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I first declare an interest in the overseas territories, especially Gibraltar, because I have the freedom of Gibraltar, something of which I am very proud and which I was pleased to receive. It is a great honour indeed.

I echo what has been said by other speakers about the difference that overseas territories, their governors, ex-governors and even the administration in the Foreign Office make. Sometimes that is not appreciated. The 15 per cent level certainly needs to be raised, because it involves specialist knowledge. I am glad that it is recognised by the Foreign Office that it is absolutely necessary to develop more career civil servants, and so on, in future. I realise that a small number of people are involved, but that is an expertise that can lead only to a better understanding between the UK and the overseas territories, which can only be good for all of us.

Another thing that has been referred to briefly is the need for joined-up thinking about overseas territories by all departments of government. I cannot see why pensions are frozen in some of the overseas territories. In Europe, of course, Gibraltar qualifies. Pensions are not frozen there, nor are they in Bermuda, but they are in the other overseas territories. It would not cost an awful lot to address. The most recent Question asked in this House, in June 2007, referred to it costing only £500,000 to unfreeze them and to update those pensions. They are sovereign territories, so I do not see why that could not happen.

I understand that the Department of Health is looking again at the relationship between this country and overseas territories in health. On primary care, there are reciprocal agreements. It is on secondary care that we find a mismatch, because some have quotas; some can send all the cases that they need to do to the United Kingdom; while others have no agreement at all. It is being looked at from the point of view of whether the arrangement could be reciprocal. Of course it cannot be for secondary care, because many overseas territories do not have the facilities. That is why they have to send people to the UK. I do not think that I need to remind the Minister that those who live in the overseas territories are British citizens. They are entitled to a British passport

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and, if they lived here, they could use the NHS freely, so I do not see why that should not apply for secondary care. There should not be a quota system whereby you must be ill early in the year or you will not qualify because the quota has already been used up. We need to look at that.

Finance centres have been referred to. The fact that those small territories are sometimes worldwide players says an awful lot for them. I join the noble Lord, Lord Luce, in praising Gibraltar for changing over from a territory absolutely dependent on the dockyard and engineering into a financial centre. It recognises that it is important that it is well regulated and that there is transparency. I am very pleased that it is working so well on these matters with the OECD. I was very pleased that the British Virgin Islands got special reference for what they are doing on that. All the overseas territories are well aware that there is a need to track down criminal activity in those territories.

I refer to something mentioned by the noble Baroness, Lady Hooper: the question of the Cenotaph. We all know that, at the Cenotaph, overseas charities are represented by the Foreign Secretary, but they now all have elected Governments, so why cannot they be represented in their own right? Many people from overseas territories have lost their lives defending or fighting on behalf of the UK, and I am sure that that will happen again in future. Why cannot they be allowed to place wreaths on the Cenotaph along with the Foreign Secretary? That does not seem a big thing to ask.

Finally, the noble Baroness, Lady Hooper, also referred to access to Parliament. If you are a high commissioner, you get automatic access to Parliament. These people are representatives of the territories. There is only a small number of them. We, as Members of both Houses, need to have as much understanding as possible of them; indeed, we take a very big interest in them. Why cannot they have automatic access to Parliament in their own right?

I hope that the Minister will take those two points on board as well. My time is up. I again thank the noble Baroness, Lady Hooper, and welcome the report, as, in general, do the overseas territories.

7.47 pm

Lord Avebury: My Lords, I, too, add my thanks to the noble Baroness, Lady Hooper, and all noble Lords who have taken part in such an informative and useful debate.

The Government’s direct responsibility,

“for more of the world’s shady places than any other country”,

was highlighted last week by Polly Toynbee. I hope that she is right about the OECD's determination to end the secrecy that shields the tax havens from proper scrutiny. The NAO states that the small number of reports of suspicious activity indicates that the financial institutions do not know or monitor their customers sufficiently or are unaware of their obligations to report. It cites the IMF assessment of the territories' compliance with global standards of regulation, which finds that in the smaller territories, there is an alarming degree of non-compliance.

