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House of Lords

Wednesday, 30 April 2008.

The House met at three o'clock (Prayers having been read earlier at the Judicial Sitting by the Lord Bishop of Leicester.): the LORD SPEAKER on the Woolsack.

Iran: Uranium Enrichment

Lord Janner of Braunstone asked Her Majesty’s Government:

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown): My Lords, I apologise for the difficulty in finding my Answer. I will have to make it up. Confronted with a missing Answer I have no choice but to say that we are confident that when there is an opportunity to review sanctions, the UN Security Council will, if necessary, strengthen them with regard to Iran’s nuclear programme.

Lord Janner of Braunstone: My Lords, I thank my noble friend for his Answer. Let us hope that he is right. I hope that he does not look at his papers and find the opposite in a few moments’ time, but then it will be too late. Meanwhile, I am sure that my noble friend will agree that there is deep concern that Iran continues openly to defy the will of the international community. Indeed, earlier this month it announced the installation of 6,000 new centrifuges at its nuclear plant in Natanz, which doubled its previous capacity and ensured that it comes ever closer to possessing nuclear weapons. Given that, does my noble friend—whether he has his notes or not—share my great alarm, especially at the Iranian president's continuing anti-Semitic attacks on Israel, calling it “filthy bacteria” and questioning its right to exist? What specific measures will Her Majesty's Government now propose to the Security Council to increase the weight of sanctions imposed on Iran? Is my noble friend confident that there is sufficient consensus within the Security Council further to strengthen the sanctions so that they will become effective?

Lord Malloch-Brown: My Lords, I assure my noble friend that both I and my notes share his concern about Iran. The IAEA’s most recent report raised a number of issues of great concern about its compliance with the Security Council resolutions. We are appalled by the statements made by the President about Israel and its right to exist. As for the future, we have already seen the overwhelming support of the international community for the E3+3 dual-track policy reflected in four UN Security Council votes.

As for what happens next, much depends on how Iran chooses to comply or not with its international obligations, but we believe that if further measures are required, the international community will continue to support them.

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Lord Wallace of Saltaire: My Lords, we all recognise the unpleasant nature of the current Iranian regime and the worrying question of nuclear weapons, but does the Minister accept that we will nevertheless not get constructive dialogue with that regime unless we broaden it out to a wider framework? In 2003, the Iranian Government asked for a wider discussion about security in the region. The United States vetoed that. Iran has been mildly helpful in Iraq and considerably helpful in Afghanistan. Is there not a case for a wider framework for discussions within which we can then make progress on the nuclear issue?

Lord Malloch-Brown: My Lords, obviously the noble Lord is aware of many who have thought to open various back channel communications with the Iranians. However, it is very difficult to reward non-compliance by formally broadening the dialogue at this point. If Iran complies with the Security Council resolutions, a broader dialogue will follow as part of the careful set of incentives that have been constructed to reward compliance.

Lord Howell of Guildford: My Lords, all that sounds a bit mystifying. Is not the right answer to the thoroughly justifiable unease and alarm expressed by the noble Lord, Lord Janner, that there is no consensus in the Security Council? Russia and China are not playing along with the aim to squeeze Iran; in fact Russia is trying to supply further nuclear equipment to Iran. Is not the basic economic reality that with $120 oil Iran is doing quite nicely thank you and the sanctions are having minimal and probably zero effect? Is not the need now, as the noble Lord, Lord Wallace, indicated, to bring the Russians and even the Chinese into the discussion, although it may be distasteful to our American allies, rather than trying to penalise them as well? Without those two, the chances of any serious global pressure on Iran are zero, and it is bound to head for both a civil nuclear and a weaponised nuclear programme.

Lord Malloch-Brown: My Lords, the noble Lord is aware that the E3+3 formation, which has led on behalf of the Security Council and devised these resolutions—the last of which I think was passed by 14 to zero—is China, France, Germany, Russia and the United States, in addition to us. China and Russia are part of this negotiation, and we hope that they are very much committed to this process.

Lord Corbett of Castle Vale: My Lords, has the Minister seen the reports that, far from slowing down the nuclear enrichment programme, the mullahs have spread their nuclear weapons development programme across 12 sites in the country to make it harder for the IAEA to properly monitor them? They are stepping up the enrichment. Those reports come from the resistance body that told the world five or six years ago about the Iranians’ illegal nuclear activities.

