House of Commons

Monday 11th October 2010 Commons Chamber

Monday 11 October 2010

The House met at half-past Two o’clock

Prayers

Monday 11th October 2010 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Monday 11th October 2010 Commons Chamber

The Secretary of State was asked—

[Jo Swinson (East Dunbartonshire) (LD)]

1. What recent representations he has received on the bullying in schools of children with allergies.

[The Parliamentary Under-Secretary of State for Education (Tim Loughton)]

The Secretary of State and the ministerial team have not received any recent representation on the bullying of children with allergies.

[Jo Swinson]

I thank the Minister for that answer. I chaired a meeting of the all-party group on allergies at which a number of children spoke about their experiences of potentially life-threatening bullying in schools. For example, they had foods to which they are severely allergic forced upon them. Some schools’ response to that was commendable, but in others it was not taken seriously. Would the Minister be happy to meet me and a group of these children to discuss their experiences of that problem and potential solutions?

[Tim Loughton]

I am grateful to my hon. Friend for raising that point. I pay tribute to the good work that she has done with the all-party group. She secured a debate on the subject and has raised the matter on numerous other occasions. I would be delighted to meet a group of representatives. I met a large body of young people who have long-term conditions who came to lobby us about their circumstances at school. The problem affects 18 million people throughout the country and it shows no sign of abating among younger people, so I am more than happy to take forward her offer.

[Tony Baldry (Banbury) (Con)]

2. If he will discuss with Ofsted its arrangements for measuring value added by schools.

[The Minister of State, Department for Education (Mr Nick Gibb)]

The Department has regular discussions with Ofsted about its approach to school inspection, including its assessments of pupils’ educational attainment and achievement. That engagement will continue as Ofsted develops a new streamlined and refocused inspection framework built around the core areas of pupil achievement, teaching, leadership and behaviour and safety.

[Tony Baldry]

Can my hon. Friend assure me that the achievements of schools, such as Banbury school, which have challenging catchment areas will be fairly reflected in Ofsted inspection reports?

[Mr Gibb]

I can give my hon. Friend that assurance. Ofsted takes into account not just raw attainment at schools but the progress of pupils. Between September 2009 and March 2010, of schools in challenging areas, 10% were awarded the outstanding grading, compared with 11% of all schools.

[Toby Perkins (Chesterfield) (Lab)]

Two head teachers in Chesterfield told me how liberating it was for them when contextual value added measures were put in place and there was finally acknowledgement of the tough circumstances under which they performed their roles. Does the Minister agree that the CVA measures, as a key part of the inspection that assists parents, help parents to assess the strengths of teaching at a school, not just the strengths of an intake?

[Mr Gibb]

May I congratulate the hon. Gentleman on his appointment? I look forward to working closely with him to achieve our shared objective, which is to close the attainment gap between those from wealthier and those from poorer backgrounds. I assure him that, in Ofsted inspections, the progress of pupils is as important as the absolute level of attainment. Value added figures, whether the current CVA figure or a review figure that measures progress, are important in all Ofsted inspections.

[Robert Flello (Stoke-on-Trent South) (Lab)]

4. What his policy is on the provision of support for children with special educational needs.

[The Minister of State, Department for Education (Sarah Teather)]

To deliver the Government’s commitments on special educational needs, I am publishing a Green Paper later this year to look at the wide range of issues concerning children with special educational needs and disabilities. To inform this important work, I have issued a call for views and have met parents, teachers, local authorities, charities and other groups. I am also considering the findings of recent reviews, including the recent report from Ofsted.

[Robert Flello]

I am grateful to the Minister for that answer and I congratulate the new Opposition Front Benchers on their appointment.

In some schools, support staff provided for statemented children are being redirected to other children by head teachers who use such staff almost as a floating resource. Can the Minister assure me that she will look into that matter as a great priority?

[Sarah Teather]

I thank the hon. Gentleman for raising that point. I understand from my discussion with him prior to questions that a specific issue is concerning him and has led him to ask that question. I wonder whether he will be good enough to write to me because it would concern me greatly if schools were redirecting to other children resources that were supposed to be allocated to children who have a statement in special educational needs. It would be useful to have his feedback in advance of the Green Paper.

[John Howell (Henley) (Con)]

I welcome the Minister’s commitment to children with special educational needs. My constituency has schools with well in excess of 50% of pupils on the special educational needs register. How will the Minister encourage Ofsted to look at the bigger picture when it comes to its assessments, because the problems are often complex?

[Sarah Teather]

My hon. Friend is correct to say that the problems are complex. It is absolutely right that school inspections take account of how well pupils with special educational needs and disabilities are provided for, as well as how well they learn and progress. That will be an important consideration for Ofsted as it develops new inspection arrangements focused specifically on the core areas of achievement, teaching, leadership, behaviour and safety.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

Does the Minister agree that there has been a serious improvement in SEN children’s facilities and support up to the age of 16? However, does she further agree that the real challenge, as anyone who has looked at the matter in detail will know, is provision from ages 16 to 18, and that things get even more challenging for parents when their children are 18?

[Sarah Teather]

I absolutely agree with the hon. Gentleman, with whom I have discussed this matter before. I want the Green Paper to look specifically at that. He will be aware that there are a wide range of reports on what happens in schools and special schools, and on support for children in mainstream schools and in special units that are attached to them. However, there is very little research on transition. If one issue has come out clearly from my meetings with parents and voluntary sector organisations, it is the need to think about the whole of a child’s life—all the way through.

[Charlotte Leslie (Bristol North West) (Con)]

In my constituency, many parents, particularly those from less advantaged backgrounds, fight hard to get their children’s special educational needs recognised. Will my hon. Friend guarantee that she will look carefully at that?

[Sarah Teather]

My hon. Friend is correct to say that many families feel that they have had to battle to get their child’s needs recognised, let alone catered for. That is very much why we will produce the Green Paper later this year. We are looking at how we can make the system less adversarial and how we can focus more, for example, on outcomes, and how to make the process more transparent. I hope that any parents of SEN children in her constituency who have strong views will respond to our call for views. They can go to the Department’s website and submit them now to help to ensure that we frame the questions in our Green Paper correctly.

[Mrs Sharon Hodgson (Washington and Sunderland West) (Lab)]

Thank you, Mr Speaker. I am delighted to address you from the Dispatch Box for the first time.

I welcome the Minister’s commitment to SEN provision. However, there is significant feeling among the SEN community that the whirlwind pace of change within the Department for Education has left little time to consider the effect that the changes will have on SEN provision, and particularly the effect that academies and free schools will have on funding from local authorities. Will she reassure the House that those ideological experiments will not take money away from council budgets for providing support to the one in five children with SEN?

[Sarah Teather]

May I begin by congratulating the hon. Lady on her promotion? It will be a great pleasure to debate these issues with her. I am aware that she has a long-standing interest in special educational needs—she was responsible for the passage of the Special Educational Needs (Information) Act 2008. I am sure she will be a knowledgeable opponent over the next few months, which I look forward to.

On the hon. Lady’s specific question—[Interruption.] I am being heckled when I am trying to pay a compliment. Labour Members cannot even let me be nice to Opposition spokesperson. Goodness gracious! They should wait till next week—[Interruption.] There’s always a last time. I should like to answer the hon. Lady’s question. On academies and free schools, she would be aware, if she had been in the Chamber for the debate on the Academies Act 2010 before the summer, that an advisory group is looking specifically at funding issues.

[Greg Mulholland (Leeds North West) (LD)]

5. What recent representations he has received on educational provision for children with special needs in Leeds North West constituency.

[The Minister of State, Department for Education (Sarah Teather)]

There have been no representations received from Leeds local authority in relation to provision for children with special educational needs in the authority’s area. School organisation and special educational provision are matters for local consultation and determination, and where there are disagreements, they may be referred to the independent schools adjudicator for consideration.

[Greg Mulholland]

I thank the Minister for her answer. That there have been no representations contrasts with the fact that many representations have been made to Education Leeds and similar authorities. Lucy Holmes, my constituent, has finally, after a lengthy battle—10 years—had a review of her SEN statement, in which time, of course, her needs have changed substantially. What will the new Government do to ensure that children’s needs are met by reviewing statements far more frequently?

[Mr Speaker]

In the Leeds North West constituency.

[Sarah Teather]

The statement of needs is supposed to be reviewed annually, so it is a matter of concern if that is not happening and it has taken 10 years for such a review to take place. However, I should also say that too often a statement of needs is a static document that ends up in a drawer, rather than a dynamic document used as a basis for discussion and focusing on outcomes. Again, I hope that the Green Paper will begin to examine this issue.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

6. What assessment he has made of the effects on children from the most deprived backgrounds of the changes to the Building Schools for the Future programme.

[The Secretary of State for Education (Michael Gove)]

The decision to end the Building Schools for the Future programme was designed to ensure that resources were targeted more effectively on the front line. It is deeply regrettable that the fiscal position that we inherited required projects to be stopped, but the capital review that we have put in place is designed to ensure that money goes to those who need it and schools are rebuilt in the areas of greatest need.

[Bridget Phillipson]

BSF cuts will hit deprived areas the hardest. Could the Secretary of State confirm that the poorest areas will receive the most help under the pupil premium?

[Michael Gove]

Yes, I absolutely can confirm that under the pupil premium the students most in need will receive the most help.

[Patrick Mercer (Newark) (Con)]

The Secretary of State will be aware of the Grove school in Newark, where many deprived children are educated. I am grateful to him for arranging a visit by Lord Hill, but things really are desperate there. The next flood in Newark, which will come at any time now with the next heavy rainfall, will mean that they will be unable to teach at the school. Would the Secretary of State therefore be kind enough to arrange a date for the noble Lord’s visit?

[Michael Gove]

I am grateful to my hon. Friend for the passionate way in which he makes his case. I am well aware that in Nottinghamshire, and in many other areas, schools that desperately need refurbishment and rebuilding have been denied resources. One of the reasons why we had to change the BSF programme was that it was behind on its timetable, it was inefficient in the allocation of resources and vulnerable children, such as those for whom he speaks so passionately, were losing out. I can guarantee that Lord Hill will be in touch later today to fix a precise date to see my hon. Friend.

[Mr Dennis Skinner (Bolsover) (Lab)]

Has the Secretary of State received a report of our meeting with Jonathan Hill regarding Tibshelf community school in my constituency? The school is 100 years old, it is being held up by pit props and the teachers are having to travel six miles back and forth from Tibshelf to Deincourt community school, which is being closed by the county council. We desperately need to get this job done. The Minister said that this is a compelling case. Does the Secretary of State feel compelled to replace the school and rebuild it?

[Michael Gove]

The hon. Gentleman always makes a compelling case for his constituents, and I am well aware that in the part of Derbyshire that he represents resources have not been devoted to the front line as efficiently as they should have been. One of the aims of the capital review that we have put in place and of the comprehensive spending review, which will report to the House next Wednesday, is to ensure that the schools in greatest need—both secondary and primary—receive resources as quickly and efficiently as possible.

[Andy Burnham (Leigh) (Lab)]

It is a pleasure finally to face the right hon. Gentleman across the Dispatch Box; he and I have not done this before. I hope that he will not mind my saying at the beginning that my observation of him so far in his job is that he has failed to understand the difference between being a Minister and being a journalist, displaying a fairly loose grip on the facts. He promised hundreds of free schools, but has signed off just 16; he promised thousands of academies but has so far signed up only 50; and his mistakes on the BSF programme threw schools into chaos and prompted four legal challenges from local authorities. Can he give the House a straightforward answer today? Can he confirm that he proceeded with his decision to scrap school building projects despite being explicitly warned by his civil servants that local authorities would have a “fairly strong legal case” against his Department?

[Michael Gove]

I thank the right hon. Gentleman for his question. First, may I congratulate him on his elevation to shadow Education Secretary? I admire the way in which he fought his leadership campaign. He was an advocate for both modernisation and aspirational socialism, which is why, of course, he came fourth out of five, neither of those values being entirely flavour of the month in the Labour party at the moment. May I also thank him for his reference to my past as a journalist? It was a pleasure to spend some time in a job outside politics before I came into this House—I recommend it to him. May I also say that, as the permanent secretary made clear to the Select Committee when I was answering its questions back in July, the advice that it was alleged I was offered was not passed on to me?

[Andy Burnham]

I thank the right hon. Gentleman for his characteristic graciousness. Today he is wearing something of the air of the self-satisfied teacher’s pet who has escaped the attentions of the biggest boy in the playground, but I say to him that my right hon. Friend the Member for Morley and Outwood (Ed Balls) and I are the strike force for the parliamentary football team—he softens up opponents and gives me the bullets to finish them off. I give that warning to the right hon. Gentleman.

The right hon. Gentleman’s answer is typical of the cavalier way in which he is running his Department. He has got himself into a mess because of his determination to inflict a political experiment on our schools, skewing the budget towards pet projects instead of helping all schools through tough times. We have already heard that he has wasted £260 million through his botched decision making—is that what Philip Green would call a shocking waste? Will the right hon. Gentleman now tell this House how much his Department has set aside to cover the legal costs and possible compensation to local authorities caused by the mistakes that he has made?

[Michael Gove]

That was a fantastic question—or series of questions. I am impressed that the strike force in the Labour party parliamentary football team comes, according to the right hon. Gentleman, equipped with bullets. It says something about the approach of the right hon. Member for Morley and Outwood (Ed Balls) towards playing fair that he regards a Tommy gun as an appropriate thing to bring on to the football field.

There was a certain element of the spraying of fire in the question asked by the right hon. Member for Leigh (Andy Burnham). May I say that we will vigorously contest the judicial review of our decision? It is really important that people appreciate that the Building Schools for the Future programme had failed. Unfortunately, in 2008, instead of 200 schools being built, fewer than 50 had been built. Under the Building Schools for the Future programme, £11 million was wasted on consultants. One consultant secured the equivalent of £1.35 million, while schools in my constituency, the right hon. Gentleman’s constituency and almost every hon. Member’s constituency needed that resource. We will make no apology for ensuring that in the education budget money goes not to lawyers and consultants but to the front line and that 13 years of Labour failure is at last reversed by a coalition Government committed to aspiration.

[Neil Carmichael (Stroud) (Con)]

7. What plans he has to increase the level of provision of vocational education in schools.

[The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes)]

The coalition agreement committed us to improving the quality of vocational education. Alongside Professor Alison Wolf’s review of such matters, we aim to open at least 12 university technical colleges offering high-quality vocational learning to 14 to 19-year-olds—schools that put vocational training at the core of their curriculum offer.

[Neil Carmichael]

I thank the Minister for that clear answer, which underlines the reason why he is so popular in the further education sector and elsewhere, and as regards providing apprenticeships—

[Mr Dennis Skinner (Bolsover) (Lab)]

Get on with it.

[Neil Carmichael]

All right. What will be done to ensure that pupils are properly signposted towards and encouraged to take vocational training?

[Mr Hayes]

I think that my hon. Friend understated my popularity somewhat, but nevertheless he will know that we are entirely committed to ensuring that people get the right kind of advice about vocational options. Too often, people have lacked that advice and it is important that those with the aptitudes, tastes, talents and choices to take them down that road get proper advice and advice on progression, too.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

Does the Minister accept that young people from poorer communities are often put into vocational GCSEs as an easy option, as a result of which academic subjects such as history are becoming the preserve of the elite? What steps is the Minister taking to ensure that “academic equivalence” GCSEs are not becoming the default option for poorer communities?

[Mr Hayes]

As a qualified history teacher, I share the hon. Gentleman’s passion for the teaching of history, but I think he underestimates and undervalues—as do so many from the bourgeois class that he personifies—the significance of technical skills, craft skills and practical skills. They matter too, and the Government know it.

[Mr James Gray (North Wiltshire) (Con)]

8. What percentage of schools have (a) applied for and (b) been granted academy status.

[The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes)]

Am I up? [Hon. Members: “More, more!”] I am intoxicated by the exuberance of the situation, one might say.

The Government are absolutely clear about their determination to deliver practical learning in the way that I have described, and—[Interruption.]

[Mr Speaker]

Order. The hon. Gentleman might be a tad confused—I hope not. We are on Question 8 from Mr James Gray.

[The Secretary of State for Education (Michael Gove)]

Thank you, Mr Speaker. The exuberance and enthusiasm of my ministerial colleague is something to behold.

More than 300 academy schools had been opened as of 1 September 2010, and since the Academies Act 2010 received Royal Assent two months ago we have received 189 applications to convert to academy status, or 5.9% of the outstanding mainstream schools that are currently eligible. Some 32 new academies opened on 1 September, and 23 more have opened since then, the equivalent of one nearly every working day.

[Mr Gray]

I had the good fortune to visit the Wellington academy in the constituency of my neighbour, my hon. Friend the Member for Devizes (Claire Perry), last Friday. It is an outstanding example of what an academy can do. It has gone from being the worst-performing school in Wiltshire to being one of the best on a like-for-like basis. GCSE passes have doubled and it is now offering A-levels for the first time, and its level of exclusions has gone from being the highest in Wiltshire to being the lowest. Does the Secretary of State agree that academy status can not only be of benefit to higher-performing schools but be of huge benefit to low-performing schools that wish to improve?

[Michael Gove]

My hon. Friend makes a compelling case. Academy status can benefit all schools, which is one reason why the former right hon. Member for Sedgefield argued that academy freedoms should be extended to all schools. What a pity that the Opposition have retreated from that high water mark of reform.

[Kevin Brennan (Cardiff West) (Lab)]

For the avoidance of any confusion among those on the Treasury Bench, this is a supplementary question to Question 8.

In opposition, the Secretary of State said that in his first 100 days he would identify the 100 weakest schools and rapidly give them new leadership, and give hundreds of high-performing schools academy freedoms so that they could help weaker-performing schools. Can he confirm that he has so far failed to enforce any obligation whatever on the 50 or so new academies to help weaker schools, and that he has done nothing about his pledge to help the weakest 100 schools? Is he not just picking a few of the favoured and allowing the rest to drift?

[Michael Gove]

The hon. Gentleman will have to do better than that. All the schools that have been granted academy status either are helping or will help underperforming schools to improve. We have actively identified some of the weakest schools in the country and will shortly announce the partners, whether existing academy sponsors or high-performing schools, that will ensure that those schools raise their performance. It is a tragedy that under the Government of whom he was a part, the gap between rich and poor widened and we came near the bottom of the 57 most advanced countries in the world in educational achievement. It is a particular tragedy that the gap between private and state schools grew under his Government, testament to which is the fact that in the shadow Cabinet under which he serves, more members were educated in private or selective schools than in comprehensives.

[Liz Kendall (Leicester West) (Lab)]

9. What plans he has for the future of the primary school curriculum; and if he will make a statement.

[The Minister of State, Department for Education (Mr Nick Gibb)]

We have made clear our intention to review the national curriculum at both primary and secondary levels, to restore it to its original purpose—a core national entitlement organised around subject disciplines. We want to arrive at a simple core, informed by the best international practice, that will provide a minimum entitlement for pupils. We will announce more details about our plans later in the year.

[Liz Kendall]

I thank the Minister for his reply. Head teachers in my constituency are concerned that Government have still not come forward with their proposals for replacing the primary school curriculum, and that the delay is preventing them from properly planning for the future. Will he reassure the House that the Government’s plans will be published in time for primary school heads to get the staff, timetables and resources that they need to start the next financial year?

[Mr Gibb]

Yes, primary schools should continue with the current primary curriculum. The details and timings will be announced later in the year, but I assure the hon. Lady that there will be plenty of lead time available to schools to implement the new curriculum. We do not want what the previous Government had, which was “initiativitis”. Schools received new initiatives every two weeks, and lever arch files full of prescriptive instructions about how to teach were disseminated to all our schools.

[Elizabeth Truss (South West Norfolk) (Con)]

Will the Minister comment on the fact that many primary schools appear to be teaching multiple methods for basic mathematical problems, which has been set out through the national strategies, rather than achieving fluency in key methods, which enables those pupils to go on and achieve and where countries such as Flanders and Finland have proved so successful?

[Mr Gibb]

I pay tribute to my hon. Friend for her passion about the way maths is taught in our schools. Of course, how children are taught is a pedagogical matter, which should be left to the professionalism of teachers, but what is taught and when will be matters for the national curriculum review.

[Bill Esterson (Sefton Central) (Lab)]

10. How many proposed play areas planned to be built under the playbuilders scheme after July 2010 will not proceed.

[The Parliamentary Under-Secretary of State for Education (Tim Loughton)]

We believe that it is important that there are safe, free local places to play. However, the Department inherited unaffordable spending commitments for this year, and play has therefore had to make a contribution to the savings needed.

Local authorities will be told of their revised allocations within the next month, soon after the comprehensive spending review, and it will be for them to decide which play areas proceed, according to their own local priorities. Local authorities are not required to inform my Department of their decisions.

[Bill Esterson]

Aintree village is one of the areas in my constituency that was due to benefit from a new play area. One reason that residents and the parish council wanted the play area was to tackle childhood obesity. Does the Minister agree with me, and with residents in Aintree and across Sefton, that decent-quality play areas are a good way to tackle childhood obesity? What measures will he take to support local authorities and others who wish to see the kind of support needed to tackle childhood obesity?

[Tim Loughton]

I think we all agree with the hon. Gentleman about the importance of play in so many different areas. It can help to affect social divisions, obesity and other health measures. Of course, we fully share his aspirations and, I am sure, those of the people behind the project in Aintree village. I pay tribute to the people in his constituency and in other communities who have striven hard for those play areas, but I repeat that the play funding was based on the dodgy accounting of the previous Government’s end-year flexibility system. On that basis, I am afraid that it has had to be reviewed, but I hope that there will be money forthcoming in due course so that other projects can proceed. He will hear about that in the next few weeks.

[Andrew Percy (Brigg and Goole) (Con)]

The Minister may be aware that I have made several representations on this subject regarding a number of play parks in my constituency, including in Winterton, Keadby, Crowle and Burringham. What is now coming back from some of those is the fact that there have been several delays in the process, through the fault of the local councils over the years. May we have an assurance that the Department will look favourably on the cases of park bids that have been delayed because of problems within the local authorities?

[Tim Loughton]

Again, I pay tribute to my hon. Friend and his concern for that important matter, but it is not for the Department for Education to specify which particular play projects are to go ahead. That area is not ring-fenced; it is up to the local authorities. Once we make the further announcement following the comprehensive spending review, I very much hope that those projects that are to go ahead do so with all speed.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

11. What steps he plans to take to improve the educational achievement of children from the most deprived areas; and if he will make a statement.

[The Minister of State, Department for Education (Sarah Teather)]

Raising the attainment of children from the most deprived areas is a priority for the coalition Government. From September 2011, we are introducing a pupil premium, which will guarantee additional funding for schools with deprived children, and ensure that the poorest children, wherever they live, are able to receive the right support. Schools will decide how to spend the premium so as to achieve the best results for their disadvantaged pupils.

[Miss McIntosh]

I am grateful to my hon. Friend the Minister for that reply. Will she confirm that that premium will cover those living in pockets of rural poverty in Thirsk and Malton, which are particularly sparsely populated and rural in nature, to increase their chances of social mobility?

[Sarah Teather]

One of the points about the pupil premium is the fact that, because it targets the individual child, it has a much better chance of picking up those areas where there are pockets of deprivation, which have been missed by other ways of distributing deprivation funding. It does not matter whether children live in a wealthy area or not; unfortunately, the stats about their parents’ income are still the greatest predictor of how well they will do at school. I think that that is an absolute scandal. Unfortunately, it is the legacy of the previous Labour Government.

[Mr Iain Wright (Hartlepool) (Lab)]

The educational achievement of young people in deprived areas has risen highest for those in receipt of the education maintenance allowance. EMA is undoubtedly helping to break the decades-old link between deprivation, attainment and staying-on rates. That being the case, and given the comments made by the Minister, will she commit to retaining EMA in its current form?

[Sarah Teather]

The hon. Gentleman will be aware that we have made a commitment this year, and he will be perfectly well aware that future spending decisions are a matter for the spending review. He will have to wait with bated breath until next week.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

Can the Minister tell the House what steps she is taking to ensure that children from the most deprived areas have access to the highest quality teaching, and to make sure that teaching in those areas is subject to the most effective performance management?

[Sarah Teather]

My hon. Friend will be aware that we have expanded Teach First, something that both the Liberal Democrats and the Conservatives feel strongly about. It was a Liberal Democrat manifesto commitment. I hope that will have a considerable impact on raising the attainment of children in deprived areas. Of course, pupil premiums will make sure that there are extra resources for schools to spend as they choose: they may be spent on one-to-one tuition, or on other things that schools feel are best for narrowing that attainment gap.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

There are hundreds of teaching assistants working in primary schools in the most deprived areas of not just my constituency but the whole country. Many of them are fearful of the effect of the budgetary decisions that the Minister is about to make. Will she give an assurance that teaching assistant posts, which have had a massive impact on educational attainment, will be protected, and perhaps enhanced?

[Sarah Teather]

The hon. Gentleman will be aware—I have already said this to one of his hon. Friends—that future spending is subject to the spending review, which will take place next week. I cannot tell him what future spending will be until after the spending review next week. What I will say is that there is a clear coalition commitment to targeting extra resources on disadvantaged children through the pupil premium, which schools can spend as they wish to narrow the attainment gap between the richest and the poorest students in their school. They may well choose to do that by having more teaching assistants, but they may choose to spend the money on other things.

[Mr Philip Hollobone (Kettering) (Con)]

12. If he will reduce the volume of guidance and advice his Department issues to head teachers.

[The Minister for Further Education, Skills and Lifelong Learning (Mr John Hayes)]

You can’t keep a good man down.

The Government are committed to reducing the amount of guidance and advice issued to schools. Our intention is to streamline and reduce schools guidance so that it is provided only where there is evidence of demand from professionals. We want to free up head teachers so that they have more time to focus on the important task of raising standards in our schools.

[Mr Hollobone]

Head teachers in the Kettering constituency are absolutely fed up with the scale of guidance and advice that they receive from central Government. My hon. Friend has a deserved reputation as the enemy of red tape, so can he illustrate the scale and volume of the guidance and advice issued by the Department under the previous regime?

[Mr Hayes]

I can indeed. I have here the advice and guidance just on behaviour and attendance. It is roughly equivalent in length to the complete works of Shakespeare, which I also happen to have to hand. This Government are determined to reduce red tape and bureaucracy. We want teachers to be able to get on and teach, so that they do their best by our children.

[Margot James (Stourbridge) (Con)]

13. What recent assessment he has made of the effectiveness of school achievement and attainment league tables in providing information on academic standards in schools; and if he will make a statement.

[The Secretary of State for Education (Michael Gove)]

We plan to reform the school performance tables to make them more rigorous and to ensure that they focus on academic standards. We have proposed introducing a new measure, the English baccalaureate, that will recognise achievement in not just English and mathematics but the sciences, a modern or ancient foreign language, and humanities such as history or geography.

[Margot James]

I thank my right hon. Friend for his answer. The number of students studying history and geography at GCSE level in some schools in Stourbridge has fallen as low as 25%. That is partly due to schools encouraging the study of softer subjects to improve their league table positions. Does my right hon. Friend agree that that is an indictment of the current system, and has he any steps in mind to remedy the situation?

[Michael Gove]

I thank my hon. Friend for her question. She joins a growing cross-party consensus, led by the hon. Member for Stoke-on-Trent Central (Tristram Hunt), that we need to ensure that children up to the age of 16 follow a stretching academic curriculum, as they do in many other European countries. As a passionate pro-European, I would like to see us emulate those countries in that regard, and in many others.

[Nic Dakin (Scunthorpe) (Lab)]

14. What estimate his Department has made of the number of children who will be eligible for free school meals in September 2010; and if he will make a statement.

[The Minister of State, Department for Education (Mr Nick Gibb)]

The number of pupils of compulsory school age in maintained schools eligible for free school meals was 1,179,880 in January 2010. The Department has not produced an estimate of the number of pupils eligible for free school meals in September 2010; the figures are produced annually as part of the annual school census, completed by local authorities in January each year. Leaving time for compilation, the next set of figures will be available in May 2011.

[Nic Dakin]

I thank the Minister for his answer. He will note my interest as a former principal. Does he think it is fair that 16 to 18-year-olds attending colleges are ineligible for free school meals, when 16% in FE colleges and 10% in sixth-form colleges are from disadvantaged backgrounds, compared with only 7% in maintained schools?

[Mr Gibb]

I take on board the hon. Gentleman’s comments. I share his view. We have committed to maintaining spending on free school meals this year. Further announcements will be made after the spending review.

[Simon Kirby (Brighton, Kemptown) (Con)]

15. What progress has been made on his Department’s plans to help families with multiple problems.

[The Parliamentary Under-Secretary of State for Education (Tim Loughton)]

The Government are committed to a new approach to supporting families with multiple problems. My officials are working with the Association of Directors of Children’s Services and voluntary organisations to encourage local innovation to tackle barriers. Since April, family interventions have supported 4,725 families with multiple problems, already exceeding the 3,518 supported in the whole of last year. Ninety-three per cent. of families completed or are still receiving support, and no fewer than 79% left with successful outcomes.

[Simon Kirby]

I am sure the Minister remembers visiting Whitehawk primary school in my constituency. With reference to families with multiple problems, does he agree that dealing with these complex issues early can often save the state money in the long run?

[Tim Loughton]

My hon. Friend makes a good point. I well remember my visit to Whitehawk primary school, which has done a fantastic job in joining up support services for many of the families living in the deprived area around that part of Brighton. Independent evaluations show the considerable savings of such intervention programmes, which can cost on average from £8,000 to £20,000 per family, but which save around £50,000 per family and much more for those with particularly challenging problems.

[David T. C. Davies (Monmouth) (Con)]

16. What his latest assessment is of levels of educational under-achievement among white working-class boys.

[The Minister of State, Department for Education (Mr Nick Gibb)]

White boys in receipt of free school meals are among the lowest attaining groups of students. In 2009, just 19.4% of white boys eligible for free school meals achieved five or more good GCSEs including English and maths, compared to 50.7% of all pupils.

[David T. C. Davies]

I am grateful to the Minister, who obviously recognises the problem, which was first raised by the National Union of Teachers in a report about two years ago. Can he assure us that, unlike the previous Government, he will not, for reasons of political correctness, try to brush it under the carpet, and that he will do something about it?

[Mr Gibb]

It is a concern when any particular group is significantly underperforming compared with the national average. One big priority for the Government is to close the attainment gap between those from the wealthiest and the poorest backgrounds. We are focusing on that in a range of education policies from academies to free schools, and also in our focus on improving behaviour in schools and reviewing the curriculum.

[Mr Gordon Marsden (Blackpool South) (Lab)]

17. What recent assessment he has made of the merits of year 3 play pathfinder projects in Blackpool.

[The Parliamentary Under-Secretary of State for Education (Tim Loughton)]

All local authorities, including Blackpool, have provided financial information on their 2010-11 play programmes and this is being considered by our Department. However, as I said earlier, the Department is not making judgments on the relative merits of individual sites, and does not hold this information. Local authorities will be notified within the next month of their revised play capital allocations. It will then be for local authorities to decide which play areas go ahead, based on local needs.

[Mr Marsden]

Eleven play pathfinder projects in Blackpool are waiting with bated breath for those allocations. That includes the Fishers Field project in my constituency, which is a highly imaginative but complex project involving new playing fields and a natural park. I hear what the Minister says, but his colleague the Secretary of State, in reply to me earlier in the summer, said he was clear about the needs of Blackpool in terms of deprivation, mobility and general problems in that area. Will the Minister pass on the message that the people of Blackpool would like to see such projects go ahead?

[Tim Loughton]

As I said before and as the hon. Gentleman would have heard, we are very much in favour of promoting play as much as possible because of the many social health benefits that it brings. When the allocations are determined after the spending review coming up, I hope the local authority in Blackpool will decide its priorities according to local needs—we have given local authorities that power—and proceed to promote the play schemes that it considers most appropriate for the local area.

[Chris Heaton-Harris (Daventry) (Con)]

18. What recent representations he has received on educational provision for children with special educational needs in Daventry constituency.

[The Minister of State, Department for Education (Sarah Teather)]

There have been no representations received from Northamptonshire local authority in relation to provision for children with special educational needs in the authority’s area. However, school organisation and special educational provision are matters for local consultation and determination, and where there are disagreements they may be referred to the independent schools adjudicator for consideration.

[Chris Heaton-Harris]

Will the Minister kindly accept a representation from parents in my constituency, who have visited my surgeries with various problems regarding special educational needs provision in Northamptonshire—especially the parents of a young lad called Joe, whom I met on Friday, who suffers from Down’s syndrome and is unable to get the regular speech therapy that he needs?

[Sarah Teather]

May I very strongly encourage the hon. Gentleman and his constituents to respond to the call to send in views for the Green Paper? The call closes on 15 October, so there are just a few more days to respond, and I should be very grateful if he made sure that that his constituents’ experiences were represented. If he wishes to meet me further, I shall be very happy to do so.

[Lisa Nandy (Wigan) (Lab)]

19. What arrangements his Department has made with the New Schools Network to provide a framework for the provision of services by the network on his Department’s behalf.

[The Secretary of State for Education (Michael Gove)]

The Department is working with the New Schools Network to finalise the specifics of the grant agreement in line with the activities and key performance indicators. Those have already been outlined in broad terms in the letter of 18 June from my Department to the New Schools Network.

[Lisa Nandy]

Does the Secretary of State understand the concern surrounding the level of transparency in the role of the New Schools Network? In particular, how can he be satisfied that there will be no conflict of interest between its role in providing advice to groups seeking to set up new schools and its other, undisclosed financial donors?

[Michael Gove]

I am reassured by the fact that the New Schools Network has as its chairman the former editor of the Financial Times, who employed the right hon. Member for Morley and Outwood (Ed Balls) before he became such a distinguished Member of Parliament. I am also reassured by the fact that among its advisers are Professor Julian Le Grand, who was an adviser to the former Prime Minister, and Sally Morgan, who was political secretary to the former Prime Minister. Those three distinguished figures, along with many others who support the New Schools Network, seem to be the sort of talented figures whom we should be encouraging to play a bigger role in state education, rather than, as was the case in the Brown years, saying to them that they are not wanted when it comes to improving education for the very poorest.

[Andrew Bridgen (North West Leicestershire) (Con)]

T1. If he will make a statement on his departmental responsibilities.

[The Secretary of State for Education (Michael Gove)]

With your permission, Mr Speaker, I should like to reassure all those hon. Members who are anxious about the decline in the standards of education under the previous Government that two steps forward have been taken in the past week. First, we have reversed the policy, which was initiated under the previous Government, whereby marks for spelling, punctuation and grammar were removed from GCSEs. In future, GCSEs, according to Ofqual, will be marked in a way that pays proper attention to the need to spell, punctuate and write a grammatical sentence. Secondly, as I am sure the hon. Member for Stoke-on-Trent Central (Tristram Hunt) will be relieved to know, we will ensure that every child has a proper sense of the connected narrative of British history, and Professor Simon Schama has agreed to advise the coalition Government in order to ensure that every child grows up knowing the glories of our island story.

[Andrew Bridgen]

I have a case in my constituency, where the three mile limit rule for free school transport is so strictly applied, using new software mapping techniques, that half the local housing estate has lost its access to free bus passes. Owing to the two-tier secondary education system that operates in parts of Leicestershire, we have the ludicrous situation in which 11-year-olds are expected to walk three miles to school along a main road, whereas 16-year-olds travelling to the upper school, only 300 metres further on, have access to a free bus pass. Will the Secretary of State look urgently into the guidance notes for local authorities on that matter?

[Michael Gove]

I am very grateful to my hon. Friend for raising that case, and I shall certainly look into it. I know that Leicestershire is an F40 local authority, one of the least well funded in the country; I know, notwithstanding that, that Ivan Ould, the lead member for children’s services, does a fantastic job, as does my hon. Friend. I shall make sure that I talk to Mr Ould and my hon. Friend about how we can resolve that situation for his constituents.

[John Mann (Bassetlaw) (Lab)]

T4. Will the Secretary of State use his undoubted influence in government to get a decision—perhaps before 20 October—on the previous Prime Minister’s commitment to make a proper donation to the £100 million appeal for the Auschwitz-Birkenau Foundation, so that the very successful schools to Auschwitz project has buildings to visit in future decades?

[Michael Gove]

I am very grateful to the hon. Gentleman for raising that matter, and I must pay tribute, across the Floor of the House, to the fantastic work that he has done in the fight against anti-Semitism. I can reassure him that we have already committed to give the Holocaust Educational Trust the money that it needs. It is an issue of no contention, across the House, that we must ensure that as those who remember the holocaust fade from our lives, the memory of that unique evil never fades from the minds of any of us in this place.