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There cannot possibly be proper, world-class international financial centres in as many as seven territories with hugely variable capacities, as well as in the three Crown dependencies—although I accept the assertion of the noble Lord, Lord Hoyle, about high standards in Gibraltar, and others have referred to the BVI, and so on. The risks have been growing with the development of all the territories as financial centres. In the case of Montserrat, the governor has special powers to limit the development of the tiny financial centre. In the Turks and Caicos, the NAO identifies nine areas of bad governance. We are directly responsible for financial regulation there, as we are in Anguilla, but in the rest of the overseas territories, the dangerous policy is to advise from Whitehall on developing local regulatory agencies, but otherwise to let things rip.

Neither the Government nor the NAO have anything to say about the risks of legal financial activities that result in a loss to UK taxpayers of £25 billion—equivalent to 8p on the standard rate of income tax. I welcome the Chancellor's announcement of preliminary moves towards recovering some of the tax lost to the non-doms, which is estimated to yield £650 million a year. We need to balance these measures with advice to the overseas territories on diversifying their economies in order to replace the revenues that they now derive from tax avoidance.

On the BIOT, which the noble Lord, Lord Anderson, mentioned, the NAO is wrong to say that,

“successive court rulings and Orders in Council have disputed the right of displaced Chagossian natives to return to the Territory”.

The Government dispute the right, but it has been upheld twice in the High Court and again in the Court of Appeal. The Law Lords have now agreed to hear a further appeal on the condition that, whatever the outcome, the FCO pays all costs, which are so far not the £600,000 mentioned by the NAO but £2.17 million, before the Court of Appeal, which the former Governor of Mauritius estimates will have raised the total to £3 million, with the Law Lords hearing still to come.

The islanders had customary title over the land stretching back over five generations, but now they hope to reoccupy only two of the outer islands. The FCO doctored a preliminary report by experts on the feasibility of return, as revealed by the Public Accounts Committee, qualifying the key conclusion in the draft that return was physically possible. The cost of resettlement, estimated by Bill Rammell, the former FCO Minister, at £5 million back in 2004, had ballooned to £22 million by the time the case got to court, and has now almost doubled again to almost £40 million in the next 10 years. The NAO wrongly attributes this figure to the resettlement study, which was expressly prohibited from looking at costs, as I hope the Minister will acknowledge.

The Ascension islanders have also had the roughest of raw deals from the Government. The governor told them that rights of abode, property rights and local democracy would be introduced. An island council was elected in November 2002, and a constitutional adviser went there the following year. The council

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presented a five-year plan to Bill Rammell during his ministerial visit, and the FCO-appointed Attorney-General produced a timetable for land tenure and rights of abode. All of a sudden, that was all scrapped. The council resigned en bloc, and when the subsequent general election was boycotted, the governor appointed an advisory group, which meets in secret and publishes no minutes. There is no democracy there. DfID said that its objective is to enable all aided territories to reach self-sufficiency, although apparently not Ascension. It justifies its dictatorial treatment of the inhabitants by saying that they are almost all short-term contract workers, although some have lived there for 40 years.

To end on a happier note, the Minister, Meg Munn, visited Ascension at the beginning of January and expressed the hope that the democratic process could be restarted, and the noble Lord, Lord Malloch-Brown, assures me that the views expressed to her by representatives of the people on what the FCO should do for that purpose were now being considered. It is clear that the contingent liabilities that might arise from granting rights to the inhabitants were grossly exaggerated and now need to be spelled out for discussion. If all economic activity in the island were to cease, we would of course have an obligation to evacuate the people. However, the strategic importance of Wideawake airfield makes that most improbable, and with a small and stable community, there is no question of DfID being asked to pay for large-scale public utilities or other infrastructure.

7.53 pm

Baroness Verma: My Lords, I thank my noble friend Lady Hooper for securing this debate. In doing so, she raises a number of important questions to which the findings of National Audit Office report HC4 give rise. She has a great knowledge of the subject, and has illustrated the report’s findings with great eloquence.

Although the United Kingdom currently remains responsible for the 14 overseas territories, each choosing to remain under the sovereignty of the United Kingdom, the territories have full independence and enjoy a large degree of autonomy. Their economic survival currently depends on one or two core industries. Although they are not constitutionally part of the UK, most citizens of these territories have been entitled since 2002 to full British citizenship and the right to reside in the UK. The noble Lord, Lord Hoyle, highlighted this.

