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Ofcom also worked jointly with the EHRC to produce the recent guidance on equality for broadcasters launched on 28 August, which will support employers, commissioners and others in expanding the talent pool from which they find the best candidates. Since the publication of the committee’s report, government have worked closely with the Chartered Management Institute to gather together a number of key stakeholders from the broadcast and print sector to discuss the barriers women experience in rising up through the pipeline, and the best way to go about establishing a firmer base of evidence. We hope to be able to drive forward this work over the next few months.

The noble Lord, Lord Best, and the noble Baroness, Lady O’Neill, talked about the benefits of broad voluntary targets. We agree with the committee that quotas are not appropriate here. It was suggested that the Government ensure that Ofcom holds the BBC to account in regard to any voluntary targets. Within the existing charter period it is still a matter for the BBC Trust to ensure that its public purposes are delivered, that the BBC is held to account, and that its licence-fee payers are represented in terms of their interests and their gender and identity by the BBC. Of course, BBC governance is one of the key issues being examined in the charter review. The Government have been clear about their role here: that is, to set a regulatory framework of law and responsibility for broadcasters, as with all employers and especially public service employers, and ensure that they understand those responsibilities.

The noble Lord, Lord Dobbs, asked what the Government were doing about getting their own house in order, which is a very reasonable question. The Government have set a target of 50% more women in public appointments. Very good progress was made from April to September of 2014—44% of new appointments were women—and we expect the new figures to be even better. We have the most diverse Parliament ever with nearly 30% of MPs being women, up from 23% in 2010, and 20.5% of Conservative MPs are women. There are also 10 women now in the Cabinet.

The noble Lords, Lord Dobbs and Lord Razzall, and the noble Baroness, Lady O’Neill, talked about ageism in the broadcast media. Other noble Lords may also have talked about this. The Government agree that women of all ages should feature prominently throughout broadcasting. I believe that broadcasters have woken up and should have learned from the mistakes with the Miriam O’Reilly case at “Countryfile”.

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We are playing our part to tackle underrepresentation. The Equality Act 2010 protects employees in all businesses from discrimination on a number of grounds, including sex and age. The Government have appointed the noble Baroness, Lady Altmann, as the business champion for older women. A recent report about older workers shows the valuable contribution that older women could and can make to further the economy. Companies are not fully utilising their skills and are missing out. The Equality Act 2010 provides legal protection for employees facing discrimination on the ground of age.

My noble friend Lord Dobbs also mentioned a very interesting point about how the media can promote cultural change in terms of respect for women—for example, in highlighting the dreadful practice of FGM. The noble Baroness, Lady Healy, talked about childcare and flexible working. We will double the free hours of childcare for working parents of three to four year-olds from 15 to 30 hours and we will also introduce tax-free childcare which will save around 2 million families up to £2,000 per child annually. I appreciate just what a barrier lack of childcare is to progressing in any profession, as I am sure do other noble Baronesses. We extended flexible working to all from June and introduced shared parental leave from April 2015. The Government are very much committed to creating a modernised and flexible workplace so that all employees can thrive.

The noble Baroness, Lady O’Neill, and my noble friend Lord Sherbourne talked about the remedy being positive action, not positive discrimination, and said that good data are essential to identifying the problem. These are very important points. I agree that positive action is key and the Equality Act allows companies to take positive measures to enable employees to take action. I welcome the initiative of the EHRC and Ofcom, referred to by the noble Lord, Lord Best, which will help broadcasters take positive action under the Equality Act 2010.

On the second point of the noble Baroness, Lady O’Neill, I welcome the Creative Diversity Network’s initiative, Project Diamond, to which I alluded earlier, which all main broadcasters have committed to share and report their data on diversity on and off screen. That is progress in the right direction.

The noble Lords, Lord Dubs and Lord Stevenson, talked about freelancers. We expect the industry to take the lead here. With freelancers continuing to make up such significant parts of the workforce, it stands to reason that data should be collected to assess whether there is a problem with gender balance in the freelance sector and across the industry more broadly, and, if so, to enable the industry to take the requisite steps to address it.

My noble friend Lord Sherbourne made a very good point about the impact of television, and he talked about the lady ringing up from Lime Grove who was always assumed to be the secretary. When I came into your Lordships’ House I was asked by a noble Lord who will remain nameless, and who has since been for ever ashamed of it, whose secretary I was. My noble friend also made a good point about women being used as “soft” news presenters, never being seen as able to tackle the hard news elements.

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It is very good news that Laura Kuenssberg has been appointed the BBC’s political editor. That is very good progress indeed.

My noble friend Lord Holmes of Richmond talked about the lack of women in media and broadcasting impacting on the reputation of the industry generally. I totally agree. Research undertaken by the Government Equalities Office shows that there is a significant gender pay gap of 11.4% for media professionals, 8.4% for print media and 18.7% for advertising. The gender pay gaps in various sectors will become more apparent when gender pay gap reporting comes into force. I hope that will focus minds towards positive action. He also talked about the really poor diversity generally in British broadcasting. I totally agree with that point. He also mentioned disabled people. Only 3% of BBC staff are disabled and it is similar for other broadcasters. The number of BME people in the media actually declined between 2009 and 2012 to below 6%.

I am aware that time has run out. I hope I have answered most points but if I have not, I will write to noble Lords. Once again, I thank all noble Lords who have taken part in this debate.

5.42 pm

Lord Best: My Lords, I, too, thank all noble Lords who have taken part. I wonder whether Conan Doyle would have raised an eyebrow in noticing in the list of Peers that Watson was followed by Holmes and then by Hastings. Everyone who contributed made positive, welcoming remarks and I am deeply grateful. The Minister summed up a list of points which mirrored exactly the ones I was going to sum up with myself, and I am very grateful to her and to the Government for getting behind this report and helping what has been a remarkable response across the piece from the broadcasters. They have come forward and there are changes afoot that will, I think, make a difference. So perhaps I can confine myself to agreeing with the noble Lord, Lord Razzall, who said that this report may be one of the ways in which we demonstrate our antidote to all those criticisms of the House of Lords. We seem to have made something of an impression and I am deeply grateful to all my colleagues for their participation in that. I beg to move.

Motion agreed.

Civilian Use of Drones (EUC Report)

Motion to Take Note

5.43 pm

Moved by Baroness O'Cathain

To move that this House takes note of the Report of the European Union Committee on Civilian Use of Drones in the EU (7th Report, Session 2014–15, HL Paper 122).

Baroness O'Cathain (Con): My Lords, I am very pleased to move this Motion to Take Note. In this debate, I will refer to RPAS—remotely piloted aircraft systems—as drones. Not only will this make the language

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of my contribution less clunky but I hope that it will make it more accessible to the public. However, I am also sensitive to concerns that drones have major military and security implications, and make it clear that today’s debate will focus solely on the civilian use of drones.

Our report opens with the sentence:

“2014 could be described as the year of the drone”.

That was a major understatement. Its year has continued into and extended throughout 2015. Drones are widely discussed in the media. Some weeks it seems that they are talked about every day. They are the subject of many personal anecdotes. Small toy-like drones were tipped as the must-have gift last Christmas. Such a description could make the business of drones seem easy to dismiss. Indeed, I did not realise until the committee embarked on this inquiry that drones also represent a valuable commercial opportunity for jobs and growth. From agriculture to wedding photography—I could not think of anything beginning with Z—more than 670 permissions for commercial drone operations in the UK alone were granted by the Civil Aviation Authority in 2014. There are said to be 2,500 drone pilots across the EU. It should be remembered that all drones have pilots—yes, each drone is piloted, albeit from the ground. The European Commission estimated that the drone industry could generate 150,000 jobs by 2050. The aim of this inquiry was to find out if the European Commission’s estimate was credible and, if so, what needed to be done to help it grow.

Custom and practice in this House oblige me to thank the committee, our clerk, our policy analyst and the Committee Office. In this instance, it is no obligation but a sincere realisation that without them we would not have taken off. I thank them all; they all worked so very hard. The committee was ably supported in its work by its specialist adviser—I do not know who nominated him—Tony Henley, who has an encyclopaedic knowledge of the subject area. We all thank him. The committee is very grateful to the large number of businesses, trade associations, regulators and individuals who were so willing and enthusiastic to share their experiences with us. I particularly want to say that we found the Government to be proactive and most engaged on this subject. Their swift and supportive response to the report, which came within 13 days of its publication, is a clear demonstration of their commitment to support businesses in this area and, indeed, to protect the public.

This report is a big first step in analysing the potential for a civilian drone industry. A considerable amount of work remains to be done before we will see small drones delivering parcels or large drones freighting cargo, although the newspapers are constantly speculating about this sort of activity. We must realise that important regulatory and technological challenges remain.

In this debate, I will focus on public acceptance of drone technology. The Government’s response said that if the drone industry is to be successful,

“more work will have to be done to reassure the general public”.

Certainly, that is true. In addition to privacy and nuisance concerns, there remains widespread anxiety about the possibility of a mid-air collision between a

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small drone and a commercial aircraft. This is a common concern with private and leisure users, who can purchase and operate a drone without even realising that they are piloting an aircraft when they utilise it. As was expressed by Paul Cremin from the Department for Transport, a witness to our inquiry:

“The question, as you quite rightly say, is that when you get the box home, where, first of all, does it tell you that you are buying an aircraft, let alone anything else? These are aircraft. They are viewed in the Air Navigation Order as aircraft, and you have responsibilities under that order”.

This concern is even more alive in the wake of reports of near misses and the operation of drones over football stadiums and close to the Eiffel Tower. By the way, I must state that we did not consider the use of drones for nefarious activities but that anxiety remains very strong indeed.

We heard that the CAA and others were taking action to raise public awareness. Small businesses such as First Person View are including leaflets in the boxes of the devices that they sell. The CAA published a video online just before Christmas and the Metropolitan Police posted information on social media. No doubt awareness of this inquiry has also helped. I found that the press office of the House of Lords did a great job in publicising the inquiry, even helping to organise a slot in the “Today” programme on the day of publication, when I was interviewed live from Riga where I was speaking at an EU conference on drones. They actually work very hard behind the scenes. In their response, the Government confirmed that they intend to consult the general public about the rules regarding the use of drones. The Government also agreed to consider acceptable future applications for drones by the media and police. Is the Minister in a position to share more details about this consultation, in particular its objectives and time schedule? There is no time to lose.

The committee also felt that it was important that misuse of drones was adequately punished. While our report applauded the work of the CAA in general, it concluded that the police should play an increasing role in enforcing the existing law. This is because in addition to aviation regulations, the misuse of a drone often breaches nuisance or privacy laws. Both the CAA and the Metropolitan Police have recently contacted the committee to confirm that this approach is now being adopted. That was a minor victory for us.

The report noted that,

“the workload of regulators at EU and at Member State level … will increase in the near future”,

and urged,

“that regulators be sufficiently resourced to deal with this”.

Research conducted by Dr Alan McKenna on the back of our report found that there had been more than 400 calls made to the police regarding incidents involving drones over the last two years. Does my noble friend the Minister believe that the police have adequate resources to take on this new role? Are police officers being adequately trained in this area?

In our discussions with the Metropolitan Police, the committee also learned that it remains difficult, if not impossible, to identify the operator of a drone. This explains why successful prosecution is so rare. We recommended the creation of a system which could

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track and trace all drones, especially those flying below 500 feet, irrespective of whether they were flown by commercial or leisure pilots. I am certain that there will be a technological solution to this problem which will be simple and affordable for consumers and businesses alike.

Since our report was published on 5 March, I am pleased to say that our recommendation is being considered by industry, EU regulators and the Government. The Government’s response indicates that they are working with NASA in the United States on this issue. An additional risk we now face is perhaps one of duplication of effort. Can the Minister describe in further detail the Government’s involvement with NASA and inform us whether industry has been involved?

I recognise that there remain a number of other important issues which I have not had an opportunity to touch on this evening—namely the effectiveness of JARUS, which is the body nominated to draft the European regulations; the development of important technologies such as detect and avoid; and the challenges that many businesses face in finding affordable public liability insurance. None the less, I am sure that noble Lords contributing to this debate will bring some of these issues and others to the fore, and that all noble Lords taking part will realise how grateful I and the committee are for their involvement.

Finally, although not in keeping with British modesty, I close with a quote from the European Commission’s response to our report:

“The House of Lords’ opinion is most useful and addresses all the relevant issues for opening the market for drone services in a detailed and open way. The opinion will become an important reference for all policy makers, including the Commission”.

This is a great commendation and perhaps a little help in our relations with the Commission and the other 27 member states. I beg to move.

5.55 pm

Lord Giddens (Lab): My Lords, let me congratulate the noble Baroness, Lady O’Cathain, and other members of the committee on their excellent report. As the report notes, two types of drone probably get most attention in the media: those that are used to play with and those that are sent to kill. Yet there is a huge variety of other uses to which drones can be put in between these two extremes.

The report mentions continuities with model aeroplanes in the past, but I argue strongly that we have to understand drones in the context of the digital revolution. To me this is crucial to the issue of regulation and their future. That revolution, however, is widely misunderstood because it is often identified with the internet. The digital revolution has to be seen as the interplay between the internet, supercomputers and robotics, with supercomputers having the core role because of their massive algorithmic power. The iPhone in your pocket or handbag is a supercomputer more powerful than the biggest supercomputer of 30 years ago.

Drones are essentially flying robots and their extraordinary range of actual and potential uses comes from this conjunction of factors. In my speech, I shall continue to deploy the word “drone” in spite of what

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one source describes as “the interminable debate” about the use of the term. Drones are converging with orthodox aviation as well as providing ticklish challenges to airline safety. Most planes, most of the time, are flown by their computers in interaction with the supercomputers on which global air traffic depends. Used appropriately, drones can be deployed to protect orthodox air traffic rather than just pose problems for it, as the Government’s response to the report notes.

As the report makes clear, drones have the potential to be used positively in a vast range of environmental, ecological and scientific applications, in addition to their more commercial ones. They can even be combined with 3D printers. A drone has recently been wholly 3D-printed on a ship and carried out a successful short flight afterwards. My point is that this is an extremely rapidly evolving field, which overlaps in a fundamental way with dramatic advances in other areas of technology. It will be a demanding task indeed to reconcile the extraordinary potential of drones with the many risks that they present, not the least of which is their overlap with terrorism. Two IS militant figures were killed by drones, we were told yesterday, but IS is already using drones for reconnaissance and battlefield co-ordination and is said to be plotting to use drones to execute small bombing attacks on public events in the West. I know that the report concentrates exclusively on the civilian use of drones, as the noble Baroness said, but this must be watched because the division between civilian and more noxious uses of drones is going to be pretty fluid and difficult to draw.