[Stephen Mosley (City of Chester) (Con)]

T2. My local education authority of Cheshire West and Chester is one of the lowest funded in the country; like Leicestershire, it is a member of the F40 group. What measures is the Secretary of State taking to ensure that education funding will be more equally distributed across the country in future?

[Michael Gove]

I am grateful to my hon. Friend for making that passionate case, as so many representatives from F40 authorities do. In the context of the comprehensive spending review and the forthcoming schools White Paper, we are now looking at how exactly we can ensure that schools funding is more equitable across the country. We are of course looking particularly at how we can ensure that disadvantaged children, wherever they live, receive what they deserve.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Back in January, one of the Ministers stated that there was a question mark over whether local authorities were the best people to run youth services. Given that, how does the Department now justify the removal of ring-fencing for the youth opportunity fund and youth capital fund and the cuts to Connexions and the youth sector development grants? Those cuts mean that many organisations that the Department would like to see running youth services, such as the excellent Soul project in Walthamstow, are facing a very uncertain financial future.

Will the Minister agree to visit the Soul project with me to discuss with the young people and volunteers who run it the contingency plans that he has in place to ensure that there is not a big voluntary sector youth-shaped hole in the big society?

[The Parliamentary Under-Secretary of State for Education (Tim Loughton)]

I am grateful to the hon. Lady and am delighted to take up the invitation, as I have to many other youth centres and projects around the country; she may come to regret that invitation.

I am afraid that in this financial climate we have to think smarter about how we can provide services. In common with every Department and every other part of this Department’s work, the youth sector is under that scrutiny. My battle is to involve as many providers as possible from the voluntary sector, local authority and others in ensuring that we provide youth services to those most in need of them in the most imaginative way—with less money, because of the previous Government’s disastrous financial legacy.

[Stuart Andrew (Pudsey) (Con)]

T3. The Leeds and Bradford Dyslexia Association is applying to open a specialist school through the free schools initiative. Will my right hon. Friend agree to look at that application? Furthermore, does he agree that the application is a clear demonstration that, despite Opposition claims, free schools can not only help the brightest but be a real opportunity for groups such as the LBDA to help children and young people who need extra support?

[Michael Gove]

I am grateful to my hon. Friend for his question and the argument contained therein. He is absolutely right: many of those anxious to establish new free schools are motivated by the desire to help the very poorest or those most in need. As well as the case that he mentioned, in Yorkshire there is a talented young teacher, the son of a bus driver, who wants to open a free school in one of the most deprived parts of Bradford. It is the idealism of that young man, and of the dyslexia association activists my hon. Friend mentioned, that is an inspiration to us all on this side of the House.

[Diana R. Johnson (Kingston upon Hull North) (Lab)]

The last Labour Government established three free school meal pilots in Wolverhampton, Durham and Newham. Will the Secretary of State give me an assurance that when the evaluations are complete, there will be full disclosure and that they will not just be scrapped as the Lib Dem council did in Hull when we had such a pilot? It did not wait for a full and proper consideration of the evidence.

[Michael Gove]

The hon. Lady was a distinguished Minister in the Department and I know that she shares with me a desire to ensure that policy is evidence-based. That is why I was surprised that the previous Government said they would definitely go ahead with the extension of free school meals before the evidence about whether the pilots were working was in. I was also particularly surprised that the previous Secretary of State committed to the extension of free school meals without there being sufficient funds in the Department’s spending envelope to pay for them. It was, I am afraid, another example of the recklessness with which he drove our finances and economy on to the rocks.

[Mr John Baron (Basildon and Billericay) (Con)]

T5. The Secretary of State is absolutely right to order a review of his Department’s capital spending. When he does decide how to allocate capital, will he look favourably on the schools that reached the very final stages of the BSF application process and suffer greatly from dilapidation, such as Mayflower high school and Billericay school in my constituency?

[Michael Gove]

As ever, my hon. Friend is a strong, powerful and fluent advocate for his constituents. It is important for us to make sure that the capital that we have goes to the schools that need it most. It is also critically important that we ensure that the one area that the previous Government overlooked—the significant expansion in demand for primary schools, particularly in the south and south-east—is addressed. I am sure he will agree that we need to address that along with the dilapidation in the secondary estate.

[John Cryer (Leyton and Wanstead) (Lab)]

On the vexed issue of BSF, I understand what the Secretary of State says about the capital review, but going hand in hand with that must be some sort of needs-based criteria. What progress has he made towards arriving at such criteria?

[Michael Gove]

That is a very good and characteristically shrewd point from the hon. Gentleman. We need to do two things. First, we need to ensure that whatever money we have is allocated in the most effective and efficient way, and we also need to ensure that as well as being efficient, it reflects needs. As regards needs, there are a variety of different criteria that we have to judge: first, so-called basic need—in other words, population growth—secondly, deprivation; and thirdly, dilapidation, or the actual fabric and state of the buildings. We have not had an accurate assessment of the fabric of the school estate since 2005.

[Mr Douglas Carswell (Clacton) (Con)]

T6. The policy of enforced inclusion pursued under Governments of both parties has played havoc with children with special educational needs in my part of Essex. It has meant the closure of special schools, increased pressure on mainstream schools, and pressure on remaining places in the special schools system. Can the Minister promise that under the review inclusion will be made a matter of parental choice, not an outcome arrived at through bureaucratic stalling and bullying?

[The Minister of State, Department for Education (Sarah Teather)]

Parental choice is absolutely at the heart of the themes of the Green Paper. It is essential that we try to come to decisions about a child’s future based not only on their disability but on understanding the particular needs of the child. Two children with the same disability may have very different circumstances and need different educational provision.

[Rosie Cooper (West Lancashire) (Lab)]

Will the Secretary of State please indicate the Government’s position on supporting parents in choosing denominational schools for their children? Would he oppose any measure that would reduce that choice—that is, local authorities charging a flat rate of £2 a day per child, which amounts to £180 that parents believe is a tax on faith? Lancashire county council is charging parents £2 a day per child for transport to go to a denominational school; does he approve of that sort of attitude?

[Michael Gove]

I am very interested in the case that the hon. Lady brings to my attention. In her constituency, in Skelmersdale and elsewhere, a great many people are benefiting from a Roman Catholic education. I would hate to see anyone unduly penalised for wanting their child to be educated in accordance with their faith, so I will look at the case she mentions.

[Mrs Helen Grant (Maidstone and The Weald) (Con)]

T7. Under Labour, social mobility stalled. What action will the Government now take to kick-start that vital aspirational process for our children, our teachers and our schools?

[Sarah Teather]

My hon. Friend is absolutely correct; I am afraid that the legacy of the previous Labour Government is that social mobility did stall. This Government believe that one’s birth should not equal one’s fate. That is why we want Sure Start to focus better on targeting the most disadvantaged families, why we are reviewing the early-years foundation stage to ensure that all children are ready for school, and why we are implementing a pupil premium targeting extra resources on the most disadvantaged children.

[Julie Hilling (Bolton West) (Lab)]

After 18 months of very hard slog, the 50 children and the staff and parents of Lever Park special school in my constituency raised the £20,000 funding needed to become a specialist school. In July, the Government promised them £100,000 to transform their facilities; in September, the Government cut it to £20,000. Will they please review their decision?

[Michael Gove]

I am very grateful to the hon. Lady. I will be speaking to people from the Specialist Schools and Academies Trust later this afternoon, when I will explain to them exactly the difficult circumstances that we inherited, which mean that unfortunately some tough decisions have to be made, but also point out that the fantastic achievements that have been secured so far by specialist schools and academies will be rewarded appropriately after the comprehensive spending review.

[Mary Macleod (Brentford and Isleworth) (Con)]

T8. What recent assessment has the Secretary of State made of the need for additional secondary school places in the Brentford and Isleworth constituency, and what advice would he give to parents who have been in contact with me to say how desperately they need a new school?

[Michael Gove]

My hon. Friend, like all those who represent constituencies in the west and south-west of London, will know that recent demographic changes mean that there is immense pressure on primary and secondary school places. I am particularly sensitive to the need for the resources to be there to ensure that the children who are now arriving at primary schools have the places that they deserve. We are also ensuring that some of the new free school applications that we have received are prioritised in those areas where the demographic need is particularly acute.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

Does the right hon. Gentleman agree that it is a great disadvantage to return from school to a home where no English is spoken? Is it not time we had a campaign to make knowledge of the English language common throughout our country? Will the Secretary of State lead a cross-departmental campaign to deliver English speaking and knowledge across the country?

[Michael Gove]

Not for the first time—nor the last—the hon. Gentleman speaks for me. It concerns me that a grasp of proper spoken and written English, which is the key to enjoying full civic life in this country, is denied to far too many people. I will work with my hon. Friend the Minister for Education, Skills and Lifelong Learning to ensure that an ability to speak and write English clearly is at the heart of everything we do, whether in adult, secondary or primary education.

[Andrea Leadsom (South Northamptonshire) (Con)]

T9. In the wake of the Munro report, is the Minister as concerned as I am about the growing number of children being taken into care? Does he agree that the best way in which to stop more of those personal tragedies is to invest in prevention programmes for babies and their carers in the earliest years?

[Tim Loughton]

My hon. Friend makes a good point. Of course, the big increase in the number of children coming into care in the aftermath of the baby Peter case was alarming. It is therefore absolutely right that the ongoing Munro review makes suggestions for freeing up the bureaucracy, which holds back social workers from doing the sort of preventive work—keeping families together when possible and working with other professionals on an early intervention basis—that can be so profitable financially, but, more important, socially, for those families later.

[Mr Gordon Marsden (Blackpool South) (Lab)]

The Secretary of State has just said that he is keen to promote initiatives in the study of history in schools. Does he remember the rather sterile debate in 1990, when Lord Baker introduced the national curriculum, between skills and content? Does he agree that skills Learned in the study of history are as important as narrative? We cannot have one or the other—we need both.

[Michael Gove]

I am grateful for the hon. Gentleman’s point. He was a distinguished editor of History Today, and his voice in these debates is important. It is critical that we ensure that every child has a proper spine of knowledge—the narrative of the history of these islands. Without that, the skills of comparison and of examining primary and secondary sources and drawing the appropriate conclusions, are meaningless. Without that spine, history cannot stand up and take its place properly in the national curriculum. One of the problems in the past 13 years—indeed, since 1990—is that national history has not been taught as it should be in our schools. Under the coalition Government, that will change.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

T10. I think that my hon. Friends are aware of my interest in and support for deaf education; I remain a chair of governors at a deaf school. What plans has the Secretary of State for deaf education and for ensuring that deaf children receive the same education as their hearing peers?

[Sarah Teather]

The Department currently funds the I-Sign pilot project, which supports our position of informed choice for parents by putting in place the British sign language skills infrastructure necessary to make a BSL choice viable. As I said in answer to several earlier questions, we will produce a Green Paper later this year on special educational needs and disability. I would be grateful if my hon. Friend made sure that his views on the needs of deaf children were inputted into the Department’s call for views. As I said, the deadline for that is 15 October.

Linda Norgrove

Monday 11th October 2010 Commons Chamber

15:33

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

With permission, Mr Speaker, it is with great sadness that I make this statement about the tragic death of Linda Norgrove, the British aid worker taken hostage in Afghanistan, who died during the course of a rescue attempt by US forces on the night of 8 October.

Linda was working for the non-governmental organisation Development Alternatives Incorporated when she was kidnapped along with three Afghan colleagues by insurgents dressed in Afghan national army uniforms as she travelled by car on 26 September in Kunar province in north-east Afghanistan. Immediately following her disappearance, a crisis management team began work at our embassy in Kabul, and the commander of the international security assistance force in Afghanistan, General Petraeus, was informed, along with the Afghan Government’s national security adviser. In London, Cobra was immediately convened. Intensive efforts to locate Linda began. Leaflet drops were carried out, offering a reward for information about Linda. Forces in the area began an increased tempo of operations in and around the area where she was captured, designed to limit the hostage takers’ room for manoeuvre.

Our objective throughout was clear: to secure Linda Norgrove’s safe release while continuing the long-standing policy of successive British Governments not to make concessions to hostage takers. From the very start Cobra assessed that Linda’s life was in grave danger, which is why I authorised from the beginning a rescue attempt to be made in the right circumstances. Linda’s captors were assessed to be representatives of a local Salafist group allied to the local Kunar Taliban, who have links higher up the Taliban chain of command to al-Qaeda and other insurgent groups operating in the Afghanistan-Pakistan border areas. We had information from the outset that the objective of Linda’s captors was to pass her further up the Taliban command chain and perhaps move her to yet more inaccessible terrain. On the basis of the information available to us, we were in no doubt whatsoever that there was a continual and real threat to her life and no credible option for a negotiated release.

Linda’s Afghan colleagues were released on 2 October, but at no stage was any serious attempt made to negotiate by those holding her. Afghan media reports purporting to convey demands by her captors, including the complete withdrawal of all UK forces from Afghanistan, were not judged to be credible. Nothing that happened between 26 September and 8 October caused me or anyone else involved to change our view that a rescue operation was the only realistic hope for Linda’s safe and secure release.

Linda was captured in the US area of operations in Afghanistan. We agreed at the outset that this operation would be US-led. The US has had forces in Kunar since 2006 and has excellent knowledge of the region. US special forces were therefore held on 30-minute standby to mount a release effort from the day Linda was captured. In the early days of her captivity, bad weather and storms in the region hindered attempts to get detailed information about her exact location, meaning that a rescue attempt was not possible in those early days.

After intense efforts by the UK and our allies to prepare for a rescue, US special forces attempted to rescue Linda on the night of 8 October. In the operation that followed, these special forces succeeded in reaching the right location and in shielding 10 women and children from the fighting that ensued. However, tragically, the operation still was not successful, as we did not succeed in saving Linda’s life.

Every indication that we had over the weekend suggested that Linda had been killed by the explosion of a suicide vest worn by one of her captors. Early this morning General Petraeus contacted the Prime Minister’s office to say that in the review of the rescue operation, new information had come to light about the circumstances surrounding her death. The review and subsequent interviews with the personnel involved indicate that Linda may not have died at the hands of her captors as originally believed, but may have died as the result of a grenade detonated by the taskforce during the assault. All such rescue operations involve a measure of risk which has to be weighed against a constant risk to a hostage and a risk that such an opportunity to undertake a rescue operation may not recur.

I wish to pay tribute to the US forces in Afghanistan who risked their own lives to try to rescue a British citizen. We should also remember that the responsibility for the loss of Linda’s life lies with those who took her hostage. The Prime Minister and I are utterly determined to do everything that we possibly can to establish the full facts and give Linda’s parents a full account of the tragic circumstances in which their daughter died. General Petraeus has personally assured the Prime Minister that ISAF will carry out a full investigation into what happened. The UK will be fully involved and the House will be informed of its outcome.

The taking of hostages and the targeting of civilians, including aid workers, is morally indefensible under any circumstances. We did all in our power to rescue Linda from the appalling circumstances in which she found herself. She was a dedicated professional doing a job she loved in a country she loved, helping a people who have borne the brunt of conflict and poverty for decades. For Linda’s family, this will be the most painful loss it is possible to endure. Our thoughts are with them as they come to terms with the death of their daughter and the whole House will be united in sorrow for them.

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

May I join the Foreign Secretary in sending our deepest condolences to the family and friends of Linda Norgrove at such a difficult time? Linda Norgrove did vital work towards ensuring a stable and secure future for Afghanistan, and the House will want to pay tribute both to her work and to her courage. But although we all know the bravery of our aid workers and the risks that they take, it was still shocking for all of us to hear of Linda Norgrove’s death this weekend, after she was taken hostage two weeks ago. That shock will be compounded by the distressing information this morning.

The House will know that we support our military and civilian effort to create the conditions for a political settlement that can bring the war in Afghanistan to an end. We condemn utterly the actions of the hostage takers throughout the events to which the Foreign Secretary has referred today. Operations such as the one launched by the American special forces this week are incredibly challenging. They require immense bravery on the part of the armed forces involved, and success can of course never be guaranteed. We understand, too, the intricate and complicated web of intelligence required for such an operation, and nothing can ever be certain. The Foreign Secretary will appreciate too, however, that important questions now arise as a result of these events.

First, could the Foreign Secretary tell us more about the Government’s role in the planning and authorisation of the operation? When we spoke, I asked him to tell the House as much as he could about his assessment of the risks to Linda’s life that made the rescue operation the best opportunity to save her life, and I am grateful for the additional information that he has provided to the House today. Could he also tell us about the nature of the authorisation that he gave the rescue operation, and say how much information he was given about the rescue attempt before it began and the level of UK involvement in the planning of the rescue operation?

The Foreign Secretary will be aware, too, of the concern that has arisen about the potentially inaccurate information that was disseminated over the weekend. I thank him for the briefing that the Foreign Office provided me at the weekend. I know that it was provided in good faith, but does he share my concern that the information that people received over the weekend is now cast in serious doubt? The Government and ISAF appeared to be certain over the weekend that the hostage takers had killed Linda Norgrove during the operation. Given the uncertainty that inevitably surrounds such a difficult and complex operation, may I ask him on what basis that was believed to be the case? We agree, too, with the Prime Minister’s statement this morning about the importance of avoiding inaccurate information in such a sensitive and complex case. However, can the Foreign Secretary tell the House why it appeared that Government and military sources gave the impression of such certainty about events in the briefings over the weekend? Can he also tell the House about the new information from General Petraeus? Has he spoken to General Petraeus, and has the evidence—including, perhaps, surveillance footage—on which the new conclusions are based, been shared yet?

I welcome the investigation into the operation and the Foreign Secretary’s statement that the UK will be involved. Can he tell us to whom the investigation will report? Will its findings be made public? Who will be entitled to see its conclusions and its evidence? Can the Foreign Secretary give us some guidance on how long he expects the investigation to take? Can he also reassure the House that Linda Norgrove’s family will be kept informed throughout? The House will appreciate that the focus of the investigation will be on the events during the operation, but can he also tell us whether there will be a review into the way in which information on the issue was disseminated over the past 48 hours?

Finally, the safety of our aid workers has always been a matter of concern for our forces on the ground, which is an issue that I know the Government take extremely seriously. Aid workers play an essential role working to establish the conditions that will allow our forces to leave Afghanistan. Clearly we all want to avoid a situation where aid workers are unable to help the Afghan people because of a minority who want to terrorise the country. Could the Foreign Secretary therefore tell us what advice the Government are giving to British aid workers, particularly taking into account the fluid security situation? Linda Norgrove’s work was extremely important for the future of Afghanistan. We need to ensure that her work can continue for the future.

[Mr Hague]

May I begin by congratulating the right hon. Lady on her appointment as shadow Foreign Secretary? I wish it were in happier circumstances that we were meeting across the Dispatch Box for the first time. We share across the House the condemnation of the taking of hostages and the concern for aid workers that she has just expressed. Many of them work in difficult and dangerous circumstances. Our travel advice is against all travel to Kunar in Afghanistan, but Linda Norgrove was working for a US non-governmental organisation, knowing that she was working in very dangerous circumstances. Nevertheless, that is known by many people who work in those places and conditions.

The right hon. Lady asked about the authorisation given by the United Kingdom and the knowledge that we had. I mentioned in my statement that we were aware that this was a group with links to al-Qaeda, to the Taliban in many different forms and to other terrorist groups operating on the Afghan-Pakistan border. I cannot expand in enormous detail on the precise intelligence, for reasons that the House will understand, but everybody concerned—in the military command, in the British embassy and in the British Government—agreed, from what we had seen, that there was a continual threat to the life of Linda Norgrove, and that we could not be sure that the opportunity to rescue her would come again, either because of weather conditions, or because we would not know her location again or because she might not survive for us to attempt a rescue. The specific authorisation to take such action was given by me on that first day, within a few hours of her being taken hostage. That authorisation was supported by the Prime Minister, who was of course kept informed throughout.

The role of the British special forces was to supply a liaison officer. Contrary to some media reports that I have seen this afternoon, it was not to take part in the planning—and certainly not in the execution—of the operation. The operation was planned by the US special forces, and it was carried out by them. We must remember that, after their experiences in Iraq and Afghanistan in the past nine years, the US and UK special forces are now extremely well practised in their operations and extremely skilful at what they do. That does not mean, however, that every mission succeeds.

The right hon. Lady rightly raised the question of the inaccurate—or likely to be inaccurate—information that was given out at the weekend. Of course we regret that; any Government would regret that inaccurate information had been given out on such a matter, or on any matter, particularly one of such importance. There is a balance to be struck between transparency and certainty, and at the weekend—and, indeed, today—we have erred on the side of transparency. We give the country the information that is available to us. Certainly, the initial viewing of the various videos that were taken during the action suggested that it was an explosion caused by the hostage takers that had cost Linda Norgrove her life. It was on a second viewing by different US personnel that it appeared that there was another possibility. We must not rush to judgment about that possibility, however.

There will be an investigation to try to establish exactly what happened. That investigation will take place as rapidly as possible, but I cannot give the right hon. Lady a precise timetable for it at the moment. Clearly, however, General Petraeus and ISAF command attach enormous importance to this matter. It is something that they have focused on at the very top level of the military command over the past two weeks. As I mentioned in my statement, General Petraeus spoke to the Prime Minister today, and the Prime Minister has been able to view some of the evidence involved. We hope that the investigation will be completed as soon as possible. Given that we will need to design a new form of investigation, the precise form that it will take is now being discussed with ISAF command.

We will certainly keep Linda’s family as fully informed as possible. We did so during the hostage taking. Our ambassador in Kabul visited the family last week, and the Prime Minister has spoken to Linda’s father today. I spoke a few hours ago to our colleague, the hon. Member for Na h-Eileanan an Iar (Mr MacNeil), who is the constituency Member of Parliament involved. He could not make it here for logistical reasons this afternoon, but he obviously had questions to raise. We will keep them fully informed of what is happening, and we will look to have a report, the conclusions and every significance of which can be fully described to the House and to the country.

[Mr Philip Hollobone (Kettering) (Con)]

All of us hope that Linda is the last overseas aid worker to be captured by the Taliban, but sadly she may not be. What protocols are in place involving our military and the US military in terms of the nationality of any captive? For example, were an American aid worker taken captive in territory in which British forces predominate, would it be our decision to go in to rescue them, or would it be the Americans’ decision? At what level are these decisions taken?

[Mr Hague]

Decisions about what can happen militarily are taken by ISAF command. The commander of ISAF is General Petraeus, the US general. The deputy commander is a UK commander, so these decisions are taken together. They require the political authority of the Government of the national concerned. In the case of a US citizen who is held hostage, the US Government would have to give their authority for such an operation. Could it involve British special forces? Absolutely. We would treat an operation involving a US citizen as if they were one of our own, just as the US in this case treated Linda Norgrove as one of their own.

[Mr Jack Straw (Blackburn) (Lab)]

May I first add my very sincere condolences to the family and friends of Linda Norgrove following the terrible tragedy that has befallen her? In saying that, may I offer my full support to the Foreign Secretary and his colleagues on the excruciatingly difficult decisions that they have had to make, as I know only too well from my own experience? I ask him to confirm that, although it is correct that there should be an investigation, any investigation that looks at the circumstances that faced the decision takers and participants should take them forward, and should not, from the languid luxury of hindsight, seek to second guess those incredibly fast decisions that they had to make?

[Mr Hague]

I am grateful to the right hon. Gentleman, who having served for five years as Foreign Secretary is familiar with these dilemmas and difficult decisions. Let me stress that this is an investigation into the military circumstances and what happened in the actual incident. However, it is important to remember, when looking at the decisions that we have made, that we had to bear in mind what might have happened had we not made the decision to mount a rescue operation. We might not have had the opportunity again. We know from experience that a hostage held by the Taliban can be murdered in cold blood and that Linda Norgrove would probably have been taken into yet more inaccessible terrain. That is why we concluded from the beginning that the best option would be to take the earliest opportunity for a rescue operation if the conditions were right for that and if the military assessment were that there was a good chance of success. Clearly, the view was—a view confirmed by General Petraeus in his telephone conversation with the Prime Minister this morning— that there was a good chance of success. General Petraeus would not have wanted to send his troops into action without that good chance of success. All those things must be borne in mind.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

To return to the question of the investigation, will it be conducted under the auspices of ISAF or under the auspices of the US military?

[Mr Hague]

As I mentioned in answer to the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper), the shadow Foreign Secretary, we are still designing the form of the investigation because this is a new set of circumstances. The UK will certainly be fully involved in the investigation. General Petraeus proposed that from the beginning and the Prime Minister was absolutely clear about our wish to see that in his conversation with General Petraeus this morning. Therefore, we will have to sort out in the coming hours whether that takes place under ISAF auspices or under the auspices of the US military with UK involvement. I will let the House know in the appropriate form, perhaps through a written statement, how that has turned out.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I add my sincere condolences to the family and friends of Linda Norgrove at this very sad time. It is evident from the tributes being paid to her that she was a very exceptional person who dedicated her life and considerable talents to helping other people and the peace efforts in Afghanistan.

I welcome the Foreign Secretary’s commitment to establishing what has actually happened and I also welcome his statement. This tragic incident is a salutary reminder of the risks that humanitarian aid workers face in Afghanistan and other dangerous parts of the world, yet their contribution to those efforts is indispensable. Can he assure us that assessing the safety of the circumstances in which humanitarian aid workers and NGO staff are working in Afghanistan will be a priority for the Foreign Office in the weeks and months ahead?

[Mr Hague]

Of course we want to see whether any security lessons can be learned, but let me stress that very many steps are taken to try to ensure the security of people working in Afghanistan by our military, by ISAF—and therefore by the military of other nations—by the Afghan security forces, and sometimes through the operations of private security companies. A great deal of security is provided, but that is not a guarantee against murder or kidnap. We will all remember the tragic case of Karen Woo earlier this year—another aid worker who was murdered in Afghanistan. The House must recognise, as indeed it has in the comments that have been made today, that people often take considerable risks in order to deliver humanitarian aid and development to difficult parts of the world. We should salute the efforts of those people.

[Bob Stewart (Beckenham) (Con)]

I am mindful that the people who went in on this exceptionally difficult operation were as brave as they could be, but I am also slightly worried because helicopters were used. Sometimes, helicopters are heard from a long way away, so there was warning, and one of the first principles of war is surprise. I hope that the investigation will look at the reason for using helicopters.

[Mr Hague]

It is very important for Ministers and those responsible for giving a general authorisation for such an operation not to interfere too much in the military aspect of it, which must be left to the military experts on the ground. Of course, my hon. Friend speaks with military experience and will know a thing or two about such matters. The terms of the investigation are still being drawn up, but I am sure that it will be able to look at all the military circumstances surrounding the operation. However, he should bear in mind that operating in Afghanistan, in mountainous and inaccessible regions, very often requires helicopter-borne operations, including if there is to be any surprise. Land forces making their way over mountains and through valleys over a long period of time may find it more difficult to achieve surprise than helicopter-borne troops.

[Mr Denis MacShane (Rotherham) (Lab)]

This awful tragedy, like the one of Dr Woo to which the Foreign Secretary referred, reminds us of the rising death toll of civilians in Afghanistan as the Taliban target civilian administrators, mayors, justices and anybody whom they can kill as part of their campaign of intimidation. I wonder how much longer our strategy should be maintained. When he came to office, the Prime Minister indicated a change of thinking on Afghanistan, and I hope that that new thinking continues to be thought, as it were.

[Mr Hague]

We have been very clear about our approach to Afghanistan, and on giving all the necessary support to our troops. Indeed, we announced in the early stages of the new Government a doubling of the operational allowance for our forces who are fighting there. We have greatly increased development aid to try to assist the Afghan Government in building their own capability and the speed of development in Afghanistan in future. We have also lent our strong support, as the previous Government did, to the political process, to which the shadow Foreign Secretary, referred. That adds up to the right strategy for Afghanistan, and it is important that we are not diverted from it by events, including military encounters and tragic events such as the one that we have experienced and that we are discussing today. Such events do not invalidate the overall strategy that we are pursuing.

[Mark Pritchard (The Wrekin) (Con)]

May I join the Foreign Secretary in paying tribute to Linda Norgrove and to the grace and dignity shown by the Norgrove family? Is it not the case that the ultimate responsibility for Linda’s death lies fairly and squarely with the evil and cowardly Taliban?

[Mr Hague]

That is absolutely right—my hon. Friend reminds us of that extremely important point, which the whole House must always remember.

[Paul Flynn (Newport West) (Lab)]

On Friday, in my constituency, I attended the funeral of Sergeant Andrew James Jones, the 339th British hero to die in Afghanistan. Of course, the responsibility for his death and Linda Norgrove’s death lies with the Taliban, but does this House not have a responsibility to bring this increasingly futile conflict to a swift conclusion?

[Mr Hague]

The hon. Gentleman is right to remind us of the scale of the casualties, of the names that we have so often heard read out in this House and of the fact that his constituent was the 339th of our servicemen and women to die in Afghanistan. The hon. Gentleman has a long-held different view about the merits of what we are doing in Afghanistan. What I can say is that this Government will, as we have pledged, present a regular review—a quarterly review—to the House of what we are achieving in Afghanistan, or what we are not achieving, what our immediate objectives are and what resources are required to attain those. I hope before the end of this month to be able to make a statement to the House with the latest such review, which will enable hon. Members of all views on this issue once again to take part in reviewing what we are doing and questioning the Government.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

The Foreign Secretary referred to the long-standing policy of successive Governments not to make concessions to hostage takers. The international security assistance force troops comprise soldiers from more than 30 member states, and those states do not always take the same view in their responses to hostage taking. Is he having any discussions with some of those member states to ensure that, at least when we are in the same theatre of operations, we take the same approach?

[Mr Hague]

Yes, and the hon. Lady makes an important point. I have raised this issue with Foreign Ministers of other nations during bilateral discussions in recent weeks, because clearly if one nation is prepared to pay or to sanction the payment of ransoms, that can undermine the international position. I also raised this very strongly in the discussion on terrorism at the United Nations Security Council in New York, which I attended in late September, during the United Nations General Assembly. I particularly stressed the point that it is against not only international practice, but international law for such ransoms to be paid, and I will regularly reinforce that point to other nations.

[Mike Gapes (Ilford South) (Lab/Co-op)]

In his opening remarks, the Foreign Secretary said that the hostages—Linda Norgrove and her colleagues—were taken by people wearing Afghan national army uniforms. Has he made any assessment of how many similar events have taken place in the past year in Afghanistan and of whether there is a problem with regard to the security of uniforms and other material from the Afghan national army?

[Mr Hague]

The hon. Gentleman raises an entirely legitimate point, which deals with one of the issues that we will need to follow up after this incident. As far as I am aware, this is not the only incident in which Afghan national army uniforms have been abused. It is not easy in the circumstances of Afghanistan, and with an army that now numbers well over 100,000 and has a relatively high turnover rate, to control the uniforms available around the country. This may therefore be a difficult problem to address going forward, but we will certainly want to do some additional work in ISAF and with the Afghan Government on how to tackle it.

Welfare Reform

Monday 11th October 2010 Commons Chamber

16:04

[The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)]

With permission, Mr Speaker, I should like to make a statement on welfare reform.

Let me start by welcoming the right hon. Member for Paisley and Renfrewshire South (Mr Alexander) to his new post as shadow Secretary of State for Work and Pensions. We have already had a conversation in the last week. I extend that welcome to all members of his new shadow Front-Bench team.

The statement today is in three parts. First and foremost, today—as everyone in the House may well now know—we launched an approach to those on incapacity benefit under the work capability assessment, and it is necessary for the House to hear this directly from us so that Members can question me. Secondly, I want to use this opportunity to set out more detail on the new Work programme, which is very much related to the work capability assessment. Thirdly, the House has a right to know more about our plans for wider benefit reform as we look ahead to a White Paper and welfare reform Bill, although I would add the caveat that greater detail will be contained in that statement.

The economic backdrop is severe. We have the largest deficit in the G20 at £155 billion—the largest in peacetime history—with debt interest of £120 million a day, or £43 billion in 2010-11. Under the previous Government’s deficit reduction plan, which the Opposition now seem not to favour—although I might be wrong on that point—annual debt interest spending would have risen in only five years to almost £70 billion. Let me put that in context: that would have meant spending more on interest than we spent on policing, defence and transport combined. So, there is an urgent requirement to make these changes and reforms.

[Official Report, 11 November 2010, Vol. 518, c. 1-2MC.]We are at a critical point, with 5 million people on out-of-work benefits, 2 million working-age people claiming incapacity benefit, of whom 900,000—just under 1 million —have been claiming for an entire decade, and a system that has left Britain with the highest rate of jobless households in Europe. Those statistics reveal the human cost of leaving our welfare system unreformed, and with that comes an ever-increasing financial cost. The working age welfare budget rose by 40% in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. A staggering £133 billion was spent on incapacity benefits in the past 10 years, and benefit spending is forecast to be more than £152 billion in 2010-11, which is about 10% of gross domestic product.

Today we spend £1 in every £3 on welfare in this country, yet youth unemployment is higher and inequality greater, and there are 800,000 more working age adults in poverty than there were in 1998-99. In that context, we also announced the reform of child benefit last week. I personally do not think that it is right, if we have to make changes and reductions, to tax the poorest to fund the receipt of child benefits by those with the highest levels of income. If we do this correctly, we can save about £1 billion, protect some 85% of families and secure fairness as we support people. I know that that is tough—we are in tough times—but I believe that it is fair, and that is the key. The important thing as we come through these spending reviews is that we should have a progressive change, not a regressive change.

At the same time, we announced procedures to set a cap on benefits for workless households to average earnings, which are about £26,000. However, we ought to set that in context. The cap will be net of income tax and national insurance, so if someone was working to receive that amount of money it would equate to gross earnings of some £35,000 a year—not a very narrow cap. Equally, we will exempt the disabled and those on working tax credit so that we encourage work incentives and do not penalise those who find it difficult to be in work. That is fair, and we will announce more details in the spending review, which means that I shall do my level best to answer some of the questions that I expect Members want to ask.

In the last week we have also announced a new enterprise allowance, which is there to help unemployed people who would like to try to set up their own business. We will be able to give them up to £2,000 in various forms, as well as the advice and mentoring of those who have started their own businesses. Today, the most important step is that we are launching two trials for those on the old-style incapacity benefit under the work capability assessment. The Minister of State, my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), is travelling to Aberdeen and Burnley today to see both those trials get under way. They are about giving many thousands of people the opportunity to move from the margins of society into mainstream employment. I remind the House that we inherited the programme, and that I supported it while we were in opposition. We have had to make a few changes, and we will make more as necessary.

Under the new system we will assess people on the basis of what they can do, not what they cannot, and thereby support people to meet their aspirations for work. We are determined to get it right, which is why we will learn from the trials and why we have set up an independent experts group to scrutinise the assessment. That group includes, for example, the chief executive of Mind, so as the programme is trialled we will listen to and deal with concerns about those who are mentally ill, such as those expressed on the radio today. Through those measures and through the Work programme, we are committed to supporting everyone who goes through the assessment.

We will ensure that those deemed unable to work continue to receive the support that they need, and that those deemed able to work are fully supported to do so. People who are found fit for work will move directly on to our new Work programme rather than have their jobseeker’s allowance stopped in the normal way. They will receive an integrated package of support, and in due course so will those who have been out of work for a longer period. It will provide personalised help based on individual needs, not on the benefit that somebody receives. Using the best of the private and voluntary sectors, that will help get people into work as quickly as possible.

The systems that I have described are what we call black-box systems, and I shall explain what that really means. Put simply, we will not lay down prescriptive criteria about how they should be run. We want those running them to do whatever is necessary to help people into work—that is the key. They will be operated on a payment-by-results system that ensures that providers do not simply go through the motions. They will receive their real money only for getting someone into work and ultimately keeping them there, and they will find rewards further up the chain as they do so. We have received more than 790 expressions of interest in joining the programme from providers, and in December we will invite bids for contracts, ready for national roll-out next year.

Finally, the work capability assessment and the Work programme are of course critical to getting more of the 5 million or 5.5 million people who are currently on benefits back into work, but they will not be enough. Underpinning that support must be a benefits system that incentivises work, and we have to ensure that work always pays. That is why the coalition Government aim to bring forward a White Paper soon and a welfare reform Bill in the new year.