The last report by the National Audit Office in 1997 considered the key factors in the relationship between the UK Government and its territorial counterparts. Among the points raised by the report was the effectiveness of UK government departments’ work with the territories’ governments, and despite the territories being a UK-wide responsibility it appears that much of the burden of responsibility falls on the Department for International Development and to a lesser extent on the FCO. Currently, DfID and the FCO have a total of 60 or so staff between them but maintain separate teams. Yet the need for other departments to take their share of

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responsibilities must be addressed if individual territories are to put processes into place that will build capacity holistically. My noble friend Lady Hooper spoke of the need to ensure that other departments play a far greater role.

The 1999 White Paper, Partnership for Progress and Prosperity: Britain and the Overseas Territories, laid down the future principles for the relationship between the UK and the overseas territories. These include mutual responsibilities, whereby the UK has the right to expect the highest standards of probity, law and order, good government and the encouragement of sustainable development. Although some of the territories such as Bermuda, the British Virgin Islands, Gibraltar and the Cayman Islands are developing and promoting good governance and implementing sustainable processes, huge improvements need to be made by others such as St Helena, Montserrat and Pitcairn, on which £28 million of the £48 million of UK funding is spent.

Does the Minister agree with the report that, in order to ensure that the British people have confidence in good governance in the overseas territories, all governing authorities must deliver timely public accounts and the legislatures must exercise proper in-depth scrutiny over the acts of the executives? The report found that in some of the territories, standards lagged woefully behind those expected in the UK, due to lack of capacity and the experience of local participants. The FCO and DfID should promote the appointment of ex officio members with relevant skills. Will the Minister say whether the Government will look into this recommendation?

Although the United Kingdom Government remain responsible for the citizens of the territories, it is also vital that the territories do not become financially dependant on the UK. As I said earlier, some are better than others at managing risk, monitoring territory public finance and diversifying economically. Will the Minister say what measures the Government have put into place to foster economic development in the territories such as Montserrat to reduce dependency? In 2005-06, Montserrat and St Helena received £28 million out of the total £48 million spend on overseas territories.

Many of the territories are at great risk from both natural and manmade disasters. Indeed, these have had an adverse impact on the Caribbean territories’ major sources of income, often through tourism. Will the Minister tell your Lordships what plans the Government have to ensure joined-up thinking in disaster planning, particularly with regard to fulfilling all elements of the disaster-management cycle of preparedness, mitigation, response and recovery, and to ensure that local measures in the territories accord with international good practice? The UK’s exposure to risk in relation to the territories is varied, and includes meeting international obligations, funding liabilities and deficits and ensuring that the areas of regulation in sectors such as transport and the financial services are implemented.

Although the report recognises that there has been a degree of improvement in the regulation of off-shore financial services, much remains to be done

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in centres that have weaker controls. Only 10 per cent of the governors, deputy governors, desk officers and London managers have had any experience of the overseas territories, as has already been mentioned. Does the Minister recognise that this remains a weak link in trying to establish better governance, and that further steps need to be taken to establish a clear career path? Does he agree that the challenges faced by governors and territory officials often have cross-over issues, and that the promotion of shared practices and personnel exchange, such as short-term secondments, could improve the way in which some of the less efficient territories manage themselves? The noble Lord, Lord Anderson, alluded to this.

It is confusing that, while many of the issues cross several governmental departments—for example the Treasury, policing, transport—it remains predominantly a DfID responsibility. As the UK stay responsible for the principal obligations applied through the annexes of the Chicago Convention of 1944, which sets the standards and recommended practices for aviation safety and security, and many maritime protocols and conventions through the International Maritime Organisation, failure on the UK’s part to ensure that the overseas territories are not meeting standards and regulations could have severe consequences for the UK and the territories, particularly through claims by travellers affected by safety or security issues. Will the Minister comment on that?

The report presented an in-depth illustration of some serious challenges for the UK in respect of some of its territories. While some are obviously more proactive in their desire to respond to greater efficiency and economic sustainability than others, your Lordships’ House needs to know what progress is being made by the Government on this. In conclusion, I heartily agree with my noble friend that the Commonwealth and the overseas territories must remain firmly in the Government’s mind.

8 pm

Lord Bach: My Lords, I, too, congratulate the noble Baroness, Lady Hooper, on having introduced this timely debate on an essential and important area of United Kingdom policy. I shall not be able to address all the points raised, many of which were comments rather than questions. If there are matters on which I do not touch, I hope that it will be satisfactory that I write to all noble Lords who have taken part in this debate.