I have three basic questions for the Minister. There is a great deal of agreement between the committee’s report, the Government and the proposed framework for the EU—an unusual event, I must say, in this House to say the least. However, I hope that the Minister will respond to this and that the Government will recognise just how fast the pace of change is likely to be in this area. I shall pick up what to me is the central point: this is part and parcel of the digital revolution, which is not just about drones themselves but about the total system within which they are enveloped. Constant updating and revision of whatever regulations are established will be absolutely essential in my view, and it would be good if the Minister could say something about that. It is not easy to have regulation which is continually evolving.

Secondly, there is not much here about drones and privacy, which is a huge issue already in the US, and rightly so. No existing category of law, either in the United States or the EU, is as yet robust enough to cope with this issue. The EU does have plans to deal with this, but it would be good to hear some comment from the Minister.

Finally, the Government are preparing a public dialogue this year on the use of drone technology. What form will this take exactly? I hope, again, it will recognise that the dialogue will have to be an evolving one. If I am right in my emphases so far as drones are concerned, we ain’t seen nothing yet. We are at the very beginning of their evolution and their integration with the wider digital revolution, which to my mind is probably the greatest transformative force to have global impact within such a short period of time ever in human history. The Industrial Revolution was crucial,

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but it moved quite slowly; when the first telephone was invented, it took 50 years to reach 75 people. The iPhone first came out in 2007, and there are now almost 1 billion in the world, and 3 billion smartphones. There has never been any pace of technological innovation like this, and it would therefore be a really bad mistake to treat drones just on their own, as an isolated phenomenon. They will be deeply integrated in the evolution of this revolution.

6.03 pm

Lord Rees of Ludlow (CB): My Lords, this debate is welcome and timely. Although I have recently joined the EU sub-committee, I was not a member at the time of this report, so my comments are independent and perhaps peripheral to the main thrust, although I shall focus entirely on civilian drones.

The report highlights the potential economic and social benefits that could stem from drones and the importance of encouraging the expanding manufacturing and technical advances in the sector. But there are much-publicised downsides, and regulations governing their usage will be hard-pressed to keep up with the pace of innovation. There are plainly civilian contexts where drones can be hugely and unambiguously valuable: in farming, in surveillance, in disaster management and in reaching remote or dangerous locations. Here, there is a clear net benefit. But the report makes clear that the mass market will depend on two developments: first, growth in the amateur and recreational community, whose numbers could run into millions; and, secondly, deployment of small drones in cities and built-up areas for deliveries and so forth. Indeed, there are commercial operators who aspire to use drones to revolutionise online retailing and fast-food deliveries. A US company recently put on the market a miniaturised drone only slighter larger than an iPhone.

I am concerned that the report, in its wish to encourage an emerging high-tech industry, might be underestimating the level of nuisance that could stem from proliferation of these machines. For the larger and longest-range drones, the report accepts that air safety requirements need to be analogous to those required for manned aircraft. It is realistic to expect a high degree of compliance with these rules, because the handlers of these larger machines will be skilled and will be using upmarket and reliable machines. Big drones can be as robust as aircraft, and they can be well instrumented.

However, the situation is surely different for the smaller and cheaper machines. The regulations for their construction and robustness cannot realistically be as stringent. But more than that, my worry is that the level of compliance, even with more relaxed regulations, will not be as high for these small machines as for the bigger drones—not only because of intentional violations but because of mechanical failures, loss of control or errors made by inexpert users. These small and slow-moving drones are vulnerable to winds, turbulence and the unsteady airflows near buildings. Except in very calm conditions, they may prove genuinely hard to control. There is a need to regulate against intrusion and invasion of privacy. There need to be safeguards against them entering prohibited areas or

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getting too close to buildings. This will be ever more important as numbers proliferate. So even the smallest drone should be required to carry some kind of identification mark so that ownership can be traced.

Some claim that we can be reassured by an analogy with traditional model aircraft enthusiasts, who have pursued their hobby harmlessly for decades. But these people are all skilled and tech-savvy. Moreover, their activities are restricted to open areas suitable for flying, where line-of-sight contact can be reliably sustained. Neither of those requirements will be true for the mini-drones and most of their users. Realistically, as these small drones proliferate into swarms, the likely outcome will be a burgeoning rate of mishaps and infringements of regulations. That will lead to a rising nuisance level for us all and a lot of unproductive time being devoted by police and regulators to dealing with violations—tracking offenders and calling them to account. There are many examples already. In California, pilots engaged in firefighting had to ground their planes when it was reported that five drones were flying around to get close-up views of the fires. In one case, someone attached a small gun to a drone. Such concerns have led to wide debate in the United States and to many different regulations at state level and proposed moratoria on drone use in some cities.

Obviously, there will be pressure from potential pizza deliverers and suchlike against any such ban—and such a ban might indeed be an overreaction. On the other hand, it is unclear what range of uses will be acceptable in built-up areas, where the drones would be automated and not controlled by someone within the line of sight—still less by an expert. There is plainly pressure to exploit the commercial opportunities of what is undoubtedly an exciting new technology. The regulations proposed by the EU may well be balanced and appropriate, but whatever the regulations say, it is surely a safe prediction that there will be many infringements—invasions of privacy, annoyances and accidents, which could sometimes be serious. Indeed, there could then be a public backlash. For that reason, the net benefits, at least of the cheap microdrones, are far from obvious.

Regulations need to achieve a delicate balance between the multiple competing interests of legitimate commercial uses and policing, public safety and privacy concerns, and this has to take place against a background of fast-advancing technology. It would be wrong for regulations to suppress innovation in this area; on the other hand, we should surely recognise that it is not clear how bright the commercial future of this sector is or what degree of welcome these innovations will actually get from the public.

6.10 pm

Viscount Astor (Con): My Lords, this summer I spent an afternoon learning to fly a drone. It is not very difficult and it is great fun. With an iPhone and a camera, one can fly within line of sight, which is legal, but it is also easy to put in way-points via a GPS and set the drone to fly a circuit out of sight, which is not legal but is the way that Amazon is testing delivering goods to customers.

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One can fly close to a window and not only photograph people but listen to and record conversations. Drones can be big, noisy and easily spotted, or they can be small, hardly bigger than a bumble-bee and very quiet. One’s garden may no longer be a private place, and it is with the rights of the individual compared with the rules of the drone operator that we should be concerned.

At the moment, the rules are complicated. The CAA has given permission for more than 850 drones to be used by commercial operators. There are thousands more drones sold for as little as £200 as children’s toys, with more expensive ones for teenagers and sophisticated ones for enthusiasts—most of whom have no idea about the CAA rules. Does the Minister have any idea how many drones are sold in this country? Even if the purchasers know a bit, do they really know about the Air Navigation Order? They also have to contend with the Data Protection Act and the CCTV code of practice, which regulates the use of images of people that are collected without their consent. The CCTV code of practice states that,

“it will be good practice for domestic users to be aware of the potential privacy intrusion which the use of UAS can cause to make sure they’re used in a responsible manner”.

That is a sound piece of advice, but it is not written on the box when you buy a drone, nor are the CAA regulations. Should not manufacturers have to attach some advice on the use of drones to their packaging?

It is a complicated legal minefield. I do not know what one does if one finds a drone hovering a few feet above the ground in one’s garden, contrary to the CAA rules. Is it legal or illegal to knock it down or disable it? How does one know who owns it or who is flying the machine?

This is a new industry. It is largely unregulated, with rules that are very relaxed. The rules are perhaps a little more thought-out in the US, where they have had longer experience of drones. I am not calling for overregulation—I dislike gold-plated regulations—but I support the conclusions of the committee’s report. I congratulate my noble friend and her committee on her very important report, but I am concerned about the right to our quiet, relaxed enjoyment, whether it be in a town or in the countryside. We must not allow it to be ruined by the constant drone of drones.

Noble Lords have highlighted the danger of collisions with aircraft and of flying close to military bases and nuclear facilities. Enthusiasts claim that no one has been killed or seriously injured so far, but I fear that it is a question of not if an accident will happen but when. We should not have to wait until an accident, however minor or major, or for someone to be injured, to have a sensible plan of action.

Drones have uses. They have been used to film accidents to help the rescue services, but they have also hindered them. An important question raised by the report is: should drone users have some form of insurance to protect themselves, as well as anyone whom they injure? In California, a Bill has been proposed that bans drones from flying lower than 350 feet over private property without the consent of the owner or occupier. It has been said, though, that that is just to allow film stars to get married in their garden without

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being filmed from above so that they can then sell their wedding pictures for a vast sum of money to the appropriate magazine.

Interestingly enough, Amazon is lobbying in California, where drone technology seems to be more advanced than anywhere else, for the airspace for drones to be designated between 200 feet and 400 feet for the autonomous drones to deliver their goods, with other aircraft unable to fly in that space. It is interesting to know whether the drones will have to fly down a public road, the highway or over private property.

Of course, drones can be very useful in delivery. They can be useful as lifesavers delivering water or medical supplies in remote areas, although they have a limited flight time. They have many surprising uses, one of which I witnessed last year. Crossing the Empty Quarter in Saudi Arabia. Our Bedouin guide produced a drone from his sack and flew it ahead over a dune so that he could see the best way for the camels to come down the other side of the hill. It is extraordinary how many people have drones and use them.

This debate and report will give much needed clarity to some of the issues that the Government will face. It is important that we allow this industry to grow and flourish, but that we also safeguard the rights of the ordinary citizens, so that they can enjoy themselves without the constant intrusion of invasions of privacy or finding themselves threatened by improper use of a drone.

6.16 pm

Lord Whitty (Lab): My Lords, I enter this debate principally to congratulate the noble Baroness, her committee, staff and advisers on producing what I think is an exemplary report. I say that although until very recently it was a subject about which I knew pretty much nothing. Two things happened to me before the turn of the summer. The first was that I attended a family wedding in the depths of rural Somerset on a lovely summer’s day, when, after quite a few glasses of champagne, the gathering was summoned out into the open for photographs. I was expecting to see a bloke underneath a black shroud—crash, bang, wallop, stick it in the family album—but no, there was a speck in the sky coming ever closer, darting around and taking photographs. To be honest, I had not encountered that before and I was astonished. Many of my fellow guests, who were much younger and more conversant with the technology then me, were equally fascinated.

The second thing that happened to me was that, in their wisdom, the usual channels have now made me chair of the very committee which the noble Baroness, Lady O’Cathain, has recently vacated. I am therefore responsible for taking this forward, along with the other responsibilities of the committee. I am glad to say that at least two new members of the committee are participating in this debate.

As my noble friend Lord Giddens said, this is an entirely new technology but part of a whole range of new technologies which are taking over the globe. It is very difficult for those who are not intimately involved in it, except possibly as users, whether as toys or as part of their business, to see the big picture. The great

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thing about the report is that the committee saw the big picture. It saw, first and positively, that this was an infant industry; secondly, that the regulatory structure was at present inadequate at both national and international level; and, thirdly, that there is a very important role for the European Union in this respect—something that justifies the committee in choosing this area to examine.

As has been said, the technology has multiple applications and raises multiple issues of safety. What are the design standards and requirements? It also raises issues of privacy and security for individuals, businesses and the state, and serious issues about data protection. Using general rules does not always deal adequately with new technology.

There is a problem of invasion of and impact on the space used by aviation and by us in our gardens and recreation. There is also an economic impact on a lot of existing industries from traditional means of communications and delivery. If this technology grows as rapidly as some are saying, it is clear that it will need a lot of attention from various state organisations and that it will need some coherent framework of regulation, which the committee is asking for. It is a nascent industry and, like a young child, a nascent industry certainly needs encouragement, nurturing and investment, but it also needs boundaries and rules—and it needs rules that protect others with which it comes into contact. It is important that we in Britain recognise that and that the CAA and the Government take that on board, and it is clear from the positive reaction of the Government to the report that they are beginning to grapple with that. But it is even more important to recognise that it would be utterly absurd if, in this complex area, we ended up with 28 different jurisdictions all attempting to deal with this new phenomenon in ways that suited their own economy and own society. Recognition that an EU initiative is necessary is vital.

Who should actually perform those initiatives, in terms of regulations, is a difficult one. The committee ends up by recommending that JARUS, an organisation that I had never previously heard of, should take this responsibility. But it also recognised that the resources, expertise and backing that JARUS has are not really adequate to the task. Others have pointed out that the CAA and the police in this country are not really resourced or expert enough to deal with this technology. The challenge facing the Minister tonight is really to give an indication not that the Government have done something about it but that they are clearly aware of the need to ensure that the CAA—and via the CAA the European organisation building on JARUS—has adequate resources and expertise, and that that expertise and those resources are available within this country.

This is a big subject, and the committee has dealt with it in a very effective manner. There are graver spectres of how this technology could develop if we go for the wrong form of regulation or non-regulation or submit this new industry to powerful interests, legitimate or non-legitimate. This overlaps with the new field of inquiry, which my committee is undertaking in relation to the operation of platforms within the digital market. There are anxieties there that large platforms in effect have an impact on traditional sectors which is not

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accountable or clear and crosses the boundaries and alters issues of accountability and contract law. Also, as the noble Lord, Lord Giddens, indicated and as the noble Lord, Lord Wei, pointed out in the committee only the other day, they run on algorithms which almost nobody—even the owners of the companies—entirely understands. If we envisage a situation in which a large proportion of these drones were actually owned directly or indirectly by a single entity run on the basis of algorithms, we are talking about a very sinister development indeed.

I hope that this report will aid the institutions at British and European level to ensure that this development operates in a positive and not a negative way. We should all be aware that there are vast problems here, and ones that we hope that the Minister will reassure us the Government are aware of and are addressing.

6.24 pm

The Earl of Liverpool (Con): My Lords, I start by thanking my noble friend Lady O’Cathain, chairman of the committee, for enabling us to have this debate today and for her guidance, leadership and support throughout every process involved in compiling the report entitled Civilian Use of Drones in the EU. I also associate myself with her remarks thanking our clerk, Alicia Cunningham, our policy analyst, Paul Dowling, and the committee assistant, Deborah Bonfante, as well as our special adviser, Tony Henley, who all in their own way played a vital part in helping in our deliberations.

