I listened carefully to the comments of the right reverend Prelate the Bishop of Wakefield and the noble Baroness, Lady Howe, on religious broadcasting. I do not think that the situation is as barmy as the noble Baroness described it. Clause 335 of the Bill gives open access to religious organisations to produce broadcasting under digital terrestrial television and digital terrestrial radio. However, that does not apply—as is the case now—to analogue radio or to TV multiplexes where spectrum scarcity still exists. Of course, if there were no spectrum scarcity, we would have great difficulty excluding religious organisations under the European Convention on Human Rights, to which the right reverend Prelate the Bishop of Wakefield referred. We must acknowledge that the change as regards spectrum scarcity is by no means complete.

The noble Baroness, Lady Howe, asked whether the content board would be sufficiently independent. There will be a majority of lay members and there will be a power to establish committees. Of course, there will be the same power to redress wrongs as there is now. I hope that that gives the noble Baroness the assurance that she seeks. The consumer panel will cover consumer issues such as availability, quality and the price of services rather than issues of content.

I turn to licensing. We shall debate this matter in detail next week so perhaps I should do no more than thank the noble Lord, Lord McNally, and the noble Baroness, Lady Buscombe, for their welcome of the Bill. I acknowledge the points that they made about the link between alcohol consumption and anti-social behaviour. However, it is rather an assumption to say that people will drink more if there are longer licensing hours. It is also an assumption to think that because longer licensing hours are possible they will be taken up. We shall see whether that is the case as time goes on.

I am grateful to the noble Lord, Lord Brooke of Sutton Mandeville, for volunteering to work on the Bill during its passage. Indeed, in his former constituency he championed the rights of inner-city residents. I hope that he will consider that the transfer of responsibility for certain matters to local authorities is a democratic move, that residents will have the power to object and that, when it is necessary to close down licensed premises, police powers will be greater and more immediate than they are at the moment. The noble Lord, Lord McNally, asked whether that step constituted joined-up government. I consider that it does as it brings together planning issues, enforcement issues, licensing issues and issues concerning transport, safety and crime late at night. Those issues can be aired in our debate next week.

I wish to refer briefly to the comments of the noble Lord, Lord Campbell of Alloway, on the disruption of public services. On the previous occasion we discussed the matter I was accused of complacency. My fundamental objection to the noble Lord's Bill—then as now—is that it is not a solution to these problems to throw trade union leaders into prison. I do not believe that anyone is saying that it would be a solution to our current problems to throw Mr Andy Gilchrist into

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prison. I hope that the noble Lord, Lord Campbell, agrees with that. The Employment Relations Act review is now in its consultation phase. It will be completed in time to enable any necessary legislation to be introduced this Parliament.

I turn to energy. I am glad that the noble Lord, Lord Gray of Contin, recognised the value of pre-legislative scrutiny of the proposed nuclear reform Bill. Of course, we shall take account of the responses made following publication of the White Paper. I note the point that the noble Lord made about our optimism in relation to renewables. I agree that it is a challenging target. The debate concerning the climate change levy as against the carbon tax will continue. I am afraid that the answer is that there is no one perfect solution.

As to the noble Lord's questions about meeting our Kyoto targets, I believe that he will have to wait until an energy White Paper is produced at the turn of the year. The question of transmission costs from wind farms is enormously complicated. My noble friend Lord Hunt also referred to that. I shall have to write to them both on that issue.

Perhaps I may use the remaining time to talk about the economy and industry and about our economic performance. I wrote down with a golden pen what the noble Lord, Lord Roll, said. He said that the Chancellor had given an upbeat account of the economic situation with which he agreed. He said that our public finances are as good as they have been in his experience. When one recognises that the experience of the noble Lord, Lord Roll, covers virtually the whole of the 20th century, that is quite a tribute. The noble Lords, Lord Skidelsky and Lord Newby, said very much the same thing.

