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8.13 p.m.

Baroness Dean of Thornton-le-Fylde: My Lords, I welcome this debate this evening tabled by the noble Lord, Lord Renwick. When I saw the list of speakers, just three of us--though I too declare an interest as a director of EURIM--I was reminded of the saying, "Out of acorns grow oak trees".

This is a big issue in the world outside, though perhaps not to many speakers here this evening. Nevertheless, it is a tremendous opportunity for Britain, provided we get the base line right. When I talk about the base line I mean the access being universal and ensuring that a monopoly does not take over and cut out all the wonderful services that will be available.

Though EURIM consists basically of commercial and parliamentary interests--the noble Lord, Lord Renwick, listed companies that are members--it also has a consumer voice. I should not like this House and the Minister in particular to believe that it consists solely of business interests. The consumer's voice regularly enters our debates. I have been encouraged by the balanced view that has emerged--on the one hand the commercial attractiveness of doing business electronically and, on the other, recognising that for that to succeed we must have a framework within which the consumer (be it an individual or a company, large or small) can have confidence and feel safe and secure in the fact that standards are applying so that they can look at the product or service that they are buying without wondering whether behind it there is some disreputable involvement.

Another interest I must declare in this debate is that I am chairman of an organisation called ICSTIS, which is in the value-added or premium rate telephone industry. It was possibly the earliest form of electronic commerce whereby the consumer pays for a service which is delivered--certainly at the moment, though there are indications that that may change--on-line by the service being delivered within the call. As a result of the industry not having proper consumer protection initially, it was almost shut down. It was only the regulation being introduced that enabled the good parts of the industry to flourish--that is what we are seeking here--and for the less reputable parts to be regulated. That is when the industry took off in the UK.

It is interesting to see the comparison when one looks at other countries. Even recently in Germany CompuServe were involved in a situation which

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overnight shut down that sector of the industry. We do not want that to happen with the exciting new developments that are taking place at the moment. Provided we get the framework right, provided we do not have monopoly control and provided we have universal access available, we are poised to take off into what I regard as another revolution--industrial, commercial, call it what you will, but a peaceful revolution.

Much is being done, but still more needs to be done. It is a fact, even as we speak tonight, that technology continually outstrips the ability of the laws and regulations that we have in place to be able to respond quickly and positively to the challenges that we face. Those are the checks and balances at which we need to look. We need to examine consumer security, protection and redress. There must be privacy on the one hand; but on the other there must not be old-fashioned regulation. That will not work; it is not working now, though ways can be found round it. We do not want regulation that will put an iron ring --albeit a "virtual" iron ring--round the new services which will inhibit their development.

There are already some worrying indications. The Vice-President of the United States, Al Gore, was put in charge of that area by the President some time ago. Only this week Microsoft were fined in a big profile case. It is an indication of what could happen to this whole sector of industry which could be enormously creative for the world in which we live in coming years and, indeed, the world in which our children live though it will not wait for them; it is taking off in our own generation.

It needs co-operation and collaboration between service providers and regulatory bodies. But there must also be co-operation and collaboration between governments, and that is where the Minister comes in. We must have confidence in what is proposed. We in ICSTIS could see that whereas the industry started off as a national industry, today it is an international industry. So we formed the European Auditext Regulators Group, 14 countries coming together. The more we come together, the more we know from the shared experience that we have to collaborate.

In this new world the old system of regulation will not work. Here I pay tribute to the work that was carried out by a DTI Minister in the previous government, Ian Taylor, who picked out this whole area of the emerging technologies in terms of the possible commercial opportunities and the input of the consumer, too. His work received support from my colleagues in another place. This is not a party political issue. It is not an issue on which we challenge each other. It is an issue where, if we can collaborate with our colleagues throughout the world, we are in a win-win situation. However, there are some serious concerns at the moment.

The Question refers to the City, but there are internationally agreed standards affecting so much of our lives. In Britain there is the BSI. There is the

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European CEN and also ISO. It is not a case of putting on the lid; it is a case of encouraging confidence.