The introduction of what I call the universal credit will restore fairness and simplicity to an overly complex, outdated and now wildly expensive benefits system that simply prevents people from getting back to work. As we get the benefits system working, we can get Britain working. The best way to get the deficit down, drive the recovery and get the economy moving is to ensure that more and more of the British people who can work do so. Welfare reform is critical, and I give a guarantee that people moving on to the universal credit will not be any worse off at any stage. In fact, they will be better off as they find work.

Everyone in the House should unite around, and try to achieve, the cause of moving people into work and creating a pathway out of poverty for the 5 million people on out-of-work benefits. I understand that the new leader of the Labour party has said that he will not be in opposition for opposition’s sake, so I hope that he and his shadow Cabinet colleagues will do the right thing and support us in delivering a welfare system that is fit for the 21st century. I commend these reforms to the House.

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

I thank the Secretary of State for his statement and for advance sight of it. I thank him also for his gracious welcome to myself and my team. Members of all parties will acknowledge and recognise the work that he has done both inside and outside Parliament over recent years on the crucial issues for which he now bears a heavy responsibility.

As befits a responsible Opposition, my team and I will work constructively with the Government when there is common ground between us, on issues such as increasing opportunities and support for people to get into work. However, I must also be clear that when the Government propose measures that we judge arbitrary and unfair, we will oppose them robustly.

The Secretary of State began his statement with a rehearsal of the case for reform. While, of course, I disagree with the rather partial and partisan account of the economic situation that he inherited, let me be clear about the fact that I recognise the need to continue the reform of the welfare system. I believe in a welfare state that ensures that there are more people in work and fewer in poverty. That empowers people and contributes to a fairer and more equal society.

Let me also acknowledge, on this first outing at the Dispatch Box, that conditionality does have a role to play, as we recognised in government, first, because we know that it works in helping people to turn around their lives and, secondly, because it is the foundation for ensuring the public support on which the welfare state is based. Accordingly, I will carefully scrutinise each of the Government’s specific proposals on the welfare system.

The Secretary of State spoke about his plan to remove child benefit from higher rate taxpayers and, from the Dispatch Box, described that change as “fair”. How does that change meet the fairness test when it will result in one family, with a collective household income of £80,000, getting child benefit and the family next door, with an income of £44,000, getting none? There have been a variety of claims as to what the threshold in fact is. Can he confirm at this time that the change will affect only parents earning more than £44,000?

Since the shambles of the announcement last week, the Prime Minister and others have suggested that marriage tax breaks might be introduced in the near future to compensate for the removal of child benefit. Does the Secretary of State accept that there is no coalition agreement to implement the Conservatives’ marriage tax allowance proposals, that to date such proposals have applied only to basic rate taxpayers, and that even if his coalition partners were to accept those proposals, they would cost more than the savings made from the child benefit reform he proposes?

On incapacity benefit reassessment, which the Secretary of State touched on, despite its omission from the briefing in this morning’s newspapers, I welcome his acknowledgement that he is continuing the previous Government’s proposals on the trialling and roll-out of the work capability assessment. I note that those proposals this morning appeared to be attached to a specific target of removing 500,000 people from benefits. If a system of assessment is to be truly fair and objective, will he clarify whether that figure is a hard target, merely an assumption or a headline-grabbing claim?

I was also concerned to see reports in The Times today that those judged too sick or disabled to work could nevertheless have their benefits time limited to six months or a year. Will the Secretary of State confirm whether that is the case? If it is not, will he clarify what actual plans he has for reassessing those who are initially found to be unable to work?

The Secretary of State has also told us today that people found fit for work will move directly to the Work programme. His colleague the Employment Minister—the Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling)—has previously told the House that the new single Work programme will not be introduced until the first half of 2011. How can that timetable be reconciled with the trials now under way, which were announced in Burnley and Aberdeen?

I welcome the comments made on the radio this morning by the Employment Minister, who said that he would be prepared to modify the test if it were not working properly. Indeed, I welcome the gracious acknowledgement of the Secretary of State’s confirmation of that point today. However, he concluded his statement by describing welfare reform as an historic opportunity. It is, none the less, an historic error to fail to realise that effective welfare reform requires economic recovery. He seems to be in denial of the fact that getting people back to work requires there to be jobs for them to take up.

That insight explains why the previous Government took measures to ensure that unemployment was kept at about half the level of that in previous recessions, that the unemployed were supported and that, at the same time, those who could move from benefits into work were doing so. In contrast, the Government’s own Office for Budget Responsibility revised forecast predictions that public sector jobs would be cut by 750,000 and that unemployment would increase to nearly 3 million people. Over the next few years, the Treasury’s own papers indicate half a million more jobs lost in the public sector, half a million jobs lost in the private sector and half a million fewer jobs and opportunities for the unemployed.

Labour Members will continue to make the case for backing our economy, fighting for jobs and standing up for fairness while reforming our welfare system.

[Mr Duncan Smith]

I thank the shadow Secretary of State. May I answer a few of his particular questions? First, I thank him for his general support for the aims of what we are trying to do. I am sure that we will work together to achieve those. I think that is the best thing to do. I recognise fully that, of course, there are things that he will not agree with. That is reasonable, and it is exactly what I would say were I sitting in his place. In fact, I did exactly that some 10 years ago. How time goes on.

I also welcome the shadow Secretary of State’s acceptance of the need for conditionality in the system; we will need to discuss that with him further. There is absolutely a need for conditionality, which can properly be introduced only once we have created what I call the contract—that is, when we can genuinely say that we have improved the programmes to get people back to work, and have made the benefit system simpler, having made sure that there are no blocks to people going back to work. If we fulfil that bit of the contract, those out of work and looking for work need to fulfil their bit of the contract—they need to take the work when it is available. That is the key to conditionality.

The shadow Secretary of State asked about the level at which child benefit will be removed. It is simple—it will be removed at the higher-rate threshold. At the moment it is £43,875, but of course I cannot predict what it will be. It is a matter for the Chancellor; no one should read anything into what I said. It is not my job to set the rate, but the benefit will be removed at the higher-rate threshold.

The shadow Secretary of State went on to say that the change is not fair. He describes the tax system when he says it is not fair, although I am not sure what he is trying to describe. The reality is we think, fairly, that it is wrong for someone on lower income to have to pay tax so that someone on higher income can receive an element of benefit to look after their children. If he thinks that it is unfair to make the changes through the tax system, I would like to know what he did in the past 10 years to reform the tax system that he now thinks is unfair. The very same tax system actually penalises those who have one single high earner in the family as against a household with two lower earners who together could be earning £80,000, so he is condemning the tax system that he has given to us. We can only use the system that we have, but he may now think that that is unfair.

The measures will help enormously to meet what I call a progressive form of reduction in costs. I think that the process will be ultimately welcomed—it has been welcomed by the general public.

The shadow Secretary of State made the point that he did not think there were enough jobs. Of course, we could do with many more jobs. We have inherited an economy that has been stuttering. In the past month or so there have been just under 500,000 jobs in the jobcentres. Those are not static jobs. Those are jobs that are available—they rotate; some are taken and new ones come on. We know that in the informal economy there are many more jobs being taken. That is evidenced by the fact that some 280,000 people went into work in the past quarter, which is the highest number of people back to work since modern records began in ’89. The reality is that there are some jobs.

The shadow Secretary of State talked about growth. As he knows, over the period of the spending review, the independent Office for Budget Responsibility, the IFS—sorry, the IMF—and others have made forecasts; the IFS may yet make the same forecast as them. The IMF has forecast that growth levels will be between 2% and, in the medium term, 2.5% and that there will be a net increase in employment over that period. We can jostle over the figures, but I do not agree that there are no jobs available. As the economy begins to grow we will see even more jobs, but if we do not get people ready for those jobs, we will be in the same situation as he found himself in with 5.5 million people on out-of-work benefits doing nothing and languishing in households that had no work at all.

The shadow Secretary of State talked about the work capability assessment and he said that there were concerns. He is right. The figures that we were talking about were estimates of where we believe we could and should be. They are not hard targets. We cannot and will not set hard targets for a simple reason. As I explained earlier, this is a process. As we look at what happens in Aberdeen and Burnley, I hope—I am prepared to share this with him—that we will figure out whether there are things that we are doing right or wrong, so I am not saying that there are targets. It would be wrong to set targets.

As for the idea of reviewing the measures, the shadow Secretary of State said that he welcomed the Employment Minister’s views. We will modify all the measures as necessary. The key thing is that nearly 1 million people have sat on incapacity benefit without anyone seeing them over the past 10 years. We have to change that. The Labour Government started that programme; we must finish it. I hope that we will receive his support. The right hon. Gentleman commented on the way that we do these things. We will consult where necessary and make sure that the Opposition get the evidence that they require to decide whether to oppose our measures.

I conclude by saying to the right hon. Gentleman and all Opposition Members that we inherited a major deficit from him and his team. That deficit is the largest in the G20. If we do not get that down, the interest payments on the loans alone will dwarf everything we do. What we are doing in the spending review is looking for ways to do that. At the same time, it is important to make sure that when we act to reduce the deficit, we share the burden across the income scale and we do not achieve savings on the backs of the poorest in society. I am here to make sure that that does not happen. I hope I will have the right hon. Gentleman’s support in that when he sees how progressive the review turns out to be.

[Several hon. Members]

rose—

[Mr Speaker]

Order. A great many right hon. and hon. Members are seeking to catch my eye, and there is a well subscribed debate on the Second Reading of the Finance Bill to follow, as a consequence of which brevity in both questions and answers is of the essence.

[Harriett Baldwin (West Worcestershire) (Con)]

As a Back-Bench MP, I receive child benefit. Prior to entering the House, I was even better paid and received child benefit. Was the Secretary of State as surprised as I was to learn that the new Leader of the Opposition would like to restore child benefit to people like me?

[Mr Duncan Smith]

He may be after my hon. Friend’s vote, in which case we will have to do some quiet talking. It is a ludicrous position to take. We now have a Labour party in opposition which prefers to defend the very wealthiest, and a coalition that wants to defend the worst off.

[Kate Green (Stretford and Urmston) (Lab)]

Universal child benefit is the most effective benefit for reaching the poorest children, more effective than means-tested benefits which are designed for them. Can the Secretary of State enlarge on the implications of his comments last week that child benefit will, in due course, be subsumed into his new universal credit? Should I therefore assume that there is no prospect, regrettably, of a universal payment being reinstated when the economy recovers?

[Mr Duncan Smith]

The hon. Lady is right that child benefit has been and will continue to be a very effective mechanism to get money to the poorest families. We are not eradicating the universal benefit in the case of child benefit. We are capping it off at the higher rate. The rest—[Interruption.] Well, 85% of the public will get their child benefit. The hon. Lady asked specifically about the universal credit. I did not say that it would subsume child benefit. I said that as we reform the benefit system, and as the PAYE system is reformed, we should be able to look at these things long after the spending review and look for ways of getting rid of anomalies. Right now, in the spending review, there are no plans to make any such changes. We will do exactly as I said. Child benefit will be removed from families where there is at least one earner above the threshold.

[Mr Edward Leigh (Gainsborough) (Con)]

For years my right hon. Friend and I argued in opposition that marriage should not be discriminated against in the tax and benefits system, and in particular that mothers who chose to look after their children at home should not be discriminated against. Can my right hon. Friend assure me that he has not changed his view, and that through mechanisms such as transferable allowances he will ensure that women are entitled to make their own choices and are not influenced by the tax and benefits system?

[Mr Duncan Smith]

I agree with my hon. Friend. I make a point of agreeing with him on many things. The changes to child benefit are exactly what they are—to help us to reduce the terrible deficit that we have and to save the poorest families in the land from suffering a terrible burden that they would have to bear in due course. As my right hon. Friend the Prime Minister made clear last week—these are not matters directly for me, but he and the Chancellor will bring forward measures in due course—the very best way to ensure that couples do not face that penalty is to ensure that they are not unfairly taxed from the outset. This is about child benefit, and we will support families who make the choices that they make.

[Malcolm Wicks (Croydon North) (Lab)]

When, in the mid-1970s, the decision was taken to merge the child tax allowance, which broadly benefited the wallet, with the family allowance, which broadly benefited the purse, the then Labour Government, after a bit of a kerfuffle, decided that it should become a child benefit for the mothers, for reasons which, I think, both sides of the House recognise. Does the Secretary of State realise the dismay of many people in all parts of the House and the public that he is now running a coach and horses through the principle that it is very often the mother who has to juggle the family budgets, that certainly in the south of England, salaries at the level at which he is withdrawing benefit are not extravagant, and that that is a blow to the concept that mothers are at the heart of our families in Britain?

[Mr Duncan Smith]

I respect the right hon. Gentleman enormously, and he knows that, but I am afraid that he is living in a time warp. The reality is that we have walked into government to find facing us the single biggest deficit on record. This country is close to being broke, thanks to his Government and how they ran the economy. So, yes, in a perfect world we might have wanted to continue with everything as it was, but in reality we cannot afford to. We make such changes on the basis of ensuring that we do not make them on the backs of the poorest people. Had we done it any other way, he would have complained quite rightly, and I must say to him that, if he does not like the proposal, and it sounds like he does not, perhaps he or his Front-Bench colleagues will tell us where they think they are going to get the money from as an alternative.

[Stephen Lloyd (Eastbourne) (LD)]

I appreciate the Secretary of State’s commitment, through the work capability assessment, to include the chief executive of Mind on the independent panel, because it is recognised that some disabilities go into remission. Can he give any further reassurance that other disabilities, such as ME or MS, in which there are quite profound ups and downs and cycles, will be recognised in the new assessment?

[Mr Duncan Smith]

I can give the undertaking to my hon. Friend that all those issues will be reviewed with that team. If there is an issue about that, and if it affects anybody, we will want to try to bind that into the whole assessment. The assessment’s objective is not to penalise people. The truth is that when we undertook the flow—putting people through a process that the Opposition undertook when in government—we learned a lot. We found that a large number of people who went through it have come out the better for going into work. No one ever saw them, cared about them or discussed anything with them, so we are trying to ensure that we give them help and support, not to penalise them.

[Mr Michael Meacher (Oldham West and Royton) (Lab)]

Is it fair and reasonable to impose a fixed arbitrary limit on the total level of benefits that a family can receive, irrespective of the level of rents in inner-city areas, when that rent could well constitute 70% of the £500 per week ceiling? A family cannot possibly live on the remaining 30% alone.

[Mr Duncan Smith]

The right hon. Gentleman refers to the benefit cap, as announced last week. I think that it is fair. It is fair for us to offer an explanation to the public, most of whom work for low incomes and pay their taxes. They do not want to see somebody on benefits disincentivised from work because of the very level of money that they receive. I repeat what I said in the statement: to net-out £26,000, somebody in employment would have to earn about £35,000. So, I do not think that the measure is effective, in the sense that we are bearing down too hard. It is fair.

On housing, over the next few years we will manage the process with the changes to housing benefit. After all, over the last five years of the right hon. Gentleman’s Government, housing benefit costs ballooned by £5 billion a year, and they were set to balloon to £20 billion a year. I have one last point for him: his Government had the lowest number of houses built at any time since the 1920s. I wonder whom he blames for local authorities having had to place people in those expensive houses.

[Mr Oliver Heald (North East Hertfordshire) (Con)]

For a generation, disability campaigners have pressed for more jobs for people with disabilities, yet the employment rate of those people has remained pitifully low. Does my right hon. Friend agree that what his pilots aim to achieve, taken with the universal credit, is a situation in which people with disabilities get a fair break and a chance of a job, and that if they have a fluctuating condition there is a benefit system that supports them?

[Mr Duncan Smith]

Yes, I agree. That is exactly the point of all the changes that we are making, and the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Basingstoke (Maria Miller) is bound with that to review all that we do for disabled people in order to ensure that we do not write them off at any stage but give them an opportunity to go to work, if they can. We will absolutely support those who are not able to go to work. It is their right, and we will ensure that that is the case.

[Jeremy Corbyn (Islington North) (Lab)]

I want to take the Secretary of State back to the point raised by my right hon. Friend the Member for Oldham West and Royton (Mr Meacher). The universal cap of £500 a week will have a devastating impact on people living in inner-London areas such as mine, where private sector rents—paid for by housing benefit—are exorbitant, to put it mildly. The cap will result in desperate poverty for those people who try to remain living where their children go to school and near their families and community. The effect will be one of social cleansing over a vast area of inner-city Britain. Is that what the Secretary of State really wants to achieve?

[Mr Duncan Smith]

I do not agree with the hon. Gentleman’s reading of this.

[Jeremy Corbyn]

Look at the figures.

[Mr Duncan Smith]

I have been doing the figures, actually. The hon. Gentleman should remember that the measure is not being brought in until towards the end of the Parliament in 2013. In the meantime, we have already instigated some changes to how housing benefit is paid. The hon. Gentleman knows as well as I do that in some parts of London there has been complicity among private landlords to push the rents up much higher than they should have done. That was because the Labour Government never sorted out housing benefit.

The reality is that we will manage the process. The numbers will be far smaller than the hon. Gentleman talks about. We will make sure that what we do as we go forward is give the taxpayer and those in receipt of benefit a fair deal. I do not think that a person needs £35,000 a year gross to live a reasonable life.

[Mr Peter Bone (Wellingborough) (Con)]

I thank the Secretary of State for his statement today. I do not think that anyone in the House is more able to deal with the welfare problem than him.

With hindsight, does my right hon. Friend think that it was a mistake to announce the change in child benefit policy in a television studio last week rather than waiting to announce it in the House today? Was a written statement given to the other place, which was sitting last week?

[Mr Duncan Smith]

The Chancellor made a statement in a television studio, but he made a statement to the country and my hon. Friend at the same time. All I can say is that the policy has been discussed by me, the Prime Minister and the Chancellor. As far as I am concerned, come the spending review my hon. Friend will see even more details about other changes. There will be full statements on those as well.

[Mark Durkan (Foyle) (SDLP)]

Does the Secretary of State recognise that many of us represent places where the problem is a lack of work rather than a lack of work ethic? Is he hearing any concerns from the relevant Northern Ireland Ministers about some of the proposals on which he is still working? On the Work programme, the right hon. Gentleman has referred to the black box discretion that will be given to operators there. How will he ensure that there will be no black arts, in manipulating the statistics purely to gain payment by results and the other incentives that he says will be available further up the chain?

[Mr Duncan Smith]

As the hon. Gentleman may know, I have already visited Northern Ireland to discuss these matters with his colleagues. There may be some differences of opinion about where we are going, but most of that is because they have not quite arrived at the detail of it. I think that by and large these proposals, particularly the universal credit, will in general benefit Northern Ireland dramatically. The numbers of unemployed there are very high and we need to get those numbers down and get Northern Ireland working again. That is important. We have had the discussions.

[Margot James (Stourbridge) (Con)]

My question pertains to the upper limit of £26,000 on welfare payments. My right hon. Friend stated that that equated to a gross income of £36,000. Many in my constituency work long hours, sometimes putting in overtime, but bring in considerably less than that. I remind Labour Members that those people have housing costs to pay as well. Can we make sure that people understand that the £26,000 is very much an upper limit, and that we should not ever see the welfare equivalent of £36,000 gross income as the norm?

[Mr Duncan Smith]

I made the point that we also have to balance taxpayers’ requirements alongside those of people on benefit. By the way, when seen in the context of the total number of people on benefits at the moment, the numbers that we are dealing with are much smaller than people make out.

Most of all, I should say that we will not be doing this for people on disability living allowance. Those in receipt of working tax credit, for example—those in work—will also not be caught. We are simply looking to those families who have become static and immobile. There is a disincentive against their going to work; the amount of money that they receive is such that they could never get it if they went to work. Therefore their incentive to work is non-existent. That is the benefits system that we inherited; that is the benefits system that we will change.

[Tony Lloyd (Manchester Central) (Lab)]

If the Secretary of State recognises that this period of uncertainty is very stressful for people on incapacity benefit, does he also recognise that drip-feeding information through the media is not the right way of giving people any confidence that the system is fair? In particular, I understand that 40% of people who were originally refused incapacity benefit had that overturned on appeal. What does he intend to do about that, because it is frankly unacceptable?

[Mr Duncan Smith]

If the hon. Gentleman is worried about the drip, drip, drip on the 20th of this month, I should tell him that there will not be a drip at all; we will get it out all in one go, so he should steady himself for that. None the less, the issue generally will be resolved, and I promise him that if there are any direct questions, I will answer them. He should remember that the figure that he refers to is 40% of all those who appealed. In total, 5% of those who have migrated have had their appeals upheld.

[John Hemming (Birmingham, Yardley) (LD)]

I congratulate the Secretary of State on the proposals for the universal credit, which will make it worth being in work. As well as trying to fit people to jobs, will he consider trying to fit jobs to people by using the Government’s contracting power to require that there be some jobs for the long-term unemployed and some jobs for people with disabilities?

[Mr Duncan Smith]

We will certainly ensure that we look at that suggestion.

[Natascha Engel (North East Derbyshire) (Lab)]

There has been a huge increase in the number of people coming to my surgeries and saying that, having been on incapacity benefit, they have been reassessed as capable of working but on appeal that decision has been overturned. That applies to the vast majority of people, certainly in Derbyshire. Does the Secretary of State have figures available for the whole country? I hope so, because if he is planning on rolling this out nationwide, we need to ensure not only that people who are wrongly assessed as capable of working are not left destitute but that the tribunal system is prepared for the huge number of appeals coming its way.

[Mr Duncan Smith]

Let me repeat the figures that I gave. Of all those who have been migrated through the system, about 5% have been successful in the sense that they have had their appeals upheld. There may be a slight change to that figure, because there is a backlog at the moment; we could probably make it up to 7% or 8%, but I do not think that it will get any higher than that. We should remember that all the people the hon. Lady is talking about represent the flow—that is, people who have not been in receipt of incapacity benefit until now but have been applying to come on to incapacity benefit and are being migrated through the process on to employment and support allowance or jobseeker’s allowance. The figure for those appeals is 5%, and that was part of the process that was started by the previous Government.

[Richard Fuller (Bedford) (Con)]

Many of us welcome the Secretary of State’s efforts to tackle the scourge of worklessness and to end the era in this country of indiscriminate and too often counter-productive welfare. On work capability assessment, he will know that these macro benefits are built on a series of individual assessments by a particular doctor on a particular day of a particular condition. May I press my right hon. Friend to take a personal interest to ensure that assessments of neurological disorders and mental health issues in particular are done fairly?

[Mr Duncan Smith]

My hon. Friend raises a very important point. I can guarantee to him that we have already been doing that, but we will continue to do so. That is why the independent panel, which includes somebody from Mind, will review it. Mr Farmer has been tasked with reviewing that generally, as well. We will constantly keep this under review and ensure that that is the case. We do not want to use this to punish people; it is about helping people, not punishing them.

[Sheila Gilmore (Edinburgh East) (Lab)]

Given the large number of my constituents and many others who had problems with the work capability test under the previous system, can the Secretary of State assure us that he has already reviewed the test prior to rolling out the new pilots, rather than leaving it as it is and piloting yet again? What full report is there on the outcomes of the system thus far? In Scotland, the Scottish Association of Citizens Advice Bureaux published a report that was highly critical of the system that was in place. Although a lot of us agree with it in principle, we know that when it comes to individual people the situation is very different.

[Mr Duncan Smith]

I guarantee that we have already reviewed the matter. Indeed, we inherited a review process, which the previous Government initiated. We will bind in the results of that—we are doing that at the moment. Having said that, we have subsequently set up the panel and asked somebody to investigate to ensure that we are covering all the necessary matters. The two pilots will help us understand better the way that the system works. I am not sure what else we can do at this stage. As I said to the right hon. Member for Paisley and Renfrewshire South (Mr Alexander), we intend to use what we are discussing as a process—it is not an end point, but a process that allows us to get the best out of how we deal with those who have been on incapacity benefit and need our support and help to get back to work. I give that guarantee.

[Jake Berry (Rossendale and Darwen) (Con)]

Is my right hon. Friend aware that many responsible employers, including those in my constituency, ask their staff to attend annual health assessments? Does he agree that it is fair and reasonable for those deemed not fit to work to attend similar assessments rather than wait 10 years on incapacity benefit without seeing a doctor?

[Mr Duncan Smith]

My hon. Friend makes exactly the right point: for too long, Governments of both colours were content to see people parked on incapacity benefit. The subject should unite the House; the previous Government started the process and we want to complete it. It is no longer feasible for people to languish on incapacity benefit. My hon. Friend is right; in some cases, people have not been seen for six or seven years and in others, people self-referred and have never been seen by anybody to find out what is going on. It is high time we resolved that.

[Pete Wishart (Perth and North Perthshire) (SNP)]

Will the Secretary of State please explain why a large swathe of Scotland is being used for the Con-Dem social experiment, especially when it involves some claimants travelling for up to 90 minutes to be interviewed? He will remember that the last time the Conservatives used Scotland as a testing ground was when they introduced the hated poll tax a year early. What safeguards and guarantees have the people of Scotland this time round?

[Mr Duncan Smith]

I am not sure what the hon. Gentleman is moaning about. Two cities are in the pilot, one in England and one in Scotland—he forgot that. The cities are different in character—they have quite different populations in terms of income. The hon. Gentleman made the point that some people travel long distances, and it is important for us to understand the exact effect of that. Sometimes I wish that he was not quite so parochial.

[Sajid Javid (Bromsgrove) (Con)]

I paid a visit to my local jobcentre in Bromsgrove earlier this month, and I learned from the advisers that, in many cases, it takes them more than an hour to determine whether a jobseeker would be better or worse off by taking just six hours of employment in a week. Does my right hon. Friend agree that the introduction of the universal credit and the taper relief system will make a dramatic difference to job incentives for jobseekers, and also increase their life chances?

[Mr Duncan Smith]

I am glad that my hon. Friend sees it like that, because that is exactly how I see it. Of course, the devil will be in the detail, but we want a process that is easy to understand for those who are trying to get back to work, so that they do not need a maths degree to figure out exactly how much money they will retain if they do seven, eight, nine, 15 or 20 hours’ work a week. We want it to be easy for them to understand that there is an incentive for every hour that they work, and for those in jobcentres to figure it out, so that they can give proper advice. We want incentives, not disincentives, to go back to work.

[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

Will the Secretary of State give us some assurance about the future of the independent living fund? The Government trickled out the information that it was one of the quangos to be abolished. That report has caused my constituent, Mrs Seckerson, and her husband and carer, Barry Seckerson, real concern because if they lose that fund, her chance of living a meaningful life will be severely inhibited. Rather than leaving them fearful of the future, can the Secretary of State give them some sense of security today?

[Mr Duncan Smith]

The ILF, which we inherited, had been underfunded and was consequently overspent—literally on the day we walked through the door of government. The hon. Gentleman might therefore want to take up the reasons for such bad mismanagement with his Front-Bench colleagues. However, we want to ensure that we deal with people in those circumstances fairly and reasonably. We are reviewing the whole process now and, as and when we complete the review, I shall ensure that the hon. Gentleman hears the details of it.

[Richard Harrington (Watford) (Con)]

I and most of my unemployed constituents to whom I have spoken favour what my right hon. Friend has said. I am sure that many of them are pleased to have the chance to go back to work if they can find a job and, of course, benefit from the extra income. However, after speaking to many people, I am convinced that several people simply expect a whole lot of new schemes, about which they will find out in order to find ways of avoiding them and of continuing what they quite enjoy: a life on benefits, albeit on a low income. I would be interested to know my right hon. Friend’s views on that.

[Mr Duncan Smith]

The vast majority of people who are on benefits are not seeking to stay on benefits for the rest of their lives. Most of them are seeking help to get off benefits and we want to provide that help. Most of all, I want to simplify the number of benefits so that people understand what they will receive and how, but to link that to a process of getting back to work. I repeat that those who genuinely cannot work, because they have disabilities that make it impossible, must receive the best support possible. That is the sign of a civilised society.

[John Mann (Bassetlaw) (Lab)]

The Office for Budget Responsibility has projected a net increase of 700,000 EU migrant workers during this Parliament, and that point was confirmed by Treasury officials to the Treasury Committee. Does the Secretary of State agree—and as the previous Government found to their cost—that an employer is more likely to prefer a new, young EU migrant worker to someone who has been on benefits for 10 years?

[Mr Duncan Smith]

The hon. Gentleman makes an interesting point. The only answer I can give is that during the past 10 years we have had between 4 million and 5 million people permanently parked on some form of out-of-work benefit. The reality is that it became easier and cheaper for most employers to employ people who were not on benefits than to go to the pool of people who were on benefits. I hope that our reforms will make work pay for those who are on benefits and thus release that pool of talent, so that demand can be met from here in the UK, and that only those who are really skilled and necessary will have to come from overseas.

[Mr Philip Hollobone (Kettering) (Con)]

My constituents will be horrified to hear from the Secretary of State that Britain has the highest rate of jobless households in Europe. Which country in Europe has the lowest rate, and what is it doing that we are not?

[Mr Duncan Smith]

Perhaps I should not say this, but I think that it is Holland—I read that in a note. Some 20% of all households in this country have nobody in work, which is a staggeringly high number. We also have the highest number of children born to workless households. By and large, every other country is Europe is doing it better than we do—and that is the shame of the previous Government.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

Has the Secretary of State considered the impact of the benefits cap on homelessness provision, including women’s refuges? What plans does he have for housing benefit for supported accommodation, where rents are understandably higher than in the private rented sector?

[Mr Duncan Smith]

We are looking at all that. I have made available some £60 million for transitional funding for local authorities and others, and we will keep that under review. We do not want to penalise households, because it may not be their fault that they are living in homes that they simply would not be able to afford. We need to ensure that the changes are made, and I hope that we will also be able to drive down some of the rents. A lot of change is coming in the next two years, and I hope that much of it will be very progressive.

Points of Order

Monday 11th October 2010 Commons Chamber

16:53

[Mr John Denham (Southampton, Itchen) (Lab)]

On a point of order, Mr Speaker. Future students and their parents will be alarmed that Members from the governing Lib Dem party are preparing to break their election promises and vote for huge increases in university fees. Given the need for a system of funding that is sustainable, fair, progressive and related to earnings—and which means that able students do not have to shop around for the cheapest option—is it in order for Government policy on this issue to be announced by the Secretary of State not in a statement to the House but in an e-mail to Liberal Democrat and Conservative MPs?

[Mr Speaker]

I thank the right hon. Gentleman for raising what is undoubtedly an important point. Certainly these matters have been widely reported in the media and the House knows of my wish, oft-stated, that statements of Government policy should be made first to the House. At this stage, I do not know whether the briefing that has taken place falls into the category of briefing to the media in advance. However, I confidently expect—and I emphasise that point—that these matters will be before the House in the very near future, and I also underline that last point. That will both inform me and give the right hon. Gentleman and others the opportunity to explore these issues in greater detail. I hope that that is helpful to the right hon. Gentleman and to the House.

[Paul Flynn (Newport West) (Lab)]

On a point of order, Mr Speaker. There is a proposal to close the passport office in my constituency, with the possible loss of 300 jobs, which would leave Wales as the only country in the United Kingdom without its own regional passport office. I wrote to the Minister responsible about the matter in September. No word has come from any Minister—neither the Home Secretary nor the responsible Minister—yet a civil servant has presented the case and argued it to the press; indeed, they were actually present in my constituency this morning trying to justify it. As the convention in this House is that we do not attack civil servants, how can we go about ensuring that those Ministers responsible for this irrational and damaging suggestion come before the House to justify themselves?

[Mr Speaker]

I am grateful to the hon. Gentleman for giving me notice of this matter, and I am struck by it. I am not clear in my mind that it is a point of order, but it is certainly an important matter. He will know that the House has invited the Procedure Committee to consider how Government statements are made to the House. He could draw that example—and I suspect that he will—to the Committee’s attention. In addition, the Table Office will advise him on other opportunities to raise this important matter.

Finance (No. 2) Bill

Monday 11th October 2010 Commons Chamber

Second Reading

16:56

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the Bill be now read a Second time.

As observant Members will note, this is the second Finance Bill of this Parliament and the third one this year. The date of the general election earlier this year reduced the time available for scrutiny of technical measures in advance of that election, and the short timetable available between our emergency Budget and the summer recess has made it necessary to have a third Finance Bill to address various technical measures.

Given the content of this Bill, I suspect that there will be a fair amount of cross-party consensus on the matters in it but, in any event, I would like to congratulate the newly appointed shadow Treasury team. In particular, I congratulate the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary to the Treasury, both on her election success as a member of the shadow Cabinet and on her appointment to her current position. She will bring considerable experience of Finance Bills to the shadow Treasury team, both as a former Minister and from the Finance Bill earlier this year.

Although he is not present, I should like also to congratulate the newly appointed shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). He stated over the weekend that his first task was to read an economics primer, but he also expressed the need to hit the ground running, because of the Finance Bill today. Whatever his education programme, I suggest that he should not necessarily begin with the scrip dividend treatment of real estate investment trusts or the taxation of long cigarettes. However, we wish him well in that process.

At the emergency Budget in June, my right hon. Friend the Chancellor set out this Government’s fiscal mandate, acting swiftly to tackle the deficit and restore credibility to the public finances. In the short, summer Finance Bill, we quickly put the core elements of the Budget on to the statute book, reassuring the British people and the financial markets that we would not allow Labour’s debt to spiral out of control.

[Kelvin Hopkins (Luton North) (Lab)]

The Minister mentioned cigarettes. Are the Government going to do anything to tackle the £4 billion that is lost through cigarette smuggling? That is four times the amount of money that they are apparently hoping to save by cutting benefits to the better off.

[Mr Gauke]

The hon. Gentleman makes the fair point that there is too much cigarette smuggling, and this is a matter that we are keen to address. My right hon. Friend the Chief Secretary to the Treasury has already announced proposals to provide additional funding to Her Majesty’s Revenue and Customs to tackle cigarette smuggling, among other things. I very much welcome the hon. Gentleman’s intervention but, let us be honest, it would be unrealistic to say that we could prevent all cigarette smuggling. We can, however, take steps to reduce it. That would be to the benefit of the Exchequer, and I am pleased that the Government are moving ahead and doing that.

It is our determined actions that have restored confidence in the economy, stabilised the nation’s credit rating and halved interest rates on Government short-term borrowing. We are saving money today so that we can invest in tomorrow. Ours is the right approach for the country, and that has been widely recognised. Only a fortnight ago, the International Monetary Fund said that our deficit plan was essential to restoring confidence in the UK’s public finances and “supports a balanced recovery”. That is the approach that we will take forward, including in the spending review.

[Ms Angela Eagle (Wallasey) (Lab)]

I should like to take this opportunity to thank the Minister for his kind remarks about me and the new shadow team. If he is so convinced that the actions that the Government took in June have stabilised the economy, can he explain why a survey reveals today that confidence among Britain’s financial chiefs has slumped to a fresh low, with 34% of finance directors polled by Deloitte believing that the economy will go back into reverse? Those findings demonstrate that optimism has dropped to its lowest level for 18 months.

[Mr Gauke]

The fact is that the measures that the Government have taken have had the support of the IMF, the OECD, the World Bank and the Governor of the Bank of England. We are getting widespread support for taking these tough measures. We also have the support of the director general of the CBI. There is an increasingly large consensus—it even includes Tony Blair—that if we simply deny the existence of the deficit and avoid taking these tough decisions, we shall face a worse problem later on. It is absolutely right that we should take these measures.

[John Mann (Bassetlaw) (Lab)]

On the Deloitte survey, does the Minister agree that business people make investment decisions based on how they see the future? What will happen if those business people see a murky future? Will they not invest less? Would not that result in the Government’s optimistic predictions of private sector growth, on which they are relying, not coming to fruition?

[Mr Gauke]

I shall tell the hon. Gentleman what would drive down investment: the fear that the Government were not prepared to take the tough decisions. Taking decisions for the long term to tackle the deficit will encourage private sector growth, and this Government are confident that we are taking steps in the right direction. We are also confident that a policy of reducing public expenditure rather than increasing taxation—which is the forecast of our plans to reduce the deficit—is the right way forward. Spending that is funded by borrowing is just a recipe for higher taxation and bigger cuts in the future, burdening future generations with the problems created by this one. That approach would drive down investment. Simply ignoring the matter would not help investment; it would not be fair and it would not be progressive.

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

Does my hon. Friend agree that the protests that we are hearing from those on the Opposition Benches are in stark contrast to the fact that the measures taken by this Government have secured our triple A rating?