My noble friend’s introduction was wide-ranging and I therefore intend to restrict my remarks primarily to the innovative use of drones and some safety aspects. The drone, UAV and RPAS market is incredibly exciting. As we have heard, it is doing so many different things, and it could best be described as technology on steroids. Novel ideas for their use include fast movement of blood, plasma and medicines where it is urgently needed. Alec Momont, a graduate student of Delft University of Technology in the Netherlands, has developed a drone with a defibrillator attached for rapid deployment to someone having a heart attack that is able to home in on his or her location using the GPS signal of the mobile telephone used to call up the service. Drones with day and night vision cameras are being used to spot refugees trying to cross the Mediterranean into Europe. This year at Henley Royal Regatta, a drone equipped with a camera was used to film a large number of the races to great effect, perhaps heralding the use of this technology at other sporting events in future. Then we have heard it said many times that Amazon plans to deliver packages to our doors sometime in future by a drone.

As this new technology develops, we have to be mindful of the inherent dangers that come with it. I believe that invasion of privacy and safety are the two issues that need to be addressed, and I am pleased to see that the Government have taken these on board in their excellent response to the committee’s report.

I am going to go off-piste for a moment and mention a certain Captain Chesley Sullenberger. The reason for this will, I hope, become clear later on in my speech. On 15 January 2009, he was piloting an Airbus A320

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with 155 people on board that took off from LaGuardia Airport in New York; about three minutes into the flight, it was struck by a flock of Canada geese, two of which were ingested into the engines. The aircraft was at just 2,800 feet at the time of impact and was effectively a glider from that moment on. By some miracle of happenstance, Captain Chesley “Sully” Sullenberger was also a glider pilot, and his quick thinking and skill enabled him to carry out a textbook ditching into the Hudson River, and everyone survived. It became known as the “Miracle of the Hudson”, and a short time afterwards a new cocktail was developed named a “Sully”, which consisted of two shots of Grey Goose vodka and a splash of water.

Now to the reason for recounting this amazing story. About three weeks ago, I was going through the television channels and chanced upon the American channel ABC, where Captain “Sully” Sullenberger, now a retired airline pilot and in his new role as an aviation safety expert and accident investigator, was discussing the dangers of drones to commercial aircraft. He said that in America today there are an average of four sightings of drones a day in close proximity to airports and/or aircraft and that, unless some means can be found to curtail this, the danger of one being ingested into a jet engine becomes not a matter of if but when. He went on to say that the consequences of this happening would be far worse than a bird strike because the metal components in the battery would effectively become shrapnel, which would penetrate the cabin area and cause massive damage to the airframe and flying controls.

Every effort must be made to guard against something like this happening. I was therefore delighted to see that the Government have responded positively to our recommendation in paragraph 232 by setting up a cross-government working group with various RPAS and drone manufactures and operators to find ways of using geo-fencing in the UK as a means of making it impossible for drones to fly in or near sensitive areas such as airports or heli routes, such as heli route H4, which goes above London, where pilots must follow the River Thames at a height of 1,500 feet, depending on position and advice from air traffic control.

Having said that, I believe that this industry has immense potential to work for the good of mankind and is limited only by the horizons of man’s imagination. With that in mind, we must do everything we can to ensure that it develops safely and does not suffer a serious setback as a result of a major accident or terrorist attack.

6.30 pm

Lord Brooke of Alverthorpe (Lab): My Lords, I, too, as a member of the committee, wish to express gratitude to the people who helped. In particular, I thank the noble Baroness, Lady O’Cathain, for her sterling and interested leadership. She was given a task to pursue which she was not initially enthusiastic about, but in the event it has turned out to be a very worthwhile exercise indeed; she thoroughly enjoyed it and we enjoyed working with her. I also thank our clerk, Alicia Cunningham, who worked extraordinarily hard for us, as well as our policy assistants and Tony Henley, who was our adviser.

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In particular, I would like to express gratitude to the many organisations and individuals who came not just once before us but several times to give us their evidence and to guide us in particular directions. They were generally a very enthusiastic bunch who are keen to see drones moving forward quickly and expanding, and most of them are very much interested in light-touch regulation—they are real entrepreneurs in many respects—and it was very interesting for us to see how it worked. At the end of the day we produced a report that will be quite influential. When we turn to Europe and see that they are preparing to produce some further legislation towards the end of the year, and as the noble Baroness, Lady O’Cathain, just read out to us, what we have had to say on this will have a fair impact on Europe.

The report demonstrates the value of the House of Lords; when it turns its attention to serious business it produces a very serious and influential report which has wider implications. In addition, the issue before us proves the case for Europe and the single market. I do not know what some political parties will do when they start to see drones not just flying around within sight but flying from France to England and vice versa. This is a case where, because they can cross borders, we need to have regulation across the whole of Europe and not only there but throughout the rest of the world. While a non-appointed, not particularly accountable body is working on much of the regulation at the moment, most people have a general confidence in it. It will produce a report in due course, which will help Europe and which in turn will influence what happens at international level. The United Nations has a body that governs civil aviation, and what we are doing in Europe will be a very big factor in determining what applies throughout the rest of the world.

Our report, as others have mentioned, does not pick up on the defence side. It is quite interesting that the internet came from defence, as did drones in the main, and as we heard yesterday, drones will not be off the agenda.

The pace at which change takes place will be governed to a very fair extent by public opinion. I am not quite sure whether those in the industry felt the Prime Minister’s Statement yesterday helped the industry to move forward at a faster pace. It is appropriate that he made it, but I do not know whether it will help the civil side of it to move faster. A whole range of questions about drones will come to the fore in people’s minds. Yes, they will help the police, but what will they use them for? We could not quite get to the heart of what police forces were doing—different forces were doing different things. There is a case there for an open public debate about how drones will be used by public bodies such as the police in the future. We asked questions about the security industry in this country, which of course takes so much work that used to be done by the police. How will it use this technology, how will it be held accountable and where will the public be able to engage with it? Again, those questions still remain unanswered and need to be addressed.

I was in Richmond Park a week last Sunday, and to my surprise I found notices all over the place saying “No drones to be flown here”. I had never seen that before. I am not quite sure under what regulation that

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was done, but I presume that because they are the Royal Parks they can say, “Do not come on our patch”. Equally, however, there will be people in this establishment who have quite big patches, who might say, “Why shouldn’t I be able to say that nobody should be able to fly within the area above my lands?”. These are interesting points of development, and I wonder whether some changes have taken place here which now give people the right to decide that they do not want drones coming into their area.

Going back to the defence side, it is very concerning indeed to read reports that the Russians are now moving very quickly into this sphere. According to some press reports, they have now developed technology which will enable them to bring down a surveillance plane which British defence is currently working on. Whether or not the Minister can comment on that, it would be very interesting for us to find out.

I also sense that, with the change I saw in Richmond Park, a general toughening is taking place in attitudes to regulation, even within the CAA. When we saw it in the early part of the year, the CAA seemed to be fairly relaxed about trying to be hands-off and let the industry get on with it. However, I read a couple of weeks ago in the Times that it is now pressing the Department for Transport for legislation which would substantially increase the fines it will place on people if it catches them flying drones in restricted airspace or breaching the rules within high-density built-up areas. Can the Minister say whether some legislation is in prospect, with fines of £7,500?

These are all shifts which will tend to tighten up on the regulatory side and which will, to a degree, slow down the growth of the industry so that it does not progress quite at the pace my noble friend Lord Giddens talked about. As we have seen over the course of the past two weeks, something happens, it is immediately photographed and goes round the world, and immediately we see changes in policy taking place which three, four or five weeks ago we would never have envisaged would occur. Similarly, with drones we can see changes taking place there that could make a very significant impact on public opinion and in turn on the pace at which they will move.

Overall, we have done our best to produce helpful guidance over a very wide area. Again, I thank all those who I have worked with, and in particular the chairman for her leadership on this. We have produced an outstanding report, and looking at reports that go into Europe from the House of Lords, this one will make a change in the future—hopefully for the better, so that the industry will grow, but also so that in turn we get a proper balance with the right regulation that is needed, and that in due course we get that all around the world.

6.38 pm

Lord Wilson of Tillyorn (CB): My Lords, it is a great pleasure—and it has been very instructive—to have been a member of the European Union Committee, which approved this report, and of its Sub-Committee B, which, under the chairmanship of the noble Baroness, Lady O’Cathain, produced the draft of the report.

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The noble Lord, Lord Brooke, referred to our chairman as having been slightly doubtful at the beginning. I confess that, at the beginning, I was a sceptic on this: I thought that the time had not yet come when we would be able to look at the question of drones in a sensible way. I was wrong. There is no doubt at all that the evidence produced for us showed that the time is right. Plenty needs to be done, and needs to be done urgently, and as the noble Lord, Lord Brooke, said, it needs to be done at a European level—indeed, at an international level, but at the very least at a European level.

It is clear enough, as all noble Lords have said so far, that we are at the beginning of a very significant development in the use of unmanned civil aircraft. I share the view of the noble Baroness that “remotely piloted aircraft systems”, or RPAS, is a hell of a mouthful and that “drones” is a much better way of referring to them. We are at the beginning of some enormously important developments with the use of drones. Some have compared it with the beginning of the internet but, as the noble Lord, Lord Giddens, said, it is part and parcel of the whole development that follows from the internet and all the technology that goes with it.

Despite all the newspaper stories about pizzas being delivered by drones or Amazon delivering all its books by drones, it is clear that what we are seeing is not some sort of version of Hogwarts’ owl mail service but something much, much bigger. It is clear that drones are going to be used for all sorts of very important things, such as inspecting power lines, surveying crop use and checking on high-rise buildings. My noble friend Lord Rees of Ludlow mentioned a number of other things and the list can go on and on—drones are going to be very important. In the evidence to the committee, we were told that the day may not be very far in the future when it will be possible to carry freight long distance in an unmanned aircraft remotely controlled, for instance, from London right up to the Shetland Islands.

The potential for jobs, too, is enormous. One figure quoted by the European Commission is an estimated 100,000 new jobs in the United States by 2025 and another 150,000 in the EU by 2050. If the first is true, the second is surely an underestimate at the very least, and all one can say is that this is inspired guesswork. However, the economic significance and the significance for jobs is huge.

Surely it is important, too, that this matter is dealt with at a European level. It is very EU-worthy. Drones are not going to be limited by borders and, if the European Union is to be right at the forefront of developing drone technology, it is terribly important that early on there should be European-level regulations for drones so that those who are engaged in their development and manufacture can know the direction in which they are going and there will not be a limitation on the speed of development in Europe.

I will not go into the details of the recommendations. Our chairman covered a number of them and they are in the report in detail. I should simply like to make two points. The first is that the European Commission deserves credit for the work that it has already done on

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this, putting forward proposals early in 2014, and also for responding very quickly to our report. That was very encouraging. Sitting on the EU Committee or one of its sub-committees, there are times when one gets almost overwhelmed by the amount of paper that pours out of Brussels. One also has a feeling that quite often there are proposals which should not really be dealt with at a European level; they should be dealt with at a national level. There were even occasions when the previous Commission—not this one—was pretty cavalier in how it treated comments from national parliaments, saying that they had gone in the wrong direction. In this case the European Commission responded very promptly and positively to the report that we put to it, and it has said that it is going to produce concrete proposals by the end of this year.

My second point is that HMG also deserves credit for responding quickly—a point that has been made. The report came out on, I think, 5 March and before the end of March the Government had responded. It may be that the advent of the Dissolution of Parliament concentrates the mind wonderfully but, whether or not that is true, it is wonderful to get that sort of quick, and indeed positive, response from the Government.

Lastly, the Sub-Committee B that drafted this report is no more under the rules governing the length of tenure of any committee. Only one member of that Sub-Committee B has survived in the present Sub-Committee B under the noble Lord, Lord Whitty, and he had to excuse himself from taking part in this report because of a possible conflict of interest. Therefore, this report really was the swansong of the old Sub-Committee B and I submit that it was a pretty good swansong.

6.45 pm

Lord Wei (Con): I, too, want to thank my noble friend Lady O’Cathain for instigating this debate. I declare an interest as a recently signed-up member of the present EU sub-committee, as well as having various commercial interests, as can be found in the Lords’ register, in relation to cutting-edge technologies and insurance respectively.

The publication of this report and today’s debate on its findings and recommendations are extremely timely, given the huge growth in the use of drones for commercial and leisure uses, and the potential benefits and risks that this growth poses for us here in the UK and across the world. I, too, commend the authors of the report for work that is extremely well-informed, despite the incredibly technical and emergent nature of this field, and for the proportionate recommendations put forward, which clearly seek to balance leaving room for innovation while seeking to deal with the near-term risks appropriately. The call for risk-based management of certification and regulation, the recommendation to introduce a database of commercially and non-commercially operated drone flights, and the recommendation to strengthen the research and co-operation and communication around drone development—these are all sensible ideas. And it is appropriate on the whole to encourage the EU to help play a co-ordinating role, given the global nature of drone manufacture and import/export, and the potential

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cross-border nature of commercial drone operations as the market develops, while recognising that the UK is a leading innovator in this field.

In view of the comments already made, I want to focus my remarks on a particular challenge highlighted by the report in the light of the need to balance and recognise rapid innovation, alongside mitigating risks associated with both commercial and leisure use of drones; namely, how to foster a regulatory framework that works and is cost-effective but does not become obsolete before it has been enshrined in global, EU-wide and national legislation and regulation.

On the one hand, the report highlights the voices of some who would like, or who default to, blanket legislation, which would be hard to police given the limited resources of the obvious regulators such as the Civil Aviation Authority or indeed the police. And there are other voices, such as Jay Bregman, cited towards the end of the report, who highlight the role that private sector-led initiatives and innovators such as Verisign can play in developing technologies and tools for self-regulation in the management of internet security.

Clearly the blanket approach is unworkable, and I would like to see whether my noble friend the Minister agrees that in our discussions with EU bodies looking into drones we should avoid any top-down regulation of a one-size-fits-all nature, which, as the report highlights, has hampered innovation and the development of a drone industry in, for example, the United States. Equally, I personally disagree with the comparison of any internet-of-things sector, such as drones, with the digital internet as we have known it, given that a key difference is that a drone can fall out of the sky and kill or injure someone, whether deliberately, such as through an act of terrorism, sabotage or hacking, or by accident.