Lord Malloch-Brown: My Lords, I am not aware of that specific report, but we are very concerned by proliferation-sensitive activity, such as uranium enrichment with no apparent civilian use. Iran hid aspects of its

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programme for nearly two decades. My noble friend is right that the IAEA inspectors still cannot get the access that they seek. Nevertheless, the very nature of this problem—a diversified, decentralised programme across Iran—does not lend itself to a military as against a diplomatic solution. We are convinced that the right set of incentives and punishments available diplomatically and through sanctions to force and encourage Iranian compliance remains the safest way forward, although it is certainly not assured of necessary success.

Public Companies: Directors’ Bonuses

3.08 pm

Lord Dubs asked Her Majesty’s Government:

The Minister of State, Foreign and Commonwealth Office & Department for Business, Enterprise and Regulatory Reform (Lord Jones of Birmingham): My Lords, I assume that my noble friend is referring to companies in the ownership of the Government as opposed to those publicly quoted on the Stock Exchange. The remuneration of the directors of such defined publicly owned companies is a matter for the remuneration committee of those companies, whose recommendations are submitted for approval to the Government as a shareholder. It is important to ensure that bonuses are paid on merit and that they support delivery of agreed objectives.

Lord Dubs: My Lords, I am grateful to my noble friend for his Answer, although it seems slightly at variance with the facts as I understand them. How is it possible that, in the case of Northern Rock, the chief executive gets a massive pay-off in return for the total failure of the company and, in the case of Network Rail, the directors get large bonuses at the same time as Network Rail is being fined £34 million for incompetence? These are difficult issues to understand. Most people in Britain are asking whether those people who have accepted the money have no shame.

Lord Jones of Birmingham: My Lords, I am very pleased that my noble friend raised Northern Rock. The chief executive’s remuneration on termination was settled while it was a private company. It was not settled while it was in government ownership, and government ownership took over after the contractual obligation was concluded.

Lord Lee of Trafford: My Lords, following the pronouncement yesterday by the Governor of the Bank of England, will the Minister, in his typically robust way, urge the shareholders of banks, who are being asked to subscribe for new capital to rebuild the balance sheets, to examine the methodology of remuneration of the directors of those banks before they send off their cheques?

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Lord Jones of Birmingham: My Lords, I shall deal first with the second part of my noble friend’s supplementary question because I would not want it to be thought that I had avoided it. When bonuses have been awarded to Network Rail directors, any non-compliance or fines that have occurred in the past have been taken into account and I sincerely hope that that would happen again.

On the methodology of remuneration of banks, come the big rights issues that are currently in question, I think it is reasonable for shareholders to say, “Obviously, at this moment, we do not want to know exactly how much you are going to get, but we would like to know the methodology on which you are going to be paid”. At the end of the day, it is very difficult to say to a small businessman in Birmingham, “By the way, the bank which asks you for a lot of information when it is about to lend you some money to do something and then judges your judgments accordingly, will be seen to be remunerating its directors substantially, despite big errors of judgment having been made”. I want to live in a society which says, “The sky’s the limit; you can come to Britain and earn as much as you possibly can, but just be aware that you function in democratic capitalism because of the will of the people and if you do not deal with the perception you create you will pay a price”. I should like to think that the banks would have that at the top of their agenda.

Lord Borrie: My Lords, is my noble friend aware that in Germany the salaries of chief executives and other directors have shot up in the past 10 years in relation to average earnings within their companies? There are two political parties—one in coalition in government and one in opposition—which are seriously considering legal provisions to put a cap on such discrepancies. Will my noble friend consider such a course of action in this country?

Lord Jones of Birmingham: My Lords, I am glad my noble friend is referring to Germany. I would love Germany to do that. Then I could go round the world in my job for UK trade investment and say, “Don’t invest in Germany; come to a country that does not do that”.

Lord Harris of Haringey: My Lords, given that we have talked about the carrots for directors of publicly owned companies, perhaps I can ask about the sticks. Does my noble friend agree that people who are directors of publicly owned companies, privately owned companies or, for that matter, public agencies should have some degree of personal responsibility if they preside over appalling breaches of information security?