[Mr Gauke]

My hon. Friend is absolutely right. The fact is that the Moody’s triple A credit rating was deemed to be at risk, and has now been stabilised. Our market interest rates have fallen, and we are restoring confidence in the long-term capability of this country. If we refused to take these measures, we would be taking the most enormous risk.

It may be helpful if I give some of the background. As I said earlier, there remain some technical changes that we could not include before the summer, and the Bill provides for those changes to be made.

I think it safe to say that Members on both sides of the House will agree on the contents of the Bill. I should be disappointed if they did not, given that within the last year all but one of the measures that we are debating were proposed by the last Government I am glad that we have reached a consensus on that, if not on other matters. None the less, we wanted to ensure that the public and interested parties had an opportunity to provide input.

In the Budget we set out our approach to tax policy making, with consultation at the heart of the strategy. In the spirit of that new process, we published the Bill in draft over the summer. That has not only allowed key interest groups to comment, but reassured those affected by the Bill. More than 60 responses were received, and nine clauses have been modified as a result. Furthermore, many groups have voiced their approval of the provision of a draft Bill to allow for additional scrutiny, which has made the Bill better, clearer and easier to apply.

We also increased opportunities for consultation by creating the Office of Tax Simplification over the summer. We need to increase transparency for businesses and the tax profession: that is a message that we hear frequently. We also hear about the importance of greater predictability, stability and simplicity in the tax system. The Office of Tax Simplification will identify areas in which complexity in the system can be reduced, and we will publish its findings for the Chancellor to consider before he presents his Budget. Simplifying the tax system is not just a means in itself, but a vital sign that Britain is once again open for business.

The Bill is not just a good example of engagement with the public; it also supports our aims of helping businesses and promoting fairness. Clause 10 provides support for real estate investment trusts by relaxing their distribution requirements. Clause 13 removes intellectual property conditions linked to research and development tax credits, enabling more small companies to claim. Clause 11 fixes issues in the worldwide debt cap regime to allow it to operate properly. The changes affect businesses large and small. Clause 9 removes an unintended tax charge from company distributions, and clause 7 makes changes to the venture capital schemes to guarantee state aid approval.

The coalition Government are committed to ensuring that the decisions that we make are fair, and that we protect the most vulnerable in our society. The choices that we have made to date, and the actions that we will take as part of the spending review, will help to make Britain fairer. Clauses 1 and 2 play their part by easing the tax rules for carers and extending the scope of the current tax relief. Clause 31 provides tax relief for trusts that compensate sufferers from asbestos exposure. I am sure that many Members will particularly welcome that clause. Clause 16 guarantees that those providing support under an adult care placement do not suffer capital gains tax as a result of sharing their home. Those too are small measures, but they provide significant and welcome support for those affected.

One clause has not been included in the Bill, although it was intended to feature. The aggregates levy credit scheme in Northern Ireland was introduced in recognition of the impact of the levy on legitimate businesses as a result of tax evasion on imports from Ireland and illegal quarrying. Over the summer, we consulted on legislation to be included in the Bill to extend the scheme beyond April 2011 to March 2021. Since then, the European General Court has annulled the Commission's state aid approval for the scheme, for the period covering April 2004 to March 2011. In those circumstances, it would not be appropriate to extend the scheme and we therefore decided to remove the clause from the published Bill. However, the Government strongly support the scheme and, if the Commission were to come to a fresh decision that the aid was approvable, legislation to extend it can be introduced in the Finance Bill in 2011.We will continue to work closely with the Commission, the authorities in Northern Ireland and representatives of the quarrying industry to find a solution that provides a level playing field for legitimate quarry operators in Northern Ireland, while maintaining environmental standards.

The other clauses help to align HM Revenue and Customs’ interest and penalty regimes; enable the National Employment Savings Trust to operate as a registered pension scheme; assist with the correct allocation of overpayments of tax to settlers of trusts; and tackle evasion of excise duties. Although those clauses could not make it into the previous Government's final Finance Bill—although 71 clauses did make it into their four-hour Bill—we are ensuring that these necessary but less glamorous changes are made.

This is a simple, straightforward Bill that eases burdens on individuals, businesses and HM Revenue and Customs. It is one that the previous Government all but enacted themselves. In brief, it is an important but, I hope, uncontroversial Bill, and I commend it to the House.

17:11

[Ms Angela Eagle (Wallasey) (Lab)]

As the Exchequer Secretary has said, the Bill before us is the third Finance Bill that we have had this calendar year. We normally expect two if a general election intervenes, when the usual Finance Bill timetables are inevitably interrupted. However, this year we have had three. That is because of the decision of the Chancellor of the Exchequer to stage a piece of political theatre—I might even call it crass melodrama—when he presented his self-styled emergency Budget to the House in June. Rather than one that included all the necessary legislative provisions that had to be enacted this financial year, we got a tiny Bill. Its purpose was to tie the Liberal Democrats into the huge cuts to come and to the VAT bombshell before any summer revolts could gather pace and menace the Government’s stitched-together majority.

[Sajid Javid (Bromsgrove) (Con)]

I congratulate the hon. Lady on her new position. The emergency Budget to which she referred was absolutely necessary considering the train wreck of an economy that we inherited. The country’s debts were spiralling out of control. That Budget calmed the debt markets and allowed the country to look at its finances and to bring economic competence back into the Treasury.

[Ms Eagle]

The hon. Gentleman is even more melodramatic in his rewriting of history—his historical revisionism of what was going on in the UK economy—than the Chancellor. I had thought, having watched that performance, that that was impossible, but perhaps the hon. Gentleman should try out pantomime this year as Christmas approaches.

I was about to say before I was so rudely interrupted that, rather than encumber himself with the tedious technical detail in this Budget, the Chancellor decided to start behaving like the Liberal Democrat student activists we all come across at university and to take it in parts. This is part two. As a result, we have in today’s Bill what can best be described as the technical innards of a Budget; I think that the Exchequer Secretary used other words. In fact, most of the clauses, as he pointed out, are the technical innards of the last Labour Budget, which was presented in March 2010. However, it is the duty of the Opposition to scrutinise the detail of all Budgets, and we certainly intend to fulfil that obligation tonight.

Measures included in the Bill are important to the workings of the taxation system—the Minister did the House a service by going through them in great detail—but they have failed to inspire much interest or controversy in the outside world, perhaps because they have been signalled for a long time. The measures were subject to consultation under the previous Government as well as the current one when they were in development. Some might even say that they were prototype proposals, because that is the way that things tend to be done in the Treasury. That is attested to by the lack of much comment on or reaction to the proposals even among the taxation professionals who usually pore over the technical details of Finance Bills with fine-toothed combs. In respect of this Finance Bill, those professionals have been strangely unmoved—I might even say indifferent.

[Kelvin Hopkins]

I, too, congratulate my hon. Friend on her appointment to the Front-Bench team and I am pleased to see her there. Is not the fact that this is a mouse of a Bill, given that we face a £120 billion tax gap that the Government are doing nothing to reduce, and that 1% of that sum would save more money than their cut in benefits?

[Ms Eagle]

My hon. Friend is right to point out that there are two sides to the deficit reduction equation. Clearly, one side of that is collecting the taxes that are due in an appropriate fashion, and I shall say more about that later in my speech. He is right that we need constantly to keep that side of things in mind.

I was about to pay tribute to the Institute of Chartered Accountants, which was one of the few organisations to submit comments on the Bill when many had fallen by the wayside. Perhaps it is up to the Opposition to be vigilant when others have taken their eyes off the ball.

As my hon. Friend said, it is odd that we are debating a seemingly uncontroversial and overwhelmingly technical Finance Bill in the midst of one of the most difficult and dangerous periods for the UK and world economies in many generations. We have lived through the largest banking and financial crisis in the global economy since the Wall street crash of 1929. It has caused a deep and painful global recession, and we are struggling with the aftermath of the rescue of the world financial system from the colossal market failure that was dramatised by the collapse of Lehman Brothers in 2008. That inevitably caused budget deficits to soar everywhere, but especially in the more advanced western economies.

The UK was particularly affected, in part because of the size of our banking and financial services sector. The concerted action co-ordinated at the London G20 conference averted a catastrophe, and we are now witnessing a tentative economic recovery. However, that recovery remains distinctly fragile.

[Lorely Burt (Solihull) (LD)]

We have the biggest budget deficit in the G20. What does the hon. Lady believe contributed to that? Could the previous Labour Government, of whom she was a member, have done a bit more to try to avoid that?

[Ms Eagle]

The hon. Lady must recognise that the budget deficits being suffered in all the more advanced economies result directly from the need to rescue the world financial system by underpinning it, the effect of automatic stabilisers and the loss of revenue caused by the recession that followed the credit crunch. I thank her for giving me the chance once more to put that on the record.

[Claire Perry (Devizes) (Con)]

Will the hon. Lady give way?

[Ms Eagle]

I will be happy to give way when I have finished dealing with the point made by the hon. Member for Solihull (Lorely Burt). I am pleased that she gave me the chance to put on the record again the plain fact that Budget deficits throughout the developed world were caused by the costs of the recession and the need to underpin our banking systems, rather than by profligacy in public spending. The problem was caused by a gigantic global market failure, not by the activities of Governments.

[Claire Perry]

It is a pleasure to welcome the hon. Lady to her new role, as she is one of the more economically literate and articulate of the shadow Front-Bench team. I am therefore surprised that she continues to bring out the hoary chestnut that somehow this deficit was entirely a result of the collapse in the banking system and was nothing to do with the previous Government’s spending more than they raised in taxes since 2001.

[Ms Eagle]

The hon. Lady has also to recall and acknowledge that a lot of the investment spending since 2001 went on infrastructure, which will stand our country in good stead as we look to how we can rebuild our prosperity and continue to earn our way in what will be an increasingly competitive world.

[Charlie Elphicke (Dover) (Con)]

I would point out to the hon. Lady that the Office for Budget Responsibility says that there is a structural deficit of £109 billion—I believe that is the figure—which has nothing to do with the banking crisis or the recession and will not be eliminated by growth. Does she not accept that the previous Government have some or full responsibility for that structural deficit?

[Ms Eagle]

I think we need to have a much more grown-up discussion about how we ended up facing these economic challenges. One of the more underhand approaches that the Government have taken to this narrative has been to say that the economic challenges facing us, which are formidable, are somehow all about the previous Labour Government wasting public money and spending profligately. The hon. Gentleman knows that that is simply is not true—

[Several hon. Members]

rose—

[Ms Eagle]

I will give way in a moment. If we reach the stage where we have an appropriate analysis of how our economy got to be in this situation, we will stand a far better chance of having a reasonable discourse about how we can best move forward, rather than having this gross caricature being made by those on the Government Benches.

[Mark Tami (Alyn and Deeside) (Lab)]

The Government seem to forget that when they were in opposition they promised to match our spending. The Liberal Democrats have great cheek to say now that they did not support the increased level of borrowing—I recall that they certainly did.

[Ms Eagle]

That is true. Clearly, the Chancellor and Prime Minister are on record, up to and including in 2008, as doing precisely what my hon. Friend says and supporting our spending commitments as they were at the time.

Although the recovery remains distinctly fragile, the June Budget took a huge and risky gamble with it. Since then, confidence in the UK’s economic prospects has fallen off a cliff and business surveys, such as that by Deloitte which I asked the Exchequer Secretary about, demonstrate that economic sentiment is darkening. There are increasing signs that the tentative recovery is stalling and that the economic storm clouds are gathering once more.

[Kelvin Hopkins]

I agree entirely with what my hon. Friend is saying. Is it not true that those who invest and those who are lacking confidence now are simply aware that cutting spending, cutting jobs and cutting benefits will drive the economy into recession, and that nobody will invest when we are diving into a recession? Does she agree that in the early part of this decade Britain had a relatively low level of public spending as a proportion of gross domestic product compared with, for example, Scandinavia?

[Ms Eagle]

My hon. Friend is right on both points, but he also raises an important issue about what Keynes called “animal spirits”. It is fair to say that all the signals are that the animal spirits are somewhat more depressed now than they were a few months ago and that the things that have depressed them are the decisions that were announced in the June Budget.

Ominous noises are coming out of the recent International Monetary Fund meeting about currency wars and competitive devaluations, and they offer worrying echoes of conditions that led to the great depression in the 1930s. Dominique Strauss-Kahn was not joking or exaggerating when he warned the IMF meeting about the dangers that the huge increases in unemployment will pose for our democratic institutions. Yet none of this is referenced in the measures before us today.

[Sajid Javid]

rose—

[Ms Eagle]

I have given way to the hon. Gentleman before and I want to get on, because I know that other people wish to speak.

In many ways, we find ourselves in a kind of pre-spending review phoney war. We know that something truly awful is coming but it has not arrived yet, so we are whistling to keep up our spirits as the winter approaches and the long nights draw in. The Prime Minister himself has taken to using wartime phraseology. For some strange reason, in his conference speech he was moved to invoke the spirit of Lord Kitchener and his famous “Your country needs you” first world war Army recruitment slogan, not once but twice. Quite why he did that is beyond me, since Lord Kitchener was the general who created the world’s first concentration camps in the aftermath of the Boer war. They inflicted appalling suffering on innocent women and children in order to quell any Boer resistance. As Secretary of State for War, he supported the disastrous Dardanelles operation and was widely blamed for the shortage of shells in 1915, which, incidentally, precipitated the formation of a Tory-Liberal Government.

Of course, Kitchener has become best known for the famous Army recruitment campaign and its memorable slogan, which our Prime Minister saw fit to borrow the other day. In 1914, that plea resulted in the creation of what became known as “Kitchener’s Army”, and I suppose we should refer to the attempts to create a “big society army” to fill in the gaps that the cuts will create. Unfortunately, however, that Army was destined to go into action in the Somme, where 60,000 of them were slaughtered on the first day of the offensive. By its end, 600,000 had been lost to gain just 6 miles of territory, and overall casualties in the offensive as a whole reached an almost unbelievable 1.2 million men—

[Several hon. Members]

rose—

[Ms Eagle]

I shall give way in due course, when I have finished.

[Mr Brian Binley (Northampton South) (Con)]

Be kind to me.

[Ms Eagle]

I shall give way in due course, but not at the moment.

I was just saying that the Somme offensive cost—

[Mrs Anne Main (St Albans) (Con)]

On a point of order, Mr Deputy Speaker. Is this rather long revisiting of first world war history directly related to the Finance Bill’s Second Reading?

[Mr Deputy Speaker (Mr Nigel Evans)]

Had I noticed anything out of order, I would have been sure to have pointed that out. As it is, I believe that the shadow Minister is now moving on.

[Ms Eagle]

I was just about to do so, Mr Deputy Speaker, but suffice it to say that Kitchener’s Army became a tragic symbol of a lost generation, pointlessly sacrificed because of the idiocy of those in charge. Perhaps, whether he realises it or not, the Prime Minister was on to something with his choice of exhortation.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I thank the hon. Lady for giving way and add my congratulations on her elevation. It will be a great privilege to listen to more of her speeches, I hope often on Kitchener. I fear that she has maligned the late noble Lord Kitchener of Khartoum, the rescuer of what remained of Gordon’s body from Khartoum. Perhaps most relevantly, the death rates in the camps established in South Africa were exactly the same as—

[Mr Deputy Speaker]

Order. This would be a fascinating debate at another time and, perhaps, in another place.

[Ms Eagle]

Thank you, Mr Deputy Speaker. I know whose side I would rather be on in any attempt to rehabilitate Lord Kitchener.

As the spending review approaches, we are beginning to see increasing signs of nervousness about the likely effects of the cuts, and that is just among Ministers. We already know that the Government have taken a decision in principle that a huge increase in unemployment is a price worth paying to get the deficit down. In an admission that the spending review will depress economic activity, the Chancellor recently made it clear that he will sanction the resumption of quantitative easing, or increasing the money supply, should the cuts in demand tip the country back towards recession. However, the extent to which monetary policy can be effective when interest rates are so low and demand is depressed is the subject of well-placed scepticism in very respectable economic circles.

[Albert Owen (Ynys Môn) (Lab)]

I welcome my hon. Friend to her new position. Does she agree that there are lessons to be learned from the Republic of Ireland, where a centre-right coalition has made savage cuts quickly? That has not only affected its triple A rating—it has been downgraded—but created mass unemployment.

[Ms Eagle]

Yes, I do think we have to keep a careful eye on what is going on elsewhere in the world. It is clear that the mantra that there is no alternative is simply not true.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

I add my support for my hon. Friend after her elevation to her new position. She mentioned quantitative easing, and she will no doubt have seen the widespread reports in the newspapers over the weekend that the Chancellor has given it a green light. Is that not his plan B, and his way of avoiding the so-called “difficult decisions” and passing them on to the Bank of England?

[Ms Eagle]

It certainly indicates that there is some nervousness and worry about the downturn in what the economic indicators say about the effect of measures that were announced with great fanfare in June.

[Andrew Bridgen (North West Leicestershire) (Con)]

Does the hon. Lady agree that the main thing that we can learn from the economy of the Republic of Ireland is that we were right not to join the euro and should never do so?

[Ms Eagle]

I look forward to the debate that will take place within the Government on that, as I can see that Liberal Democrat Members are not exactly enamoured with the hon. Gentleman’s point.

At the weekend, the Cabinet seemed to send incoherent messages about the £83 billion cuts agenda that lies ahead. The Energy Secretary told The Daily Telegraph that spending cuts were not

“lashed to the mast with a particular set of numbers”

and could be scaled back if economic conditions deteriorated, but the Transport Secretary insisted that the Government would not deviate despite fears that the drastic cuts would damage the economy. The latter clearly regards himself as the real Chief Secretary—or perhaps it would be more accurate to say the Tory Chief Secretary—but which of the two is presenting the Cabinet’s real view? They both serve in it, so which of them is right? Perhaps when the Economic Secretary responds tonight, she would like to enlighten us about which of their positions is the real Government policy, at least for today.

Some things that I would have thought would be in the Bill, given the formidable economic challenge that now faces us, are conspicuously absent. Where is the plan for growth? We all know that growth is one of the most effective ways of dealing with a deficit. Thus, plans to get the deficit down need to be growth-friendly, but precious little in the Bill is intended to address that urgent requirement.

Since May there have been plenty of cuts that may well have a bad impact on our growth prospects, such as the abolition of regional development agencies and the savage cuts in the funding available to assist regional growth strategies. The decision to scrap the loan to Sheffield Forgemasters is another example. That company could have played a leading role in the developing global nuclear industry, but its chances of doing so have been set back significantly by that decision. The increase in VAT, which estimates suggest will cost each household in the country more than £500, will hardly boost demand, so where is the plan for growth? The Prime Minister claimed that his first Budget would be

“a Budget that goes for growth”,

but after the Chancellor’s theatrical efforts in June, the Government’s own forecaster, the Office for Budget Responsibility, downgraded its growth forecast for this year from 1.3% to 1.2%, and for next year from 2.6% to 2.3%. The CBI also decided to lower its growth forecast for next year from 2.5% to 2% to take account of the June Budget.

[Alec Shelbrooke]

I welcome the hon. Lady to her Front-Bench position. If the 2.5% rise in VAT is so wrong, why was it right for the previous Government to return it from 15% to 17.5%? Although there had been a reduction, that was still a 2.5% rise.

[Ms Eagle]

The hon. Gentleman was not in the House at the time, but the reduction in VAT was part of the fiscal stimulus that kept the economy afloat during the most dangerous parts of the credit crunch. The growth figures for the early part of this year show that that fiscal stimulus package was working.

[Stewart Hosie (Dundee East) (SNP)]

The hon. Lady talks about the fiscal stimulus package working. It did work, of course, and I backed fiscal stimulus. Does she not now regret that the previous Government was one of only two in the G20 fully to withdraw the fiscal stimulus package in 2010?

[Ms Eagle]

The hon. Gentleman is arguing that we should do the opposite of what the Government decided to do in June. I hope that, in due course, we will see him in the Lobby with us.

[Alison McGovern (Wirral South) (Lab)]

I thank my hon. Friend for giving way and welcome her to her new role. I am pleased to see one of my Wirral constituency neighbours at the Dispatch Box. I was not a Member of the House at the time, but I recall the temporary VAT reduction to 15% as being just that—a temporary improvement for consumers to build confidence. Will she assist me? Was that the case and how does that measure compare to the VAT proposals made by the Chancellor in his Budget?

[Ms Eagle]

Clearly, that measure was temporary and well signalled in advance—a cut to boost the economy in the short term in the most effective way. The interesting thing about what has been announced since June is that the VAT increase appears to be permanent. We are also seeing a range of other announcements, such as the shift from the retail prices index for benefit increases to the consumer prices index—not temporary to deal with a situation in front of us, but seemingly permanent.

[John Mann]

Will my hon. Friend give way?

[Ms Eagle]

I am happy to.

[John Mann]

My hon. Friend may not be too happy to give way, but first I congratulate her on her appointment. She is an appropriate and excellent appointment to the Opposition Treasury team. However, she is making an argument about increasing taxation leading to a reduction in growth. Is that not a rather dangerous argument for a Labour Opposition to make when the choices between spending and taxation are precisely those that any Government would have to make? Is it not time that the Labour Opposition re-examined their opposition to the VAT increase? Should we not reverse that opposition and support the increase as an appropriate way to increase taxation at a time when we need to offset any cuts that would lead to job losses in the public sector?

[Ms Eagle]

My hon. Friend should take account of the regressive nature of VAT and the fact that the Government have trumpeted from the beginning that their measures will be fair. They even used the word “progressive” during the June Budget discussions when the analysis by the Institute for Fiscal Studies and recent work by Age UK demonstrates that the effect of the Budget measures of which the Bill is a small part will be the exact opposite of progressive. It will be regressive; it will hit the poorest hardest, and VAT has a part to play in that.

[John Mann]

rose—

[Mr Gauke]

rose—

[Ms Eagle]

I am anxious to get on. I have given way a lot and many other Members wish to speak.

The Irish example demonstrates the risks of focusing on getting the deficit down—too high a cost to the growth potential of the economy. The Irish have had deep and fast cuts as well as tax rises, but growth has been hit, which is making getting the deficit down harder rather than easier.

[Mr Gauke]

I am grateful to the hon. Lady for giving way and I am listening carefully to her somewhat gloom-laden speech. I can see why her military role model is not so much General Kitchener as Private Frazer. May I press her on one particular point? The position of her party at the general election was in favour of spending cuts of 20% over the Parliament and halving the structural deficit over four years. Does she still support that position?

[Ms Eagle]

That is our starting point as we move forward to judge what the Government will announce in a few days’ time. The issue here is the scale and speed of the deficit reduction, and how that impacts on our approach to being able to see some kind of economic recovery sustained, given what is happening in the rest of the world. The worry that we have always had about the Budget judgment implicit in the June announcements and soon to be reinforced in the forthcoming spending review is that the medicine being fed to the patient runs a higher risk of killing it off. We do not want the deficit reductions to be too soon and too deep to sustain a recovery. The Irish example demonstrates the risks of focusing on getting the deficit down at too high a cost to the growth potential of the economy. The Government have a particular view on those judgments, but we disagree with them on the necessity for speed and the ferociousness of the deficit reductions. We are not saying that deficit reductions will not be necessary. The Chancellor used to mention the Irish example all the time as the Irish Government made their extremely deep and fast cuts, but lately he appears to have stopped referring to it at all. I wonder why.

The Government are gambling on their outdated and dogmatic view that if only the state would get out of the way, the private sector would spontaneously move to fill the gap and quickly create the 2.5 million extra jobs that the Office for Budget Responsibility has calculated would have to be created to get the deficit down as forecast. Thus our economy is meant to perform better in job creation terms than it has ever done before, even in much more benign economic circumstances than those we face.

We have just lived through the most dramatic example of the limits of that market fundamentalism that any of us are likely to see in our lifetime. It was not the private sector that rescued the world financial system from meltdown in the credit crunch; it was the co-ordinated action of Governments. Governments have a crucial role to play in fostering economic growth and helping to encourage the emergence of a better, more balanced economy, yet the Bill does nothing to restore the support for industry that the Government have already cut. It does nothing to reverse the £3.6 billion tax hike that will hit our manufacturers in order to pay for the corporation tax cuts announced in the June Budget, £1 billion of which will go straight back to the banks.

Abolishing allowances and reliefs effectively hits businesses with a tax hike when they invest. It benefits investment-light industries such as financial services over investment-heavy industries or new sectors looking to grow. That change penalises companies that need to make sustained investment to establish themselves and grow. It is a strange way for the Government to signal that they wish to see a rebalanced economy and the creation of new industry. Little wonder, then, that the plans have been described as “a disaster” by the senior economist at the Engineering Employers Federation and that the Institute for Fiscal Studies has said:

“Cutting investment allowances to fund a cut in the mainstream corporation tax rate would help companies which make large profits with little investment, at the expense of businesses that are investing heavily in the UK but making only marginal returns.”

There is no sign of a serious growth strategy.

[Stewart Hosie]

Will the hon. Lady give way?

[Ms Eagle]

I have given way to the hon. Gentleman before, but I shall do so once more.

[Stewart Hosie]

I agree with much of what the hon. Lady has said. Would it not carry more weight, however, if her Labour Government had not abolished, for example, industrial buildings allowance and agricultural buildings allowance—the very sort of allowances that she described that would help investment now. Would not her argument carry more strength if her Government had not butchered those important allowances only a few years ago?

[Ms Eagle]

I remember the detailed discussions that we had on that issue in previous Finance Bill debates. The hon. Gentleman has probably been in more of them than I have. The issue is not the abolition of allowances that are 40-odd years old and increasingly do not recognise the changed shape of UK industry. It is about abolishing allowances completely to fund a cut in mainstream corporation tax, with the result that the incentives for investment are taken away at the point of investment.

One of the measures that the Bill ought to have contained but does not is the creation of a tax relief for the video games industry. We all know in the House that in the UK we have a particular expertise in creating video games, which was beginning to create high-value jobs in the UK in what has become a multi-billion-pound industry. We also know that our brightest software engineers are being tempted abroad by generous and possibly illegal tax breaks, and that we risk the decimation of our UK base if we do not respond. That is why, while we were in government, we developed the video games tax credit, which was to operate along the same lines as the film tax relief. In opposition, just before the election, the Conservative party supported that. On 13 April 2010 the hon. Member for Wantage (Mr Vaizey), now the Under-Secretary of State for Culture, Olympics, Media and Sport, said:

“We are committed to a tax break along the lines of the video games tax credit. We have been calling for tax breaks for the video game industry for the last three years.”

Like so many other things said during the general election campaign, that pledge was abandoned immediately after it. We will want to explore the issue further in Committee.

Before the Minister uses the standard Treasury line about how the video industry can always make use of the research and development tax credits that are available more generally, he might care to put all our minds at rest and deal with the nasty rumours swirling around that the entire R and D tax credit may be at risk in the cuts to come. Perhaps the Economic Secretary will reassure us on that point.

Another notable omission from today’s Bill is any reference to increasing the resources which will allow HMRC to build on its already excellent work to tackle the tax gap. Obviously, as was said earlier, the more that tax due is collected, the more effectively the deficit can be tackled and the less pain our society will be forced to endure during the adjustment ahead. During the conference season the Deputy Prime Minister made much of the need to close the gap between the taxes that are due and those that are actually collected. He made grand and welcome pronouncements that it is “ethically wrong” to avoid paying our taxes. He was followed by the present Chief Secretary to the Treasury who announced, interestingly, that he regarded both tax avoidance and tax evasion as “morally indefensible” in times like these.

[Kelvin Hopkins]

I agree entirely with what my hon. Friend is saying. PCS, Richard Murphy and others have made the simple point that appointing more tax officers would solve the problem. They collect many times their own salary, and it would be highly beneficial to the Exchequer if that were done.

[Ms Eagle]

My hon. Friend is well known for his views on the subject.

Neither of the Ministers whom I just quoted revealed just how successful HMRC has been in pursuing this work in the past three years. HMRC increased the yield from compliance interventions by 60% in the three years to 2008-09. However, we all know there is more to be done and we would all support sensible measures to make such work even more effective.

Following all the fuss about that and the headlines generated, I would have expected to see some extra action in the Bill. However, despite the dramatic headline- grabbing moral assertions, nothing has been added to the Bill to signal the Government’s determination to launch a further crackdown. The worry is that the 25% to 40% cuts in departmental staffing due to be announced in the forthcoming spending review will seriously damage HMRC’s ability to maintain its work on improving tax collection, let alone to launch a further successful crackdown on the tax cheats. Again, this is a topic to which we will return in Committee, but I would be grateful for any reassurances the Minister may be able to offer us tonight that the operational capacity of the HMRC in this crucial area will be enhanced rather than decimated in the cuts to come.

Perhaps the hon. Lady can also explain to the House precisely what signal on tax collection the Government intend to send by appointing Sir Philip Green to advise the Prime Minister on Government efficiency. His own tax arrangements include paying a £1.2 billion dividend to his wife, who just happens to be domiciled in Monaco for tax purposes. Although this is not illegal, the Business Secretary has gone on record as saying that he is unhappy about it, and the Energy Secretary has said that it sends the wrong message. Can the Minister explain how this example squares with the Chief Secretary’s grand pronouncement that both tax evasion and tax avoidance are immoral in times like these? Once more, we must look at this Government’s actions rather than their words. Their decisions will be far more eloquent than thousands of well-crafted press releases or any synthetic outrage.

As we await the spending review, it is abundantly clear that the centre of economic and political attention lies not with the Bill but elsewhere. We would have wanted this legislation to contain at least the beginnings of a plan for growth, but it does not. It should have contained some extra and concrete plans to back up with credible action the Deputy Prime Minister’s fine words on the immorality of avoiding taxes, but it does not. In choosing to cut the deficit further and faster than we proposed, the Government have taken a huge gamble with our economic prosperity. A synchronised deficit reduction throughout the developed economies risks plunging the world back into either recession or a Japanese-style jobless recovery. The Irish example should be a salutary lesson to the Government of the risks that they run with their economic approach.

In the meantime, we will look closely at the Bill and take a keen interest in it as it goes through Committee. We will see whether some of the issues that I have raised can appear as amendments during its passage through the House.

17:51

[Mark Simmonds (Boston and Skegness) (Con)]

I draw the House’s attention to the Register of Members’ Financial Interests.

I am aware, as the Government and Opposition Front Benchers have said, that this is primarily a dry and technical Bill, and I shall address one particular area later in my remarks. However, it is important to set out the macro-economic climate and conditions if we are to provide a context for the Bill and for next Wednesday’s statement.

The contribution from the hon. Member for Wallasey (Ms Eagle), the shadow Minister, was perplexing. While wanting to congratulate her on her promotion, and on the fact that she clearly has a grasp of economic issues, I note the sense of complete denial about the serious situation in which we as a country find ourselves. It is quite clear that the coalition Government’s very difficult inheritance—with the previous Government having doubled the national debt so that we have the biggest deficit in the G20 and with more being paid in interest than the police, defence and transport budgets combined—emphasises the critical need to address the problem of the fiscal and structural deficit.

Treasury Front Benchers, the Chancellor and his colleagues, are absolutely right to dismiss the Opposition’s complaints. Why would anyone listen to a strategy from the very people who created the problem in the first place? I shall pick out one aspect of what the hon. Lady said, because it is something that the country needs to understand. The structural deficit, and the amount of money that the previous Government borrowed and this coalition Government have inherited, are not down to the banking crisis. The economic indicators update, which the Library provides, states very clearly:

“The Government borrowed £155.6 billion in 2009/10 (11.1% of GDP)”—

staggering numbers. Secondly, it states:

“The OBR’s Budget forecast for borrowing in 2010/11 is £149 billion. The OBR forecast that government debt will be £932 billion in 2010/11.”

And, it makes the third point:

“These figures exclude the effect of government intervention in the banking industry.”

That completely destroys the hon. Lady’s main focus and the point that she tried to make.

However, the issue is not just about the irresponsible and unsustainable Government expenditure that took place prior to the general election. I do not want to describe myself as a particularly visionary or prescient individual, but I point out to the House a question at Prime Minister’s Question Time that I asked the then Prime Minister, Tony Blair, on 25 May 2005. I shall not read it out, because it would be tedious for the House to hear it again, but I asked him what he would do to rein in the dramatically deteriorating fiscal deficit. Inevitably, as ever with Tony Blair, one did not receive a particularly comprehensive or detailed reply, but Treasury Benchers are absolutely right to focus on reining in the growing fiscal deficit.

It is quite clear, from the previous statement by the Secretary of State for Work and Pensions, my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith), that the welfare budget was completely out of control, and from the initial findings of Sir Philip Green’s review of Government expenditure, that many procurement procedures are completely out of control. There was sloppy governance, and that needs to be addressed.

People may ask, “Why is it important if the Government don’t get a grip on spending.” If there is no such grip, there will be no or slower growth; if there is no growth, there will be no sustained recovery; and if there is no sustained recovery, there will be no wealth or job creation. It is no coincidence that since June’s emergency Budget, the credit rating of the UK’s risk has dissipated and yields on Government gilts and bonds have fallen significantly. It means that some confidence is returning to the markets—specifically because of the Government’s and Chancellor’s announcements back in June. They announced, first, some fiscal consolidation and, then, a promise of some control over public expenditure.

The dangers of not doing anything are considerable: sovereign debt credit downgrades; interests rate rises; additional debt interest that should be spent on investment in reformed public services; and the potential explosion of Government bond yields, as we have seen elsewhere in Europe. We need to challenge the myth, which we heard from the Opposition Front Benchers today, that fiscal consolidation and public expenditure contraction automatically lead to economic slowdown; they do not necessarily.

I hope and think that we will have, in the technical jargon, an expansionary fiscal consolidation. There are two facets to that. First, if we control public expenditure, we get greater consumer confidence as people revise down future tax burdens, something that the coalition in time need to deliver. That will encourage further consumer expenditure, and I very much hope that such control will be permanent, not temporary.

[Alison McGovern]

How will that increased confidence play out in different regions where—for the right reasons, because work is cheaper in such areas—public sector jobs are now focused? How does public confidence work in an area where a high number of public sector workers face redundancy?

[Mark Simmonds]

The hon. Lady makes a fair point, and I should say two or three things. First, the national insurance changes that the coalition Government have made will make it better and easier for employers to take on new employees in the private sector. Secondly, the Treasury is working on the regional fund to address the difficulties that are faced in some regions, which, I would argue, are over-dependent on public sector jobs, so that people can move into the private sector quicker than would otherwise be the case.

The second element of the expansionary fiscal contraction is to encourage business to invest, and I do not agree with the fundamental argument of the shadow Treasury spokesperson. There is a direct inverse correlation between Government borrowing and business investment, which means that when Government borrowing declines business investment goes up, and vice versa. That would be especially true if it were supported by expansionary monetary policy, which it is and, I hope, will be for the foreseeable future.

Opposition Members may say, “That all sounds very well theoretically, but has it ever happened in practice?” The simple answer is, yes. It has happened twice in recent times—not only in the early 1980s, when the then Chancellor of the Exchequer, Geoffrey Howe, reduced public expenditure and interest rates and, therefore, stimulated economic growth, but—

[Kelvin Hopkins]

Will the hon. Gentleman give way?

[Mark Simmonds]

In a minute, because the hon. Gentleman might be keen to comment on this point. The correlation also occurred under the previous Labour Government, between 1997 and 1999, when they stuck to the preceding Conservative Government’s expenditure plans. That is when GDP growth under the previous Administration was at its highest, averaging roughly 3.5% per year—significantly higher than during the rest of their tenure. So, the correlation has occurred before, and I see no reason why it should not occur again.

[Kelvin Hopkins]

I hesitate to say this, but I was around in 1979, and I remember it very well. The Government at that time massively increased VAT and increased interest rates. The pound rose, and neo-classical economists, like the hon. Gentleman no doubt, said that unemployment would fall to below 1 million. It actually rose to more than 3 million, and one fifth of manufacturing disappeared. It was only when the Government later reversed those policies that the economy started to expand, but sterling depreciated by 30%, during Nigel Lawson’s tenure, when the economy started to grow again.

[Mark Simmonds]

I am grateful for that intervention. The hon. Gentleman will not be surprised to hear that I do not share his analysis. In fact, the parallels are interesting. I would argue that in the early 1980s Geoffrey Howe and Margaret Thatcher were clearing up the mess that they inherited from the previous Labour Administration, just as the Chancellor of the Exchequer and Liberal Democrat colleagues in the coalition are tidying up the mess that we inherited from the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) and Tony Blair, his predecessor.