Surely the way forward is to work out where the long-term development of smaller drones, in particular, is headed, and to try to work back to the key inflection points along the way, where we will need to evolve legislation at global, regional, and national levels. To me, it is very clear that drones will and should form part of the wider internet-of-things ecosystem, and that ultimately this is about a transportation and logistics revolution that will be as dramatic as the work we are seeing in the introduction of self-driving vehicles. As such, in the short term we need to consider not only how drones will operate purely in terms of their relationship with aviation but how they will function within a future transportation web of which cars and airborne vehicles delivering people—or, more likely in this case, goods and objects—are a part. We need to consider that ultimately drones will be part of a worldwide hive of robots, operating even in indoor environments—for example, to carry items such as the food that we may end up eating in restaurants, or enabling goods to be delivered to remote and rural areas cost-effectively.

On the one hand, taking this integrated view is incredibly complex but, on the other, ultimately realistic given the passing of time. It should be remembered that smartphones themselves are barely a decade old—and look where we are today. This view can allow us to encourage a mix of approaches through different global,

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EU and national bodies to develop proportionate, cost-effective and workable regulation. The report highlights a number of ideas that would fit with this approach, such as the creation of a database of flights by unmanned drones, and resourcing the development of enabling technologies to avoid collisions. But I would be minded to go further than this, and utilise our governmental, civilian and EU influence to push for a more integrated framework.

For example, how do we utilise our influence to ensure that higher-risk internet-of-things devices, of which drones are a part, can be tracked and identified, and even traced using GPS when in the air, and that any database for drones could be integrated with others developed for robots in general? How do we harness, for example, the lever of insurance, to encourage registration of drones, both commercial and civilian, with higher or no cover for those that are not registered? How do we encourage the kind of catapult-backed funded research in autonomous transportation that we are seeing in the ground vehicle space to ensure drones are geo-fenced from high-risk areas, and avoid harming people on the ground even when their pilots, by accident or design, crash them into crowds or built-up areas? How do we assess the impact of drones in the workplace on lower-skilled jobs, as part of the wider debate on the impact of robotics and automation generally into service environments, and help smooth the labour market transitions that are on their way as these systems become more widespread?

I would like to ask the Minister, therefore, given the likelihood of serious accidents or even future terrorist events using drones, which could set back industry and dent public confidence, how the Government are seeking to build a holistic and integrated vision for how drone services and the industry can be supported to develop safely amid the wider transformations taking place in a world that in decades will look quite different from today’s—one incorporating trillions of devices, of which millions or billions may be airborne. Or will the Government’s approach to this area primarily be one of laissez-faire, in which we will regulate or seek to regulate through the EU and other bodies, only mainly after the event?

The advent of smaller, affordable and innovative drones is one of the most exciting developments of the era in which we live. But, as with all internet of things and robot-related developments, there are serious risks, many of which this report admirably highlights. What can we do as a country, and what can we do through Europe, to safeguard both the public and our national interest, while at the same time fostering the dynamic entrepreneurialism and innovation that we are helping to lead? If we can pull off this delicate balancing act, we will be able to harness drone development to strengthen our economy, I hope create lots of interesting jobs, and ultimately benefit consumers and businesses alike in ways that we can only begin to conceive of today.

6.52 pm

Lord Haskel (Lab): My Lords, as many noble Lords have indicated, there are two ways in which to look at new technologies such as drones. They can be a tool

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for invasion of privacy, a tool for terrorists and criminals, and for war, and must be kept under strict control. Or they can be welcomed as a useful new technology—a technology making us more productive and more efficient, and making life easier and more fun. Nevertheless, this requires some regulation.

I am most grateful to our chairman and the rest of the committee members for inclining towards the second alternative—the more progressive choice. I thank, too, our special adviser Tony Henley, and Alicia Cunningham, our clerk, who not only helped our work along but encouraged this progressive attitude. I agree with my noble friend Lord Giddens and the noble Viscount, Lord Astor. During a visit to the USA earlier this year, I could not help but notice that they inclined the other way. I can tell my noble friend Lord Brooke that, as a result of a drone crashing on to the White House lawn, some US states have introduced laws whereby one can register a no-fly zone around one’s house.

However, it was the positive nature of our report that created a lot of interest in the industry. In March, some 50 stakeholders from the industry came here to Parliament to discuss various aspects of our paper. They particularly agreed with our recommendation that rules should be the same across the Union. That would encourage a single market in drones, and particularly in drone services. This seems to be happening within the European Aviation Safety Agency’s current consultation on regulating drones. Perhaps one of the main points that came out of this meeting was the wish to avoid a closed engineering culture in order to encourage outside influence. People said this would bring in fresh perspectives, and so it has done.

Noble Lords have mentioned interesting uses. The CAA says that in the UK alone there are now some 850 mainly small companies that have received permission to conduct aerial work. As other noble Lords have said, drones can be fitted with scientific instruments, trace radiation or find people through thermal imaging. The British Antarctic Survey has many drones to help with mapping. Indeed, drone technology is being used to survey European coastlines where there is sometimes less than an hour between tides in order to do the work. In Halifax, Yorkshire there was the first race meeting, with drones having to follow an obstacle course through a forest.

Of course there are dangers. As the noble Lord, Lord Rees, told us, equipment could drop out of the sky if it loses its signal, or something can go mechanically wrong. But the meeting agreed that the safety rules should be not only harmonised throughout the European Union but be directed towards the risks, rather than define prohibitions. The risks include air worthiness standards and pilot training. CE European origin making for small RPAS should be introduced throughout the single market. We thought that JARUS was the right body to do this, especially after we visited it. Insurance companies advised that for larger drones the amount of third-party liability insurance required by law needed to be increased, and there must be clearer guidelines on the obligations of operators. Equally efforts must be made to increase awareness by the public of safety rules, as many noble Lords have said. There need to be distance and height restrictions,

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and no cameras within 150 metres of congested areas. In its evidence, BALPA was in favour of stricter rules. What is the Government’s view?

Evidence we took from the police during our inquiry indicated that they were still feeling their way. It appeared to me that the task of the police to enforce these safety rules must be more clearly defined. At the same time, more work is needed to better inform users on how to fly drones more safely. Again, this should be encouraged through the press, social media, radio and TV. I presume that the committee that has been set up by the Government to make recommendations will do so on this, too.

Most importantly, there will have to be some way in which to identify a drone’s owner or a responsible person. We recommend a European register. When something serious happens, steps can then be taken to connect the drone with somebody responsible. Phone identification technology is being introduced to do this. All this will, I assume, take place within the general data protection regulations.

I agree that there are technical restraints, particularly with the small drones. Battery life is still limited to 20 minutes and engineers are still working on collision avoidance technology. However, I agree with my noble friend Lord Giddens; perhaps, as artificial intelligence is developed, autonomous vehicles will regulate themselves and find their own way to a charger. Therefore, in order to arrive at better regulation that encourages progress in the use and the technical development of drones, it is important to think about how the future may look and examine the potential. I am indebted to Professor Andy Miah of Salford University who, together with funding from NESTA, is working on developing the potential of drones. I learnt of this work because I am an alumnus of Salford, from before it was a university—when it was a technical college. I must say that much of that work looks like science fiction.

In spite of tougher regulation, things are also moving in the United States. As the noble Viscount, Lord Astor, told us, in May 2015, Amazon was licensed to make deliveries by drone, but the development work is being done here because of our more relaxed rules. The gimbal is an interesting US development. It won a prize for indestructibility by having an external skeleton so that it can bump into buildings or trees without being damaged.

A word on jobs. As with many new technologies, it will certainly create jobs, but it will also destroy some. We have to take that calculation into account. As many noble Lords and I have tried to show, there is much going on in the civil world of drones. We in Parliament need to help it along with up-to-date, sensible and progressive regulation—regulation that will help it thrive in the market, yet be resilient to failure. I hope that this debate and our report will be a contribution towards that end.

7.01 pm

Lord Jay of Ewelme (CB): My Lords, I was not part of the sub-committee that drafted this excellent report, but I think the subject is of huge importance and want to intervene briefly in the debate.

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The image that many people have of drones today is, I suspect, either of military weapons such as those used recently in Syria, which do indeed raise some very fundamental questions about the rules of conflict and war, or of irresponsibly flown drones getting too close to aircraft, as the noble Earl mentioned a little while ago. The merit of this excellent report is that it focuses on the rather less well-known subject of civilian drones, which, to many of us, may still seem rather alien but will, in about 10 years’ time, seem as familiar and have as important a role in our lives, one way or another, as mobile phones and iPhones do today, as the noble Lord, Lord Giddens, said.

The advantages that drones can bring are huge in all sorts of ways: connecting remote communities and islands, mapping, land surveys, monitoring accidents or fires, looking for missing or injured people, providing medical help, as was mentioned some time ago, and, of course, for the leisure industry. However, there are disadvantages—or potential disadvantages—too: excessive or unauthorised surveillance, intrusion and disturbance. These have led some people even to argue that perhaps drones should be banned or, in some way or another, limited. I think that that is not technologically possible—when a technology such as this exists, it is going to be used and exploited. So the questions become how it should be regulated, by whom it should be regulated and in what way it should be regulated.

Given that drones can, do and will continue to fly across borders, it seems to me that they need to be regulated, at least as far as we are concerned, in the context of the European Union—European-level regulation seems necessary and desirable. It is essential that that regulation focuses on what needs to be done to deal with and discourage the risks and does not discourage the innovation and investment that will be needed as civilian drones—if I may use the expression—really do take off; otherwise, we shall find that it is not Europe or the United Kingdom but the US, China, India or elsewhere that becomes the market leader in drones. That is not something that we should in any way accept.

I have tried to avoid acronyms when speaking today, but one acronym, JARUS, seems to me and to the Committee to be the body that is a suitable vehicle for developing the necessary regulations. However, that will work only if JARUS has the full participation of industry, including British industry and small and medium enterprises, because SMEs are clearly going to be crucial in the development of drone technology. Does the Minister agree that JARUS is the right forum for developing regulations for drones? If so, will the Government do all they can to ensure that it is appropriately structured and governed and has the support and participation of industry, including SMEs? Will he give an assurance that he will work with the CAA, or with the companies themselves or their representatives, such as the ADS, to make sure that they have the necessary resources to participate in and influence the development of JARUS, and that JARUS itself—this is hugely important—will act quickly enough to reflect the immense speed that we must expect in the development of the drone industry? If we do not do this, and risk the development of a regulatory regime that does not move swiftly enough or have the full

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support and participation of industry, it could stifle the development of that industry in the EU and the UK. That would be hugely to our disadvantage.

7.06 pm

Lord Balfe (Con): My Lords, first, I declare an interest, which is listed in the register, as an adviser to the British Airline Pilots Association. Secondly, I add my congratulations to the committee on producing such an excellent report, to which, I am pleased to note, BALPA contributed both written and oral evidence.

There have been a number of safety incidents involving drones—I will call them drones, rather than remotely piloted aircraft systems—but they are all very recent because, as the noble Lord, Lord Giddens, said, there has been an explosion in the technology. Indeed, the first prosecution was as recent as 2013, when a man from Cumbria became the first person to be successfully prosecuted for the dangerous and illegal flying of an unmanned aircraft after flying a quadcopter over a nuclear submarine facility, then over a bridge and then crashing it into the water, for which he was fined some £800.

I know we want the maximum attention to be paid to safety. But, as this is such a rapidly developing sector, I think we will have to have a good degree of flexibility in the regulations. Whatever regulations are adopted, they have to be flexible enough to be adapted and, of course, have to be at a European level. It is when I look at a report such as this that I privately think how ridiculous the whole notion of not being part of the European Union is. This is yet another example of where we need European regulation.

It is my belief that every operator flying small drones for commercial purposes should be licensed, appropriately trained and fully insured in respect of any injury to people or property. This seems a sensible basis. However, the noble Viscount, Lord Astor, gave us a very good example of how to buy a drone. I wonder whether one should be able to buy a drone quite that simply. They need at least to be adequately insured. I am struck by the fact that I am advised by my insurance company to take out public liability insurance—I believe it is for £1 million—in case the postman trips on my front step and I could be sued for having a dangerous premises. In those circumstances, it seems bizarre that one can be in charge of a drone without training or insurance, and that in the case of an accident a person could be left without recourse to compensation. I therefore say to the Minister that I have no solution but I have a problem that needs to be carefully looked at in the context of the regulations that are drawn up.

The noble Earl, Lord Liverpool, referred to the need for particular vigilance when drones are flown in airspace used by other passenger, freight or light aircraft. There was an incident last July when a drone was flown within 20 feet of an A320 aircraft landing at Heathrow. It is clear that there is a need for some regulation. Geo-fencing should certainly be considered in certain areas and areas around airports would be an obvious place to do it. I would also suggest that only a trained pilot be allowed to fly a drone in airspace in close proximity to airports.

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Another danger that has been alluded to is that of a collision between a drone and a helicopter. A helicopter is a much more vulnerable aircraft carrying people than an aeroplane and the environment in which they work could increase that vulnerability. For example, a helicopter emergency medical service flight will often attend a high-profile incident where there is likely to be competition for airspace between the helicopter and news-gathering drones. There may not be at the moment, but we should look at the speed at which technology has developed. I could easily see it being possible that a report of an accident would come in and a local news station could have a drone on the scene as quickly as the helicopter service. In such circumstances, there must be a code of practice, but the civil law authorities must be given authority to take urgent action on the spot either to ban or regulate the drones or to move them out of the area in the interests of safety.

The report calls for the development of a robust system to track and trace all leisure and commercial drones, including identifying their owners, and proposes in the mean time an online database for commercial users to log their flight patterns and to inform others using the airspace. Pilots are concerned that, unless commercial drone users are required to enter their details, the take-up and use of the database is unlikely to be sufficient to provide any full safety benefit. I urge the Minister to look at that.

As the pilots’ union, BALPA believes that use of the database should be mandatory, but it is also considering opening up its membership to professional drone operators so that they can have the benefit of belonging to what is not only a trade union but a body deeply concerned with safety that would be able to involve them in the development of safety regulations and publicise them.