Perhaps I may put to my noble friend the Minister a number of concerns I have and questions which I hope he will be able to answer. Britain has the European Union presidency next year. It comes at a time of great change in many areas. I was at the European regulators conference in Austria last week. Austria deregulated its telecoms industry in August. An Austrian civil servant said that when Austria takes over the presidency from us this whole area will be one of its priority topics. I wish to ask my noble friend the Minister whether this area of potential wealth generation for Britain will feature in the work we do as part of our EU presidency.

Yesterday I chaired a session at the Electronics Commerce conference. We were delighted that the Minister, Barbara Roche, was able to address us. She gave a very good address to the conference. She said that Britain is well placed. She is right. Our language is certainly well placed for these developments. Accepting that we are well placed, I hope that we learn from the lesson of UK Limited's past. We have been well placed in so many industries through the generations since the Industrial Revolution. Time after time, having been well placed--ahead of the game, if you like--we have suddenly found ourselves at the back of the game because we did not make the best of what we had. I hope my noble friend the Minister will comment on what proposals the Government may have to ensure that we can hold onto our place ahead of the game. This is not an area where, if we fall back to third or fourth place, we can catch up again. It really is, as spivs sometimes say on the corner of the street, a once in a lifetime opportunity. This is a real opportunity for us. I hope that we shall make the most of it.

I am well aware of the Government's policy, which I fully support, that we should have education, education, education. I am told that we are potentially short of 50,000 skilled workers in this field. It seems criminal that while we have people unemployed we have a skills shortage in this area. As this is an industry which can be transferred across boundaries, companies cannot just pay more and get the workers. They may simply move outside our national borders. I do not expect the Minister to have the magic answer today but I hope he will look at the point and be prepared to discuss it further with people in the sector. Only today I was at a meeting at which a company told me that it is having to look at what it does about its future technology because it cannot get skilled people. It is not in a position to pay more to get them. It has a fixed budget.

I welcome this debate. In many respects it has been a long time coming. Perhaps we should have had it earlier. I know that the Minister will not interpret the small number of noble Lords taking part in the debate as an indication of the importance of the issue to UK Limited.

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8.25 p.m.

Viscount Chelmsford: My Lords, I thank my noble friend Lord Renwick for giving me the chance of speaking on this subject. I am a director of EURIM and I declare that I am president of the Electronics Commerce Association. There are various other bits and pieces, all of which are in the Register and all of them are unpaid.

We live in a world where technical change is happening faster than most of us can assimilate. Many business leaders cannot take it in. It is therefore not altogether surprising that politicians become confused and that new laws are enacted on obsolete concepts. Two major factors today must be taken into account: first, the convergence of phone, fax, PC, TV--or, should I say, speech, text, data, image, moving pictures, all travelling along as bits; and secondly, the arrival of the Internet, making electronic commerce, at any rate in theory, available to all.

What is the Internet? First, what is it not? It is not a single network; it is not a legal person; it does not have a sole regulator; it does not provide information to anyone; rather it is a collection of computer networks with numerous owners. It allows us to forget distance and to ignore geographic boundaries, with all the complications that set in as a result of jurisdiction problems and lack of redress. It is in fact a competitive free-for-all where governments are not the key players. It sends packets of data around the world, no matter the message type. It threatens existing bilateral telecoms arrangements. A recent study by the consultants McTavish Hepburn states:

    "Telecoms Operators are manifestly failing customers on business multi-media".
To return to the Internet: it is today a legal and regulatory quagmire. It is currently self-regulated on an ad hoc basis by regulators who have no global authority and are unlikely to get it.

So where do we go from here? I suggest we have to resolve what I see as the European dilemma. Which has priority--external trade or internal equity? My money is on the first but I should like to talk briefly on both. Let us start on internal equity. The EU desires to harmonise law, tax and, more immediately, the horizontal issues of privacy, IPR, security, cross-border payment and redress. We hear talk of a liabilities directive to encompass them. Conversely, the Commission calls for enhanced plurality and diversity. Yet diversity prevents common solutions, the very solutions it is looking for on its horizontal issues. The USA has one language and has had 100 years of honing one set of laws to conform between federal and state government. The EU has 15 languages and three major cultures which have been described as the Vikings, the Teutons and the Latins. It has umpteen different legal solutions to horizontal problems. So by all means let us work to reduce these differences, but let us also put trade first. It is interesting that Commissioner Martin Bangemann came the other day to the global standards conference

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in Brussels. Talking at the plenary session he dropped the new word "charter" and then went on to talk about "best practice". I am not altogether clear what he was getting at, but if he was actually suggesting that, rather than trying to force through directives, it would be better to try to build up best practice between 15 nation states, I believe that is good news. I do not believe that it is sensible to fight for directives which blow someone's existing culture high and wide.