[Stewart Hosie]

The hon. Gentleman is giving an interesting analysis, which I do not share at all. He spoke about monetary loosening and monetary expansion. We have had a zero bound in interest rates and 99% of the £200 billion of quantitative easing has gone to buy Government debt—it has gone right through the tube, without hitting the sides of the real economy. Where does he think the monetary easing and expansion will come from to give the cash needed by businesses that want to invest? It is not coming from QE.

[Mark Simmonds]

The hon. Gentleman is right, in a way. I hope that interest rates will remain low for a considerable time to give businesses confidence to borrow money, when they need to, to invest; we could be having a whole argument about the banking sector and structure as well. When interest rates start to tick up again, I hope that the quantitative easing position will start to unwind and the Bank of England will start to sell some of the QE back into the market, which will then create confidence. Personally, I am very nervous about future quantitative easing; we have probably done just about enough. If interest rates stay low as a loose monetary policy, I am reasonably confident that we will have steady growth, for reasons that I have just explained.

From where will the potential dangers come? I do not think that we are assured a return to good times expeditiously. There are risks and problems, particularly in the global economic context—especially given the need to balance the UK economy away from consumer expenditure and the financial sector. I am afraid that recent news from around the world has not necessarily been encouraging. US economic growth is slowing, Chinese manufacturing is cooling and problems in Japan may spread to other Asian economies. Furthermore, there is the dangerous US-China currency stand-off, which could lead to protectionist policies. I very much hope that those will not be put in place.

If we are to have a strong export-led-growth UK model, we will require a strong eurozone. Although the eurozone grew strongly in the second quarter of this year, it remains highly dependent on German growth. We will have to monitor extremely carefully the impact that fiscal tightening has in the eurozone and its particular relevance to UK exports, although I very much hope that that will be assisted by a weakening and a sterling depreciation. Given what they inherited, the Government’s macro-economic policy is absolutely right.

I want to focus on a particular aspect of the Finance Bill. It relates to the aside, made by the Exchequer Secretary in his opening remarks, about real estate investment trusts, which are covered by clause 10 and schedule 4 of the Bill. I support the changes that are set out, but I have a couple of specific questions, which the Minister could answer in her winding-up speech or about which she could write to me, with a copy of the letter being put into the House of Commons Library.

At the moment, dividends through real estate investment trusts, which are tax-friendly vehicles for the ownership of property, particularly commercial property, have to be paid in cash. The Bill will allow them to be paid in stock as well. What will the tax status of those dividends paid in stock be? Will income tax or capital gains tax apply? Clearly, capital gains is paid only when a gain is realised or made. What would happen if the stock deteriorated rather than increased in value? In the Bill there seems to be some provision for a market value. I am not sure how that will work in practice and over what time scale that market value will be assessed.

Real estate investment trusts, which the previous Government brought in, are an excellent vehicle for the ownership of commercial real estate in particular. The HMRC REIT unit has a very good reputation and is extremely helpful to those involved in the industry. However, there are issues that should be in the Bill but are not. The Treasury needs to consider them to improve real estate investment trusts.

The trusts should be the worldwide answer to property investment, in which all our pension funds invest. They are very significant to the future well-being of most of the UK’s population. We need to make the reforms to strengthen further the position of the UK as a place for these important capital markets. The current tax structure of REITs should have put an end to the offshore floating of companies and funds, but that has not happened. It is very complex to bring back onshore a fund that is already listed elsewhere. The Treasury needs to consider ways of simplifying the procedure, therefore reducing the costs and making such a move more efficient and effective.

The Treasury also needs to look at the transition period, which is currently 12 months. It needs to be three years. Some 75% of the money raised inside a real estate investment trust has to be spent within 12 months, and that needs to be looked at and extended. At the moment, to avoid losing their status, investment trusts are having to invest in incorrect assets that are not necessarily going to produce the returns that the people involved believe they should be getting for themselves or their shareholders, whether individuals or pension funds. That issue needs to be looked at carefully.

I am also extremely nervous about the income cover rule. I will not bother boring the House with that at the moment, although officials will know what I am talking about. Currently, it is 10%, but I would argue that it needs to be the same as the takeover percentage, which is about 29.9%.

I want to make one final point about real estate investment trusts. Currently, they can be listed only on recognised exchanges. That does not include the alternative investment market, or the AIM. Many smaller REITs want to float on the AIM so that they can generate income and funds and grow their business. At the moment, they have to be listed both on the AIM and an exchange offshore. That adds costs and bureaucracy and it is utterly unnecessary. I should like the Treasury to make dual listing a thing of the past and make it much easier for entrepreneurial REITs and new REITs.

[Paul Uppal (Wolverhampton South West) (Con)]

I share my hon. Friend’s interest in real estate investment trusts. Commercial property is a success story. UK commercial property is one of the most coveted assets globally and brings in a great deal of revenue to the Exchequer. I echo my hon. Friend’s eloquently put sentiments. If we look at the restrictions on the creation of real estate investment trusts, there could be a win-win situation for the UK. We should particularly look at a policy of incorporating that for private property companies as well.

[Mark Simmonds]

I am grateful for the intervention of my hon. Friend, who is absolutely right. If he has an interest in these matters, he will also be aware that one of the outstanding main problems of UK commercial and investment banks is their level of debt against commercial property, which has fallen in value since the heights of the market back in 2006-07. The banks are finding it difficult to unravel some of those positions. The real estate investment trust structure may enable them to find a way through some of those problems.

[Stewart Hosie]

I very much welcome what the hon. Gentleman is saying about REITs. Some of his Front-Bench colleagues will remember that the same pleas were made to the then Labour Government when REITs were first introduced. All power to the hon. Gentleman’s elbow in persuading his Front Benchers to do what he suggests. Would there not be an advantage in getting small private companies, or even groups of housing associations, to benefit from REITs in respect of social for-profit housing as well?

[Mark Simmonds]

I agree with the hon. Gentleman. That is not a new idea. Many years ago I was chairman of the housing committee on Wandsworth borough council. He may be surprised to hear that at that time—back in 1993-94—I proposed to the then Treasury Minister exactly what he has just suggested about housing associations. It was about creating the ability for them to raise capital, reinvest in the stock and so on. He is absolutely on the right lines. I hope that one day he and I can work together on trying to develop our thoughts on this matter.

The Government’s macro-economic policy is absolutely right. We must control public expenditure, and that control must be permanent, not temporary in order just to get us through this crisis. Then we must ensure that UK taxpayers’ money is being spent to the maximum benefit of those who are using public services. I support the Bill.

18:10

[John Mann (Bassetlaw) (Lab)]

I know that the Leader of the Opposition is otherwise detained with an important speech at the moment, but I am sure that the newly appointed shadow Minister, my hon. Friend the Member for Nottingham East (Chris Leslie)—I congratulate him on his appointment—will want to convey the sentiment and details of the advice that I will outline in the next few minutes, not only to the rest of the shadow Treasury team but to the new leader.

I want to start by congratulating the hon. Member for Boston and Skegness (Mark Simmonds). It must be irritating—it seems so even from the Opposition Benches—for him to be sitting on the Back Benches with a Liberal having nicked his job, but such are the dilemmas of coalition. He is a great expert on real estate. I congratulate him on his speech, although it showed that he was not too well schooled in economics even though he went to school in my constituency. I may need to have a word with his former head teacher about the economics curriculum at that school, because the hon. Gentleman’s analysis of borrowing, like the document that he has read, shows a fatal flaw in economic logic and understanding.

The primary reason for the deficit—and more so in the current year than our competitors—is our over-reliance on the economic activity of, and consequently our tax take from, the financial institutions of the City of London. Over-reliance on the City, leading to the drying up of that tax take as its economic activity dived, was the classic error made by the previous Government and the two Governments before them—by Prime Ministers ever since the big bang. All failed to see that an economy that is unduly weighted towards its financial institutions and the City will succumb at any time in a financial downturn. That is precisely what has happened in the United Kingdom. However, underlying that, our actual debt, built recurrently, is not only no worse but better than that of most of our competitors, not least because of the former Chancellor’s pay-back and buy-back of debt between 1998 and 2000.

Of course, a Government must get on top of the current year’s situation, because if that features a recurrent build-up of debt, the situation over a period of years will deteriorate. In the league table of debt, we do not sit at the top, as the Chancellor and others on the Government Front Bench try to suggest. We sit in the middle—below France, alongside Germany and below Italy, and well below Japan and the United States of America. That is critically important, because they are servicing those debts recurrently as well as having a build-up.

The question that those on both Front Benches shy away from is what I call the China syndrome. That is the big issue of the imbalances in the world economy that no one is daring to address, and it has been accentuated by the financial crisis. It is rather ironic that capitalist economies are managing to ignore a state-controlled, Communist party run, non-democratic, non-central bank democratic, non-financial institution democratic state that owns more of the world’s dollar debt than anybody else, on the basis of which we are all buying huge amounts of goods with an artificially rigged currency against the rest of the world. That is at the heart of the ongoing problems and the potential for double-dip recession, which, if Government policy in this country is poor, will affect us more adversely than our competitors, but will happen on a worldwide basis. The China syndrome lies behind that; when the Nobel peace prize, or another Nobel prize, is awarded to a Chinese dissident, the Government do not even have the courage to stand alongside others such as President Obama in congratulating those dissidents. How the world of politics has gone in a circle when the Tory party is kowtowing to the Chinese Communist party, hoping that that will somehow assist our economic growth.

Protectionism has been mentioned. Anyone who analyses the economics of the 1930s will understand one particular factor that makes the current situation different: all the growth in the ’30s was protectionist growth. The United States has understood that in the longer term. Its growth was built on military expansion, rearmament and road building and, as much as possible, on the non-importation of labour and materials. It therefore allowed regeneration and created jobs.

[Mr John Redwood (Wokingham) (Con)]

Could the hon. Gentleman explain how the British Government could make the Chinese revalue their currency?

[John Mann]

Of course the British Government, cowardly as they are in their relations with China, cannot do so alone—it has to be done on an international level among all the capitalist economies of the world.

If that issue is not dealt with, the danger of a second recession will loom—for whoever is in power in whatever country, to be fair. We are shying away from that. It is not tenable to develop economies where everyone proceeds on the basis that we will continue to export to China as many aggregates and other raw materials as we can, to import the cheapest possible—virtually slave-labour—products, and hope that we will regenerate our economy based on the sale of those products. My own local economy benefits more than most from that in distribution networks, but I can see that it is not a sustainable model in the longer term. The China syndrome has to be dealt with in the near future, because if China fails to rebalance its currency there will be a second, much greater world recession.

Instead of that, we have this piffling little Bill with virtually nothing in it, not even the break-up of the big banks promised by the Liberals—the only Liberal economic policy that seemed to get adopted by the Conservatives, and an absurd irrelevance in the context of where we are. How the banks are run and regulated is absolutely vital to all of us, but who cares how they are structured? At the start of the crisis, Lehman Brothers, an investment bank, and Northern Rock, a building society, both collapsed. Such infantile politics is not surprising coming from the Liberal former so-called shadow shadow Chancellor, from Twickenham in south London, who is now in an important position in government, but it is quite extraordinary coming from the Conservative party. It is an incoherent economic policy based purely on political expediency. I note that it is not in the Bill, and it will never be put forward. It is just pure politicking to try to hide away from the fact that this is a Government whose economic policy is based on hope.

I want to make a few points about what the Opposition’s policy should be on the Bill and the economy. It is not consistent to argue that there should be no tax increases or spending cuts. That is economic illiteracy, which needs to be broken. In the current economic crisis, I have no problem with taxation going up as part of rebalancing the public finances. Therefore, if the Government propose increasing the higher rate of taxation, I am relaxed about that being necessary. Similarly, I am relaxed about VAT going up. The alternative would be to raise income tax. If the Opposition support that, they should state that view. I would disagree with it; for all its flaws and regressive nature, it is more sensible to increase VAT. I believe that £8 billion is the agreed figure that derives from the VAT increase. I will not argue against such an increase, which would thereby suggest a further £8 billion-worth of public sector cuts and job losses in my constituency, leading to a further recession based on the multiplier effect of those job losses. That would be a wishy-washy cop-out.

The Opposition need to strengthen their economic policies. They need more courage in working through what is happening—it is lazy to do otherwise. It is nonsense to suggest that there are other ways of increasing the tax take, based on projected economic growth—the current position—instead of the VAT increase. Again, that is economic illiteracy. Of course we want economic growth—so do the Government and so does every party in the House—but that is not an economic policy; it is a hope. Labour Members know that the incoherent coalition has a weak policy—the Bill lacks proper ideas and procedures for dealing with what the private sector needs. We will not, therefore, experience such growth and we, as an Opposition, cannot predicate economic policy on growth that the Government will not achieve. That is nonsense. Some serious thought and discussion should take place about the taxes that should increase and the cuts that should be made.

I ran a private sector business—that makes me rather unusual in Parliament. I set one up from my garage, so I know about the decisions that people who have no inherited wealth or banks lending to them make about how to invest. I had a capital-intensive business with my family. I know how interest rates work, and what that means for making decisions. I know about capital investment policies and how to squeeze a bit of extra capital out of them, and about decisions on the best timing. We were successful, and, like hundreds of thousands of other small businesses across the country, we made a profit—there is nothing wrong with that. We contributed an appropriate bit of tax—every business thinks that it is too much—to the Exchequer. However, we were not operating in a vacuum. Who will buy the products and services if people have been thrown out of work? Again, that underlines the coalition Government’s economic illiteracy. They have a vain hope that the private sector will turn up, but it will not, based on rational decision making. That is why the Deloitte survey, which was published today, should be so concerning to the Government and to us all.

We all like to criticise the Government—I love to criticise a Tory Government—but I do not want my constituents to suffer from recession and job losses because you lot have got it wrong. My people will be hurt first and my economy will be hit hardest. That has happened before and it will happen this time, so I want to help the Government by making some suggestions. I hope that they are making notes. The private sector cannot fill the void because of the pace of the cuts. That is the big error that needs to be put right. The speed at which the cuts are made and how they are made are crucial matters.

There is another fundamental error, on which I want to elaborate because it is a critical point. I know, Mr Deputy Speaker, that it is important to the people of Chorley. The Government’s cuts will have a disproportionate impact on the traditional English towns. The Government have the same civil servants, with the same civil service mentality, who failed to crack the problem previously. They are therefore making the cuts in the same way as other Governments made them. The civil servants think, “Ah—centralise.” The Secretary of State for Justice decides to cut magistrates courts. Which ones does he cut? He cuts those in the small English towns more than anywhere else. In Worksop, that means 16 jobs, and a couple more than that in Retford. Those are small numbers, but the jobs are relatively well paid. Those people buy sandwiches, go to jewellers and other small traders in the town centres.

I am newly elected to represent the town of Retford, due to boundary changes. It was previously Tory for a few years, but it is Labour now. The magistrates court in Retford is going. The police face a 13% cut. Which police stations might go? One of the early candidates for closure is Retford. The fire service in Nottinghamshire faces a 30% cut. Which fire stations will go? Retford is rather old and needs capital investment. Merging it with somewhere else is already being considered. What about social services? Nottinghamshire county council—one of the worst run local authorities in the country—is shifting social services, and Bassetlaw district council is also shifting its workers. Her Majesty’s Revenue and Customs is cutting the tax office. All those cuts could be rationalised individually, but add them all up. Who else works in town centres? The butcher, the baker—the candlestick maker has gone—the sandwich maker and the small pub are there, and the public sector workers provide the key income in the small towns.

[Mrs Main]

I am really enjoying the hon. Gentleman’s speech as he canters through all the things that he does not like. He promised that he would give us some encouragement about what should happen. When will he do that instead of listing all the things he thinks are dreadful and should not happen?

[John Mann]

It is very simple. You do not make the cuts so fast. You do not decimate small English towns such as Retford and Chorley—I am sure that the hon. Lady represents a small English town as well.

[Mrs Main]

It is a city.

[John Mann]

Well, the majority of the Tory heartlands—they may be former Tory heartlands in future—will get the cuts. It is fundamentally wrong that small English towns should bear the brunt of the cuts. If 50 jobs are lost in a big city, it is bad for those people, but it does not affect all the businesses. If 50 jobs in Retford, Skegness or Boston, or 100 jobs in Worksop are lost, there is a major crisis in those town centres. What do you think the very people whom you are rightly trying to get off incapacity benefit, perhaps to start small businesses in Worksop or Retford, will start doing—major, advanced science and technology? No, they will think, “I could run a sandwich shop.” Good luck to them—it is entrepreneurship, and it would be brilliant, but not if there is no one to buy the sandwiches. Who owns the small businesses and the market stalls? Those people will lose their jobs because they are on the cusp and the banks are not lending them money; they are lending even less than they were previously. Those people and the taxi drivers and the small builders come to my surgery—they suffer the knock-on effects. That is why you have got it wrong and why you should think again and slow down the cuts—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. I am not responsible for Bassetlaw. Every time the hon. Gentleman says “you”, he means me. He should know better—he has been a Member of Parliament for a long time.

[John Mann]

I am very grateful that you are not responsible for Bassetlaw, Mr Deputy Speaker. The truth is that this evil Government will have an impact on the constituency of Chorley in the same way as they will on Bassetlaw.

My final point is that the successes of the previous Government have led to new jobs in Worksop. Laing O’Rourke provided 350 jobs earlier this year, and I opened a new site for MBA Polymers last week, which will provide 120 jobs. Both companies came to my area because of the regional development agency grant. In the case of MBA, the grant was the reason to come to this country, never mind to my area. The considerable RDA grant was critical to their decisions. In the case of Laing O’Rourke, the land reclamation works were also important, and other sites are going to market. That is the role of the state, and the weakness of this Government’s economic policy is that the new systems replacing the RDAs—I understand the logic behind that and I agree that the bureaucracy could have been cut back—will not replace that role. Therefore, we will not see the competitive advantage that areas such as mine have had from coherent incentives to private business and bigger employers. We need small employers, yes, but we need large ones too. That is where this Government have got things fundamentally wrong.

My plea to my colleagues on the Front Bench is to tighten up on our economic policy. Let us make the real choices, because we are too woolly at the moment. I hope that the Government are listening to me and taking notes, because small-town England will not forgive a Government who decimate it. Just this week, the council in Nottinghamshire has announced that the lights will be turned out overnight, and that will be the legacy of this Government. It is not too late to change, and as a start I suggest that they withdraw this piffling little Bill and put a proper one in its place.

18:32

[Stephen Williams (Bristol West) (LD)]

That was a fascinating exposition of small town, small business socialism, a political philosophy that I have never come across before. I am not sure how much of it will have been welcome to Labour Front Benchers.

I intend to follow the example of the Exchequer Secretary who opened the debate—rather than that of the shadow Chief Secretary—and speak briefly on this brief technical Bill. It is much briefer than many of the other Finance Bills I have seen in my five years as an MP. When I was new to this place, the Liberal Democrat Whips Office inflicted cruel and unusual punishment on me by putting me on the Finance Bill Standing Committee as training in how to operate as an MP. It seems that it is my luck to serve in that way again five years later. To new MPs who may be similarly blessed by the Government Whips Office this time, I can say that it is exceptionally good training. If they can survive the Finance Bill, they will be well prepared for any other legislation in Committee.

This is a small and technical Bill, much of which is familiar ground to me from my professional career before I became an MP. I dealt with capital allowances, venture capital trusts, enterprise management incentive schemes and group relief. I am not so familiar with the taxation of the earnings of seafarers or the workings of petroleum revenue tax, and perhaps the Economic Secretary will give us all a tutorial on those in the exciting Committee stage of the Bill to which some of us may look forward.

As the chairman of the all-party parliamentary group on smoking and public health, I welcome clause 23, which refers to long cigarettes. The hon. Member for Luton North (Kelvin Hopkins), who is no longer in his place, mentioned that it would be wise for the Government to invest in more measures to combat the smuggling of cigarettes and the avoidance of duty by some by cutting long cigarettes into two.

The Bill has to be seen against the background of the deepest deficits among developed countries. Contrary to what the hon. Member for Bassetlaw (John Mann) said—I tried to intervene on him at the time—it is a fact that the deficit that this coalition Government have to tackle is the largest among the larger economies in the world. It is larger than that of the US and Japan, as well as those of the so-called PIGS countries, including Spain and Greece—[Interruption.] Yes, it is larger as a proportion of our economy. Our budget deficit is more than 10% of our GDP and is higher than those of all the countries that I have cited. That is the serious issue with which the coalition Government have to get to grips. We have made some tough choices on taxation, which were the subject of detailed debates after the Budget, and we have some tough decisions to make on expenditure next week. The Government are making those tough decisions, and we are not avoiding the adverse consequences and political hostility that may come our way. We are being responsible, and not avoiding the issue as Labour Front Benchers are doing. They are denying their responsibility for the mess we are in and even scrabbling about to bring in what must have seemed very clever quotes from Wikipedia on the Boer war and Lord Kitchener earlier this afternoon. We are taking the deficit seriously and we are putting in place the measures that are needed to tackle it.

[Bill Esterson (Sefton Central) (Lab)]

Is it responsible to follow the policies adopted in the Republic of Ireland, which have seen the deficit grow, not fall? Those policies are similar to those advocated by this Government.

[Stephen Williams]

All countries, whether in the EU or elsewhere, are having to put forward measures that are appropriate to their domestic circumstances. The circumstances of a small country of about 3 million people such as Ireland are completely different, and we will have to evolve our own response. My point is that we are in a desperate situation, as bequeathed to us by the previous Labour Government. We are taking that challenge seriously and not shirking the difficult decisions that will have to be made to put our economy and public finances back on track so that we can make the sensible investments in public services that we all wish to achieve.

18:38

[Nic Dakin (Scunthorpe) (Lab)]

This is primarily a technical Bill and I support much of the detail in it. For example, the measures to close tax loopholes are welcome. I am sure that we are all united on the need to close such loopholes and recognise that successive Governments will need to be ever vigilant in that respect. But as the spending review approaches we need to be very careful to ensure that Revenue and Customs has the appropriate capacity and resources to tackle tax evasion and avoidance effectively. Assurances from the Economic Secretary on that point would be very welcome, as my hon. Friend the Member for Wallasey (Ms Eagle) said earlier.

There is much in the Bill to applaud. Unfortunately, there is also much to regret. It represents a missed opportunity to put in place a plan for growth. This is not surprising, as the Government see deficit reduction as the beginning, middle and end of their economic strategy—a symphony of despair, orchestrated by a coalition agreement and targeted at the lowest common denominator.

It is worth reminding ourselves of what the great British public voted for in May. They had two alternative economic strategies presented to them during the election. That promulgated by the Conservatives said that there was a need to cut hard and cut fast. The alternative argument was put forward by Labour and the Liberal Democrats—that the deficit reduction should be more carefully managed, as my hon. Friend the Member for Bassetlaw (John Mann) has suggested. A more gradual reduction would allow growth and tax increases to play their part. In that strategy, the reduction in spending would be managed in a way that allowed growth to pick up the economic slack. Doing so would avoid the spectre of a double-dip recession, with all the personal distress and misery that it would bring to people up and down the land. The British people delivered an inconclusive result at the last election, but one thing was clear: they did not support the Tory argument for fast and furious cuts. They backed Labour and the Lib Dems’ more considered approach.

[Alec Shelbrooke]

I am listening carefully to the hon. Gentleman, but I find it hard to understand how he can say that the Conservative party’s policies were rejected at the general election, when the party had its biggest result since 1931.

[Nic Dakin]

I think that there was a large feeling at the Conservative party conference last week that the Conservatives should have done better in the general election, given that they faced a Labour Government who were clearly struggling in the face of many challenges. I am interested in the hon. Gentleman’s spin on the outcome of the last election, but the reality is that nobody won it. What has happened since is that the Government parties have shown skill in developing a narrative that runs along the lines of what the hon. Member for Boston and Skegness (Mark Simmonds) outlined—it was also added to by the hon. Member for Bristol West (Stephen Williams)—which is essentially that everything comes down to Labour spending profligately and a massive deficit that needs to be tackled fast and furiously. That is the narrative, but it is not the truth. The truth is far closer to what we heard from my hon. Friend the Member for Bassetlaw, who demonstrated that what has really happened is that our deficit lies alongside that of Germany. The problem is serious, but it does not require us to go as far as is being suggested.

[Alison McGovern]

Does my hon. Friend agree that it is not merely we on the Labour Benches who disagree with the fake narrative that the Conservatives and Liberal Democrats are putting forward, but the recent report by the International Monetary Fund and the International Labour Organisation? Those bodies have tried to persuade countries such as ours not to disinvest from the economy, because they are worried about jobs and employment.

[Nic Dakin]

I thank my hon. Friend for that intervention. She is completely right to suggest that world public opinion is moving in the direction of expressing concern about global cuts in spending and their impact on the world economy. She is completely right to draw attention to that.

[Alec Shelbrooke]

rose—

[Nic Dakin]

I have already given way.

In the summer, the Chancellor was keen to hold up Ireland as an example of a country with an approach to the economic challenges that we face that should be applauded. There is less talk of Ireland now, as that economy spins into double-dip recession and loses its triple A rating, as we heard earlier. The Irish Government’s debt has increased rather than decreased, as a result of over-aggressive cuts in public expenditure, and the economy is now in serious peril. The last time we had a peacetime coalition, the then Governor of the Bank of England’s advice—to take an aggressive approach to reducing spending—was followed, precipitating the great depression of the 1930s. I am afraid that Governors of the Bank of England, like politicians, are only mortal and do not always get it right.

There is something very pessimistic about the Government’s approach. Where once they were optimistic, now they see only negatives, hence the biggest rise in VAT—the most unfair and regressive of all taxes—in a generation, despite cast-iron promises from the leaders of both parties in the coalition during the election that this would not happen. Representing Scunthorpe, I know a bit about cast iron: it should last a bit longer than a few months. There has been further pessimism, with the attacks on universal benefits signalled by last week’s breaking of another promise—the promise not to cut child benefit.

[Stephen Williams]

If the hon. Gentleman is seriously suggesting that taking away child benefit from families in the higher-rate income tax bracket is a cut that should not be proceeded with, will he say what cuts he thinks should be proceeded with?

[Nic Dakin]

The ending of universal child benefit is a cut against children and families, and I do not think it is the right thing to do. It would seem that children and families are to pay the price of the global economic crisis caused by the failure of financial businesses and markets around the world. That hardly seems fair to me. To answer the hon. Gentleman’s question, I would rather leave child benefit in place and not give £6.4 billion back to businesses, through changes in their taxes, much of which will go back to the banks that got us into this mess in the first place.

This Bill represents a real opportunity to put in place the infrastructure spending that is a crucial prerequisite for economic growth. Sadly, it appears to be a missed opportunity. We have seen excellent planned investment, such as Building Schools for the Future, the playbuilder programme and so on, scrapped. Ministers then appear surprised when construction companies have to lay people off.

[Stewart Hosie]

I am listening intently to the hon. Gentleman’s speech, but just in case my memory is skewed, can he confirm that Labour’s plans were to halve capital expenditure as well, and that many of the cuts in capital investment that he is bemoaning are precisely the same as those that would have happened under his Government?

[Nic Dakin]

My hon. Friend the Member for Nottingham East (Chris Leslie) will no doubt pick up that point later from the Front Bench, as he is more knowledgeable about the overall position than I am.

There is a relationship between the private sector and the public sector. Properly managed, they support each other. As my hon. Friend the Member for Bassetlaw pointed out so skilfully, if we take all the spending out of the economy, there will be nothing to buy, and therefore the businesses that sell things will go into a spiral of decline. That is the difficulty that we are on the cusp of at the moment.

[Neil Carmichael (Stroud) (Con)]

rose—

[Nic Dakin]

I have given away enough.

If the Attlee Government had taken the view that the only solution for dealing with the debt was to cut public spending further, there would have been no NHS, no major house building and no platform for a modern Britain. That Government faced far greater debt problems than we do, and they did the right thing: they built an optimistic future. It is our responsibility now, faced with the challenges before us, not to make things worse, but to make things better. That is why I oppose the measures to cut investment allowances and cancel support for the industries of the future, such as advanced manufacturing, including wind turbine manufacturing, why I oppose the reneging on the loan to Sheffield Forgemasters—a loan that would help to position the UK to play a key role in the civil nuclear energy of the future—and why I oppose the planned increase in VAT, which will serve to dampen demand when the private sector needs a demand stimulus.

18:48

[Mr Brian Binley (Northampton South) (Con)]

I cannot let this opportunity pass without saying how good it is to follow the hon. Member for Bassetlaw (John Mann). He always speaks honestly, from his own, rather unique perspective, and he enlivened the first match of the season—to my mind anyway. However, he is the only man I know who can play for both sides in the same match, and I enjoyed his contribution.

The Minister talked about the need to support businesses large and small. You will know that I share that view, Mr Deputy Speaker, because therein lies the nub of whether the Budget strategy will succeed or fail. A flourishing business sector is vital to a sustained economic recovery, and small and medium-sized enterprises are a major element in the growth agenda. They are responsible for slightly more than 50% of the private sector work force, and they are the sector that will provide the jobs and wealth to make the Budget strategy work, given the opportunity. Sadly, however, the economic downturn hit the sector especially hard. SMEs were in the process of growing 2 million jobs over a 10-year period, when at the same time UK plc was shedding 1.5 million. If ever there was a trend to prove that SMEs are capable of creating growth, those figures ought to bring us comfort. The downturn exposed their vulnerability, however.

Everyone knows that we need to mend the roof while the sun is shining, and to stock up the larder during the good times—everyone, that is, except the members of the previous Labour Government. They told the regulators to apply a soft touch, and they failed to keep an eye on the big picture. As a result, banks were over-leveraged, bad debts mounted, asset lending ratios got out of kilter and banking institutions became unstable, resulting in a global recession. Many small business men saw it coming, and many of them took action. My company was one of those that acted at the appropriate time. Sadly, however, our recently deposed Prime Minister failed to do so. How could he, when he so arrogantly believed that he had done away with bust? No statement made in recent years will come back to haunt a man as much as that one will continue to do.

Sadly, the regulators are now overcompensating for their negligence by making heavy demands, especially on the very sector in which growth is most likely to occur—the SME sector—and things will get worse unless we do something about it. The Basel Committee on Banking Supervision has recommended that banks increase their capital reserves even further. Banks are being asked to increase their common equity as a percentage of core capital. However, just as the pendulum swung too far in the good times, so it is swinging too far in the opposite direction now, and that is having an adverse effect on lending to small businesses. Banks have already taken major steps to increase capital reserves, and there is every chance that the Basel proposals will be approved in December. That would take more money out of the economy and lock it up in bank vaults just at the time when business needs more working capital to finance growth.

[Alison McGovern]

What would the hon. Gentleman say to the representatives of small businesses in Wirral, to whom I speak regularly, who are concerned that they will no longer be able to benefit from investment allowances or benefit to the same extent as big businesses from the Government’s recent cuts in corporation tax?

[Mr Binley]

As the founder of two small businesses, I can tell the hon. Lady that investment benefits are not the major concern. The major concern is the ability to get money from the banks to act as working capital. I can see that the incentives those benefits provide are helpful, but they are not the core problem that small businesses are facing at the moment. The truth is that the Government will have to review a number of areas of policy in order to deal with the core problem.

I was saying that the banks were building up their capital assets to a dangerous degree. J. P. Morgan has recently announced new rules that will increase its risk-weighted asset base by 25%. Research also suggests that Barclays will achieve an even greater increase, of some 44%. Of course banks must be soundly based and properly regulated, but we have to get the balance right. All the evidence suggests that the capital reserve build-up has a sizeable detrimental effect on the ability of SMEs to capitalise on growth opportunities. As I said earlier, that will threaten the Budget strategy, unless the Government deal with the problem, and I hope that the Economic Secretary will come back to me on this matter.

Research by the Federation of Small Businesses suggests that 24% of SMEs are already having difficulty coming to terms with current increases in the cost of money, and the new capital requirements will compound that situation. This could not come at a worse time. More businesses are in danger of going to the wall through overtrading during the upturn than folded during the downturn.

[Bill Esterson]

I welcome the hon. Gentleman’s comments about the difficulty that small businesses are having in getting access to money from the banks. Does he agree that there will be a danger to small businesses if too many people in the public sector lose their jobs, because they are important customers of those businesses? The effect of that could represent just as great a danger as the problem he has outlined.

[Mr Binley]

I do not agree with the hon. Gentleman. The truth is that the previous Government were so profligate as to create problems for our children and grandchildren, and I find that immoral. I do not want that to happen to my children and grandchildren, and the only way to deal with financial difficulties in a business, a family or any other organisation is to cut spending and earn more money. There is no other answer, and the sooner the Opposition recognise that, the sooner the people of this country will listen to them a little more.

[John Hemming (Birmingham, Yardley) (LD)]

The Opposition wonder why this Government are in hock to the markets. Does my hon. Friend agree that it is because we have borrowed too much, as Tony Blair admits in his memoirs?

[Mr Binley]

I am grateful for that intervention. The truth of the matter is that we have a budget deficit of £70 million, but there is more lying behind it that we are not dealing with until we get the deficit down. There is the £1,450 billion of national debt, and if we add to that the money owed on private finance initiative schemes, the money owed to public sector pensions and the money that we have used to underwrite the banks, we get a figure of £3,000 billion. I asked the Treasury what a billion looked like, and I was told what a billion seconds was. This story has been heard in the House before, but I was shocked to learn that 1 billion seconds equates to just over 32 years. That puts into perspective the size of the problem that this nation faces. Again I plead with Opposition Members to come to terms with the problem, because I genuinely do not believe that we can solve it unless they recognise where it started.

[John Mann]

I cannot resist asking the hon. Gentleman whether he is aware of any country in the world, other than Uzbekistan, that has no national debt.

[Mr Binley]

This is not about whether or not we have a national debt; it is about the size of the national debt and its relation to our credit rating—

[John Mann]

rose—

[Mr Binley]

If the hon. Gentleman will allow me to finish, I will allow him to intervene again. Steady down.

This is about the size of the national debt and the deficit and their relationship to our triple A rating. If we had not taken the action that we did, it is likely that we would have lost that rating, which would have made all our interest costs considerably higher and the deficit massively bigger, causing the country even greater problems.

[John Mann]

Can the hon. Gentleman tell us where Britain stands on the league table of national debt, compared with other countries? Is it not true that we are towards the lower middle of the league table?

[Mr Binley]

I do not accept that point of view. This is not just about the size of the national debt; we need to consider its size in relation to the economy. Therein lies one of our problems. The fact is that ours is one of the worst situations in the G20. I should like to advise the hon. Gentleman that, as long as he and his party remain in denial, they will be unable to move forward, and that, for the good of politics, they need to move forward just a little.

[Alec Shelbrooke]

I should like to expand on my hon. Friend’s point about the national debt. Is it not true that the size of personal debt in this country, which was encouraged with a quiet wink by the previous Government, has also held back our ability to recover from the recession?

[Mr Binley]

My hon. Friend’s intervention takes us back to a Chancellor of the Exchequer—later Prime Minister—who suggested to the Financial Services Authority that it should apply a light touch. A light touch meant 125% mortgages, self-assessment of mortgage requests, and people with five, six and seven credit cards with their credit up to the hilt. My hon. Friend is absolutely right.

Let me return to the subject of the banks. I made the point that banks had to be soundly based, but that it was a question of the balance. As I said, research by the Federation of Small Businesses suggests that 24% of small and medium-sized enterprises are already experiencing difficulties in coming to terms with current increases in the cost of money, and the new capital requirements will compound the problem.

This could not have come at a worse time. More businesses are in danger of going to the wall through overtrading. I want to explain that a little more, because it is not readily understood in the House. Business growth costs businesses money: it is as simple as that. The more orders a business gets, the more employees it needs and the more raw materials it requires. Those are all up-front costs that simply cannot be recovered in the short term. Cash flow drag must be financed if growth is to be sustained, and growth will not be sustained if working capital is not forthcoming. That may be a simplistic view, but it is a very honest view of the reasons for which people are more likely to go to the wall during an upturn than during a downturn. They overtrade, and find that they do not have the capital to sustain that overtrading.

Owners of SMEs have spoken in their thousands of the collapse of their relationships with the banks. The number of complaints to the banking ombudsman about draconian demands placed on loans and overdrafts has increased by 119% in this year alone. So what should the Government do? First, they should recognise that the new capital requirements called for by global regulators should be balanced, and that their implementation should be sensibly programmed to ensure that real money is freed to support real growth in the SME sector. If that means getting tough with the banks and the regulators, so be it. Governments still have to get tough on occasions, and this is the area in which they need to start.