I have mentioned that this is an international issue and I welcome the attention that is paid to it in the report. I hope that the Minister will be able to assure us that UK and EU flight safety regulators will be at work to make the maximum protection available to the public, because, as the noble Lord, Lord Giddens, said, there will be large development in this area. I think that we are looking at only the beginning of it. Given the way in which GPS technology has developed, it will probably develop astronomically. A robust European and UK approach is needed. We need to identify the people who are flying the drones, otherwise there can be no public protection for anyone who may be affected. Having said that, I welcome the opportunity to contribute to this debate. I thank the committee for its report and I look forward to the Minister’s response.

7.15 pm

Viscount Goschen (Con): My Lords, with the leave of the House, I should like to make a short intervention in the gap. Perhaps I could start by declaring my interests, first, in that the business with which I work has extensive activities as a consultant to the aerospace and defence sector; secondly, that I am a private pilot; and perhaps, thirdly, that my young son is a rather skilled operator of a toy drone—he is a rather better pilot than his father.

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This is an extraordinarily complex subject which we have sought to tackle both in the excellent report of the committee chaired by my noble friend and in the debate today. It feels like the House of Lords at its very best in terms of bringing together diverse strands, technical interests, futurology, regulation and a number of different areas of expertise.

I strongly feel that we are at the dawn of a new age of aviation. I was struck by the remarks of the noble Lord, Lord Giddens, who talked about convergence—it is a much overused term but in this circumstance it makes a lot of sense. My noble friend Lord Wei spoke about the internet of things. When we look to regulate this amorphous physical manifestation of the digital age, it is extremely difficult, and we are in danger of creating a regulatory structure where, by the time we have got it up and running, the target has moved away.

The potential for this field is enormous, and we have heard about a number of the applications today. Beyond physical surveillance and carriage of goods, there will be limitless applications that we have yet to consider or even to dream about, but I am very struck by the old technology and the new. The aircraft that I fly was designed in the 1930s; the engine that it flies behind is essentially the same as one that can be bought new off the shelf today. It is very low technology but it is very reliable. The computer in the aircraft that I fly is nearly 50 years old—it is standing addressing your Lordships’ House this evening, and it is deeply fallible compared with the iPhone and smartphone technology that we have heard about. However, we should embrace this new technology and this new industry. It offers fabulous potential not only in the aerospace industry—in its training and operations—but, most particularly, in a wealth of value-added services. I particularly welcome the analysis of the report in that regard.

Of course, there are very clear dangers. Twenty years ago, when I had some responsibilities for aviation regulation, this type of activity was only really thought of in terms of hobbyists’ remote-control aircraft. Now it is open to a much broader field. We know that potentially enormous conflicts could occur with civil commercial aircraft and military aviation; there are privacy implications; there are nuisance concerns; and there are the dangers of the technology being used for nefarious purposes by terrorists and others who seek to commit criminal acts.

We cannot possibly cover all this within the short time available to us, but I want to say just a word about regulation. I believe that the CAA has made a strong start with CAP 722 of the Air Navigation Order, which is the basic mechanism by which our physical aviation is governed. Airspace is at a premium, particularly class G open airspace. I want to make one plea to the Minister, which is that he takes fully into account all users of airspace including light aircraft operators and those who use the precious and limited class G airspace. We are looking at the convergence of regulation here; we are looking at how the CAA interacts with the police and those who seek to regulate digital access and digital technology. I am very much reminded of the passage of the Regulation of Investigatory Powers Bill. By the time it became an Act, the world had moved on and we needed to start again.

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I know that, having had the temerity to speak in the gap, I should now conclude my remarks. It is a fascinating field and I suspect that this report will provide a platform for many future debates.

7.19 pm

Lord Rosser (Lab): My Lords, I add my thanks to those already expressed to the committee and the noble Baroness, Lady O’Cathain, for their report on the civilian use of drones in the European Union. Whether we are concerned or unconcerned about the impact of drones, the reality is, first, that they are here to stay and, secondly, that their use will dramatically increase, both numerically and in scope, and with it their importance in our daily lives.

Drones are a bit like the internet and social media. While having many benefits and providing many pluses, they also have downsides, since the uses to which they are put and the way in which they are used and deployed by some individuals and organisations will not always be deemed acceptable or appropriate.

As the report sets out, drones usually associated with military use are already being used extensively for a variety of civilian and commercial uses in the fields of logistics, security, construction, agriculture, energy and conservation, to name but some. My noble friends Lord Giddens and Lord Haskel emphasised that the potential future beneficial uses to which drones could be put are amazing.

There are clearly major opportunities for British companies, and indeed for Europe, to take a lead in the development of new technology in this field, and in so doing, to secure the creation of new jobs, both those directly engaged in the production and development of drones and those within the associated activities and businesses supporting this new industry.

However, our justifiable enthusiasm for wanting to be leaders in this field, and our justifiable enthusiasm for wanting to secure the many benefits that the use and development of drones will surely continue to bring, must not be allowed to obscure the potential adverse consequences arising from the development and expansion of drones and the urgent need for effective measures to address and mitigate those adverse consequences.

A recent report from Lloyd’s of London suggested that while spending on drones is likely to double by 2024, those who produce and use such equipment, as well as insurers, do not seem fully prepared for the emerging consequences. These include the risks of cyberattacks, reckless pilots, privacy issues, the danger of collisions or damage to third parties, and conflicting international regulations.

There have already been proceedings arising from the use of drones, including that of a person in a restaurant in New York who was injured by a drone being used to take photographs of diners, and an Australian triathlete who was struck by a drone that fell from the sky.

There have also been questions in this House about the regulation of drones. In November last year, the then Government stated in a Written Answer that the Department for Transport was currently developing

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its policy in respect of civil remotely piloted aircraft systems and intended in 2015 to engage in a public dialogue on issues such as the environmental impact, safety and privacy. No doubt the Minister will update the House on the progress being made with this public dialogue when he responds. I hope that he can be a little more specific than the statement made on this point in the Government’s response to the committee’s report.

The noble Baroness, Lady O’Cathain, set out in her opening comments the conclusions and recommendations of the committee and I will not take up the time of the House by repeating them. The report by her committee, which strongly supported the European Commission’s aims to create an internal market in the EU for the commercial use of remotely piloted aircraft systems, has been well received. In the light of its recommendations, the committee has welcomed the Government’s continuing commitment to contribute actively to the development of harmonised safety rules for remotely piloted aircraft systems across the European Union, and for a proportionate and risk-based approach to such regulations.

Perhaps the Minister will say what progress has been made by the Joint Authorities for Rulemaking on Unmanned Systems in drafting the safety regulations for Europe, and whether the Government are satisfied with the way JARUS is carrying out its role, or indeed is able to carry out its role.

In his letter to the relevant Transport Minister dated 9 July 2015, the chairman of the European Union Committee drew attention to a number of points on which his committee wished to request further information, and said that he hoped for a reply to his letter before the Summer Recess. I may be wrong, but as I understand it no such reply has been received. It would be helpful if the Minister would take this opportunity to respond to the points raised in the letter.

Among other issues, the letter asked what steps the Government were taking to ensure that the Civil Aviation Authority was adequately resourced to monitor the safety of remotely piloted aircraft systems operations and to support SMEs in the United Kingdom that are entering the industry. The noble Baroness, Lady O’Cathain, raised the issue of police resources in her opening comments.

The European Union Committee also asked what steps the Government were taking to ensure that the Civil Aviation Authority complied with its recommendation that national aviation authorities be required to share statistics regarding drone incidents with regulators, insurers and operators in other member states in order to improve the information used by insurers to assess the risks of different RPAS operations.

A further question raised that I hope the Minister will address was whether the Government were engaging with the industry on the development of an online database or app that would enable drones to be tracked and identified, and what the Government’s assessment was of the progress that has been made towards this goal.

As the committee’s report says, concerns including but certainly not confined to safety regarding the use of drones by state authorities, the media or leisure users among others could if not addressed undermine

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public acceptance of this new technology and put at risk the many beneficial impacts for society that the new technology can deliver.

The committee has done a real service in drawing attention to the issues involved, to the actual and potential beneficial impacts of drones and, above all, to the need to ensure that appropriate action is taken now to minimise the likelihood of unnecessary and avoidable difficulties in future over the way in which drones are used or misused by those who, intentionally or unintentionally, may be less than sensitive to the safety, privacy, security or data protection questions raised by this new and fast-developing technology.

7.27 pm

The Parliamentary Under-Secretary of State, Department for Transport and Home Office (Lord Ahmad of Wimbledon) (Con): My Lords, first, I join the chorus of gratitude that has been put on record to the committee and in particular to the chairman, my noble friend Lady O’Cathain, both for her leadership of the committee and for the production of what rightly has been termed an excellent report.

I am the father of three young children who thus far have not quite got on to drones; we have got the point of flying planes and helicopters by remote control. The issue of how drone technology will develop in the leisure industry, which was mentioned by several noble Lords, and the implications for parental responsibility are things that certainly I look forward to.

We have had an absorbing debate today. In debates such as this, we hear a great deal. We have heard about the practical flying skills of two of my noble friends. We heard about the piloting skills of my noble friend Lord Goschen, and I was pleased to learn that my noble friend Lord Astor admirably spent his summer learning how to fly drones. I am sure that in any future committees under the chairmanship of the noble Lord, Lord Whitty, that are set up to seek evidence about drones, they can ably supply some practical drone-flying skills.

The Government welcome the growth of this industry. The noble Lord, Lord Jay, talked about acronyms. As a government Minister, one thing you are constantly faced with in any briefing that you receive is acronyms. On a lighter note, I asked my officials whether I should use the word “drones” or the term used by several noble Lords, “remotely piloted aircraft systems” or RPAS. In the public interest, I think that “drones” is the right way to progress and that is what I shall use, much against the advice of my officials, for which I apologise.

The Government’s aim is for the European Commission to enable safe integration of drone technology into the same airspace as their manned counterparts. The new emerging aviation sector represents a great opportunity for the United Kingdom, as we heard from several noble Lords. We are already seeing small, innovative UK SME companies using this technology to great effect in the energy sector, agriculture and media industries—points mentioned by the noble Lords, Lord Rees and Lord Wilson. However, we have also seen that these industries are prevented from realising the full potential of this technology by the current lack of

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a cohesive regulatory environment. For example, the flying of remotely piloted aircraft systems is restricted to within line of sight or in segregated airspace.

The Government therefore welcome the European Commission’s recent Riga declaration, which established drones as a new type of aircraft. The declaration shares the Government’s view about the importance of drones to the economies of Europe, including through the potential for new jobs in the manufacturing industry. This is particularly true for the United Kingdom. In addition, the Government agree that the incremental integration of drones into unsegregated airspace must not reduce the level of safety presently achieved in civil aviation. As several noble Lords pointed out, including the noble Lord, Lord Wilson, there is a need for an EU-level response to this. Certainly, the Government support that.

However, we believe that it does not make sense to have the full weight of aviation regulations, designed around the safety of passengers and crew on manned aircraft, applied to small drones that will predominantly weigh less than 25 kilograms. Regulations should be risk-based and proportionate. The challenge is that the regulations are already lagging behind the technology, and this gap will only increase if the Commission and European Aviation Safety Agency fail to address the regulatory issues more quickly.

The noble Lord, Lord Balfe, and my noble friend Lord Wei also mentioned the issue of European action. The Government were pleased to note that the European Aviation Safety Agency published its proposals for the concept of operations earlier this year, which, on the face of it, appear to be a risk-based approach to the regulation of drones. The Government welcome the agency’s attempt to establish different categories according to the complexity of the operation, a point made by my noble friend Lord Wei. The European Aviation Safety Agency has proposed: an open category for very low-risk drone operations that might not need the involvement of civil aviation authorities; a specific operation category which will be dealt with on a case-by-case basis by civil aviation authorities; and a certified category for complex operations, which will be comparable to what is done with manned aviation. The agency is currently consulting on these proposals.

The noble Lords, Lord Whitty, Lord Jay and Lord Rosser, all talked about JARUS—yet another acronym—which stands for the Joint Authorities for Rulemaking on Unmanned Systems. As noble Lords will know, this is an informal consortium made up of national aviation authorities from within and beyond the European Union. The joint authorities have been asked by the European Commission to help develop the detailed rules for remotely piloted aircraft systems and small drones. This has placed the joint authorities in a difficult position, because it is an informal group and not a legal entity, with membership spanning the globe, including China, the US, Brazil, Australia and Israel. In addition, it has been very difficult for industry to contribute to this group’s important work, which remains a challenging issue for the very important partnerships built up in JARUS.

The Government have been concerned for a while now about the lack of accountability of the joint authorities group. Little progress appears to have been

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made on the development of rules needed by the industry. The Government believe that it is essential that some form of oversight body is put in place to ensure that the work that the joint authorities are undertaking is properly resourced and prioritised to best meet industry requirements. I assure noble Lords, including the noble Lord, Lord Jay, that the Government have been engaging with other member states and the agency to seek their agreement on this issue. We hope to see progress later this year. In addition, we are seeking greater reassurance on industry’s active involvement in this work.

The UK already has regulations for users of drones. Article 166 of the UK Air Navigation Order 2009 requires operators of drones to,

“maintain direct, unaided visual contact with the aircraft sufficient to monitor its flight path in relation to other aircraft, persons, vehicles, vessels and structures for the purpose of avoiding collisions”.

It also states that an operator may fly the aircraft only if they are reasonably satisfied that the flight can be made safely. Article 167 of that order requires that all drones fitted with cameras must have the permission of the Civil Aviation Authority to be used within 50 metres of people or buildings that are not under the control of the drone operator. In addition, Article 138 of the ANO 2009, which also applies to drones, states that,

“a person must not recklessly or negligently cause or permit an aircraft to endanger any person or property”.

That includes persons within another aircraft, and of course the aircraft that those persons are within. The Government expect users to understand and comply with this type of regulation, which has been in place for many years, albeit covering the flight of more traditional model aircraft.

My noble friends Lord Astor and Lord Goschen also raised the issue of CAA rules. As with all other aircraft, drones will be permitted to operate in UK airspace only if it is considered that it is safe for them to do so. Drones that have a mass exceeding 20 kilograms may be flown only under an airworthiness certification issued by the CAA or under an exemption issued by the CAA. Those requirements are identical for those required for manned aircraft.