Britain has close and deep historic links with the overseas territories and takes its responsibilities towards each of them very seriously. This unique relationship is based on a partnership with mutual responsibilities and obligations. It is against that background that Her Majesty’s Government warmly welcome the National Audit Office report as a valuable contribution to the management of risk in overseas territories. I am encouraged that the NAO has acknowledged that much progress has been made since its last report in 1997, but more still needs to be done. The report has recognised that there are many challenges for the UK Government and the Governments of the overseas territories. It is helpful

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to us, and we thank the NAO for it, that the NAO has taken a close look into this important area and has suggested constructive recommendations.

As the debate has shown, the management of risk and the relationship between the UK and the overseas territories cover a multitude of areas which offer challenges on the one hand and opportunities on the other. Unfortunately, the brief amount of time that I have allows me to select a couple of the key themes only arising from this report; namely, first, the UK Government’s approach to risk management in the overseas territories and, secondly, progress made towards managing and mitigating that risk.

The United Kingdom retains responsibility for the territories which have opted to retain British sovereignty rather than follow the route towards independence, but it must be remembered that the territories are not constitutionally part of the United Kingdom and largely administer their own affairs in accordance with their own constitutions. I should emphasise at this stage that the constitutional position of each territory is different, so some of my comments will not be appropriate for all territories.

We have, particularly since the 1999 White Paper, sought to allow the territories to run their own affairs to the greatest degree possible. Indeed, elected representatives in the territories make the overwhelming majority of decisions. That makes good sense for a number of reasons: first, it is desirable on democratic grounds; secondly, it maximises local decision making, which should increase local Governments’ capacity to govern themselves; and, thirdly, it should also in theory, and in practice, result in better decision making than would result from micro-management from Whitehall.

That said, the UK Government have an obligation to ensure that they can discharge their responsibilities to these territories properly. This is an obligation to ensure security and good governance and to ensure implementation of the UK’s international obligations. Further, it is an obligation to the UK taxpayer to protect the United Kingdom from potential liabilities. Increased self-government does not reduce the requirement for the UK to retain and, where necessary, to exercise these key powers in any overseas territory, should the need arise. Any intervention requires extremely careful consideration. We sincerely hope that, by working with the territories to reduce risks and ensure sound governance, we will find the correct balance.

On the progress that has been made towards managing and mitigating risk, the Foreign and Commonwealth Office and the Department for International Development co-operated closely with the National Audit Office. I am aware that both departments approached the whole review as an opportunity to take stock of risk management in the territories and to identify priority areas on which they could focus future efforts.

The noble Baroness’s Question asked what plans the Government had to act on the findings of the report. I shall highlight a few key areas where work is already started. Since the report was received, the Overseas Territories Directorate in the Foreign and Commonwealth Office has revised its business plan towards the overseas territories to place a much

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greater emphasis on risk management, so that the areas of weakness identified in the report become the main focus of our work. We have in tandem realigned our funding programme to reflect the new priorities.

The FCO and DfID, who are responsible for the delivery of development assistance, share a close working relationship on many of these issues. For example, they are working jointly to influence European Union funding levels for the overseas territories. More recently, the two departments have worked very closely with the Ministry of Defence to deliver essential medical supplies to the remote island of Tristan da Cunha. Officials of the two departments are also working together to define the future direction of the Montserrat Volcano Observatory to ensure that it can meet the needs of the territory over the next 10 years.

Both departments have also sought greater involvement from Whitehall partners to assist the UK in discharging its responsibilities. The permanent secretaries of the FCO and DfID have written to their Whitehall counterparts to seek greater engagement. A number of departments, such as the MoD and the Department for Transport, already carry valuable work in the territories. The engagement of other government departments will be a key element in our ability to support sustainable development in the territories. It is important for us to remember that the UK’s responsibilities towards the territories are government-wide and concern not merely the FCO and the other departments that I have mentioned.

We also recognise the NAO’s finding that the pooling of resources, sharing of expertise and identification of efficiency savings are equally important to improving risk management in the territories, where capacity constraints often hamper progress. We encourage that approach and are now seeking to identify more areas where territories can capitalise on networking opportunities and linkages. We will focus attention on financial services, which were mentioned specifically, international obligations, public sector accountability and criminal justice.

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