However, the Government need to go further. They need to provide greater choice and competition in the high street, particularly in the banking sector. They might even consider the creation of post banks, as suggested by the Federation of Small Businesses. That is not a quick answer, but it will help to sustain growth through the third, fourth and fifth years if the Government get down to it now. Both moves should increase available credit, and reverse the decline in local lending resources.

The Government could also encourage the mutual sector to play a greater role. I find it regrettable that Nationwide, the country’s largest building society, has chosen to restrict its banking services to just 30,000 small businesses, a minute fraction of the total. It has also decided to close its business investor account to new customers and to limit the number of account transactions to just two a month, levying 30 days’ notice of account closure for any customer who breaks that limit. Members may agree that that is a particularly unfortunate trend at a time when greater competition, wider options and a more flexible approach are needed. I hope that the Chancellor will talk to the mutuals collectively, because they have a role to play and can be more effective than they are being at present.

Recent reports suggest that Barclays, HSBC, Lloyds, HBOS and NatWest collectively handle 85% of the SME banking market. The Bank of England financial stability report suggests that banks are capable of consolidating their capital while at the same time improving their lending to the real economy, which suggests that there is an attitude among banks that needs to change. We have said that in the House week in week out, month in month out: when are the banks going to listen?

I appeal to the Chancellor to talk straight, talk tough and talk honest to the banks, many of which we now own. They have a responsibility, not only because we helped to bail them out, but because they were a major factor in getting us into trouble. The message should be sent loud and clear from the Chamber that they should face up to their responsibilities, and recognise that it really is time that they came to the aid of their nation.

[Dr William McCrea (South Antrim) (DUP)]

Many present and past Ministers acknowledged that there was a great need for banks to listen to the small and medium-sized businesses in our country, many of which are struggling. Previous Ministers said that they would be strong with the banks, and would make them listen. How will the Government make banks really pay attention to what is happening in industry today?

[Mr Binley]

How I wish I knew the answer—but I am sure that one of the answers is to get the banks’ heads together, and perhaps do a light amount of knocking.

I recognise that the banks run businesses, but let me draw attention to what the FSB has said, which I think is very relevant. It estimated that if banks limited bonuses and dividends to pre-crisis levels, they could produce approximately £10 billion of additional capital, which would finance £50 billion of new loans. Is that not a lesson for the banks? We are not saying, “Do not pay your people”, but we are saying, “In a time of difficulty, use restraint. Transfer that money to your lending coffers, and get it out to small businesses.”

Perhaps the Economic Secretary will be kind enough to pursue that challenge, remembering also that capital reserves in banks, if lent to Government, continue to be classified as such. I think that that is a pretty important point. If lent to Government, those reserves are not considered to be risk capital, and are consequently considered to be part of their capital assets.

I shall try to wind up my speech quickly, because I always try to do what the Whips tell me. However, I want to make a few more important points. I welcome the Government’s efforts to increase the availability of the guaranteed loan scheme, but I ask the Economic Secretary to consider ways of unlocking capital reserves to increase the flow of capital available for distribution in that way.

The situation for many small and medium-sized businesses is dire. The Government know that, because we are told about it every day. Figures produced by the Bank of England give the impression that bank lending rose by 0.9% in August, but if we dig a little deeper, we find that a large proportion of those loans were issued in foreign currency, and that actual lending in pounds sterling decreased by £400 million. The truth of the matter is that bank lending this August was less than it was 12 months ago.

I wanted to talk about a couple of clauses in the Bill, but because my Whip has kindly asked me to curtail my remarks, I will do as he asks. I am an ambitious chap, and I hope that he will consider that I am being kind to him.

I welcome Clause 13, which removes the requirement for SMEs to own intellectual property in order to qualify for research and development grants. Sadly, too few small businesses are made aware of how research and development relief can benefit them—I think that the hon. Member for Wirral South (Alison McGovern) made that point earlier—and I urge the Minister to make more effort to increase awareness in the sector. I also welcome the announcement by a consortium of city financiers of their plan to create a British enterprise bank, which I understand will lend exclusively to the SME sector. That is one example of bankers facing up to their responsibilities, and we should congratulate them.

[David Simpson (Upper Bann) (DUP)]

As the hon. Gentleman said, we understand that banks are running a business, but small businesses today are finding it very difficult to provide the security that banks currently seek. The hon. Gentleman used the word “draconian”. Surely something must be done in that regard.

[Mr Binley]

Of course it must. Clauses and conditions for small businesses are now one of the major off-putting factors. Such businesses must be allowed to borrow to create the growth that we need. There is massive pressure to change overdraft to loan. Most small businesses do not want a loan. That is too much of a burden around their necks. They want an overdraft facility, but the trouble is that banks are pricing overdraft facilities out of their reach and that should be taken up, too.

May I conclude therefore—although my Whip has left? Good things are happening, but much more needs to be done if the level of growth required to assure the success of the Budget strategy is to be achieved. We are debating a Bill that facilitates that strategy, but does not do much to ensure that SMEs get the working capital that they need to provide the growth on which the strategy depends. Action is urgently needed and the House will expect to hear from the Economic Secretary what the good lady and the Chancellor will do to ensure that small and medium-sized businesses are properly resourced to play their part in restoring the country's wealth and in growing the jobs to reduce the budget deficit. Once we have balanced the budget, we can get on to dealing with the national debt, bequeathed by a Labour party that seems to think that it is morally acceptable to expect our children and grandchildren to pay for its profligacy. I find that reprehensible. I therefore look forward to being reassured in that respect, and so, I suspect, does the nation.

19:11

[Stewart Hosie (Dundee East) (SNP)]

It is a pleasure to follow the hon. Member for Northampton South (Mr Binley), and particularly to comment on his pleas on behalf of small business. In Scotland, we have 302,000 businesses, and 285,000 employ fewer than 50 people. They do not issue commercial paper or corporate bonds. They do not do rights issues. They are not listed on markets or exchanges in the main. Ninety-nine per cent. of them are owned in Scotland. They are almost exclusively solely dependent on the retail high street banks for their credit lines and working capital, so the more the Minister and her team can do to ensure that affordable lending goes up, and that we do not get the conversion of mortgages to loans, which puts the houses of small business directors on the line should a business fold, the better. Those businesses are hurting. Given that they provide the vast majority of employment in Scotland, we need to ensure that that powerhouse, the SME sector, drives forward with all the capital that it needs. However, that is not what I wanted to speak about today. It was, however, a fantastic opportunity to get it in again.

It would be normal on Second Reading of a Finance Bill to refer to the Budget which it follows, although this is the second Finance Bill following the emergency Budget debate on 22 June. It was the debate that followed that and the debate on the Finance Bill on 6 July that gave us the opportunity properly to debate the Government's whole approach to dealing with the economy, although listening to many of the earlier speeches, I am not sure whether I have gone back three months and we are having the first Second Reading debate. Those were the opportunities, along with the debate on VAT on 13 July, to point out that this Government plan an additional £40 billion of fiscal tightening—over and above the £57 billion of cuts and tax rises planned by Labour—to remind the House that the ratio of cuts to tax increases has gone from 2:1 to 4:1 and to remind it also of the damage that would cause. The debate on the VAT rise, which, as Shelter explained to us helpfully in advance, will lead to the poorest families in the country paying £31 every week in VAT, was the opportunity to make the case against that rise.

This Finance (No. 2) Bill—the third in the calendar year—is different. It contains what the Minister described on 15 September as minor and technical measures, but that does not mean that we should not give it our full consideration, in particular those clauses and schedules which tax practitioners have raised real concerns about. I am grateful, as was the shadow Chief Secretary, to the Institute of Chartered Accountants for its response to the Government consultation. I will draw on that heavily and do something quite unusual in a Second Reading debate: refer in detail to clauses in the Bill. I hope we will get some technical answers when the Minister sums up.

The Institute of Chartered Accountants asks, in respect of part 3, clause 25 and schedule 9, paragraph 7, which inserts new paragraphs 2A and 2B into schedule 53 of the Finance Act 2009, whether, where a company has a profit in an earlier period and a loss or non-trading deficit on loan relationships in a later period that is carried back, interest on the earlier period profits will continue to accrue if in the absence of a claim late paid corporation tax would have been due, up to nine months after the end of the later period. I would welcome formal confirmation that that mirrors the existing rules. The institute adds that those rules perpetuate the existing differences between the interest rules where losses are carried back and offset against profits of an earlier period. Under existing rules, where losses are carried back against profits and where additional corporation tax would be due, interest will run from nine months after the end of the first accounting period. However, in cases where losses are carried back resulting in a repayment of corporation tax, repayment interest will only run from nine months after the end of the later period. I would have expected that, in a genuinely harmonised regime, late paid interest and interest on overpaid tax would ideally run from the same date. Therefore, will the Minister explain the Government's thinking on those proposals?

The institute also believes that paragraph 10, inserting new part Al into schedule 54 of the Finance Act 2009 on repayment interest, would deliver the opposite provisions to what is proposed in new paragraphs 2A and 2B in schedule 9. Again, please confirm that the new rules mirror the existing rules. The same question applies to franked investments in paragraph 11 of schedule 9. Do the new rules mirror the existing provisions?

Paragraph 12 inserts new schedule 54A into the 2009 Act and makes two further changes to the general rules that were introduced in 2009. This relates to new paragraphs 1 and 2. As I understand this, subject to certain conditions, HMRC can recover as late payment interest amounts of repayment interest that have been paid, but which ought not to have been paid. However, this provision does not apply in cases where the whole or part was a result of HMRC error. Therefore, can the Minister please confirm that it is intended that these new paragraphs will have the same effect as those currently set out in section 826(8A) to (8C) of the Income and Corporation Taxes Act 1988? I know that these are technical questions but they are important. If we get this wrong, there will be all sorts of chaos within business. Some of the other clauses that I will come to pose even more dangers. Can the Minister also confirm that the latter provisions will be repealed when these new rules come into force?

New paragraphs 3 and 4 of new schedule 54A suggest that where there is an underpayment of corporation tax for one accounting period and an overpayment of corporation tax for another accounting period, neither late payment interest nor repayment interest will arise during a common period. The Institute of Chartered Accountants understands that this provision is intended to give statutory effect to HMRC's existing practice, but I would welcome confirmation of that.

A number of other questions are raised about particular provisions in those schedules and I would welcome the Minister’s assurance that, if there have been errors in drafting, oversight or inconsistencies as a result of what is in this Bill, the Government will table the appropriate amendments in Committee.

I turn now to clause 7, entitled “Settlor to return excess repayment to trustees etc”. Is there not a problem with that because of the change to make trusts pay income tax at 50%? Should the aim of the tax regime for trusts not be to maintain equality between income and gains of trusts and non-trusts? Does not taxing trusts at a 50% rate when the majority of settlors pay tax at other rates cut across that objective?

I understand that the scope of the clause is limited to repayments in respect of trust income deemed to be that of the settlor rather than reductions in the settlor's liability. Therefore, for the avoidance of doubt, can the Minister confirm that the settlor need not repay anything to the trustees where the settlor has miscellaneous income losses of his own brought forward which he has to use against the trust income?

There is also a general concern about the costs and administration burden on trustees, settlors and the Revenue in relation to implementing some of the measures in the Bill owing to the large number of tax repayments that now have to be made for small, or indeed very small, amounts, and the need for all settlors to be added into self-assessment. I would welcome the Minister’s comments on that. People with no or modest savings or dividend income are in the self-assessment regime, which is complicated and worrying for some people. Even for modest savers, the regime can cost £100 or so for an accountant to prepare a tax return.

Clause 5, “Venture capital schemes”, and paragraphs 1(4) and 2(8) of schedule 2, introduce a “financial health requirement” that prevents tax relief for investment in a firm that is “in difficulty”. The explanatory notes make it clear that the issuing company is in difficulty if it is reasonable to assume that it would be regarded as a firm in difficulty for the purposes of the Community guidelines on state aid for rescuing and restructuring firms in difficulty. However, the guidelines would appear no longer to have any effect. Paragraph 109 of directive 2004/C244/02 states:

“The Commission will apply these Guidelines with effect from 10 October 2004 until 9 October 2009.”

That implies that the guidelines have now lapsed. Will the Minister clarify whether the guidelines are still effective? Even assuming that they are, it is unclear how they will affect companies raising money under enterprise investment scheme or venture capital trust legislation, because paragraph 9 of the directive guidelines states that

“for the purposes of these Guidelines, the Commission regards a firm as being in difficulty where it is unable, whether through its own resources or with the funds it is able to obtain from its owner/shareholders or creditors, to stem losses which, without outside intervention by the public authorities, will almost certainly condemn it to going out of business”.

The implication is that for as long as the company can raise funds from its existing shareholders or creditors, but presumably not from new, external investors—that is not explicit—it does not fall within the definition of a firm “in difficulty”. I would be grateful if the Minister could confirm whether that interpretation is correct.

Paragraphs 10 and 11 of the directive guidelines clarify particular circumstances in which a firm would be regarded as being in financial difficulty, but they appear to be subsidiary to the primary condition—if a company can raise funding from existing shareholders, those paragraphs simply do not come into play. I would like the Minister to confirm whether that interpretation is correct.

The matter gets more complicated, because paragraph 12 of the guidelines states:

“For the purposes of these Guidelines, a newly created firm is not eligible for rescue or restructuring aid even if its initial financial position is insecure. This is the case, for instance, where a new firm emerges from the liquidation of a previous firm or merely takes over such firm’s assets. A firm will in principle be considered as newly created for the first three years following the start of operations in the relevant field of activity. Only after that period will it become eligible for rescue or restructuring aid”.

I understand that in effect, a newly created company would not be regarded as a firm falling foul of the firm-in-difficulty provisions for three years after the commencement of operations. Even if it were, I would welcome clarity on how the measure would apply in a group context. Does the three-year rule apply to a new holding company, operating subsidiary or indeed to the entire group?

On the point in time when the financial health requirement is viewed, proposed new section 108B(1) to the Income Tax Act 2007 states:

“The issuing company must meet the financial health requirement at the beginning of period B”,

which means the period beginning with the date of the issue of the shares. However, it is unclear how the Revenue will approach that in practice. The logical interpretation is that the issue should be considered only when the application for formal EIS approval is made using form EIS 1. It would create considerable difficulties for companies and their advisers if the Revenue could use the benefit of hindsight and withdraw EIS relief retrospectively, after a formal approval is given and certificates issued. It would also ultimately undermine the company’s ability to attract that EIS investment, as there is likely to be considerable uncertainty on whether that relief would be available at all.

There is also a question over the meaning of “permanent establishment” in paragraphs 1(5) and 2(12) of schedule 2. Proposed new section 191A(7) to the 2007 Act states:

“A company is not regarded as having a permanent establishment in the United Kingdom by reason of the fact that it carries on business there through an agent of independent status (including a broker or general commission agent) acting in the ordinary course of the agent’s business.”

The implication is that if a company employee makes sales in the UK on behalf of the company, the company would have a permanent establishment in the UK. However, there appears to be no requirement for that employee to be resident in the UK, and that a visitor carrying on business on behalf of the company would qualify. Will the Minister confirm whether that interpretation is correct?

There are other issues in relation to that proposal. Proposed new section 191A(2)(b) to the 2007 Act states that

“an agent acting on behalf of the company has and habitually exercises there authority to enter into contracts on behalf of the company.”

It has been suggested that for clarity, the definition should follow that already established in the Finance Act 2003, which is that

“an agent acting on behalf of the company has and habitually exercises there authority to do business on behalf of the company.”

I realise that there could be difficulties in respect of groups with a holding company, because the Bill requires the issuing company—the holding company—rather than the subsidiary company that has the trading operation to which VCT or EIS funds will be supplied, to have a “permanent establishment”.

[Charlie Elphicke]

My understanding is that that provision is fairly well understood: “to do business” is a wider phrase than “to enter into contracts”. The “contracts” provision follows the OECD model of tax conventions on “permanent establishment” in a given jurisdiction, and it therefore tracks better the language of international tax law.

[Stewart Hosie]

I understand perfectly well that “to do business” is a better phrase than “to enter into contracts”, but I want the Minister to confirm the nature of the commissioned agent or an employee of the business. They might be based overseas while carrying out business here, and I should like absolute clarity and certainty on that rather than on the wider point on the difference between the phrases “to do business” and “to enter into contracts”. I am with the hon. Gentleman on that.

I am asking that question because as the Minister knows, in many groups, the holding company is a pure holding company, and undertakes no activity other than holding shares in its subsidiaries. My point is that such a company is unlikely to constitute a business as defined in the Bill. Consequently, to require a company to have a “permanent establishment” through which business is carried on or, if the proposed definition is maintained, a

“permanent establishment…to enter into contracts”,

could be seen as running counter to commercial reality. I would welcome further clarification on how such arrangements would be treated for those purposes.

I am dreadfully sorry, Mr Deputy Speaker, that I did not engage in a classic Second Reading debate or address more widely issues that are not in the Bill, but I thought it important for someone actually to ask some specific technical questions to probe the Government on it, rather than indulging in the kind of debate that I am sure we will have on clause stand part later in the Bill’s progress.

[Several hon. Members]

rose—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Before I call the next speaker, who will be Julian Smith, I remind hon. Members that his is a maiden speech, and there should be no interventions.

19:28

[Julian Smith (Skipton and Ripon) (Con)]

Thank you for giving me the opportunity to make my maiden speech, Mr Deputy Speaker. I think I am the penultimate Tory to do so.

David Curry was my immediate predecessor as MP for Skipton and Ripon. David gave more than 33 years of public service to this country—10 years as an MEP and 23 years as an MP. As I drove with farmers through the Yorkshire dales last month, I heard yet again the huge gratitude for how hard he worked during the dark days of foot and mouth as he acted as a conduit between the Ministry of Agriculture, Fisheries and Food and the grisly front line.

Were he still a Member of the House, David would be a big supporter of the coalition. He passionately believed in the European project and was one of only three Conservatives to vote in favour of the Lisbon treaty. David had a distinguished ministerial career as Minister with responsibility for housing, where he introduced assured shorthold tenancy agreements, and as Minister of State at MAFF, although his policy to control fish stocks by limiting the number of days that fishermen could spend at sea was not popular—his effigy was hung from fishing vessels demonstrating offshore during one Tory party conference on the south-east coast. David has not only been a highly supportive former Member, but has become a good friend, and I wish him a long and happy retirement with Anne, his seven grandchildren, his dogs and his wonderful garden.

Skipton and Ripon is one of the largest constituencies in England, spanning 900 square miles and containing some of the most stunning scenery in our country, and it takes more than two and a half hours to drive from one end to the other—think James Herriot and one will picture the scene. People travelling on the Settle to Carlisle railway or driving through the Yorkshire Dales national park will see that this is one of the best examples of England’s green and pleasant land. On the constituency’s east side is Pateley Bridge, a mecca for walkers, but one can then visit the city of Ripon, with its 1,400-year-old cathedral, and the vibrant market town of Masham. We should probably pause in Masham as it is home to the Black Sheep and Theakston breweries—I know you enjoy a pint, Mr Deputy Speaker, but not as much as one of the other Deputy Speakers.

My constituency is also remarkable for the character of those who live in it. They are independent, driven, hard-working and proud of their Yorkshire roots. The big society has been operating here for years. Doctor’s surgeries, councils and charities are all working extra hard to deal with the challenges of operating in the most rural county in England. Apart from the Skipton building society and Wolseley, agriculture and small businesses provide the vast majority of employment, and it is on behalf of those small businesses that I wish to speak briefly today. Skipton and Ripon is not like the south-east, Leeds or Manchester—many people have no choice but to make it on their own. Under the previous Government, the small business owner—the individual—as I was when, aged 27, I set up a business from the front room of my flat, has been given much more than his core business to worry about.

Let us hear from two budding, if older, entrepreneurs, who are into property—let us call them Basil and Sybil, as they want to set up a new hotel in the heart of the dales. They reach Companies House in London, where it is recommended that they set up the company online. They go online, but the forms cannot be downloaded as only dial-up speeds are available in Littondale. They want a waiter, a new Manuel, so they start some interviews, but because of the new equalities legislation they worry about asking candidates how they would cope with the very steep and rickety steps around the property. They read a business book to get up to speed on the new rules, but Basil’s eyes glaze over as he learns how to calculate employers’ national insurance, employees’ NI, pay-as-you-earn, student loan repayments, and maternity and pension payments. And when they need an injection of cash they call the bank, but are told that despite their excellent business plan, the bank is not lending to the hotel sector

We have to do better. We are desperate for private sector jobs. Contrary to what the shadow Minister said, the coalition has made a great start on addressing this issue by lowering corporation tax, scrapping the jobs tax and waiving national insurance for new small businesses setting up in Yorkshire. Initiatives such as the venture capital provisions in this Bill are also important steps, but there is more to do to create better conditions for small business—there is more to do beyond finance and, in particular, in the area of employment law.

There has been an explosion of employment law in the past 10 years, from the previous Government and from Brussels. As a small business owner trying to do the right thing, employment law took hundreds of hours of my time. People should try disciplining an employee with the three-step written process when they share the same tiny room with them—it feels ridiculous. Imagine, having started your business, you hire a graduate and four days in she asks for the free eye tests that she understands are her legal right because she uses a computer. Outrageous EU discrimination laws with limitless liability mean that even the most innocent mistake can leave a business owner broke. Additional paternity leave plans by Labour will be introduced next year and the coalition has plans for further reform, so business will get organised for one change and then have to change again in the near future. In addition, has anyone really worked out the impact on very small businesses of both men and women now being able to take up to six months off after having a baby?

Other legislation coming down the track in the next year includes the agency workers directive, the pregnancy workers directive, the removal of the default retirement age and a new right to request flexible working and training. Who is representing the challenges faced by the hard-pressed owner-manager as this legislation is developed? For BP or HSBC all this kind of legislation is manageable, because they can pay for human resources professionals and they can afford their lawyers. People who run small businesses, such as those in Skipton and Ripon or the one that I ran, are their own HR department and they have to manage these things themselves.

We have to do something now to stop new employment legislation for the next two years—these are two years when we need small businesses to feel as free as possible to take on staff. In the longer term, we need to consider more exemptions for small business, acknowledging that it cannot cope with the same burdens as bigger firms. I wanted to represent the challenges faced by small business owners in my maiden speech. Thank you for allowing me to do so, Mr Deputy Speaker, and may I finish by encouraging anyone beyond this House who has even the smallest desire to set up a business to go for it? It is a fantastic experience and, as this Bill shows, the Government, I and many of my colleagues on the Back Benches will do our very best to support these people and give them a strong voice.

19:36

[Alison McGovern (Wirral South) (Lab)]

First, may I congratulate the hon. Member for Skipton and Ripon (Julian Smith) on his fine maiden speech? As a railwayman’s daughter, my recollections of being forced as a small child to suffer the Settle to Carlisle railway as a holiday are still with me. His is an extremely beautiful part of the country and he made an excellent maiden speech.

I welcome many of the measures in this Bill. As has been said, many of them will receive cross-party support and were due from the previous Government’s Budget in March. A good, effective tax system, well resourced, is the mark of an excellent democracy, so it is important that Members of Parliament take care to ensure that our tax system functions well. I therefore want to say something about tax and its collection, and to highlight two vital points where this Government have missed an opportunity to implement change that could benefit our economy at this very difficult time.

Hon. Members may not be aware that many employees of Her Majesty’s Revenue and Customs work in Liverpool, the Wirral, Merseyside and the Liverpool travel-to-work area. Many such staff now work in my area as a result of the shifting of Government work to areas where wages are lower and it is more effective to locate staff. Their work is largely not commented on, especially in this place, even if it is good, high-quality work. We often talk about public servants, but few of us ever think to congratulate those working to ensure that our tax system functions well—that is part of what I want to do today.

I hope that the House will permit me to share the fact that one of my first experiences as a newly elected Member of Parliament was of some HMRC staff coming to see me at my newly opened constituency office. They were very fearful of changes that the new Government looked as though they might implement and they wanted to raise some of their concerns with me, particularly those relating to the resources that might be available in the future. As has been mentioned, over the past three years they have increased the yield from interventions by 60%. That is a good record and all of us want to see that continue. We legislate in this place—we debate and we pass Bills that become law—but that is all just words; we are dependent on the good work of HMRC to make real our choices and decisions. So we should not treat those staff with scant regard and we should take seriously the problems that they might have. In fact, my experience of meeting and speaking to HMRC staff has revealed that, like many in the public sector at this time, they are operating under a cloud of uncertainty.

I appeal to Ministers to act with transparency as much as they can, to keep in consultation with staff at all times and, in particular, to pay attention to whether HMRC has sufficient resources to act out the consequences of the choices that they make. The child benefit changes might place further work burdens on HMRC staff and we politicians owe it to those staff to ensure that they have enough resources to act on the consequences of our decisions.

I wanted to discuss a couple of opportunities that the Government have allowed to pass them by. One main feature of the Budget that concerned me greatly was the VAT rise to 20%, and I believe that Grant Thornton has estimated that that increase will cost individual households about £500 a year. There is sincere concern among many people about the harm that that could do to our economy. In my area, the recovery is fragile. I am very grateful for the intervention of Deloitte, which has put on record where business and consumer concerns lie. However, I know from speaking to people in my constituency that business confidence is still fragile and I worry what the increase in January will do. I worry what the increase in the cost of the contents of their shopping baskets in January will do to families, and I worry that because of the VAT rise many small businesses in my constituency will face a tougher time after Christmas than they have in the past 12 months.

Let us be clear that we have every indication that that measure is a permanent rise—it is a permanent shift in who pays what tax. We debated earlier the contrast with Labour’s temporary VAT reduction. I remember very well the restaurants in my area putting out temporary notices amending their menus—it was very clear to everybody that it was part of the stimulus and part of the Government’s work to get us through that time. That is not the case with the current VAT rise, which is a totally different thing. It is a regressive increase in tax.

I absolutely believe that, over time, we must seek to reduce the deficit, but I do not feel that raising VAT is the way to do it. One thing that has not been mentioned so far is the impact of a lower tax take on the deficit. We need to recognise that part of that lower tax take has come from unemployment caused by the global downturn. We need to make strategic investment in this country in the things in which we have a competitive advantage—in high-tech areas—so that we can increase employment and bring the budget back towards balance. That is the way to do it, rather than introducing a permanent shift in who pays tax in this country. It will hit families in my area harder than many; in fact, it will hit families harder in Wirral than it will hit those who live down the road in Cheshire, in the Chancellor’s constituency.

My second point builds on some of the debate that we have had this evening about businesses of all sizes. I am thinking specifically of small to medium-sized businesses in my constituency, representatives of which I have met recently. In fact, since I was elected in May I have been speaking with businesses in my area, which—hon. Members might not know this—are science-led. We have an excellent part of the knowledge economy in my constituency as well as many high-tech businesses that supply the electronics industry in Korea and other places. We have Unilever, which carries out high-end research; staff at Unilever’s research and development lab in my constituency have more than 200 PhDs among them. There are also many feeder businesses to those science and high-tech industries. Investment allowances are no small fry to us.

In two cases recently, I have been called in to meet a business that is about to move jobs out of my constituency. In both cases, after having analysed the situation, it has seemed that capital investment in new technology could have stopped that. The motivating factor for the removal of those jobs is the lack of capital investment and I want the Government to pay great attention to what more they can do to incentivise business to make capital investment in our country, because that will make our economy sustainable in the long run.

Let me contrast that with corporation tax, which helps big businesses that are already in profit to keep their profits. A corporation tax cut across the board does nothing to incentivise business to make capital investment. Only this morning I was speaking to people at a business in my constituency. I asked what one thing I could tell the Government to do that would help their business to invest for the long term, and they said, “Help us make those investments: introduce more allowances that enable the investment that will help to protect our employment for the long term.”

[Alec Shelbrooke]

Does the hon. Lady not agree that competitive corporation tax would attract international investment into this country and develop jobs for our economy? We must play on the global stage, not just in Britain.

[Alison McGovern]

We have competitive corporation tax. The hon. Gentleman is right that we must play on the global stage. Many of the companies in my constituency that I am talking about play on the global stage. I have seen the difference that other countries have made in working with business to ensure that they invest in their technology, which keeps them here for the long term. Let us consider, for example, the historical difference in the German automotive industry, where the Government did just that. We came very late as a country to that approach—to that industrial activism and to that investment in high-tech industry to secure employment for the long term.

I ask Ministers to consider their role. When we are dealing with global companies, the Government must always discuss with them the changes in their industry and what the next move needs to be in investment. I do not feel that an across-the-board corporation tax that hands profits back without any discussion about what is done with them is the way forward.

[Charlie Elphicke]

Does the hon. Lady not note with concern that the UK’s high rate of corporation tax, relatively speaking, has caused a whole load of British companies to leave the UK, thus destroying jobs and money?

[Alison McGovern]

I merely disagree on the facts. I disagree that we have had an overly high level of corporation tax and that we have not had inward investment. I would invite the hon. Gentleman to come with me to Vauxhall Motors or Unilever in my constituency, where they have just invested millions of pounds in high-tech kit that means that that research will go on in this country in the long term. I disagree with the hon. Gentleman on the facts, I do not think that what he says is the case, and I do not think that that is what is happening. There is a risk that it might happen in the future, unless the Government show an active approach to working with businesses to ensure that they have the right incentives to stay and invest in Britain.

In conclusion, I have three points that I ask the Government to take into account. I ask them to consider, on an ongoing basis, the effectiveness of HMRC and whether the resources allocated are enough to bring in the necessary taxes to bring the budget further towards balance. I question what more they can do to promote real growth and the rebalancing of our economy. I worry about the effect of the VAT rise on those people who are least able to cope with it and that that will yet again distort the economy in Britain. Our economy actually operates very differently in different geographical areas. I do not mean to point out a north-south divide, because parts of the south-west are likely to suffer in similar ways to my area. We need to be careful at this important time. Much can be done to work with businesses and assist them in making investments, and I hope that the Government will consider that as the Bill goes forward.

19:50

[Richard Harrington (Watford) (Con)]

I start by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith) on making such an excellent maiden speech. He was erudite, and he was absolutely correct in what he said about David Curry, a man I know. My hon. Friend described his experience from his constituency and as a small business man, and I have had exactly the same experiences myself. I could not disagree with a word he said, and he said it very well indeed.

I have listened to a number of speeches today—in fact, I think I was five years younger when I got here, although it was only a few hours ago. I did not want us to repeat the debate that we had on the Budget before the recess, because this debate is to discuss what the hon. Member for Wallasey (Ms Eagle) described as technical innards. However, we have heard about a lot more than technical innards, and much has been said about the economy in general.

I must say that I cannot believe the advancing amnesia among the Opposition. They seem to be in denial about what happened. The right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), as Chancellor of the Exchequer, decided that he wanted dramatically to expand the economy by borrowing a huge amount of money and spending it on almost anything that there was to spend money on, but it did not work. As soon as the Opposition’s denial ends and they say, “Okay, we tried it, but as it turns out it was irresponsible and did not work”, we can have serious budget debates. Instead, we have heard arguments such as those from the hon. Member for Wirral South (Alison McGovern) about people putting signs up in restaurants about a small reduction in VAT, which was apparently the great fiscal stimulus. I would love her to find one person in her constituency or in the whole country who said, “Oh, VAT is about 2% less, we’ll go and eat tonight.” Such things just did not happen.

[Alison McGovern]

I feel moved to defend myself. The point is that a VAT reduction would give the economy an immediate boost and signal temporary Government action to get us through. I believe that the hon. Gentleman is wrong about the impact of VAT cuts, but if he knows of some statistics or evidence I would be very happy to hear it.

[Richard Harrington]

Well, the cut cost in excess of £300 million, and it is common sense that people do not change spending decisions based on a 2% difference.

I shall move on, because time is running short and I wish to talk about two parts of the Bill. The first relates to the British film industry. The Bill contains a technical adjustment to film funding to allow more leeway in calculating the amount that is surrenderable for tax credit. That sounds complicated, but it is sensible. The real issue is the need for appreciation by this House of the film industry’s economic contribution.

I must confess to having a constituency involvement, in that Leavesden film studios, where much of “Harry Potter” was filmed, are in my constituency. The American company Warner Bros has announced that it is acquiring the site, and that there will be a big increase in employment. Hopefully those studios, as well as Pinewood, Elstree and many others, will continue their prosperity.

[Mr James Clappison (Hertsmere) (Con)]

My hon. Friend’s mention of film studios tempts me to intervene. As he knows, Elstree studios are in my constituency in Hertfordshire, and Hertfordshire as a whole has a world-class tradition of film making. “Star Wars” was made partly in my constituency, as were many other famous films—he mentioned “Harry Potter”. Does he agree that through financial incentives it is possible to build on that tradition and create considerable employment opportunities for many young people in a growing industry?

[Richard Harrington]

I thank my hon. Friend, and of course I agree with him. Our part of Hertfordshire is rapidly becoming the Hollywood of southern England—or its Beverly Hills, in the case of his bit.

There is no doubt that taxation of the film industry is important. According to a recent Oxford Economics study, the industry employs 35,000 people and makes a direct contribution of £1.6 billion to the UK economy. It pays about £445 million in tax, even without any multiplier effect being applied. The £110 million in tax allowances for it in the Bill and in previous Acts of Parliament represent very good value for this country.

Why am I speaking about the film industry, given that as far as I am aware the main political parties agree about the need to provide that assistance? It is because the industry provides an example of not only some of the best uses of Government credits, but some of the worst. Following an earlier Act of Parliament, the accountancy tax avoidance industry used perfectly acceptable vehicles for investing in the film industry as tax avoidance methods. Film and television producers have told me that their films or programmes, which were effectively pre-sold so that there was no financial risk whatever, were used to provide large tax benefits through comparatively risk-free investments. That opportunity was correctly removed about two years ago, but that does not mean that the Government should ignore the perfectly reasonable demand for very high-risk investors to have a tax-efficient vehicle to invest in the film industry. That is good for this country and leads to vast amounts of money and a lot of high-quality employment being brought in. I accept that the Government have much greater priorities at the moment, but I ask them to consider introducing a proper, tax-efficient vehicle for venture capital investment in the film industry, in a way that does not allow it to be used as a method for tax avoidance, which is quite unacceptable.

Secondly, I feel that because of my experience in business and the continual discussion in the press and the House about whether the banks lend enough money to businesses, I should tell the House of my experiences in Watford. I have spoken to most of the major banks there and to nearly 100 small businesses to find out the exact position. Members will know that a Bank of England document shows that the monthly average of new loans has gone down from a peak of £991 million in 2008 to £564 million in 2010, which is a significant reduction.

However, the real question is not the volume of loans being granted but the percentage of loan applications that are rejected. That figure is never seen. The banks’ criteria for lending used to be entirely based on property. Many business loans were really property loans in disguise, because they involved guarantees based on the personal houses of people who were borrowing money. Now the banks do not like lending money on property, so for the first time they are looking at small businesses’ balance sheets, cash flow and business plans. They are treating them as stand-alone instruments.

I observed the figures in Barclays bank’s main business lending office only two weeks ago. I saw people borrowing money and businesses having money advanced, but the reality is that the property-based loans, for the moment, have gone. That is one reason—not a macro-economic reason, but a practical reason—why lending is low. There is money available for small businesses. I agree that management fees are high. That is because banks have to spend a lot of time on a £50,000 loan, instead of just saying, “He’s got a house worth half a million, so we are not worried about anything else.” As we know, the spreads are high because banks can lend money to Governments for 2% over the base rate, so to lend to a small business banks have to consider a spread greater than that. There is more to bank lending than meets the eye, and we should consider the number of applications compared to the number of rejections.

I see that it is 8 o’clock. I know that other Members want to speak, so I shall leave it at those two comments.

20:01

[Bill Esterson (Sefton Central) (Lab)]

I want to start by discussing some of the comments made by the hon. Member for Watford (Richard Harrington). He talked of total denial among Labour Members about what has happened, but probably demonstrates the same himself on behalf of the Members around him. The figures on unemployment, repossessions and business failures in my constituency this year and over the past two years during the recession are roughly half those on unemployment, repossessions and business failures during the Tory recession of the 1990s. Many Members on both sides of the House will have found that to be the case. The reason for that is the support given to families and businesses during the most severe recession since the 1930s and a decision to look after the human side at a time of greatest peril. I am afraid that that factor is in danger of being missed by this Government.

The decisions taken in this place, which my hon. Friend the Member for Wirral South (Alison McGovern) commented on, affect people’s lives as they go about their everyday business. We need to consider that; this is not just a series of numbers. Some Members on the other side of the House operate as if the cuts in spending and child benefit and the rise in VAT are just numbers, but the effect is very real for millions of people out there, and it is that effect that really counts.