As several noble Lords pointed out, we have seen a big increase in the use of small drones in the UK. The Civil Aviation Authority has experienced a jump in applications for commercial use of small unmanned aircraft. My noble friend Lord Astor asked how many had been sold. I do not have that figure to hand, but the CAA has issued more than 670 permissions to fly in 2015. We also note that the availability of relatively low-cost small drones over the internet and in high street electronic retail outlets has resulted in a radical increase in the number being purchased for leisure activities. With Christmas fast approaching, I am sure that they will prove a popular purchase.

I am also aware that there have been a few incidents that have caused some concern to commercial aircraft, a point made by my noble friend Lord Balfe and the former chairman of the committee, my noble friend Lady O’Cathain. Concern has been expressed about recent incidents at both Heathrow and Manchester airports. I am pleased to say that the Civil Aviation Authority has been thinking about this problem and

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has launched a publicity campaign called “You have control. Be safe, be legal”, which is aimed at raising the awareness of the general public, at the point of purchase, about their responsibilities as unmanned aircraft operators. I assure my noble friends Lord Astor and Lord Liverpool and the noble Lords, Lord Giddens and Lord Haskel, that the Government recognise that an increase in the popularity of small drones with cameras raises a number of questions, as they said in their contributions, about safety, security, privacy and data protection.

Safety and security must always be the overriding priorities, and both commercial and leisure operators must operate drones responsibly and within the rules. Indeed, we heard from the noble Lord, Lord Rees, and other noble Lords about incidents elsewhere, particularly in the United States. Of course this leads to public concerns around the issues of safety, security and privacy, and I am able to confirm to noble Lords that the Home Office is currently in discussions with police forces with regard to the policing and monitoring of such vehicles and that initial guidance has been provided to constabularies across the UK. In addition, my noble friends Lord Liverpool and Lord Astor, and the noble Lord, Lord Giddens, asked about drones and personal data. Let me give an assurance that the operators of drones which collect personal data must comply with the Data Protection Act 1998 unless a relevant exemption applies. The requirements of the DPA are regulated by the independent Information Commissioner’s Office.

My noble friend Lady O’Cathain and the noble Lord, Lord Rosser, raised the issue of police resourcing in respect of drones. The National Police Chief Council’s national strategic working group on drones has oversight of police activity in this area and is responsible for ensuring that there is a standardised and co-ordinated response to the threat. This includes ensuring that all police use of drones is undertaken by qualified pilots in line with CAA regulations and providing national guidance to forces on investigating drone misuse. Any decision to use drones to support operational policing rests with individual chief constables, who will allocate the resources they deem necessary to meet such requirements. The police will assess any report of drone misuse and will take a decision on further action subject to an assessment of the threat, risk and harm. The CAA, of course, retains responsibility for dealing with misuse that directly affects civil aviation. In addition, the Home Office is providing support to Sussex Police via the Police Innovation Fund 2015-16 to consider strategically the opportunities that UAVs present to policing nationally: those that help to protect the public as well as the threats associated with this evolving technology, which is being kept under constant review.

My honourable friend and fellow transport Minister, Robert Goodwill, the Minister for Aviation, recently announced in his evidence to the sub-committee that the Government are committed to engaging with the general public to seek views on the use of drones in the UK. This is an important step. As several noble Lords have said, the public must have confidence in this new technology and be aware of how it can potentially

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impact on their daily lives. My noble friend Lady O’Cathain and the noble Lord, Lord Rosser, asked about public consultation, and I am pleased to be able to say that the Government have engaged a public dialogue specialist, Sciencewise, to hold a series of public dialogue events around the country to better understand the public’s concerns about the use of drones. These events will start in November and are designed to attract a range of people from all walks of life. They will be followed by a specific public consultation on the issue which is scheduled for spring 2016.

I turn now to some of the remaining questions that were raised by noble Lords. My noble friends Lord Wei and Lord Balfe asked about matters related to insurance. Issues relating to insurance of the industry will be covered in the public consultation to be published in 2016. The CAA and the industry are talking to several insurance companies about the issue of drones. The noble Lord, Lord Rosser, asked about the letter from my honourable friend Robert Goodwill which is outstanding. My understanding is that it will be issued shortly, and after the debate I will follow up on the points raised by the noble Lord in this respect. He also asked what the Government are doing in terms of talking to industry about the development of an app to track and manage small drones. The Government have received several proposals for such an app, but the development of this technology is still at an embryonic stage. We will continue to work with SMEs in the development of such a tool and I will update the noble Lord accordingly.

The noble Lord, Lord Brooke, talked in specific terms about Richmond Park and the notices which have appeared there. As someone who lives not that far from the park, I will certainly go and examine them at some point soon. My understanding is that this decision has been taken specifically by the local parks authority. We are also focused on the fact that the public consultation will flush out any issues where regulation needs further attention.

The noble Lord, Lord Haskel, talked about the Government working group, its specific recommendations and indeed the terms of reference for the group. As he will be aware, it is to be jointly chaired by the Department for Transport and the Ministry of Defence. It will seek to inform drone-related departmental priorities and will publish a UK cross-government strategy. It will look at synergies and opportunities, as well as identifying and addressing the barriers to a successful UK industry base. I am sure that the group will pick up on the points that the noble Lord has raised about using technology in this manner.

My noble friend Lady O’Cathain specifically mentioned NASA and the involvement of the Government with it, as well as industry engagement. The Government are in early discussions with NASA about the drone traffic management system, and it is hoped that those discussions will lead to a UK involvement in the development of that system and the participation of UK industry in future trials to test the robustness of the technology.

If there are any remaining questions, I will certainly review Hansard and respond to noble Lords accordingly. The Government believe, as all contributors to today’s debate have said, that drones represent a significant

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opportunity for economic growth in the United Kingdom which businesses are already starting to realise, but the integration of remotely piloted aircraft into airspace must not reduce the level of safety presently being achieved in civil aviation. The key to achieving success in both these areas will be the understanding and support of the public and, indeed, of drone users. As I have said, the views of the public are to be sought and taken into account as we move forward and safely grasp this important opportunity for economic growth in what is an exciting sector.

This has been a fascinating, informed and absorbing debate. It has covered issues ranging from defence to leisure. Indeed, we heard about the surprise of the noble Lord, Lord Whitty, at a wedding and of the camel guidance experienced by my noble friend Lord Astor in the Middle East. This shows the spread, depth and breadth of drone technology. It is an evolving field and this is a debate that I am sure we will return to. However, it falls to me finally to thank once again all the members of the sub-committee, particularly the chairman, my noble friend Lady O’Cathain, and indeed all noble Lords for their participation in what has been an excellent debate.

7.47 pm

Baroness O’Cathain: My Lords, it just remains for me to thank everyone who has taken part in the debate. Perhaps I may particularly thank my noble friend the Minister because he has been assiduous in taking note of all the points that were raised. I am sure that once he reads Hansard, he will see that he has forgotten nothing. His speech was exemplary and I thank him very much. I know that we have all said that the drones are an industry of the future. The development of drones has been described as going from the ordinary phone or huge computer to the terrific smartphones and iPads we have now. It represents a revolution for the aviation industry akin to the development of the jet engine, or even of the first flight by the Wright brothers. Again, I thank everyone who has taken part and I hope that noble Lords will agree to this Motion.

Motion agreed.

United Kingdom: Productivity

Motion to Take Note

7.48 pm

Moved by Lord O’Neill of Gatley

To move that this House takes note of Her Majesty’s Government’s plans to boost productivity in the United Kingdom.

The Commercial Secretary to the Treasury (Lord O’Neill of Gatley) (Con): My Lords, as ever, it is a pleasure to discuss a subject that is so vital to this country’s economic well-being: how we can step up our productivity an additional gear. I cannot resist the temptation also to point out that this debate will be coinciding with the time when, we hope, the one and only Wayne Rooney will break the goal-scoring record for the English

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national football team. I applaud my noble friends and fellow noble Lords for giving up the time to watch that fun to be with me here.

The extent of the productivity challenge is very well known and something that we have discussed recently. The OBR estimated in 2014 that a high productivity scenario would see public sector debt fall in net terms to 56.7% by the end of this decade, while in an alternative poor productivity scenario, national debt would continue to rise to a level not far shy of 90%. As we all know, the statistics show that the level of our relative productivity is considerably lower than that of many of our G7 competitors. These statistics are well known and have been discussed here often, and I do not wish to go over old ground. However, as I set out in my maiden speech, there are, have been and remain many valid questions about the accuracy of our productivity statistics. Despite that, the fact remains that the UK can do a lot better. Indeed, if we are serious about long-term economic growth, we have to do a lot better. That is no small challenge, but it is a challenge to which we are rising.

At the last Budget, we published a productivity plan setting out precisely how we will improve national productivity. The first way we will do this is by encouraging long-term investment in our economic capital, including infrastructure, skills and knowledge. That means putting in place an even more competitive tax system and sending out a clear message that Britain is open for business. But a nation truly flourishes when it uses the full skills of all its people in all parts of that nation. As I have said previously in this Chamber—notably, just before the Summer Recess—of all the factors that will contribute to delivering a step change in our productivity, perhaps education and skills are the most important.

The previous Government made huge progress in getting people back into work. We now need to think holistically about all the basic, further and higher education that individuals need to contribute more productively in the workforce. We are increasing the number of apprenticeships to 3 million starts this Parliament and, crucially—I repeat, crucially—we are also improving the quality of apprenticeships by putting employers at the heart of paying for and choosing apprenticeship training.

Professional and technical education should provide a clear route to employment and deliver the higher-level skills that employers need. To achieve this, the Government will simplify and streamline the number of qualifications, and create a network of prestigious institutes of technology. This country is home to many of the best universities in the world. We need to make sure that our universities continue to lead the world with high-quality science and innovation, and by sharpening incentives for providing outstanding teaching to university students.

Changes need to be made in the workplace, too, and the Government have been engaging all parts of industry to make sure their voices are heard. I particularly welcome the work of Sir Brendan Barber and ACAS in finding a human solution to the productivity puzzle and, in particular, to how best management practice can provide levers for boosting productivity in the workplace. I have enjoyed some conversations

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with Sir Brendan and his colleagues and look forward to learning more from them about these important issues.

To ensure that the UK has the right skills base to deliver and maintain world-class infrastructure, a national infrastructure plan for skills will be published shortly. We remain committed to delivering the high-quality infrastructure we need to build and sustain a more productive economy, whether that is our transport system or our digital infrastructure. We have a clear, comprehensive and cross-sector plan for delivering this—the national infrastructure plan—a new version of which is being worked up as I speak. This will build on the progress that has been made in maintaining continuity and stability. It will remain in place until the end of the Parliament, and be supplemented by annual delivery updates. It will continue to be underpinned by an infrastructure pipeline of more than £400 billion of planned public and private investment.

I have set out our plan to encourage long-term investment in economic—and, crucially, human—capital. We also have to promote a dynamic economy, one that encourages innovation and helps resources flow to their most productive use. The productivity plan also sets out how we will liberalise the housing market by reforming our planning system and making more land available for housebuilding. We also need financial services to work better to invest for growth and we have set out plans to promote competition in banking, to free up markets from unnecessary regulation and to open ourselves up even more to international investment. A dynamic workforce is key. The reforms set out in the Budget are important steps towards a higher-pay, lower-welfare society, in which more people can work and progress up the career ladder.

Perhaps the final piece of the picture is making sure that the economy prospers across the UK. I have talked here previously at some length about the importance of strong, interconnected cities beyond the capital. That is one of the major features of highly productive countries elsewhere in the world. The concept of the northern powerhouse—greater investment mixed with wide-ranging devolution—sets out a blueprint for stronger regional growth in the UK. However, devolving powers alone is not sufficient. It is about transferring powers and responsibility to those who know best what will work for them. This will likely be the most effective way to identify and deliver the measures needed to boost the supply side across the country’s regions.

I have been highly encouraged by the dynamism of many city regions and by the local leaders I have met while travelling up and down the country as they bid for greater devolution and greater responsibility. I have been particularly pleased during many such visits in recent weeks. I am sure noble Lords will hear quite a bit more about this topic in the coming days and weeks. The northern powerhouse is a key part of our plans to rebalance the UK economy, but we want to see every part of the country, not just the north, reach its full potential. As the Chancellor’s launch of a rural productivity plan makes clear, productive growth is by no means limited to urban areas. This 10-point plan

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will boost mobile and digital connectivity in rural areas, support a skilled workforce and create strong conditions for rural business growth.

As has been noted previously in this House, writing a productivity plan is the easy part. Now we have to put it into practice. There is some sign already that headway is being made. On city devolution, and more broadly on devolving powers, the deadline for entering proposals has now passed and we will consider submissions from a number of places, especially those that have strong, credible proposals. Areas are increasingly signing up to the concept that having a devolution deal means that they need to move towards a city region mayor as a single point of accountability to represent the greater responsibility involved in these devolved powers.

BIS has launched a consultation that will pave the way to introducing the levy on large businesses to help fund apprenticeships. The Prime Minister has created a series of implementation task forces, including on housing and exports, to deliver our productivity plan commitments. Government departments will have to report on the key commitments that will be included in their single departmental plan. At the official level, a Treasury director-general has been appointed, who will report directly to me, to oversee the implementation of the productivity plan across Whitehall.

We are also engaging industry and Sir Charlie Mayfield, chairman of the John Lewis Partnership—by coincidence, I met him earlier today—will lead a business-led review of what UK firms can do to raise their productivity. The first output from Charlie’s review is likely to be published later this year. Of course, this is just the start; much more remains to be done. I know that this House will be scrupulous in holding the Government to the implementation of this plan.

There has been some better news recently from the reported productivity statistics, showing some signs that productivity has started to improve. In the first quarter of 2015, output per hour grew by 0.3% compared with the previous quarter. In a long-term historical context, that is of course still very modest, but it puts productivity 1.3% higher than in the same quarter of 2014. That happens to be the fastest annual growth rate since the first quarter of 2012.

That said, we have to be careful in believing that these statistics are necessarily persistent or truly accurate, because, as I and many others have commented tonight and previously, the question of whether these data accurately measure productivity in the true complex, modern, service-based economy remains valid. In this regard, it is worth noting that a number of commentators suggested during the Summer Recess that our productivity data, as well as those of some other nations, perhaps underestimate the actual performance due to growing technological advances and possible overestimation of the so-called price deflators. As many noble Lords know, but to remind them, to examine this in more detail we have established an independent review of economic statistics, launched as part of the Government’s productivity plan.