So does the EU have the clout today in negotiations with, for example, the USA? I believe that it does. We have seen telecoms and industrial trade and, it is to be hoped, we shall see financial services, all liberalised in negotiations with the World Trade Organisation. I believe that Sir Leon Brittan has made good use of his EU-improved buying power. Free trade is in the interests of the United Kingdom. There was an interesting comment in the Financial Times the other day suggesting that if we failed in the WTO to reach agreement on financial services, that would damage the City of London. The thought was that the EU might then move to restrict competition to those countries with compatible access to our own. That would be in the same way as the EU is currently threatening the trans-border movement of personal data to countries unregulated in the data protection area. I do not believe that it is in our interests to get too far down that line, particularly when corporates feel inhibited about publishing such simple statistics as employee phone and e-mail directories across the world lest they be found to infringe personal data. Here it is worth quoting a leading UK lawyer speaking at a seminar I attended only this week who did not know we were having this debate. He said,

    "[The] EU directive transborder dataflows rules are incompatible with Internet architecture".
What he meant by that is that there is no way of policing the requirements of Articles 25 and 26 of the EU treaty. Life has moved on but the treaty has not.

As noble Lords heard from my noble friend Lord Renwick, the Corporation of London is advising that its London Link Association offers secure e-mail and extends to 12,000 mail boxes. Its objective is world-wide communications and a global infrastructure. There is another scheme which it has called PORT, which is looking towards global business-to-business networks. In the insurance industry we have a broker network called WIN--the World Insurance Network, which is looking into the same. It is WIN which is worrying about names and addresses.

Since the world, sadly, cannot agree on the law of the sea or the law of space, it seems to me unlikely that it is actually going to agree on the law of global electronic commerce. Meanwhile we are actually getting a plethora of country-specific applicable laws on the Internet, which are mostly inappropriate and frequently unenforceable. It may surprise noble Lords to know that the USA has more Internet actual or pending legislation than any other country. It sends

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Ira Magaziner to Europe to exhort us to follow it in freedom and self-regulation. But I quote the White House paper, which says,

    "Signs of these"--
meaning regulatory--

    "types of commerce inhibiting actions are already appearing in many nations. Pre-empting these harmful actions before they take root is a strong motivation for the strategy outlined in this [US] paper".
Yet the USA's regulation on encrypted products is commerce-inhibiting and a harmful action. Again the White House paper says,

    "Parties should be free to order the contractual relationship between themselves as they see fit".
That is fine for corporates who are supposed to know how to handle these matters, but where is the codicil on consumer protection and the comment about 30 days to return the goods if they are not what one expected? The United States is not the only country bringing in such laws. Germany now has a multi-media law. Singapore allows access to business, but not to the home, which is absurd. It must be very tiresome for all the Singaporean employers. China and Vietnam are seeking restrictions and if one goes to Burma with a laptop computer one is automatically put in gaol for 15 years, so I should not advise it. Here we do not want pornography, crime and racism any more than anyone else, but I suggest that we do not want unworkable restrictions either. I believe that no one has all the answers, but I would like to offer a few pointers and ask both the United Kingdom and the EU not to act in haste on any law which they may later repent of at leisure.

Why do we not all try for the easier points of agreement first? I read that the Government will use the presidency to emphasise consumer law and so I propose four simple ideas which ought not to cause too many problems in this area. First, family self-regulation. Why do we not implement one of the many schemes which are around which allow parents the right and the ease to censor what their children do and see? Will the Government act as the catalyst and call the players together who claim the various solutions? Will they get them to agree the standards and guidelines? This is not a matter where the Government have to throw out money; they simply have to act as the central catalyst.