The hon. Member for Watford also mentioned the multiplier effect. I see he is no longer in the Chamber— [Interruption.] He has moved seats; I apologise. The point about the multiplier effect is that it is key to providing the stimulus that will allow the economy to grow and the deficit to be cut. Only by growing the economy can we possibly have any hope of cutting the deficit.

It is the role of Government in a recession to step in and support the economy until the private sector is strong enough to take over. The reality is that, at this stage, the private sector in much of this country is not strong enough to take over, step in and replace the Government in growing the economy. That is why the issue is one of timing: how soon we make cuts and how quickly we can pay off the deficit. That is an important point, alongside the impact on people’s lives.

[Chris Heaton-Harris (Daventry) (Con)]

Does the hon. Gentleman not recognise that the Government can grow the economy only with money already paid to them in tax? We therefore desperately need the private sector to be kicking off, and the Government cannot replace the private sector.

[Bill Esterson]

The hon. Gentleman makes an important point that is often made by Conservative Members, but if the private sector is not strong enough to step in and support the economy, that approach does not work. Only when the private sector is strong enough can it step in and behave in the way that he describes. At this stage, the recovery is so fragile that my concern is that we will follow what has happened in Ireland and slip back into recession unless we get this absolutely right.

It is crucial that the timing is right, which is why the Chancellor is now considering a return to quantitative easing as advocated by the Governor of the Bank of England. It is interesting that the Chancellor is looking at increasing the amount of money in the economy, which is done by borrowing—the other way of doing this. Even the Chancellor recognises that we have to get this decision right at this stage of the economic cycle.

History teaches us many lessons. In the ’30s, and to some extent in the ’80s and ’90s, the then Governments decided to cut hard and fast. What happened was what we have seen in Ireland over the past three years: the economy grew smaller, and it grew harder to pay off the deficit, not easier. The lessons are there for us if we wish to learn from them. I hope that the Government will learn. As I have said, there are signs that the Chancellor is learning some of those lessons.

I also want to talk about the value of investment in capital projects. Tonight, some Members have talked about the way that many projects were implemented over the past few years. As I have shown by referring to low unemployment and low rates of business failure and home repossession, those investments in capital projects—not least the Building Schools for the Future programme—benefited local economies very much by providing work and business for many small and medium-sized enterprises. It is important that we keep that kind of capital spending going, which is why it was so wrong that the Government cut Building Schools for the Future and many other capital programmes when they came to office.

The primary capital programme is another such example, and I raised the playbuilder programme in Education questions earlier today. There are also schemes such as the Thornton relief road in my constituency. Road projects are a great example of how a stimulus can be very effective in a short time, through the multiplier effect, which was mentioned by the hon. Member for Watford, who has now left the Chamber. The way to pay off the deficit is by getting that stimulus in place now until the private sector is strong enough, and not to go back into recession, where the deficit will only grow.

A number of Members have mentioned the role of the banks and how they are operating at present. I have seen that myself as a number of constituents have described the circumstances that they face. Banks have been calling in loans and overdrafts at a moment’s notice, using the small print, which they always reassured business owners they would never do. In some banks, the debt collection department often steps in and threatens business owners with either having to repay at a moment’s notice or pay punitive interest rates. All that goes on without the relationship side of the bank knowing that it is being done. I have already had a number of examples of that in my constituency.

The behaviour of the banks also needs to be tackled, and I am pleased to hear that Members on both sides of the House, having experienced this through their constituents, are determined to take action. However, there is also the issue of the responsibility of the banks for creating the global financial crisis in the first place. We need to tackle that and ensure that it never happens again. We also need to ensure that those responsible for the scale of the crisis through irresponsible lending to people who could not possibly repay their loans and disguising that by using complex financial instruments are made responsible. We must come up with an effective way to deal with that in the long term.

I know that there has been discussion in Government circles of the international banking levy, and I would be interested to hear what Ministers have to say on that issue. My understanding is that they do not propose to go anything like as far as President Obama, but the opportunity should not be missed, because if we can get decent international co-operation on the level of levy that should be brought in, we have a chance of putting the international financial system in a far stronger position for the future, of finding a way to invest back in the global economy, and of ensuring a robust and lasting recovery.

A levy on banking transactions is a far fairer way of tackling the deficit than the kind of cuts being proposed. People to whom I speak in my constituency do not see how cutting child benefit or tax credits, or putting up VAT, will help to cut the deficit; they see it as taking money out of the economy and feel that they are not being supported. That makes them less likely to spend the money that will, ultimately, help businesses to get back on their feet. They do not see why people on middle and low incomes should shoulder the burden of sorting out the financial problems caused by the major financial institutions, and that is why we need to work closely with partners at an international level to sort things out.

I want to talk about why I think that some of the moves made by the Government will make it harder for us to cut the deficit and will, in fact, have the opposite effect to the one that the Government claim for them. As we have heard Members say, scrapping regional development agencies has a clear implication. By going from eight organisations to 58, it seems to me—this is also being said by business leaders, certainly in the north-west—that all we will do is cause duplication, with costs being repeated 58 times instead of eight times. The changes will make economic co-ordination more, not less, difficult. Also, many of the RDAs have a very good track record of generating inward investment. The move will cost more money and be less effective. We see the same kind of mistake being made in the health service with the scrapping of primary care trusts: that will result in the creation of more organisations that do exactly the same job, with a repeat of the costs.

I mentioned the proposals on VAT, which will take money out of the economy at a time when the recovery is still fragile. The VAT cut had the opposite effect, and I do not accept the arguments of Government Members who say that it did not. The VAT cut resulted in an immediate benefit to the economy, because the money saved was generally spent straight away: people had spare change, and they used it. That had an effect at a very local level, in the shops. Of course, VAT increases hit the poorest hardest, and the Prime Minister himself called VAT a very regressive tax when he spoke at Cameron Direct in May 2009. For once, he really did agree with Nick; Nick told the “Today” programme the same thing on 7 April this year.

In my constituency, 40% of jobs are in the public sector. What happens when those jobs are cut? When police officers, teachers or health workers lose their jobs, they stop spending money with those same small businesses that we need to thrive. They stop spending their money not only in the shops, but on builders, plumbers and other tradespeople. That puts pressure on people who are self-employed and who run small businesses, and not just on public sector workers. There will be an effect not just on the public sector but in the private sector, unless we get the approach right at this stage in the cycle.

In conclusion, we need to look to the banks in solving this problem. We need the banks to lend to small businesses, as Members have said, and we need to look to the banks to take responsibility through a global financial levy. The Government need to reconsider many of the approaches that they are taking, because they are going to make things worse; they are going to increase the deficit and make it harder to grow the economy, and their measures will not work in the way that they hope.

20:14

[Alec Shelbrooke (Elmet and Rothwell) (Con)]

I start by welcoming the hon. Member for Nottingham East (Chris Leslie) to his party’s Front Bench. He has been in the Chamber for most Finance Bill debates, and we have sparred a little bit along the way. I am glad to see him taking part from the Front Bench, but what a baptism of fire this is for him. You were not here earlier, Madam Deputy Speaker—one of your colleagues was in the Chair—but the hon. Gentleman heard an unfortunate tirade from his hon. Friend the Member for Bassetlaw (John Mann), who gave one of the most entertaining speeches that I have heard in this Chamber.

The hon. Member for Bassetlaw had us all going. At one point, we wanted to cheer, but almost immediately afterwards we wanted to boo—and that goes for Members on both sides of the Chamber. His argument developed in quite an incredible way. As my hon. Friend the Member for Northampton South (Mr Binley) said, the hon. Member for Bassetlaw is the only Member who could play for both teams during a football match. It was quite an incredible speech. However, he did talk about deficit deniers, a term illustrated quite well by the hon. Member for Scunthorpe (Nic Dakin) and even better by the hon. Member for Sefton Central (Bill Esterson), who has just spoken.

The hon. Member for Sefton Central spoke about capital spend and investment, but surely he recognises that the previous Chancellor of the Exchequer also wanted to cut capital spend. We understand that the new shadow Chancellor and the shadow Cabinet are following the former Chancellor’s plans for deficit reduction, which involved a reduction in capital spend. It would be fascinating to know whether the hon. Gentleman totally disagrees with his Front-Bench colleagues and thinks that they are completely wrong, or whether his argument was just confused. I really do not know where his argument was going.

[Bill Esterson]

Will the hon. Gentleman give way?

[Alec Shelbrooke]

In one moment; I just wanted to draw on your comment about the US economy. You said that it was a model to follow. There has been an $800 billion investment—or stimulus, if you will—put into the US economy, yet unemployment rates there have grown quite significantly. That is why President Obama’s popularity ratings have fallen.

[Bill Esterson]

I am sure that I did not mention the US economy, but we can check that in Hansard later. I want to pick up the point about capital investment. We need to be clear about the differences between the two sides on that issue. We Labour Members were clear that we would keep Building Schools for the Future and a number of other major projects going. We were looking at a long-term process for reducing the deficit. Those on the Government Benches proposed cutting all capital spending more or less straight away.

[Alec Shelbrooke]

I am glad that I gave way to the hon. Gentleman, because he makes my point. You say that you want to keep the investment going on these capital projects, but you also say that you will reduce the capital budget. How? That does not add up. You simply cannot go on saying that you will spend money here and there, not raise taxes, and carry on borrowing. The argument simply does not add up. I became confused halfway through the speech made by the hon. Member for Bassetlaw—

[George Freeman (Mid Norfolk) (Con)]

So did he.

[Alec Shelbrooke]

Yes, so did he. He seemed to be saying that unless the Government employ everybody in the country, no money will ever be spent. He said, “You can’t reduce the number of people in the public sector, because they’re the people who have to go to the sandwich shop.” Of course, people in the private sector do not eat or buy anything; they have a robotic existence. I wonder what happened before there was such a large public sector. The hon. Member for Sefton went on to give examples of private industry in his constituency that have benefited from loans from the regional development agencies. That is where I think the confusion lay. He was talking about Government investment, not Government spending on public sector jobs and so on.

The hon. Gentleman talked about the regional development agencies, but there was provision for a regional growth fund in the Budget. The Government have also put measures in place in the Budget to reduce national insurance contributions for those setting up companies outside the south-east, and have reduced capital gains tax. As I pointed out in my intervention on the hon. Member for Wirral South (Alison McGovern), that helps investment from international business to come in.

Yorkshire Forward, a regional development agency, says at the bottom of its e-mails, “We have created more than 52,000 jobs.” No, it has not. Private business creates the job. If Government money is used, the job is not “created”; there was a subsidy that eventually has to be paid back.

Government money is just private money that the Government have nicked and are trying to put back. It is not our money. We do not earn it. We take it from the wealth creators. If we are not creating that wealth in the first place, how can we go on and spend it? The deficit deniers do not understand or do not accept that every one of us would like to stand here and say, “Do you know what? I’m going to replace every school in my constituency, and I want a first-class service.” Every one of us wants a first-class service—that is why we went into politics—but we must be realistic. We must be pragmatic. We must understand that we cannot go on spending money as we have been doing.

I take issue with the suggestion that the move to a 20% rate of VAT is permanent and that we have no intention of lowering it because ideologically we want to tax more. Ideologically we want to tax more? I have never heard such nonsense. We are the party of low taxation. We made it clear in every speech that at each Budget we would review and lower taxation if we could. It has never been said that VAT would remain at 20%. One would hope that we may be able to move to a lower taxation rate.

In the short time that I have left, I shall move on to a specific topic. The Bill refers to closing tax loopholes. Everybody in the Chamber wants to achieve that because there is a great deal of revenue out there that the Government are not getting. Let us look at the way money circulates in the economy. Representations have been made to me that red diesel be used in emergency service vehicles. We can see the sense in that. Emergency vehicles are paid for through Government money, VAT is paid, and money is being circulated and coming back. That is a sensible argument and would impose no cost on the Exchequer.

I make a plea to the Minister to consider something else. I am proud that we have an excellent Yorkshire air ambulance—indeed, we have two. They are on BBC 1 every day at 9.15 am, relating their exploits in rescuing people who have got into difficulties in areas such as the Yorkshire dales. That leads me to say what an excellent maiden speech my hon. Friend the Member for Skipton and Ripon (Julian Smith) made, describing that countryside, where people like to go hiking. We know that accidents can happen, so we have the air ambulance.

Yorkshire air ambulance costs £2.628 million a year to run and not one penny comes from Government. It is all raised through charitable giving. I therefore urge the Minister to consider, when the time is right, exempting from fuel duty Yorkshire air ambulance, the other air ambulances and the people who contribute to the emergency services? They would still raise their money through charitable giving, but that exemption on the 162,632 litres of fuel that the Yorkshire air ambulance used last year would help greatly to reduce overall costs.

I close with a further plea. We have had several Finance Bill debates and all we hear, all the time, is cherry-picking: “We don’t want to do this bit. We don’t want to do that bit. The Government are hitting the poorest here. They are not doing enough for the rich there.” Can we please start to look at the Finance Bill holistically? We have raised tax thresholds. We are reducing national insurance. We have raised capital gains tax. We are reducing corporation tax to bring in more businesses and create more jobs. We are putting in place regional growth funds. Can we please stop the cherry-picking, have a sensible debate and look at the arguments sensibly, holistically and in a grown-up way, and can we please stop denying that the deficit exists?

20:23

[Sheila Gilmore (Edinburgh East) (Lab)]

In the course of the debate, yet again, we have heard an awful lot of myths and legends. One of the biggest of those is the notion that because the Opposition have a different view of the economy, we are deficit deniers. You do not have to be denying a deficit to hold a different view of how it arose and the background circumstances, and a different view of how we get out of the situation that we are in. That is quite reasonable.

It is healthy that we have politics within which there are different viewpoints. The proof of the pudding will be apparent in a few years. If you are right, I will have to eat my words. I do not believe that those on the Government Benches are right, but we cannot tell just by throwing words at each other. It is not correct to say that somehow the Opposition hold the view that there is no deficit. That would be plain nonsense.

There are other myths and legends that we have heard today. One, which we heard from the hon. Member for Northampton South (Mr Binley), is that the previous Government were guilty of not mending the roof when the sun shone. We hear that repeatedly. If building schools, hospitals and roads was not mending the roof, I do not know what it was. If by that Conservative Members mean that we should have saved the money and put it in a reserve somewhere, that may be a legitimate criticism, but to suggest that we were not investing in the country’s infrastructure is plain wrong.

The hon. Member for Northampton South also suggested that the economic crisis was entirely our fault because of light-touch regulation. I may have been asleep through the years of the Labour Government, but I always thought I heard Conservatives saying that there was too much regulation, that we were the party of red tape and regulation, and that we over-regulated not just financial services, but everything. We heard an excellent maiden speech from the hon. Member for Skipton and Ripon (Julian Smith). Although I disagreed with the entire political content, it was a good speech. The hon. Gentleman said that in his view there was too much regulation.

It is easy to say with hindsight that there should have been more regulation of the financial services industry, for example. I believe that there should have been, but when people say that we were over-regulating the economy, that is one of the myths and legends.

We are told that we do not want to leave our children and grandchildren in a big financial mess by not paying off debt, but equally, and perhaps more importantly, do we want to leave our children and grandchildren in the position that generations have been placed in by previous economic failures, by destroying jobs and creating long-term unemployment in various parts of the country? I do not want to leave that to my children and grandchildren.

We are allowed to differ and to hold different points of view and different economic theories. The difference is not about whether there is a deficit, but about how we got into the present situation and how we get out of it.

The previous Government managed to stop the rise in unemployment reaching the levels that had been predicted. That was the cause of economic stimulus. Far from the deficit spiralling, as we heard earlier from the hon. Member for Stratford-on-Avon (Nadhim Zahawi), the deficit did not rise as much as had been expected. Therefore, we were not in some sort of new crisis—that is what has been suggested—which justified an emergency Budget which had very little in it. The Finance (No.2) Act 2010 that we passed in a great hurry before the summer also had very little in it, and we lost an opportunity to make some important changes.

The public and private sectors are inextricably linked, and slashing jobs in the public sector will further reduce the tax-take, increase the demand on benefits and, in itself, increase, not decrease, public borrowing and the deficit. Equally, reducing our investment in infrastructure—not stopping it entirely, but reducing it more than we need to do—will ultimately put us in a more difficult position.

Just last week I visited two constituent households at their request. The problems that they asked to see me about had nothing to do with jobs; nevertheless, by no coincidence in both households there was a working-age construction worker who was desperate to work but could not find any in my city. One said that the last job on which he had worked was now a complete university building in the city, but we will not see much more of that kind of building by our educational institutions. He is very keen to work, but the jobs are simply not there.

[Alec Shelbrooke]

Everybody would like to see that investment, but, and this is the point that I tried to make in my speech, the previous Chancellor would also have cut the capital budget. I talk about deficit deniers because I do not understand how you can ask for capital investment to carry on when your shadow Front Benchers would, as I understand it, follow that plan to reduce the capital budget.

[Sheila Gilmore]

I thought I had covered that issue. We are not saying that there is no deficit or that there will be no reductions; we are saying that if you cut too far and too fast, you will worsen the current position.

[Gordon Birtwistle (Burnley) (LD)]

I am extremely interested in the fact that you admit that you would have cut the deficit, and I am extremely interested to know how you would do so.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Tempted as I am to answer the questions that are being posed about the deficit, I remind the House that the hon. Gentleman is not the only one in this debate currently blaming the Chair for everything, so I would be grateful if we could return to the convention, ensure that our language is correct and, if possible, keep me out of this argument—for now, anyway.

[Sheila Gilmore]

The whole matter is very much one of degree, not either/or. However, one other interesting difference between the Government and Opposition Front Benchers is that the Government frequently argue that high public spending and a big public sector act as a drain on, and kill off, the private sector. In the city of Edinburgh between 1997 and 2007, however, development and building—not just public sector building, but private sector building—flourished. In fact, the Royal Bank of Scotland built a huge corporate headquarters just outside the city during that period. The argument is that if we have a huge public sector, the private sector will shrink and disappear, and that, therefore, if we do the opposite, the private sector will suddenly rise up. I do not yet see, and doubt whether we will see, any great rise in the private sector. Where are the private residential houses and offices being built by the construction industry in my city? They simply are not there. They were at a time when, according to all the arguments that Government Members have put forward, they should not have been. If the public sector is so bad for the private sector, we should have had huge problems.

At this stage in the passage of a Finance Bill there are opportunities to do several things. We heard an interesting exposition of the importance to the film industry of tax reliefs and credits, so why did the Government decide not to go ahead with an equivalent tax credit for the video games industry? The city of Dundee, which is not far from where I live, suffered for many years after what happened to the old industries. It was a city of jam, jute and journalism, and it struggled for a long time, but the relatively recent expansion of the further and higher education sector in the city and the spin-offs in terms of the research and development have been very impressive. They have brought people back to a city that was losing its population, and they have encouraged young people who were educated there to stay there. Industries such as the video games industry, for which Dundee has become justly famous, have done that, yet for no good reason the coalition Government have stopped something that might have allowed the industry to develop and flourish. The opportunity exists in this legislation for the Government to reintroduce that opportunity, and I hope that they will do so.

I was at a briefing earlier today on the Robin Hood tax, a financial transaction tax that many organisations in this country advocate not only because they feel it right that the banks, which did so much to cause the financial crisis, should contribute, but because it is a way of raising funds to deal with poverty and deprivation here and elsewhere. That proposal could be included in the Bill. It is well worked out, and I hope that, even at this stage, the Government will be prepared to consider amending the legislation in order to include such matters.

20:35

[George Freeman (Mid Norfolk) (Con)]

I start by congratulating my hon. Friend the Member for Skipton and Ripon (Julian Smith) on the magnificent maiden speech that he made earlier. If he is indeed the penultimate Conservative of the new intake to speak, it was certainly worth the wait. I am sure that the people of Skipton and Ripon can see that they have made an excellent choice. I also take a moment to congratulate the hon. Member for Nottingham East (Chris Leslie) on his elevation to the Labour Front Bench; like the Geoffrey Boycott of the debate, he has stood at the crease manfully as his colleagues behind have been skittled out.

In supporting this key plank of the coalition Government’s programme to tackle the deficit, I wanted to stress three key points in the time available. There is the seriousness of the crisis in our public finances that we inherited from the Opposition; I have to say that it is disappointing not to see more of the people responsible for the crisis here this evening. Secondly, there is the key role of the private sector in generating the growth that we now need to pay for the public services that we all cherish. Thirdly, there is the specific importance of the measures in clauses 10 and 12 to promote venture capital trusts and research and development relief for high-growth SMEs, which are especially important to the recovery for reasons that I will touch on in a moment. I emphasise the importance of high-growth companies as one who has come to the House after a 15-year career of supporting technology companies in the life sciences sector. I declare an interest in a number of small companies set out in the register.

In discussing the measures in the Bill, we need to remind ourselves of some hard facts. The deficit currently stands at £155 billion. It is the largest in our peacetime history. We have the largest deficit in the G20. This year alone, debt interest is set at £43 billion, and without the measures set out by the coalition Government and my right hon. Friend the Chancellor to tackle the deficit, interest payments alone would have risen to £70 billion a year.

To prevent interest rates from spiking—the true risk of that inheritance—the Government are right to commit to reducing public spending and increasing private sector growth. Labour Members talk of growth, but seem to forget that it is the private sector that is the source of all growth and that pays for any growth in the public sector that we or they may promise. It is private-sector business people up and down the country who pay for our promises, and they now need our support.

We need to think about where the growth will come from, and I should like to suggest two key sources. First, the millions of SMEs up and down the country, frankly, want us to do something simple—get off their backs, stop taxing and regulating them and allow them to grow and flourish as they will. I also want to turn to a second source of growth, which is the three key specialist sectors of which I have some experience. They are biomedicine, food science and environmental science, in which the country punches well above its weight; in many areas of those sectors it leads the world. As the world’s population rises inexorably, they will become enormous sectors of growth across the world.

High-growth companies in those sectors have the potential to lead our recovery and lead this country back into positions of world leadership, provided that we support them properly. High-growth SMEs in the sectors have very special financing needs. Unlike smaller, high-street SMEs, which are struggling so hard, they are not, typically, dependent on the banks. They tend to be dependent on entrepreneurs, on founders—often scientists or people around universities or research institutes, who are then backed up by angel investors who put their expertise and hard-earned money to good use, by venture capital trusts and by corporate venture investors. We need to recognise the importance of that very specific financing food chain and encourage it. I therefore warmly welcome the measures in clauses 10 and 12 on tax relief for research funding and SMEs and for encouraging venture capital trusts. More widely, I welcome the coalition Government’s measures to reduce corporation tax and to relieve entrepreneurs on capital gains tax.

Those are vital measures in a serious Government programme to tackle the deficit. It would be nice to hear from Labour Members what they would do to tackle the deficit were they to be in power.

20:40

[Chris Evans (Islwyn) (Lab/Co-op)]

As this is the third Finance Bill that we have debated in the House this year, one could say that Finance Bills are a bit like buses: you wait for one to come along and three arrive at once. Even though this is a dry and technical Bill, it does have some merits. My primary concern is the failure to put in place a plan for growth.

Throughout this debate, we must remember that economists cannot predict the future. History is littered with economic theories that have failed, and I am sure that everyone in this House would agree that only time will tell how the economy will pan out. However, we can deal only in facts. There is no doubt that the economy is at a very dangerous crossroads. In the past, economic recovery following a large-scale financial crisis has inevitably been slow. It is vitally important that we make the correct decisions now on growth, jobs, the deficit and public spending. Yes, dealing with the deficit is absolutely key to future economic policy, and there is no doubt that we must cut waste where it is found. That is not deficit denial; it is the truth.

I am deeply concerned about statements made by the Prime Minister and the Chancellor of the Exchequer that seem to imply that deficit reduction is the beginning and the end of economic recovery. To me, it is vitally important that we have a credible and medium-term plan to reduce the deficit based on a careful balance between employment, spending and taxation—but only once growth is fully secured and over a longer period than the Government are currently planning. Simply put, hitting growth will make it more difficult to pay down the deficit because it means less revenue for the Exchequer. That is not deficit denial; it is just plain common sense.

We face fundamental questions. Is it right to be cutting millions of pounds from public services and taking millions of pounds out of family budgets this financial year and the next? What will that do to jobs and growth? Ultimately, what will it mean for the deficit? There seems to be a growing consensus in the House today that says that the deficit is the only issue that matters in economic policy, that the measures to reduce it are unavoidable, and that there is no alternative. Adopting the consensus view may be the easy and safe thing to do, but it does not make one right or credible. We did that in the ’30s and were faced with the great depression. The leader of my party, Ramsay McDonald, fell out with his parliamentary party over cuts, and we saw what happened then.

Of course, the impact of immediate cuts to public spending on jobs and the recession has not yet fed through. Even though polls tell us that the public support deficit reduction when they are told that it will come from cutting waste in public spending, I wonder how they will view it when a local hospital is not built or a school is in desperate need of repair and there is no money to pay for it.

To attempt to repair the damage of such an event and return the national debt to its previous levels in just a few years is not only incredibly dangerously in the eyes of financial markets but places an intolerable burden on current users of public services. Even halving the deficit, as Labour Members propose, would represent comfortably the biggest and fastest cut in the deficit since the period after the second world war, but without the peace dividend to fund it.

By far the biggest influence on deficit reduction and the balance between taxation and spending is economic growth and the number of taxpayers in jobs paying their fair share. That is why the priority must be growth and jobs. It disappoints me that the Government have seen fit to cancel support for industries of the future such as the games industry. The Labour Government set out plans to support the industry in March, the new Government axed them in June, and the result was job losses in Scotland in August. That is what happens when a Government cut at any cost. The industry sustains thousands of highly skilled jobs that we simply cannot risk losing if we are to secure economic recovery and protect jobs. The industry, which contributed £1 billion to the UK economy last year, is competing with significant incentives from countries such as Canada, which are trying to entice companies to relocate their jobs. To me, cutting support for industry and highly skilled jobs is wrong at this time. I believe that the Government should urgently rethink that decision.

The UK’s creative industries will be essential to rebalancing our economy away from dependence on financial services. The Government’s decisions do not seem well thought out, and the video games industry has issued warnings about the long-term implications. The Association for Interactive Entertainment has already said that, with the absence of tax breaks, it is essential that the Government work with the industry to address the skills gap and better access to research and development initiatives. It is therefore of the utmost importance that an assessment of the impact on the creative industries is made. Perhaps most worrying, the scrapping of tax relief, which puts the future of the computer games industry at risk, took place without industry consultation or discussion.

Many hon. Members have mentioned regional development agencies and their benefit to the economy. They, too, were scrapped without consulting business. That sets a dangerous precedent, and I urge the Government to think carefully about formulating policy in that way in future.

I have tried to keep my comments brief because other people want to speak, but now is the time for a careful and considered discussion of reforming tax and benefits in this country. I hope that we can do that through the Bill. Although I am happy about elements of it, I trust that the Government and the Opposition will now engage in that discussion.

20:46

[Penny Mordaunt (Portsmouth North) (Con)]

Historically, it has been argued that the secrecy surrounding Budget measures has hindered proper scrutiny, especially as Parliament has but little time to consider their broader implications. Those implications have not always been positive for the Government of the day. Indeed, had a previous Chancellor not guarded his Budget measures so jealously, his blushes might have been spared over the abolition of the 10p tax rate. I remember that time well—in Portsmouth, the average wage was £18,500, and anyone earning below that and above £5,000 was absolutely clobbered. That is why I will never take lessons in fairness from those who now find themselves on the Opposition Benches.

The Government’s publication of the measures in the Bill on 12 July is therefore a welcome departure from the norm, opening a consultation and inviting comment. That is an innovation in the interests of good and transparent government, and I hope that, in future consultations, a broad audience beyond the usual tax practitioners will let its views be known to Her Majesty’s Treasury.

The many people in Portsmouth North who suffer from asbestos-related illnesses are part of that broader audience. The proposals in clause 31 to facilitate compensation payments to those people are a proper response to the tax liability to which many well-intentioned trusts have found themselves exposed.

Asbestos-related industrial diseases are sadly a common occurrence in all our constituencies. The long period from exposure to presentation of symptoms, as well as lack of awareness, means that we will see new cases for decades to come. Indeed, in the next 10 years, the number of cases emerging each year will peak at about 2,500. As a dockyard city, Portsmouth can expect to contribute disproportionately to that number.

Currently, the trusts established to pay compensation to asbestos illness sufferers can be liable for inheritance tax, capital gains tax and income tax on their assets. Clause 31 will introduce a retrospective exemption for trusts established between 6 April 2006 and 23 March this year. That will mean more money going to victims, and will be very welcome in Portsmouth. It will be a relief to sufferers from asbestosis, cancer and even relatively benign conditions such as pleural plaques, which can nevertheless be a precursor of more serious complaints. The extra resource is much needed, as it will also help meet the cost of care. Often, only 35% of the cost of that care—particularly hospice care—is met by the NHS. The provision happily complements the High Court ruling in August this year, which asserted that insurers’ compensation should be used for the care that victims have needed. I am encouraged that the unwitting exposure to tax liability of an essentially charitable endeavour is to be put right, and that the problem can be avoided in the future if new trusts consult fully the Charity Commission and HMRC.

It is a happy coincidence that the launch of the consultation period on Finance Bills comes with a Bill that offers so many positive measures. In addition to clause 31, I welcome the amendment to collection procedures for income tax for individuals and the harmonisation of administration regimes for different taxes—a further advance towards simplification and transparency. We must all recognise the exasperation that many individuals and businesses in our constituencies have felt in their dealings with HMRC, and measures to ensure that taxation is fair, straightforward and transparent are always to be applauded. However, I hope that the Economic Secretary will dwell on clauses 26 and 27 about the failure to make returns and late payments. Given HMRC’s track record, I seek assurance that those measures will not over-burden taxpayers or impose disproportionate penalties. I am especially anxious that the size of fixed penalties for small businesses be given careful consideration.

I also applaud first-year allowances for zero-emission goods vehicles, a genuine incentive for logistic firms to pursue a green agenda and a sign of the Government’s determination to reward green behaviour.

It is also worth noting what the Bill omits. The long period of consultation has afforded us adequate time to enjoy the absence of some measures favoured by the last Government. Happily, we can pass this Bill without unfairly impinging on the landline user or the cider drinker.

20:51

[Jacob Rees-Mogg (North East Somerset) (Con)]

I congratulate my hon. Friend the Member for Skipton and Ripon (Julian Smith) on a speech that was excellently delivered and every word of which I agreed with. It was a fine maiden speech and a pleasure to listen to.

I also welcome the hon. Member for Nottingham East (Chris Leslie) to his new position. His speeches are in a somewhat different category, in that I always enjoy them but never agree with them. It is nevertheless a pleasure to see him in his place as his contributions in earlier debates were all listened to with bated breath, not least as we waited to intervene on some telling point.

This is a good and worthy Bill that is, perhaps, typical of the workmanlike approach that the coalition Government are taking to the difficult matters at hand to ensure that government is done fairly, justly and properly. In that context, it is interesting to look at the issue that was raised by the shadow Chief Secretary about the morality of taxation and whether it is moral, in one sense or another, to avoid taxation. We should be careful about eliding “avoid” and “evade”. The two are clearly different things, and this Bill exemplifies why that is so.

The Bill will relieve the taxpayer of burdens that Parliament probably never intended to place on them. For example, did we really want to have a special taxation for merchant seamen who are within the European economic area, as against those who are British subjects? Or was it an accidental result of historical legislation that meant that EEA citizens were caught in a way that the British subjects were not? As it happens, it is right and proper that Parliament should legislate to take people out of a tax that is misplaced, and it is equally right and proper that Parliament should legislate when it wants to bring people into a tax that it has not legislated for in the past.

The famous exponent of this was, of course, Lord Tomlin. In 1936, in a case brought by the Inland Revenue commissioners against the Duke of Westminster, Lord Tomlin said:

“Every man is entitled if he can to arrange his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure that result, then, however unappreciative the Commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax”.

That is why it is so important that we have these detailed pieces of legislation coming through, because when we look at the length of a cigarette, which is dealt with in clause 23, and whether it should be 3 inches or 4 inches—the measurements are all in centimetres, but being British, I shall stick to inches—and therefore be taxed differently, is that an issue of great, high morals, that should be referred to the College of Cardinals for debate, to decide which is one and which is the other? Or is it, in fact, a detailed point of law that is quite rightly passed by this House, so that taxpayers will know exactly where they stand? If we take an aircraft that weighs more than 8 tonnes—I shall not convert that into hundredweight, but I am sure that some will want to—should it be specially subject to value added tax, or should it not? Again, it seems quite clear to me that that is an appropriate matter for detailed legislation. The taxpayer who follows the letter of the law is never doing anything either wrong or immoral, and people who seek to try to confuse the two at seaside party conference are making a great error and doing a great unfairness to the British subject who is doing his best in an immensely complex area.

There is one other thing from this Bill that I would like to note, which is that clauses 5, 6, 14, 18, 19, 20, 21, 22 and 23 are, in whole or in part, requirements of the European Union. I mention that so that this House notes that we are perhaps not quite as free as we think we are to set our own tax rates, and that there is creeping Europeanisation. I see my hon. Friend the Member for Dover (Charlie Elphicke) is in his place. He is, in his port, at the forefront of our protection from creeping Europeanisation coming across our shores—this creeping Europeanisation that makes up almost a third of the Bill.

[Charlie Elphicke]

I thank my hon. Friend for his generous comments about our desire to buy our port. As far as Europe is concerned, does he not agree that it would be better if we were more masters and captains in the ships of our national destiny?

[Jacob Rees-Mogg]

That is put in an appropriately Nelsonian way. Of course we should sail the ship of state independently. It is important that so much of our domestic law is, in fact, coming from Europe, including our tax law, because that is the one thing that many people thought was broadly exempt from the interference of—

[Ms Louise Bagshawe (Corby) (Con)]

rose—

[Jacob Rees-Mogg]

It would be a great privilege to give way to my hon. Friend.

[Ms Bagshawe]

My hon. Friend is making a typically eloquent and masterful speech. Does he agree that he has done the House a great service in listing those clauses of the Bill that are subject to European regulation? Surely at the very least we owe our electorates such transparency on the issue, so that they should be informed as to which decisions are those of our Government and which are being handed down from Brussels.

[Jacob Rees-Mogg]

My hon. Friend has put it absolutely correctly and wisely: people need to know what is going on. “Truth is great and it will prevail” is, I believe, a motto of some.

Let me draw my remarks to a conclusion. I praise the Government. I think that they are right. They are putting forward serious-minded, proper legislation—detailed, pernickety, perhaps even dull—but it is rightly the duty of this Parliament to pass such laws, albeit with the caveat that we want our laws to be our laws, and not an adjunct to the European Union.

20:59

[David Rutley (Macclesfield) (Con)]

I think the phrase is, “Follow that.” What an amazing tour de force. I congratulate my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) on his great remarks. I should like also to congratulate the hon. Member for Nottingham East (Chris Leslie) on his elevation and my hon. Friend the Member for Skipton and Ripon (Julian Smith) on a wonderful maiden speech. He represents a great part of the world, and I am sure that the people there will be well satisfied that he represents them well.

As has been discussed, the main purpose of the Bill is to enact a series of technical tax measures inherited from the previous Government. It is a wide-ranging Bill, and it is part of a package of measures that this Government are having to take to tackle the economic crisis. The first Finance Bill, this Bill and the comprehensive spending review will each assist us to address the economic challenges facing our country.

I shall begin by focusing on the clauses relating to Her Majesty’s Revenue and Customs. It is important that the necessary improvements be made to help income tax to be more effectively deducted at source, as set out in clause 8. We need to support HMRC in doing a better job of collecting the taxes that are owed. That is a critically important job, given the state of our public finances. That said, however, it is not just the legislation that needs to be updated. It is clear that HMRC’s senior management team has more work to do, given the recent huge problems with PAYE.

The Treasury Committee held a meeting in September to review HMRC’s operation of the PAYE system. Like other members of the Committee, I had the chance to probe the issues surrounding the new computer system, and the announcement that 1.4 million taxpayers would be receiving letters informing them that they had underpaid their taxes. The hearing also highlighted the much broader issue of HMRC’s mind-boggling backlog of 18 million open cases of overpayment and underpayment in previous years. Dealing with that must be a major priority. The senior management team will simply have to improve its communication skills, enhance the so-called customer journey—which for too many has felt like a short trip down a dead end—and prove its new system’s capability as it moves to full roll-out. Based on my postbag, and on conversations that I have had with HMRC staff in Macclesfield, I believe that much more work is required to improve taxpayer confidence in the organisation and to raise employee morale across its operations. I welcome the clauses in the Bill that will help HMRC to do its job, but these other challenges must be addressed to enable the Government to achieve the objectives that they have set out in their tax measures.