It is true that the world economy slowed down in 2001. Nevertheless, it is the case that policy actions which have taken place, combined to some extent with lower oil prices, have helped to prevent a prolonged downturn. Some kind of global recovery is under way. But that does not in any way underestimate the risks to what the noble Lord, Lord Roll, rightly called our "dependent economy". In the light of those comments, I venture to disagree without further comment on the points made by the noble Lords, Lord Stevens and Lord Northbrook, who, in a series of detailed questions, asked me to anticipate next week's Pre-Budget Report. I certainly shall not do that.

As to the issue of the public finances, I can only point out that the public sector net debt is still only 31 per cent of GDP and is projected to continue that way until 2006-07. That is in contrast to the level of 44 per cent at which it stood when we came into office. Our public sector net debt is the lowest in the G7; it is among the lowest in the European Union; and, as the noble Lord, Lord Skidelsky, rightly said, we are on target to continue to conform to the golden rule.

With regard to the issue of small businesses and regulation, I heard what was said by the noble Lord, Lord Northbrook, and others about the ICA and Institute of Directors surveys. But the 2002 Economist Intelligence Unit survey said that our business environment was among the top three in the world—

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with the Netherlands and Denmark—in terms of being favourable to business. The OECD's current survey—my noble friend Lord Haskel was right to refer to that—states that we are better than most OECD countries in terms of business environment. I take that evidence very seriously. Even the noble Lord, Lord Heseltine, has been moved to agree with that.

I shall not go into the issue of pensions, if I may be forgiven, because the matter was raised and responded to in the debate yesterday.

Of course, I must refer to manufacturing, which was mentioned by a number of noble Lords—in particular, my noble friend Lord Paul. I acknowledge his credentials as an active member of the Engineering Employers' Federation. He will acknowledge that the EEF, the CBI and the TUC have given support to the first published strategy on manufacturing for approximately 30 years. The key to that is that the future for manufacturing in this country is high value-added manufacturing and not low-wage manufacturing.

I acknowledge the points that my noble friend Lord Paul made about the risk of undermining investment in this country and I acknowledge the figures quoted by the noble Baroness, Lady Buscombe. Our corporation tax is among the lowest in the developed world. We have measures such as R&D tax credits, first-year capital allowances and so on, all of which are enormously favourable to manufacturing industry.

Perhaps I may refer to the speech of the noble Lord, Lord Hunt. We have an enormously increased basic science budget. I cannot go into the other issues that he raised, but clearly the increase in government spending on basic science is evidence of our concern for a rational approach to decision making in public policy.

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On inward investment, I heard the figures that have been quoted. I note that the Ernst & Young report, quoted by the noble Lord, Lord Newby, gave only the number of new projects and not the size of them. The most reliable data are still those for 2001, which show that we were second in the world and top in the European Union.

In the one minute remaining to me I want to say a word about the euro. I am going to flunk the challenge set by the noble Lord, Lord Roll. He called for the Government to show courage in approaching the euro. The Chancellor may show courage; the Prime Minister may show courage; the Cabinet may show courage; but I shall not show courage. I shall not anticipate what may be said.

Yes, of course, my noble friend Lord Sheldon, is right that although we have the same tests as in 1997, the judgment on them will be made on the economic facts of 2002–03. He is right also to say that there is no sixth test on the exchange rate. I heard what the noble Lords, Lord Layard and Lord Newby, said; I have heard it before and I shall not be drawn on any of those points.

This has been a most helpful and constructive debate. I am grateful to all noble Lords who have taken part.

On behalf of my noble friend Lord Falconer of Thoroton, I beg to move that the debate on the Address be now adjourned until tomorrow.

On Question, Motion agreed to, and debate adjourned accordingly until tomorrow.

London Development Agency Bill

Brought from the Commons; the declaration of the agent having been deposited pursuant to the resolution of 29th October, the Bill was read a first time and referred to the Examiners.

        House adjourned at thirteen minutes before nine o'clock.

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