Secondly, why do we not seek the widest possible agreement on default jurisdiction, meaning the law to be applied when contracts are silent as to which law should be applied and yet the contract is cross-border? Corporates, of course, should not need that, but consumers certainly do. We should be able to achieve that pretty easily, at least in the EU and, I hope, wider still. Thirdly, why do we not seek a standard default contract, at least within the EU, which would apply to consumers who receive or accept goods without actually signing a contract? Again, we can try for wider support among other nations. All these default suggestions are basically consumer oriented. Companies ought to know better than to trade without a contract even though it seems to me that some

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SMEs grow more like consumers daily. Incidentally, the United States is suggesting the use of the Uncitral New Model Law, which is a very good model. It is a little broad for consumers, perhaps, but it will at least allow the EU to get talking.

Fourthly, existing law should not leave a consumer worse off in electronic trade than he is in manual trade. The Government know that UK statute currently can do that. Recommendations have been made to the DTI solicitor on that. Some words need changing in the definition in the interpretation Act. As far as we are aware, no research by other EU states has taken place, but it seems likely that the same problem will apply to them also.

Perhaps I may make two more suggestions, which are not wholly consumer oriented. Fifthly, the database directive actually widened the gap on IPR between Europe and the other nations. I believe that that is an error in tactics. We need to exhort the Commission to concentrate on global implementation of existing treaties which are not yet law around the world. Here at least the US is on side by saying that countries should implement WIPO.

There is a simple rule of thumb which noble Lords might wish to consider for global trade; namely, that no major legal revision should take place until two-thirds of the world has implemented the last global revision. Sixthly, we need to concentrate on success in reducing the "have nots" because that increases the size of the potential electronic commerce market for consumers. One major inhibitor in this area arises from the fact that the Internet uses only the English language. If we can find some way of exhorting the vendors to crack the problem of translation between English and other languages then we open up a whole host of extra potential consumers.

So we get three major objectives of the EU riding together. We can enhance diversity and plurality if we can get other languages onto the Internet. We can reduce the number of ICT "have nots" if people using other languages can use it. We can increase global trade through the Internet because they are using it.

So in summary there is a place for EU harmonisation, but it is just that in my view it is not first place. That should go to trade; namely, UK trade globally and EU trade globally. The one thing that the American Government do brilliantly and which we are not at all good at is that they have the knack of identifying the right moment for them to act as a catalyst for new technologies needing to get a start up. They also have the wealth to throw money at the start-ups. The combination has meant that time and time again the US has been first in the market with products for private industry to sell. After that, the US comes to Europe to explain that the industry is self-regulating, that the US Government are uninvolved and that our governments should stay likewise.

This is not a plea on my part for money because the UK will never match the USA in wealth, but it is a plea for more government interest in start-ups, in the need to lay down the basic infrastructure rules for

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such start-ups and thus to remove investment uncertainty. It is sad that tonight there are only three noble Lords speaking plus the Minister because this topic is a very important part of the future of this country. I know that it is late at night, but it would have been lovely to have a few more noble Lords present.

The US is not by any means the automatic leader in everything to do with electronic commerce. It is not the leader in, for example, mobile telephony. It is not the leader in smart card development. The Guardian is suggesting that EC determination to have secure privacy and digital signatures could leave the USA third behind Europe and Asia in respect of electronic commerce. We need to work to turn that into reality. Sadly, the French Government did not help us a couple of days ago when they decided to support the USA on this issue.

To conclude, I ask the Minister whether the Government agree with my priorities--that is, that external EU trade should come first and internal harmony second, and I ask the Minister to study what I hope are six reasonable suggestions for the UK presidency to promote as part of the internal and external harmony which we need with other nations.

8.41 p.m.

Lord Haskel: My Lords, I must congratulate the noble Lord, Lord Renwick, on initiating this debate. The subject of electronic commerce is one on which his views command much respect. As chairman of PITCOM, he and his colleagues whom he has brought along this evening, together with EURIM, have recently produced some excellent constructive reports. I maintain a continuing interest and enthusiasm in these matters, having seen the impact of information technology on business and industry from its very early days. I also served on the inquiry into the information society which was undertaken by your Lordships' Select Committee on Science and Technology--a very interesting exercise.