Lord Jones of Birmingham: My Lords, first, one has to understand that we in this House are all very well qualified and have PhDs in hindsight. It is extremely important that we judge boards of directors, their remuneration committees and, in the case of government-owned companies, the ultimate shareholder on the facts at the time and that we do not stand in judgment on facts that did not exist at that time. Secondly, it is extremely important with publicly owned companies that the remuneration committee, which is independently appointed—that is what independence means—reports

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to the Government and that the Government have the final say. If you want the best managers, you have to pay the going rate. Sometimes that is unpalatable to me and I am sure it is to my noble friends but, at the end of the day, if you want the best you have to pay for it. Thirdly, we should remember that if such people are paid the going rate, they must suffer the consequences of incompetence and errors of judgment. In that respect it is important that they are not seen to walk away with huge rewards for failure. That would not be right.

Lord Dubs: My Lords, my noble friend referred to directors suffering the consequences of their incompetence. At the very same time as Network Rail was fined £34 million by the regulator, there was an announcement of large sums of money being paid to the directors. If the Government are shareholders, why can they not stop that happening or, at least, ensure that the bonuses are used to pay the fines.

Lord Jones of Birmingham: My Lords, my noble friend raised the point of methodology of remuneration. Timing is so important. You can see an announcement of something like a fine, which has probably come after two or three years of investigation, and very soon after you see the remuneration paid, but that might be in relation to a completely different period. That is a fact; it might be unpalatable, but it is true. You have to get to the essential element of when the contract was entered into and ensure that the methodology will accommodate my noble friend’s absolutely valid point. You should not judge one set of criteria against another set of news and call it a failure.

Baroness Deech: My Lords, does the Minister agree that there is perhaps not much logic in paying a bonus where the company is doing very well, there is merit, but no profit is necessarily being made? I instance the BBC. In order to stop the growth of the bonus culture there should be some investigation of any possible tax advantages and, in particular, pension advantages that may lie behind the award of bonuses in such situations.

Lord Jones of Birmingham: My Lords, we are the fifth biggest economy and one of the most globally competitive nations on the planet, so it is not in the interests of this country to say that we are trying to kill the bonus culture. Believe me, these people will go to other countries. What is important is that people know that we stand for social justice and economic success at the same time. That means you get the methodology of remuneration right at the start of the contract negotiations, not on termination.

Sri Lanka

3.18 pm

Lord Sheikh asked Her Majesty’s Government:

The Minister of State, Foreign and Commonwealth Office (Lord Malloch-Brown): My Lords, my right honourable friend the Foreign Secretary and I have

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made it clear to the Sri Lankan Government that the UK stands ready to support a process of reconciliation. We continue to urge the parties to the conflict to place peace above self-interest and to engage with Sri Lankans from all communities. A sustainable solution to the conflict should promote democracy and stability and uphold international human rights principles. Only a just and inclusive political process can achieve this.

Lord Sheikh: My Lords, I thank the Minister for that reply. The fighting and turmoil in Sri Lanka is causing not only problems in the country but a great deal of distress among Sri Lankans who have settled here.

In November 2006, the Secretary of State for Northern Ireland visited Sri Lanka. We have achieved peace in Northern Ireland, and I believe, because of our historic ties, that what we have learned in Northern Ireland can be of assistance in relation to the problems in Sri Lanka. On 1April, the Sri Lankan Foreign Minister came here and had discussions with Ministers. Subsequently there was fighting on 23April. Is there any merit in sending a ministerial delegation to Sri Lanka? And can we continue with our financial support in order that that can be used as an incentive to achieve peace?

Lord Malloch-Brown: My Lords, the noble Lord makes a very good point about the comparison with Northern Ireland. The former Prime Minister, Tony Blair, pressed this point on the Sri Lankans and sent people with expertise on the Northern Ireland solution to advise them. On 1 April, when the Foreign Minister was doing his briefing, I again reminded him of the Northern Ireland parallel and offered to make expertise available to him.

As to the point about a ministerial visit, I will be visiting Sri Lanka in the coming months.

Lord Hylton: My Lords, what information do the Government have about the recent deaths of one Sri Lankan parliamentarian and one Roman Catholic priest alleged to have been killed by mines placed by Government forces? Also, will the Government and other members of the Commonwealth ask for humanitarian and human rights observers to be allowed access to that country?

Lord Malloch-Brown: My Lords, I will need to return to the noble Lord on the specific incident that he raises. There have been a number of tragic deaths of civilians and politicians in recent months in Sri Lanka. There has been a pick-up in violence, which is extremely alarming, and targeting of political leaders. We have been pressing—most recently in my speech to the Human Rights Council—for the High Commissioner for Human Rights to be allowed to open an office in Sri Lanka because we think it is enormously important to keep human rights observers and a broader international presence in that troubled country.

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