More recently, other economic indicators have been generally promising, although in some cases there is evidence of modest slackening. Among them all,

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what is particularly encouraging for the productivity story are signs of accelerating business investment. Business investment increased by 2.9% in the second quarter of this year, up from—the then also quite encouraging, by previous recent trends—2% rise in the first quarter.

In conclusion for now, before I hear the undoubtedly stimulating thoughts of many noble Lords, it would be wrong to assume that productivity can be transformed overnight. Many advanced economies, ourselves included, have historically picked what might be called the low-hanging fruit. Many of the decisions to make a step change need further boldness, political courage and close monitoring to ensure the policies announced are actually implemented. For the biggest long-term gains to occur, we will need to mobilise more consensus and draw from expertise across the political spectrum. The contributions that noble Lords can make to this debate will be particularly welcome.

Stepping up our productivity a gear will be one of the major tasks over the coming years and remains one of the priorities of the Government. Through the publication of the plan, we have made a strong start; the challenge now is to deliver on it. That is what the Government are planning to do. I look forward to our debate and I beg to move.

8.03 pm

Lord Monks (Lab): My Lords, I share the Minister’s football allegiances. I welcome most of the things in the Government’s document, to which he has been speaking, especially the ideas of a training levy and of the northern powerhouse, for which he has particular responsibility.

These worries about British productivity are not recent. They can be dated back to the 1870s by some people, when it was recognised that we were slipping behind the United States and Germany. It has troubled successive Governments since then. The high oil revenues and financial services bonanzas of recent decades took the pressure off, but it is back with a vengeance after the crash of 2008—there are no bonanzas around. Our productivity rates are such that it takes a British worker five days to do what a French worker does in four, which is a pretty stark comparison with a country of a similar size, importance and development. Our productivity problem is caused in part by the problems addressed in the Government’s document and which have been listed by the Minister. However, I want to apply my remarks to other factors that do not get the same prominence in the document.

Take executive pay: poor productivity is to a large extent a consequence of low investment in equipment and skills, and a major cause of that low investment is the incentives governing executive pay, particularly the practice of rewarding short-term success. Since 1990, despite the recent welcome improvements to which the Minister referred, investment in the UK declined from 26% to 17% of GDP. How much a company chooses to invest is, of course, a decision for its managers. The way they approach that decision inevitably depends on how they are rewarded and what their incentives are. Bonuses encourage executives to emphasise the short term, for which they

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are rewarded, and as a result give less weight to the long term, often despite exhortations to the contrary. Andrew Smithers said in a recent article in the

Financial Times:

“Ten years hence, shareholders might rue your decision to cut investment or raise prices”,

but you probably will not be around: you will have taken the money and gone. To raise investment levels we need to change executive pay systems, linking them more to market share and organic growth. These are common criteria in German executive pay systems and in other EU countries comparable to ourselves, all of which have enviable productivity records.

Executive pay is linked to the wider problems of British corporate governance. Our model of capitalism—a word we will perhaps use more and more in the Labour Party in the near future—provides a privileged place for shareholder and shareholder value. As I said, the resulting focus is on short-term results. Some executives I know dream of a generous takeover bid and the windfall that it would provide for them. That dimension of corporate governance being short-term oriented is very important for looking at the productivity problem. It means that there is less emphasis than should be the case on relations in the workplace between employees and management, between unions and employers and generally on ensuring that a place works as a good proper team that is well motivated, well skilled and well equipped.

An excellent recent publication—referred to, I was pleased to hear, by the Minister—by ACAS on productivity highlights some of these factors. In too many British companies, there tends to be a premium on financial engineering as the core competence. The finance function tends to rule: the accountant is king in the decision-making process. It is a bit like making the scorer the captain of the cricket team. Add to this the strengthening view that sees the firm as a contracting unit, with the employment contract no different from other contracts—a market transactional relationship. The result is a growth of non-standard contracts—zero-hours contracts have perhaps been most in the news recently. Self-employment is growing. The Uber kind of employment relationship is also developing in many areas. These are not conducive to high-skilled, high-commitment workplaces. They may work in certain service trades, but they do not work in factories doing difficult things, nor in services that need to be provided consistently to a high quality over many months and years. This is, if you like, the dark side of the much-vaunted flexible labour market.

Indeed, any attempt to rebalance the economy or develop an industrial strategy without taking the workplace centrally into account will end in failure, as too many initiatives have done before. The emerging picture is that of a UK that is too often pressing workers to work harder and longer, not one where the emphasis is on employees being encouraged to work more skilfully and to be smarter in the way that they approach things. Not enough of our firms are seeing the clear link between improved productivity and workplace-management approaches to their employees. I believe that central to any such strategy that involves improved workplace relations is dialogue. In successful

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examples of high-productivity workplaces, managers working closely with union representatives has often been key to improvement.

Hardly a week goes by without seeing pictures of the Chancellor in a hard hat visiting a successful factory. I hope he recognises from these visits the constructive role that unions have played in companies such as Rolls-Royce, Airbus, BAE, GKN and all the car plants, in improving productivity and performance. Instead of encouraging more of that, I am sorry to say, the Government are again attacking unions through the Trade Union Bill, soon to come to this House. Clouting unions is not the best route to high performance. Instead, the way to go is developing social dialogue arrangements to deal with issues such as skills and work organisation, as they do as a matter of course in some high-productivity countries such as Germany, the Netherlands and Sweden. It is time to bring our corporate governance arrangements more into line with those practices, even to the stage of having more diverse boards, not focused just on the short term but including other interest groups with a longer-term perspective, because they work there or they have a factory located in the relevant city or area. That seems to me very important.

Study after study has shown that consultation and involvement in workplaces bring improved job satisfaction and performance. Therefore, I ask the Minister, building on his talks with ACAS and Sir Brendan Barber, to fill in the gaps in the document and bring employment relationships much more into the debate that we are developing on this very important subject of productivity.

8.11 pm

Lord Stoneham of Droxford (LD): My Lords, I share with some sympathy the worries of the two previous speakers about missing a football game. However, those who think that our international competitiveness is even more critical in tonight’s cricket match might like to know that Australia is 140-5 after 30 overs.

We were promised a plan to raise productivity, but this is a presentational document published alongside the Budget. It is less a plan than a repeat of the Conservative manifesto objectives printed out in a government paper, and, sadly, I have to say, it hardly inspired my Summer Recess reading. One of my senior colleagues who had a spell in the coalition Government said that you can always judge the lack of specific quality in a government publication by the amount of blank pages in it. I gave this publication the test. It is an 82-page document, with 11 completely blank pages. Counting the 10.5 half blank pages, that is 16.5 blank pages in total, 20 % of the content. That does not set a very good example, given that it is a document supposedly about productivity. We know we have a productivity problem, but what we could have done with is a detailed analysis of what that problem is and a delivery plan to address it. Policy objectives are fine but, as the Minister said, they are worthless without a proper analysis, implementation plans and clear output objectives.

Aiming for productivity growth should be about how we get competitive advantage in international markets and safeguard it so that we can counter our

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poor balance of payments performance and improve real incomes domestically. Management leadership quality, investment and the skills of our labour force lie at the heart of what we must do. I agree with the Minister’s point that skills and labour quality are the key to this problem. I am concerned that the wide horizons of the paper—the fact that it is like a box of liquorice allsorts, in that you never know what is coming next—means that it fails to grapple with the specifics of what matters.

In the time available, I can deal with only three aspects. First, on broadband, there is one page on infrastructure. I accept that this is important, but I have always had doubts about the delivery of 95% superfast broadband by 2017. Frankly, I am worried that I will be part of the 5% that is left out, not least because I do not know where we are now on this issue and I am suspicious that Ministers do not know either or are hiding something. Perhaps the Minister will tell us what percentage of households now have the opportunity to have superfast broadband, given that we have only two and a bit years to get to the 95% target.

However, more important than the broadband infrastructure is this. Until superfast broadband is uniformly provided, I can read my newspapers on my tablet only in my London home. However, in Hampshire where I live, I am dependent on a huge logistical enterprise of printing plants, huge motorway-bound trucks and wholesale distribution centres, and then a man in a white van having to survive my dogs to deliver my paper because the internet bandwidth is pathetic and downloading my papers is impossible. Incidentally, in rural France this summer, where newspaper delivery can even involve planes to deliver English newspapers, I had the capacity to download even the full Sunday Times on my tablet.

What this illustrates is more important than infrastructure. Infrastructure is critical but, even more importantly, digital technology is re-engineering all the processes of manufacture, distribution, sales and income collection in every sector—public and private—and anyone who says that productivity opportunities are slowing down is talking out of their hat. They are going to speed up even more as the international economy picks up speed. This report should be addressing that question. Are we going to have competitive advantage in this digital world, or will we be left behind? It is fast-moving and, in my view, the Americans and even the Germans are way ahead in terms of this digital re-engineering. I support the northern powerhouse and living wage initiatives, but they will take time to have an impact on productivity; the threat from those more fleet of foot and a failure to take advantage of the digital opportunities are immediate challenges.

I worry that, despite the initiatives we are taking in our schools and universities to raise skill levels, we are still not doing enough in our colleges and adult education institutions to grapple with the challenge of the need for competitive advantage in skills. Budgets for adult education and colleges are being cut while we try to chase the politically attractive targets of 2 million and then 3 million apprenticeships—of uneven quality. In the previous generation, car plants were located in Great Britain because our labour force was regarded as more flexible. But Toyota still went to France

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because, although the labour practices there were seen as less flexible, the labour force’s mathematical skills were better—it was more IT literate and its precision was more reliable—and that made up for the inflexibility. That will be the required competitive advantage for the future. The plan needs to highlight our weaknesses and deliver a remedy.

One of the most frightening figures is that Volkswagen invests €11 billion in R&D each year—more than what the whole UK Government, universities and research councils could contemplate; in fact, approaching a third of the whole R&D budget of this country. It is adapting IT systems with its excellent engineering motor products. In the future, garages maintaining cars are going to more reliant on IT skills than mechanical skills. It shows the challenge one country on its own will have going forward.

So my final point is about Europe. One of the factors behind the United States’ productivity is the scale of its domestic market. It encourages big-scale investment as well as the development of niche businesses. One of the sadnesses of the pettiness of our renegotiation saga is that we are neglecting the bigger prize we could get if energy, negotiating skill and diplomacy could go into the opening up of the European markets. Sadly, competition does not naturally happen; it needs regulation and policing to bring it about because vested interests and established individual businesses much prefer protected markets. In a digital economy, it will be even more important to protect consumers internationally. This report needed much more than the three lines given to the opening up of services, energy utilities, financial and digital markets in the EU—in all of which we have competitive advantage to exploit. With the scale of re-engineering coming from new technology developments and the international competition and opportunities it will open up, we cannot afford to operate alone as one country in a global world.

8.20 pm

Baroness Noakes (Con): My Lords, I am delighted to be spending this evening debating the productivity report because I have little interest in football and even less in cricket.

The productivity gap is not a new issue and it is not surprising, therefore, that the Government’s Fixing the Foundations report contains no startling new insights. It is a modest but sensible approach to raising productivity levels. In particular, I commend the Government for focusing on what they can do to liberate the productive potential of our economy. With the exception of the public sector, to which I shall return later, the Government should be an enabler rather than a doer.

The country absolutely does not need a dirigiste industrial strategy and the Government have wisely avoided that elephant trap. With that in mind, I am wary of the proposed revised national infrastructure plan. I am particularly concerned that an obsession with major infrastructure projects such as HS2 will do more harm than good. That particular project will certainly offer no productivity enhancement—at least for the first £50 billion or so of expenditure, which will shave only a few minutes off the travelling time to Birmingham.

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I do not want to spend a long time on the rather dry subject of the measurement of productivity because I do not believe that it should detract from the directional need to raise UK productivity. But as my noble friend the Minister said, it is clear that there are issues about how we calculate productivity and understand the figures that emerge from the statisticians. The Bank of England’s analysis of the productivity puzzle last year highlighted some of the problems. We are a service-based economy and there are known problems with capturing service output accurately. Many have pointed to the impact of technology, which we can see with our eyes but not in the statistics. This includes measuring the change in quality of output that technology delivers, as well as trying to understand the time lags between innovation and the visibility of productivity benefits in the statistics.

Your Lordships would expect an accountant to say that we really must have numbers that we can rely on, and for that reason I certainly welcome the appointment of Sir Charles Bean to lead the independent review of national statistics, which my noble friend the Minister has already referred to. There are many technical challenges in productivity measurement; it is also clear that all is not well at the ONS. I certainly hope that we can see some improvements.

I would like to touch on three areas covered in the Fixing the Foundations report where the Government should perhaps think further. The first is taxation. The Budget announced a path to an 18% corporate tax rate, which is a fantastic environment for existing businesses and for encouraging inward investment. The new business tax road map next year will reinforce this positive environment but being a low-tax economy needs more than low corporate tax rates. The 45% rate of personal tax, or 47% if you are in employment, is too high. The UK is near the bottom of the G20 in terms of taxes paid by high earners. High tax rates act as a barrier to high savings. They disincentivise wealth creation and discourage highly mobile international talent. The Government should give this a higher priority.

Secondly, I applaud what the Government have been doing to facilitate the development of fracking in the UK and to call a halt to some of the most inefficient renewable subsidies. But energy costs remain a huge concern both for households and for energy-intensive industries. Even after the changes announced in July, environmental levies will still be more than £4 billion this year and will more than double by 2020-21. These levies are borne by energy consumers, including our productive industries. The Government need to look again at whether the costs imposed in the name of climate change represent value for money for our economy or another drag on the cost base and competitiveness of British industry.

Thirdly, the Government recognise that competitive markets with a minimum of regulation are essential for productivity, and I applaud the actions that have already been taken on deregulation. But the fact remains that there is a considerable regulatory burden on businesses in the UK and that this bears down disproportionately on small and medium-sized enterprises. Exactly how much regulation costs is extremely difficult to pin down; the most recent estimate by the Institute of

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Directors was £80 billion a year. The amount attributable to our membership of the EU is also tricky to establish, with some estimates of up to 80% of regulation being attributable to the EU. That EU-derived regulation applies to the whole of the business sector, even though a minority is actually involved in exporting to Europe. The Government are currently pursuing a largely invisible reform agenda within the EU, ahead of the referendum. I hope that the Minister will agree that EU reform should include a significantly lower amount of EU-mandated regulation. Can he assure noble Lords that the Government are indeed pursuing this?