All speakers have referred to the promise of the current IT situation in the UK. The noble Viscount, Lord Chelmsford, and the noble Lord, Lord Renwick, referred to the City. It is because we can be among the best that we can confidently face the initiative of global electronic commerce recently announced by the US Government. Their approach is understandable. As the noble Lord reminded us, historically the centre of gravity of the Internet has always been the US. The Internet began in North America and US companies continue to invest heavily in its development so that the majority of Internet content is still American in origin. As such, the US will necessarily be a key player if any progress towards meaningful international agreement is to be achieved.

Certainly there have been problems--for example, in initial industry proposals for Internet domain names--but in general the US has been responsive to representations. President Clinton's new initiative is not specific in terms of hard policy proposals. The key principles espoused are a kind of "motherhood and apple pie" which the UK would fully support. The

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announcement in any case commits the US Administration to pursue their goals through discussion in international fora such as the OECD, the World Intellectual Property Organisation and the WTO. As such, the Government warmly welcome the initiative and will certainly ensure that the needs of the UK are fully represented.

Because of the excellence of our industry, the UK has much to offer these discussions since we are already doing a great deal in support of electronic commerce and the information society. Indeed, in some areas Europe is ahead: for example, in the GSM standards for mobile telephony and in the transmission standards for digital broadcasting.

My noble friend Lady Dean asked what the Government intend to do. The short answer is that we shall seek to shift the IT centre of gravity towards the UK by encouraging its use here. I take note of what my noble friend said about the shortage of skilled employees. That is a very important part of the calculation. Nevertheless, the Government will do, and are doing, all that they can to shift the balance back to Europe.

We must first recognise the clear need for businesses and consumers to have the confidence to become IT literate. Only today yet another report has been published suggesting that over 50 per cent. of the population are not IT literate. The Government's own figures from the end of last year suggest that up to 54 per cent. are not IT literate. There is a need to make people aware of the opportunities and the possibilities.

The information society initiative, Programme for Business, supports the development and informed uptake of new technologies and applications by all UK businesses, particularly small and medium-sized enterprises. We are further encouraging the use of the Internet by SMEs by sponsoring the TradeUK initiative--a virtual business park on the world-wide web where UK companies can promote their products and services. We will also soon be launching the Internet Enterprise Zone, designed to help SMEs to obtain quick and easy access to the wealth of business information available on the Internet.

The IT for All programme aims to raise awareness among the public of the benefits that new technologies can bring to everyday life. The Government are committed to ensuring that the benefits of the information society are available to all, avoiding the creation of an "information underclass". My right honourable friend the President of the Board of Trade recently authorised a further £2.75 million expenditure this year for this programme.

This theme of access and opportunity is central to the Government's programme. The Government themselves are committed to making better use of information and communications technologies through the Government Direct programme. This aims to make government services more accessible to its citizens--directly through networks and public access points. We are actively exploring new ways in which this might be achieved. The Prime Minister has committed the Government to ensuring that 25 per cent. of their

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business should be electronically conducted by 2002. Perhaps the most critical aspect of this access theme is in education--our top priority. Noble Lords will be aware of the National Grid For Learning, launched recently.

With opportunities and access also come risks. All noble Lords have referred to this aspect. It is imperative that businesses and consumers are aware not only of these risks, but also of the tools with which they can guard against them. The Government are active here in promoting the availability of such tools.

We strongly support, for example, the deployment of the Platform for Internet Content Selection. This gives individuals and parents the ability to control the nature of their and their children's experience on the Internet which is vital in reassuring them that this can be a safe and secure environment in which to work, learn and play. We are monitoring the progress of voluntary initiatives such as the Internet Watch Foundation, which deals with illegal material on the Internet. We will keep an open mind on the possible need for further action to support such efforts although they appear to be operating pretty successfully so far.