I said earlier that I would return to the public sector, which accounts for around a fifth of our GDP and so cannot be ignored in the pursuit of a more productive UK. Here the picture is even more difficult to establish, with complex measurement issues and considerable delays in getting data. The latest ONS statistics on public sector productivity are for the 15 years to 2012. They show 13 years, broadly, of flatlining productivity but with a surprising average of 1.8% productivity gains in the final two years. More recent estimates from sources other than the ONS for the NHS, which is the largest single element of public sector output, suggest that productivity fell by 1% in each of the following two years, so this is not necessarily an encouraging background. I invite the Minister to say what productivity gains the Government expect to get from the public sector over this current Parliament, and in particular in health and education. The Fixing the Foundations report gave only the barest of outlines of the Government’s approach to productivity in the public sector. It is certainly the case that productivity in the public sector does not just happen. It has to be managed with determination and consistency of purpose, so I hope the Minister can assure the House that there are definitive plans which will deliver the Government’s aims.

I hope that the Government will remember two things in pursuing productivity. First, they should set the framework for business but not interfere beyond that and, secondly, since they are accountable for public sector productivity, they should be managing that with great purpose. If the Government can deliver these two things, we may be quietly confident that our future productivity performance will improve.

8.29 pm

Lord Flight (Con): My Lords, I will focus, separately, on the unusual period of 2007 to 2015 and the general long-term structural weakness in UK productivity growth. The UK economy did not get back to its 2007 level until the beginning of 2015, but with some 6% more people employed, remarkably. In a sense, this was socially good. Historically, after a financial crash, thousands of people may have been thrown out of work, but generally companies kept them employed. The companies may have reduced their hours, but there was not a massive rise in unemployment. One has to face up to one of the main reasons for that, which is that labour was cheap—labour costs could be cut—and, in turn, the reason for that was income tax credits. Former Chancellor Darling has admitted that tax credits, which were intended to boost living standards

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for those on low pay, have served to freeze or reduce pay, in turn causing productivity to fall: there is no need for employers to pay if the state is going to top up pay. The cost of income tax credits, originally around some £7 billion, has gone up to £34 billion.

We have been here before. In the late 18th and early 19th century there was something called the Speenhamland system, named after the village where it was invented, under which pay was subsidised. That led to massive labour hoarding, largely in the agricultural sector. When it was eventually ended in 1834, there was a huge shake-up, and agricultural employment fell by roughly one-third. Indeed, labour was released to go and work in the new industries that were coming up, causing the great economic success of the 1840s. One has to face up to the fact that if you are stuck with tax credits—and I believe we should not be—the only way to reduce their effects is to have a much higher minimum wage. This is of course why the Government are introducing the NLW. Personally, I do not like Governments interfering in pay, and I think our growing regional differences in the cost of living need to help determine pay rates locally. However, a higher minimum wage is unavoidable if government is continuing to subsidise pay.

A second big factor during the period was the growth in regulation and regulatory burdens. Many more regulators were employed in the financial services industry and many more staff were employed by companies—tens of thousands. There was also huge growth in energy and agriculture. In all these areas, output did not increase at all but the number of people involved rose dramatically.

Interestingly, productivity during the period was actually up in manufacturing but down substantially in services and in the public sector—I very much welcome what my noble friend Lady Noakes had to say about the public sector. Also, despite its strained infrastructure, London performed much better than the rest of the country in terms of productivity—29% above the UK average. However, colleagues on all sides of the House whom I have spoken to rather agree with me that the big issue causing the fall in productivity was the knock-on effect of income tax credits.

As has already been pointed out, the long-term poor productivity trend goes back more than 100 years. The average increase pre-2007 was 2.4% per annum, and of course poor productivity restricts growth. Indeed, successful recovery and continuing economic growth requires much better productivity. The only other way it can be made up is by growth in the labour force, which is one of the reasons why the UK has permitted significant immigration going back nearly 50 years. The figures show us to be poor versus the US, Germany and France: the UK is some 19% below the G7 average for productivity and 31% below the US. Interestingly, among the G7, only Japan has been worse than us.

I believe that the statistics are materially wrong. Living standards are a knock-on symptom of productivity growth and, remarkably, living standards in the UK are just as good as in much of the rest of the EU—in some cases, better. In many ways, the UK has done better over the past 35 years generally. I very much welcome the fact that Charlie Bean will be reviewing the statistics.

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The main difference between the UK and the economies that have performed better is that we have had such a low savings rate for a long time. Never forget Keynes’s famous dictum that investment equals savings and savings equals investment. If you have a low savings ratio, you are likely to have less investment. The UK has got by on borrowing other people’s saving surpluses and selling the family silver to finance it. We have had a £700 billion current account deficit built up over 15 years. Now, for example, 46% of city properties are foreign-owned and 53.8% of listed UK-domiciled companies are foreign-owned. The UK always used to have a big net surplus of foreign assets; there is now a substantial deficit of international assets that we own versus UK assets that are foreign-owned. It is clear that a low savings rate generally leads to low investment, and that that leads to poor productivity growth. That has been the biggest single factor contributing to our poor productivity growth.

Today, investment is not so much about old-fashioned physical plant but about intangible knowledge-based assets. I suspect accounting may often treat such investment, important though it is, as expenditure rather than investment. In the UK, we have, over the past few years, had a major growth in entrepreneurship: 1.5 million new companies in the past two years, not just in London and the south-east, many in new, digital technology. We have been much more successful in that context than the rest of Europe. Also, the UK may have effectively rationed its investment better than others—than Japan, for example, which has been building bridges to nowhere to keep the economy afloat.

There are clearly some useful things in the Government’s plan, but I felt that it mostly cobbled together various policies already in place, such as cutting corporation tax and freeing up planning, and attaching all that to a productivity plan label. I found nothing hugely innovative or major. There are some positive things: upping the annual investment allowance to £200,000; a new compulsory apprenticeship levy; and a new 2020 road fund. UK infrastructure is clearly fundamental, particularly in the south-east, where the road network is wholly inadequate and has been neglected for a long time. The 95% target for superfast broadband is good news. The Government can contribute ingredients, and macro policy can help. Improved skill training is obviously a good idea. No one speaks up for the university technical colleges of my noble friend Lord Baker, which will be incredibly important in improving the flow of people through education into skill training and into work—the more the better.

I question the Government’s initiatives to raise exports. We have heard a lot about them for a long time but nothing much happens. The crucial thing is export finance, which needs to be more easily available and cheaper to be competitive with that in France and the US.

Above all, now that the economy is back on its feet, there is a clear need to increase the savings rate if we want higher investment and productivity. It is not happening; indeed, the savings rate is falling. We need better fiscal incentives for people to save—dare I say it, making it clear to people that if they do not save, they may not be able to rely on the state in their old age because, as the baby boom explodes, that will

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simply not be affordable. Above all, we need a savings rate that averages 10% per annum. That would underpin a considerably better performance in productivity.

8.39 pm

Lord Desai (Lab): My Lords, it is a great pleasure to take part in this debate, especially following the noble Lord, Lord Flight. I will not go back to the early 19th century, as he did, but we have certainly been debating the backwardness of British productivity compared to the German for at least 125 years. I have done some work for this debate, and I am very grateful to the Library for having helped me out.

There are two problems. First, as the noble Lord, Lord O’Neill, said, the level of productivity in the UK is low relative to other countries, especially the United States—it could be the size of the domestic market but I am sure that the persistence of that gap is quite an interesting phenomenon. Secondly, we have the problem of growth in productivity. However, these are two separate problems. My own views is that what the Government are proposing is quite rightly taking care of the level of productivity across the economy by dealing with transport, housing and all sorts of other things that are time-saving devices, in a sense—by improving the quality of the input, they will raise productivity generally. But whether there will be productivity growth is a separate issue.

On the level of productivity, as I have said before, the British economy is a 60:40 economy, in that 60% of the labour force is employed in areas that produce only 35% of total output, and 40% is employed in producing 65% of total output. I am not saying that the 60% are unproductive; they are engaged in activities that I have before called welfare producing or happiness producing—or whatever it is. The productivity growth is much more marked and easily measurable in sectors that produce solid, practical things.

What happened during the long recession of 2007 to 2013 made it clear that, when growth collapses, productivity collapses. There is a simultaneity. Not only does productivity help growth, but growth helps productivity. During that period, by and large people went into the 60% of the 60:40 economy, into public and professional services, which sheltered them. The wages did not grow, because people went into low-productivity sectors, but unemployment stayed low. Labour market flexibility helped to absorb people who moved into low-productivity areas, because highly profitable, high-productivity areas had suffered a huge output shock and were shedding labour, especially in financial services. So in a sense, productivity and output were low because, in a sense, the productive sector was shedding labour and the less productive sector was absorbing it. There is nothing new about that, but that is a phenomenon which we have to live with.

Our problem would obviously be, as the noble Baroness, Lady Noakes, said, that we have to concentrate on what I call the less productive areas. It is very difficult to enhance the productivity of health and social workers, but 13% of the labour force is employed in health and social care, which produces 6% of output. It is very difficult to say how you can raise the productivity

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of a childminder or somebody who looks after the elderly for social care. Obviously, in areas like that it would be about improving the surroundings or the technology available, improving how patients are dealt with, with support services, and so on. But we have to look very carefully at those areas. We often look at the easier areas, the wealth-producing areas, where solid things are produced that can be measured—assembly lines, and so on. No doubt we should invest in that as well. However, our real problem may be that we have to raise the productivity of the areas where the bulk of the employment is, which will be a more difficult thing to deal with than raising growth in wealth-producing areas.

Coming to the latter, obviously, what the document shows is that we have had a slow-down in investment. Not only is the share of investment in terms of GDP lower in the UK than in the OECD generally, but lately during the recession we have had a drop. I know that every time anything happens the first thing businessmen say is, “Cut our taxes and we will give you growth”. I have heard it before, and for a long time. At least as far as econometrics is concerned, the connection between investment and tax cuts is, let us say, fragile—not very solid. Anyway, we have to have happy businessmen, so we can give them a tax cut.

The problem is that we have to find reliable ways of increasing investment, and not just increasing investment but doing so in the newer technologies, where tremendous scope exists for raising output and productivity. In a sense, if you look at some of the stuff which is being said—I am not a very practical person, so I only read this in newspapers—what is going on in the IT revolution will be tremendously important and will fundamentally transform production in the next 10 years or so. As the Minister said in his introductory speech, we have the universities, the young entrepreneurs and the start-ups; basically, now the Government will have to find some trick to connect up the people who are doing the start-ups and those in the universities, with more Fraunhofers—or whatever they are called in Germany—from universities, which will raise productivity.

In the next 10 years, as I said before, GDP growth will not be very high. I am sorry that this is the bad news, but I am giving it now. We are in a downward phase of a long cycle. Output growth will be low, as will inflation. However, we will have to find ways in which we can employ people in productive jobs, because as productivity grows we will have to absorb people into other sorts of jobs. I wish the Government good luck, and I hope that they will raise both productivity levels and the rate of growth of productivity.

8.47 pm

Lord Bilimoria (CB): My Lords, matching UK productivity to United States levels would raise GDP by 31%. The graph in the Government’s report clearly shows that the United States has high living standards and high productivity. In Britain we have a lot going for us: we have less than 1% of the world’s population but have the fifth largest economy in the world. However, if our GDP was 31% higher, it would allow us to leapfrog Germany as the biggest economy in Europe and the fourth largest economy in the world.

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The Government’s report very clearly outlines several factors that increase productivity, and as a happy businessman—to quote the noble Lord, Lord Desai—I commend the Government’s decision to reduce corporation tax to 18% by 2020. I am proud to be chancellor of the University of Birmingham, one of the top 100 universities in the world. The UK has more universities in the top 100 in the world than any other country except the United States. We have phenomenal capabilities in a variety of sectors. We also have one of the most open economies in the world and are a true trading nation. In fact, most people do not realise that we are the second largest inward investment destination in the world. Yet when it comes to productivity, as the Minister acknowledged, we have lagged behind other economies. We are ranked 18th out of 34 OECD countries, in the bottom half of the list.

The Government’s report talks about school reforms. Again, there have been good initiatives on this front, with the Labour Government’s introduction of academies, which the coalition continued and which this Government continue to promote, and the Government’s promotion of free schools. However, I believe that the biggest mistake that this country made was to close grammar schools, of which only 164 are now left. To think that at their peak in the 1960s there were 1,300. These grammar schools gave the opportunity to a bright child, regardless of background, to get to the very top, and no one—including Margaret Thatcher, herself a grammar school product—has had the guts to reintroduce them. Why cannot the Government promote academies and free schools but also support the reintroduction of grammar schools? That would definitely provide a huge fillip and have a direct impact on our productivity.

Where our universities are concerned, Universities UK states that the higher education sector generated £73 billion of output, both directly and indirectly, for the British economy. In Britain, government expenditure on higher education is 0.88% of GDP, which is lower than that of other OECD countries. In Finland, 1.87% of GDP is spent on higher education, in Germany the figure is 1.12%, and even in the United States more public expenditure goes on higher education, at 0.94% of GDP. In fact, universities in the United States go further. They receive a significant amount of private funding. I am an alumnus of Harvard University through its executive education, and Harvard has an endowment of more than $36 billion. The philanthropy at Harvard is extraordinary. Last year one alumnus contributed $350 million for the Harvard TH Chan School of Public Health, and this year an alumnus donated $400 million for the John A Paulson School of Engineering and Applied Sciences.

Universities in the United States boost their revenues through not only private benefaction but corporate partnerships—something that we should emulate here. The University of Cambridge has made a great start, raising £1 billion for its 800th anniversary. That was excellent, with the money being raised ahead of time. And I am proud to say that the University of Birmingham has raised £160 million in its latest fundraising campaign. Looking at combined public and private expenditure on higher education, the UK spends 1.2% of GDP;

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the OECD average is 1.6% of GDP and in the United States it is 2.7% of GDP—more than double that of the United Kingdom.