Security is another example. As noble Lords have said, cryptography is now an essential tool for electronic commerce. It can provide the confidence necessary in the integrity, authenticity and confidentiality of transactions conducted electronically. That is why the DTI is active in consulting on developments in cryptography with both businesses and other governments. We expect to announce our conclusions on the way forward in the next few months.

The development of framework standards in partnership with and led by business interests in this area, as in others, is important in guarding against the de facto imposition of particular US solutions which so concern noble Lords who have spoken tonight. British industry is playing a leading role here--for example, in the work of both the European Telecommunications Standardisation Institute and the Key Recovery Alliance.

More generally, the legal and regulatory framework is a major factor in determining attitudes towards electronic commerce. The Government want to ensure that there are no barriers to future development; that competition is promoted properly; property respected and consumers protected. Equally, we want to ensure that, while lawyers on both sides of the Atlantic deal with electronic commerce, that is not at the expense of the rest of us through court cases concerning unclear or uncertain law.

I can assure my noble friend Lady Dean that the consumer interest is at the heart of our approach. Here I should point out the simple fact that transactions carried out via electronic commerce are subject to the same laws regarding consumer protection as face to face transactions. The Internet is not a legal vacuum. Certainly there are issues raised by the possibility of buying products and services across national borders. But in general it is only minor adjustment and reworking

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of existing law that is required, if anything, coupled with international co-operation between jurisdictions on the handling of particular cases.

The Government's views on the regulatory and legal framework are similar in principle to those set out in the US initiative. Our guiding principle, like President Clinton's, is neutrality and transparency, ensuring that the law applies on-line as it does off-line. This results in the commonsense proposition on the hotly debated topic of liability that each individual will be liable only for his own conscious acts and omissions. We will also look to build on our partnership approach with industry, looking to business to take a lead in developing practical approaches to uphold these principles. And here I thank the noble Viscount, Lord Chelmsford, for the suggestions that he made. We have taken note of his four simple ideas--which are really not so simple. I have responded to some of his points about the consumer interest, but will respond to the other rather more complicated ones later.

There are areas where legislation governing commercial transactions may not cater adequately for the electronic age--for example, in dealing with digital signatures and their admissibility in court--as noted by the Law Commission and indeed the EURIM reports. We expect to launch a consultation around the turn of the year encompassing the reform of the regulatory framework for broadcasting and telecommunications and adaptations of general law which might be needed for electronic commerce. These are areas where we will ensure that UK law is not left behind.

Within Europe the Commission is expected to present proposals for Community action on electronic commerce issues before the end of the year. I can assure noble Lords who have spoken that we are also likely to hold a major debate in this field in the Council of Ministers during the UK's presidency at the beginning of next year. Our aim will be to use our presidency to give these issues a boost and we will ensure that Europe and the UK will not be left behind in wider international developments.

I agree with the noble Lord, Lord Renwick, that effective copyright protection for electronic commerce is also essential, given the ease with which material may be copied and distributed. Here UK copyright law already provides cover for electronic storage and on-line transmission of works. The UK will continue to be active in international development of copyright treaties in the World Intellectual Property Organisation.

Technical solutions are also important in the protection of electronic copyright. Cryptographic solutions, which I mentioned earlier, are particularly relevant, as are the development of effective micro-payment systems. Here the Government are actively progressing matters, working closely with industry to keep track of developments and to assess whether our regulatory approach may need to be uplifted in future. We have, for example, set up a National Smart Card Forum, to provide a focus for card-based developments.

My Lords, if, in the short time available to me tonight I have not been able to do justice to all the points raised,

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and I would invite noble Lords to write to me. But it should be clear that the Government are acting. Our aim is not to leapfrog the US initiative--that is simply not realistic--but to work with it through international organisations. Our task is to build confidence in IT and to encourage its use. I have spoken about how we are doing this in industry, in education, in the community and in government itself. The Government are also tackling the legal and regulatory framework so it will

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not be taken over by the US Government initiative. The US will pursue this work through international trade organisations and we will ensure that British and European interests are given full weight. If the noble Lord, Lord Renwick's, purpose is to ginger us up, I hope that we have shown that we have already started to act.

        House adjourned at three minutes before nine o'clock.

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