The challenges facing HMRC would not be so huge or so critical if the public finances were not in such a mess, however. That is why it is important to examine the context in which the Bill is before the House. This country’s record deficit has repeatedly been highlighted in the debate. It is not the product of a mythical global economic crisis. Even before the credit crunch, there was clear evidence that spending and the burden of tax were too high. The truth is that the previous Government were caught completely flat-footed as they faced the economic crisis. The scale of the challenge has now been starkly set out, and it is time for the coalition Government to pay back Labour’s debts.

It is against that backdrop that the Chancellor announced his emergency Budget, which included a clear fiscal consolidation plan that placed a priority on lowering spending, combined with tax measures to reduce the deficit and to reform the tax system. Clearly, this Bill has a role to play in that regard. Strong medicine is needed, and it must be taken in the months and years ahead. That is what the British public expect; they recognise that it must happen. The detail will be spelled out in the comprehensive spending review in a few days’ time. Radical welfare reform must be an essential part of the plans, and tough decisions on tax have also been made, with VAT having to be increased to 20% in January.

All that is necessary to get the public finances back under control and to get through the economic crisis, but we need to go further and create the conditions for sustainable economic growth that must be based on an expanding private sector. Colleagues have mentioned that in their speeches today. Growth comes from the private sector, not the public sector, and restoring national competitiveness must be a priority. It will be critical to give greater confidence to small and medium-sized enterprises, which form the backbone of our economy and are the engine of job creation. That is why I am pleased to support the Bill, as clause 13 sets out help for SMEs with tax relief for research and development.

It is good that the Chancellor is also taking forward other critical measures, including scrapping Labour’s tax on jobs, and reducing corporation tax year on year for four years, down to just 24% in 2014. It is good to see that Britain is definitely open for business once again, as it should be. All that must be underpinned by a change in direction in economic policy making. This is about asking the right questions, and about taking a new approach to getting the best possible answers.

Over the past 13 years, the previous Government and many in the media were simply asking the wrong questions. They wanted to know, “How much can we spend on this, and what steps are you taking to protect spending on that?” No one asked whether we could afford a particular policy, or how much it would increase the burden on taxation. Coming from the world of business, I find it obvious that a different question must be asked by most companies in competitive marketplaces day in, day out. The way in which it is asked may vary from business to business, but the substance of the question remains the same: “How can we give our customers more for less?”

That is not a question that businesses are ashamed to ask. It lies at the heart of how they compete and how they provide worthwhile work for their colleagues: it is ingrained in their culture. However, although some in the public sector have sought to take the question seriously, it has not been heard above the demands to spend, spend, spend that have come from Opposition Members. It is a tragedy that it has taken an economic crisis of this scale to enable it to be heard.

I am pleased that the right questions are being asked now, and that legislation such as this will help to address the challenges that we face. Behind the questions, however, there must be a new approach if we are to obtain the answers. Faced with big challenges following the general election, the Conservatives and the Liberal Democrats made a bold decision to work in coalition. That is not something for which I hoped at the time of the election, but it means that there must be give as well as take. It means that both parties must get around the table, and the evidence so far suggests that it has led to radical and bold solutions as both parties seek to work in the national interest.

I believe that, given the tough challenges that lie ahead, that approach will have wider applications. I believe that it will define new, creative ways of working between Government Departments, between businesses and Government, and between local councils and community groups. It is about people working together in new ways in the interests of their country and, indeed, their communities in this most difficult of times. We see it working in Macclesfield as residents, community groups, local businesses and Cheshire East council work together, strengthen the local economy and revitalise the town centre. Our new treacle market is a tremendous success, and I recommend it to the House. It is held on the last Sunday of every month, and I suggest that anyone interested come along.

At least the Bill sets out business initiated by the previous Government that needed to be progressed, but it is sad to note that not much more was worth progressing, and that so much was left undone. A complete mess was left for the present Government to clear up, and today’s evidence suggests that the Labour party, not notable for the huge number of its Members present, has nothing much to add to the debate. Faced with such challenges, unlike the coalition Government, they have chosen denial—or, as today’s attendance suggests, avoidance—rather than a constructive dialogue.

I am no psychoanalyst, but I understand—and I am sure that Members will be interested to hear this—that denial is a defence mechanism used by a person who is faced with a fact that is too uncomfortable to accept. Such a person will insist that something is not true despite overwhelming evidence to the contrary, and will often behave in ways that others see as quite bizarre. We see such behaviour on a regular basis on the Opposition Benches. To make matters worse, the Opposition are in double denial. They cannot see the scale of the crisis, and they are not willing to accept that they are responsible for it.

We might have hoped that things would improve with the birth of new-generation Labour—although that too is not obvious from today’s debate—but we have heard nothing to support that hope today. For once I agree with Alastair Campbell, who said over the weekend that what Labour needed was a proper economic narrative. We on the Government side of the House have been saying that for a long time, and I am pleased that the hon. Member for Bassetlaw (John Mann) joined us this afternoon.

I support the Bill, and support the work that the Government are doing in tackling the deficit. Difficult challenges and uncomfortable decisions lie ahead, but the right questions are finally being asked, and the Government are making important progress in the most difficult of circumstances.

21:09

[Claire Perry (Devizes) (Con)]

I join in the congratulations to my hon. Friend the Member for Skipton and Ripon (Julian Smith) on his excellent maiden speech. I also congratulate the hon. Member for Nottingham East (Chris Leslie) on his elevation. He is a triumph of quality over quantity tonight. It is either that or he needs to change his Lynx body spray.

I am pleased to speak in support of the Bill, an agglomeration of 31 yawn-inducing technical tax measures to some, but to me another item crossed off the most important “to do list” of this Parliament, tackling the crippling millstone of public debt inherited from the last Labour Government. I would like to do three things: to address some specific clauses; to review the need for presenting the Bill in this slightly unusual form; and to provide some context for the measure.

There are 33 clauses to be put on the statute book. In—I think—all cases, those measures were inherited from the previous Labour Government; there are almost no changes from our side of the House. All are worthy of review, but three are particularly relevant. The first is on the level of support provided to carers. Almost every week in surgeries around my constituency I hear about carers and the particular burdens put on adult carers. We heard just this morning that 25% of women in their 50s—not so far off for some of us Members—will be carers while also facing the challenges of continuing to be supportive parents for their teenage children. It is imperative that the measures that we put in place to relieve carers of unnecessary tax are carried through handsomely.

I echo the comments made by my hon. Friend the Member for Portsmouth North (Penny Mordaunt) about the importance of the first-year allowances for zero-emission goods vehicles—100% of first-year allowances will be deductible from April, continuing until April 2015. That demonstrates our Government’s commitment to supporting incredibly valuable legislation that helps us in the overall attempt to “green up” the British economy.

The Bill’s measures, alluded to by my hon. Friend the Member for Mid Norfolk (George Freeman), on supporting enterprise and venture capital investment are critical to our plans to open Britain for business, although as part of that process we must continue to ensure that the banks actually lend. That matter is not for debate tonight, but we must return to it again and again as we proceed through the Parliament.

I turn to the odd split of Finance Bills, for which the Government have come under mild criticism. We had Finance Bill No. 1, which enacted a series of emergency Budget measures and now we have No. 2, which has been described as the mopping up of technical tax measures. May I review what was happening at the time of the election, and the need for emergency Budget measures? Our triple A credit rating was under threat, 10-year interest rates were spiking up at over 4% and starting to approach the interest rates of Italy, which has, I believe, had 62 Governments since the second world war. The credit default swap rating—I know that this all sounds like bankers’ speak but it materially impacts on the level at which we can borrow—which is the measure of potential British default on our debts, was getting up to 90 basis points, up there with Portugal and Spain, which could not even dream of a triple A credit rating. A fire was burning in the heart of the British economy and the Labour Government had no plans to put it out. We did. The emergency Budget on 22 June, introduced within the 50-day limit that we set ourselves, restored confidence both internationally and domestically in the British economy.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

Does my hon. Friend agree that, because of that emergency Budget, we are still able, although we are dealing with a massive deficit and borrowing £500 million a day, to borrow at half the rate of Ireland?

[Claire Perry]

As always, my hon. Friend makes an excellent point based on his substantial experience in the business world. During that process, we showed a clear commitment to doing the right thing for the British economy. We did not do things to maximise political headlines, of which the previous Government were guilty on an almost weekly basis.

What is the result of taking those bold actions? Let us talk numbers. The risk premium on the British economy has dropped by 30% since the election. Long-term interest rates—the 10-year interest rates—have dropped by more than 1%, meaning a 25% reduction in the cost of borrowing. These are not arcane measures thought up by a load of greedy bankers; they materially flow through to the borrowing costs of our constituents, both for mortgage and small business borrowers. The measures mean real growth for the British economy.

Why did we not consider tax measures in the first Finance Bill of this Parliament? The point made earlier on transparency and consultation is a valuable one. We said that we will be a Government who are far more transparent and that we will allow time for consultation.

[Kelvin Hopkins]

I am listening with interest to the hon. Lady. She said that the Government did not introduce tax measures, but what about the rise in VAT, which is a regressive tax? The introduction of a more progressive tax—for example, a tax on the rich or on big business—might have been more acceptable, but a regressive tax will deflate the economy by taking money out of the pockets of ordinary people, who spend most.

[Claire Perry]

I would debate regressive and progressive taxation and the question of income or expenditure with the hon. Gentleman, but I would like to make a little progress, if he will allow me, and focus specifically on the technical measures in the Bill.

The measures were published on 12 July, and I believe that we have had a number of responses to them, and we now feel that we have had adequate consultation to proceed. The House feels that we can cope with the split between two Finance Bills, but I would like Ministers to reassure us that we will revert to one Finance Bill as soon as possible, as the situation normalises. In that way, the whole finance package can be given proper scrutiny, and we will not have the kind of piecemeal debate that we are having today.

Finally, let me give some context to the measures. We have heard this before, but I make no apologies for saying it again: we have a record deficit. That is not the result of a financial shock that emerged like the creature from the swamp from America in 2007, but the result of a Government who spent more than they earned in taxes every year from 2002. I have listened with great interest to the representations made by Labour Members. They say, “We were investing. We weren’t ‘spending’; we were building schools and hospitals.” They were building schools and hospitals, but they were borrowing money to do so. In the process, they put the bill on future generations of taxpayers. They talk about being progressive, but that is not a progressive thing to do with the British economy.

The previous Government bequeathed us interest costs of £120 million a day. That is paid largely to foreign Governments, so that they can build their schools and hospitals off the tax pounds that we collect from our taxpayers. There is nothing progressive about that.

What do we get when we discuss the measures? Do we get the intelligent, grown-up debate that the hon. Member for Wallasey (Ms Eagle), the shadow Chief Secretary, asked for? We certainly do not get intelligent, grown-up debate on how to cut the deficit from the few Labour Members in the Chamber. With a very few honourable exceptions, we get opposition to everything. That was amply demonstrated during today’s statement by the Secretary of State for Work and Pensions. We now have the extraordinary situation of Labour Members, in opposing everything, wanting to tax the poorest families in this country to pay £1 billion in child credit to the richest 15% of families. I suggest that, by opposing everything, Labour Member get themselves into some extraordinary technical tangles.

Conservatives want to talk about deficit reduction, but Labour Members put up the ideological barricades, saying, “You’re bad Tory cutters. You’re bad Lib Dem ideologues.” Behind the sound and fury, one question remains unanswered: what would Labour Members cut? Where would their £44 billion-worth of spending cuts fall? If they oppose everything in our deficit-reduction plans—the plans are supported by the International Monetary Fund, the OECD, the CBI, the Bank of England, Tony Blair, Peter Mandelson and everyone but Labour’s Front-Bench team—they weaken their status as a viable Opposition.

I shall finish if I may by quoting Labour’s new shadow Chancellor, the right hon. Member for Kingston upon Hull West and Hessle (Alan Johnson). No, this is not about his need for an economics primer; it relates to what he has said about the British people. He said:

“I think the reason why they took to the coalition is they thought, well, here’s someone rolling their sleeves up and getting down to the job.”

We are getting on with the job. The measures in this Bill are part of that, and I urge every hon. Member here tonight to vote for the Bill, as I shall be in the not-too- distant future.

21:20

[Charlie Elphicke (Dover) (Con)]

I wish to add my congratulations to my hon. Friend the Member for Skipton and Ripon (Julian Smith), who spoke in the most heartfelt way about his heartbreakingly lovely and beautiful constituency and in the most thoughtful and considered way about the impact of regulation on smaller businesses. I also wish to congratulate the shadow Chief Secretary to the Treasury on her elevation and the hon. Member for Nottingham East (Chris Leslie) on returning to the Front Bench, even if it is not the Front Bench that he would have preferred to be on—no doubt he is a patient man who will wait to have another go in due course.

This Budget, with this Finance Bill, is an essential piece of legislation. We have a country that is all but bust; its budget deficit is more than £150 billion and we face a structural deficit of £109 billion, according to the Office for Budget Responsibility. What does that tell us? It tells us that two thirds of the current extra borrowing each year has nothing to do with the recession and the global financial crisis, and has everything to do with the economic incompetence of the previous Government. The Leader of the Opposition urges that instead of adopting a fiscal position of raising taxes by one third and cutting spending by two thirds, we should make it 50:50. My hon. Friend the Member for West Suffolk (Matthew Hancock) has calculated that that would raise people’s taxes by another £1,300. Such a massive bombshell would not be constructive in this difficult fiscal environment. The Government have taken difficult decisions on taxes, but the further tax rises that the Opposition urge on us are not at all responsible or helpful.

It is therefore right that the coalition is taking the economically responsible and sensible position to step right and stabilise our country and its finances, but we need to have growth and a growth agenda. It is helpful that corporation tax is being reduced to 24% over the next few years, and I hope that in time the Government will be able to go further and bring it down to about 19%. I hope that they will give serious and substantial consideration to a holding company regime such as exists in places such as the Netherlands and Luxembourg, so that the UK becomes a holding company international headquarters of the European time zone. The UK and London, rather than the continent itself, would thus become the jumping off point for Americans investing in Europe, which would provide a massive fiscal stimulus to the UK economy and would make it the financial headquarters centre and the international business centre of the European time zone. We should be very alive to the competitive fight that we have with our European friends, and seek to maximise our position and that of London as the international financial and business centre of this time zone.

We may get a fiscal bounce out of encouraging large businesses to move to this country, set up here and stay here—I note that WPP and Hiscox have left and moved overseas, as have others—but if we want long-term sustainable development and growth, and more jobs and money over the longer term, we need to consider smaller business, because it has a stronger sense of growth over the long term and it supplies the entrepreneurial flair that creates more jobs and money.

[Kelvin Hopkins]

I entirely accept the need to sustain small businesses, but small businesses live off two things: first, big businesses, which make orders for them; and, secondly, demand in the economy, as we go for meals out, get building alterations done to our homes and so on. If people are not spending because they are frightened of losing their jobs and having their pensions and benefits cut, that damages small businesses at least as much as it does big businesses.

[Charlie Elphicke]

I would agree with the hon. Gentleman that confidence plays a massive role in our economy—and nowhere more so than with our smaller businesses. The confidence that we have seen since the election seems to be feeding through to the growth figures, which seem to suggest that we are coming out of the recession faster than anyone thought we would. Personally, I think we should be more positive about the prospects for the economy and the prospects for faster growth over the medium term, given the nature of the stabilisation and the confidence that the coalition Government have provided to the country. However, that does not mean that there is not more we can do for small businesses. We can and must, as my hon. Friend the Member for Devizes (Claire Perry) and others have said, have more liquidity for the small business sector. It has been too locked up in banks preparing their balance sheets—we need more lending.

[Mary Macleod (Brentford and Isleworth) (Con)]

Does my hon. Friend agree that a reduction in corporation tax is a way to encourage more small businesses and to keep big business in the United Kingdom, and that it will help the overall long-term growth of our economy?

[Charlie Elphicke]

Absolutely, yes. The previous Government were planning to increase corporation tax on smaller businesses and to do nothing for larger businesses. The reduction in corporation tax that we are seeing across the board is an incredibly positive move by the coalition Government that will help to create more jobs and money and help to encourage businesses—international businesses in particular—to set up in the UK.

We need more liquidity for smaller businesses, but we also need tax reform for smaller businesses. Earlier today, I met the Quoted Companies Alliance, which represents smaller quoted companies. It put to me the suggestion that we should perhaps think harder about the enterprise investment scheme and venture capital trust regimes. They are limited at about 50 employees, but EU state aid approval would be allowable for fewer than 250 employees under the EU SME definition. I hope that Ministers will consider that in due course and in further Finance Bills. There is a negative effect on businesses because they dare not grow over 50 employees. That is quite important.

The QCA says that the connected company or connected person regime should be considered, because business angels could be effective and useful directors and advisers to those businesses. The alliance also says that it would be better to have lighter-touch regulation. It would concede the income tax relief if it would help to keep the capital gains tax relief and increase the limits and thresholds available in the EIS and VCT regimes. I hope that Ministers will consider that and will consider the technical detail that will help to improve things for the smaller business sector.

On CGT, the alliance welcomes the entrepreneurs’ relief—it says that that is great—but asks why it lasts for only 12 months. Does that not encourage speculators? Should it not be for three or four years, to encourage long-term investment? Should it be restricted just to those who have 5% and are employees or should it perhaps involve those who have 5% or who are employees, to widen the investment base for smaller businesses that benefit from entrepreneurs’ relief? I hope that Ministers will also consider reinvestment relief when entrepreneurs come up with wonderful ideas, sell their businesses and reinvest. Perhaps they should be encouraged to do so with a wider base of reinvestment relief, to lock in more capital and investment, which will create more jobs and money over the longer term. I recognise that these are ideas to be developed in further Finance Bills, but I hope that Ministers and the Government will give them due consideration as time passes.

The other question the alliance raises is why we do not allow AIM shares to be put into individual savings accounts. That seems to make little sense. The AIM market has changed massively since the late ’90s and it would perhaps be constructive to allow AIM company shares to be in ISAs so as to widen the investment pool and widen the availability of capital to businesses that are typically smaller in nature and faster growing.

Finally, although the London stock exchange has said for a long time that we should have got rid of the stamp duty reserve tax, which is difficult to afford in the current circumstances, the QCA asks the interesting question: what would happen if we allowed getting rid of SDRT outside the FTSE 350 for smaller companies, to help to make their shares more liquid? Trading volumes would be lower and it might be more affordable. I hope that that is something to which Ministers will give due consideration and thought in future Finance Bills.

The most important thing for our country and our countrymen is to have more jobs and more money. I hope that over time we will develop a further growth agenda and deepen the one that we have already put forward, so that we can have faster structural trend growth and the UK can become the envy of not just our friends in the European Union but the world as a whole.

21:30

[Chris Leslie (Nottingham East) (Lab/Co-op)]

As the astute observer may have noticed by now, the Bill is a largely inherited set of technical measures, with the general election having interrupted the conventional timetable and truncated the previous Administration’s Bill, which would have introduced many of the same provisions. No matter; we have had a successful and thorough debate. The hon. Member for Bristol West (Stephen Williams) noted, I think sarcastically, that he was looking forward to the fun and delights of Committee, but we have covered the Bill’s territory well.

I pay tribute to the hon. Member for Skipton and Ripon (Julian Smith) for his very good-quality maiden speech. He made the case for the small business community in his constituency strongly and passionately. It is a fine and beautiful constituency, and I was born near or within it at Airedale hospital, so it has a special place in my heart for that reason if for no other.

The hon. Member for North East Somerset (Jacob Rees-Mogg), who is no longer in his place, made a series of interesting observations about long cigarettes, the weight of aircraft and the creeping Europeanisation of the world in general, and I look forward to his pearls of wisdom in Committee. The hon. Member for Watford (Richard Harrington) rightly noted the measures in clause 14 on film tax credit arrangements, and the hon. Member for Portsmouth North (Penny Mordaunt) talked eloquently about the important changes in clause 31 affecting asbestos compensation settlements.

I agreed very much with the hon. Member for Devizes (Claire Perry)—that may come as a shock to her—about the provisions for shared lives carers. Being a carer is a big commitment and requires a lot of patience, understanding and hard work, but it offers adults who need support owing to their health or disability a valuable opportunity to live with people who can give them the help that they need, share their hobbies and interests and so on. We, too, therefore welcome the simplification of the tax treatment of foster carers and shared lives carers so that their costs and expenses are recognised more fairly in the tax system.

The hon. Member for Portsmouth North mentioned the clauses on penalties for failures to make tax returns and pay taxes. We clearly need a regime that is tough on evasion and that incentivises prompt payment, but we also need to ensure fairness in the system so that entirely innocent people and companies are not caught in an unfair penalty cycle. As the Institute of Chartered Accountants has noted, we need to ensure that we monitor that regime carefully, especially for very small businesses that do not necessarily have in-house accountants or bookkeepers.

A number of other measures were mentioned in the debate. The hon. Member for Dundee East (Stewart Hosie) talked about the safeguards for investors in venture capital schemes and the insertion in the rules of a financial health requirement, to prevent tax reliefs from falling into “firms in difficulty”. That raises a number of questions that we will want to explore further in Committee.

The hon. Member for Macclesfield (David Rutley) rightly highlighted the clause about the deduction of income tax at source. It is a positive thing that there will be a new online mechanism for customers to lodge the fact that they are returning their income tax deductions, but that prompts the question of how HMRC enables access for customers through downloadable information and whether customers can identify their tax office correctly. Again, we will want to pursue those points in Committee.

Very few Members noted the Bill’s provisions on the automatic enrolment of employees in pension schemes from 2012, which are technical measures to facilitate the new pension scheme arrangements. That national employment savings trust is incredibly important—something that the previous Government rightly put in place for all workers between the age of 22 and retirement age earning more than £5,000 a year, unless they were already in a pension scheme. I particularly want to press the Minister on that matter, because I understand that the consultation process said that by 30 September we would know the Government’s views on that automatic enrolment arrangement. We have passed that point, and I do not think that we have had any information on the issue.

It is a curious and fragmented process that we have entered into with this chopping and changing between Finance Bills. The cynic in me detects the possibility of some highly tactical games being played by Treasury Ministers. Perhaps I am wrong, but their approach to finance legislation, as my hon. Friend the Member for Wallasey (Ms Eagle) suggested earlier, seemed to create a toxic, bad Bill—perhaps the one that was pushed through before the summer recess, possibly without the Liberal Democrats quite noticing how bad it was. Other toxic, bad Bills are to come in due course, such as those on scrapping the health in pregnancy grant, the savings gateway and the child trust fund arrangements. It is interesting to see how Ministers are packaging up these measures. Machiavelli may have some observations on that particular tactical game.

As my hon. Friend also mentioned in her opening speech, a number of measures are conspicuous by their absence from the Bill. My hon. Friends the Members for Edinburgh East (Sheila Gilmore) and for Islwyn (Chris Evans) mentioned the video games tax relief arrangements for that particular industry, which many firms in my Nottingham constituency have also been urging and expecting. They were disappointed when the Government withdrew them. My hon. Friend the Member for Bassetlaw (John Mann) referred to the investment allowances to help businesses to grow and ensure that they invest in plant, infrastructure and capacity to enable them to prosper. I might have disagreed with him slightly in his comments on VAT, but he made a number of points that are worth deeper thought and observation.

The context of the Bill says everything. Although the measure is wide ranging, it is absolutely a missed opportunity—perhaps the calm before the storm of the spending review. We know that many failings arise from the legislation, basically because of those aspects that are not in it. Insufficient steps are being taken to clamp down on tax evasion, and serious doubts are now growing, as my hon. Friend the Member for Wirral South (Alison McGovern) mentioned, about the capabilities of a depleted HMRC, should its budget be unfairly constrained.

The Bill is particularly a missed opportunity for legislation to promote growth and generate revenues, and that is what it will be remembered for. We should look at the growth deniers on the other side of the House. My hon. Friends the Members for Scunthorpe (Nic Dakin), for Sefton Central (Bill Esterson) and for Islwyn all mentioned TINA—there is no alternative, as the former Prime Minister, Lady Thatcher, described it—and that notion has infected those on the Government Benches. They are doing a good job in sticking to their message and trying to ram their points home, but it is becoming a little obvious that the script is getting somewhat old.

I was impressed in particular by the comments of the hon. Member for Boston and Skegness (Mark Simmonds)—the ideology that he has formulated of the expansionary fiscal consolidation strategy and the theory that he has announced that cuts can stimulate economic activity. His comments were mirrored to a certain extent by those of the hon. Member for Mid Norfolk (George Freeman). We need to hear much more from the hon. Member for Boston and Skegness on that strategy. It is clear to me that the Conservative party is focusing its energies exclusively on this ideological crusade in cutting investment, rather than looking equally at the other side of the balance sheet—rebuilding revenues—which surely must be attended to.

Everybody knows that the deficit position was largely caused by reduced revenues following the credit crunch and the banking crisis, and growth is the best antidote to that. It is quite clear also that the Government see public services and economic regeneration as somehow negative aspects—a glass half empty—whereas Labour Members see growth, public services and investment in infrastructure as a glass half full and an opportunity to expand. Through that virtuous cycle, we will repair the public sector balance sheet.

My hon. Friend the Member for Edinburgh East asked whether we wanted to burden future generations with a legacy of high unemployment and low growth, and that is absolutely the right question to pose to Government Members.

It is important to look at the wider context in which the Bill was presented, but we can already see, as the news develops, that growth is fragile and that confidence is wobbling. I think that my hon. Friend the Member for Wallasey mentioned a report in The Times that showed that finance directors’ confidence is at its lowest level in 18 months, and 34% of those surveyed in a Deloitte poll said that they expected the economy to go into reverse. We sincerely hope that that does not happen. The hon. Member for Dover (Charlie Elphicke) said that confidence is a critical ingredient that plays a massive role in the economy, and it is a great shame that we can already see the steps taken by the Government eroding some of that confidence. That has its roots in the decisions made in the Budget before the recess.

The downgrading by the Office for Budget Responsibility of the forecast for 2011 from 2.6% to 2.3% suggests a £5 billion loss in receipts because of the smothering of economic activity. That is compounded by the many anti-growth policies pursued, and messages given, by the Government parties. Tonight, hon. Members have talked about regional development agencies being scrapped and the Sheffield Forgemasters loan not being granted.

There are a number of ways in which the economy is at risk. It is important that, throughout the passage of the Bill, we explore the Government’s strategy and what more can be done to ensure that we pursue a pro-growth strategy. We might not divide the House tonight, but we put the Government on notice that we expect and need stronger pro-growth measures and legislation in future. We will scrutinise the detail of the Bill closely in Committee. I look forward to hearing what the Minister has to say.

21:41

[The Economic Secretary to the Treasury (Justine Greening)]

I welcome the new shadow Treasury team to their roles. Obviously, I have had experience of debating with the hon. Member for Wallasey (Ms Eagle), the new shadow Chief Secretary to the Treasury. I look forward to continuing those debates, and to debating with the new members of the team.

We have had an interesting and wide-ranging debate. I pay tribute to the maiden speech by my hon. Friend the Member for Skipton and Ripon (Julian Smith), who follows in the footsteps of a fantastic predecessor. He described a constituency that I know, and he is right to say that it is absolutely beautiful. He is very lucky to represent it, and I am sure that he will do a great job in his new role.

Let me turn to the Finance (No. 2) Bill. Obviously, its clauses have a lower profile than many of the measures announced in the emergency Budget, but they are nevertheless important for the smooth running of the tax system. That is why the previous Government were also keen to see many of the measures put on to the statute book.

Let us be clear about why we are debating the Bill in the autumn, and not earlier in the year. As we have heard from my hon. Friends the Members for Mid Norfolk (George Freeman) and for Dover (Charlie Elphicke), and from many others, when the coalition Government came to power, we faced an economic challenge of an unprecedented scale. In fact, urgent action was needed, and we responded with the emergency Budget. The shadow Chief Secretary to the Treasury and the hon. Member for Nottingham East (Chris Leslie), who responded to the debate, seem to have developed some form of amnesia when it comes to the content of the emergency Budget and why it was required. It is impossible to exaggerate the seriousness of the situation that we inherited, or the risks to Britain if we had continued on the course that they proposed. There were almost 2.5 million people unemployed; yet again, a Labour Government left office with unemployment higher than when they came in. We inherited the largest budget deficit in the G20, and a fiscal legacy that had us spending £4 for every £3 that we raised in taxation.

We had to take action to restore the credibility of the UK economy, to allow the recovery to take hold, and to ensure that future growth was sustainable and not driven by an ever-growing burden of debt. That is why we introduced a short Finance Bill in the summer—to maintain economic stability, calm market fears and put in place a credible plan to deal with the record deficit. That plan is supported by the International Monetary Fund, the OECD, the CBI, the Bank of England and countless other organisations that clearly have a greater grasp of the deep dangers that face our economy than the Labour party does.

There was an opportunity today for the Opposition to start participating in the debate on the most important challenge facing our country—how to get our economy back on track. I was interested to hear whether they have a plan, now that they have a new leader. The answer is that they do not. The debate touched briefly on the subject of tax avoidance, but the Opposition have developed a brand new form of tax avoidance. They try to avoid talking about tax and spend altogether or having any plan to deal with it.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

In my constituency over the past 13 years 17 new high schools and more than 50 new primary schools have been built. Does the hon. Lady condemn that investment?

[Justine Greening]

The hon. Gentleman should direct his question at his colleagues, who had planned the capital cuts that he no doubt hates so much. If he comes and looks at other schools, he will see that his Government left schools such as my own Elliott school in Putney in an appalling state. I do not think he has an answer to that.

We heard a number of contributions from Opposition Members. The hon. Member for Wallasey offered no alternative to the plan set out by the Government. The hon. Member for Scunthorpe (Nic Dakin) spoke about scrapping the package that we presented in the emergency Budget to support business. We heard from the hon. Member for Wirral South (Alison McGovern), who apparently welcomed the Bill and wanted investment, but was against the cuts in corporation tax that we introduced. We heard from the hon. Members for Islwyn (Chris Evans), for Sefton Central (Bill Esterson), for Edinburgh East (Sheila Gilmore), and for Bassetlaw (John Mann) who were all against taking action to sort out the economy. At least the hon. Member for Bassetlaw acknowledged that his party has a gaping chasm in its economic policy. Until the Opposition fill that, they will have no credibility.

[John Mann]

I hope the hon. Lady did not miss the other part of my contribution, which was intended to expose the gaping chasm in the logic and the economics of the Treasury proposals.

[Justine Greening]

I decided to pick out the piece in which the hon. Gentleman talked about his party, which he obviously supports. Our plans are all about tackling the deficit. Funding that debt will cost our economy £43 billion this year. That means that every taxpayer in Britain will pay almost £1,400 of income tax to service that debt interest. The hon. Gentleman might consider that a good use of taxpayers’ money rather than spending it on front-line services. I do not. Unless we take the difficult but fair decisions that we are taking now to sort out the deficit, we will not be in a position to undertake sustainable funding of our public services again. That is why the measures that we are taking are so important.

Many of the clauses in the Bill were brought forward by the previous Government. We consulted stakeholders over the summer because we were keen to make sure that we have a more open and considered approach for our tax legislation than we have had in the past. Many respondents have been clear about how welcome that approach is. It has made the Bill more transparent, more robust and better focused. It was a pleasure to hear from the hon. Member for Bristol West (Stephen Williams) who, I believe, is a fellow chartered accountant and could therefore appreciate the care that has been taken with the Bill.

Let me pick up on some of the technical questions raised by my hon. Friend the Member for Boston and Skegness (Mark Simmonds) and the hon. Member for Dundee East (Stewart Hosie). I am pleased that my hon. Friend welcomes the measure on REITs in the Bill. I will write to him on some of the more specific issues that he raised. He should recognise that the measure in the Bill is symptomatic of the fact that we see REITs as a positive vehicle, and we will see what we can do to support them further.

The hon. Member for Dundee East raised so many issues so quickly that I barely had time to scribble them all down. I hope we will return to many of them in Committee.

The other thing that foxed me was that the hon. Gentleman went in reverse order, starting at clause 25 and moving on to clauses 7 and 5. But, he asked some broad questions, and on the corporation tax and petroleum revenue tax changes he was right to say that the measures are about creating a more harmonised system. He raised many specific issues, and we can go into more detail about them, including clause 7, in Committee. On clause 5, he raised a number of good questions about guidance, and we are looking to revise that. We are talking to stakeholders and hearing about the issues that they want clarified; indeed, he mentioned some of them in his speech. His points were well made, and I look forward to continuing the debate in Committee.

There are further measures in the Bill to support the private sector and contribute to more balanced growth in the UK. We heard from my hon. Friends the Members for Northampton South (Mr Binley), for Dover, for Watford (Richard Harrington), for Elmet and Rothwell (Alec Shelbrooke) and for Macclesfield (David Rutley) about how important it is that our Government take steps to support business so that business in turn can create jobs. We must not forget that without the steps that we took in our emergency Budget, small companies would face a small companies corporation tax rise, not one that is going to fall, and a national insurance rise—the jobs tax. Instead, they can look forward to enjoying a reduction in national insurance liability, so we are taking the steps that we need to take.

[Mr Binley]

What will my hon. Friend do, therefore, to ensure that banks provide the money to generate the growth that small businesses will need to create if the Budget strategy is going to work?

[Justine Greening]

My hon. Friend makes a very good point, and I am sure that he is aware of how clause 5 ensures that state aid clearance of the enterprise investment scheme and venture capital trusts takes place. In 2007-08, the enterprise investment scheme supported investment of £7 billion in more than 15,000 companies, and we want to see that enhanced. We are cutting the small profits rate of corporation tax, and to follow up my hon. Friend’s question, I note that the Government plan to create a growth capital fund, which we think will provide a further £237 million of enterprise capital funds, so we are very conscious of the issues that he raises. We are in continuing discussions with the banking industry to ensure that credit flows to the companies that so badly need it—for the very reasons that he so eloquently set out in his contribution to the debate.

The Bill is not just about supporting business, although that is a key part of it. As my hon. Friends the Members for Portsmouth North (Penny Mordaunt) and for Devizes (Claire Perry) pointed out, it includes measures that will support some of the most vulnerable people in our society. I pay tribute to my hon. Friend the Member for Portsmouth North, who made an excellent contribution on the measure—I think it is clause 31—to help trusts that have been set up to compensate asbestos victims. There are further measures in the Bill not only to support people who are shared lives carers and, indeed, carers more generally, but to support through the tax system those people who act as guardians or look after children under a residence order. My hon. Friend the Member for Devizes, who gave a fantastic speech, too, talked about those measures for carers. They are badly needed and will, I hope, have a good impact.

To wrap up, the Bill contains many necessary measures that will ease the burdens on business and help the most vulnerable in our society. Owing to the need for urgent action before the summer, there was simply no time to consider them when the Finance (No.2) Act 2010 went through the House. However, I know that many Members from all parts of the House will want to join me in Committee for more detailed scrutiny of the Bill’s clauses.

This Bill, while unglamorous in comparison with its predecessors, is important. It represents clear progress, it is considered in its approach, and I commend it to the House.

Question put and agreed to.

Bill accordingly read a Second time; to stand committed to a Public Bill Committee (Standing Order No. 63.)

Finance (No.2) Bill

Monday 11th October 2010 Commons Chamber

Ordered,

That the Finance (No.2) Bill Committee shall have leave to sit twice on the first day on which it meets.—(Bill Wiggin.)

Business without Debate

Monday 11th October 2010 Commons Chamber

Delegated Legislation

Monday 11th October 2010 Commons Chamber

Motion made, and Question put forthwith (Standing Order No. 118(6)),

constitutional law

That the draft Scottish Parliament (Constituencies and Regions) Order 2010, which was laid before this House on 1 July, be approved.—(Bill Wiggin.)

Question agreed to.

Postal Services (Scotland)

Monday 11th October 2010 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Bill Wiggin.)

21:55

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

Royal Mail—[Interruption.]

[Mr Speaker]

I am grateful to the hon. Gentleman for his forbearance. If Members leaving the Chamber can please do so quickly and quietly, we can proceed to an orderly Adjournment debate. I, for one, certainly wish to hear Mr Gregg McClymont.

[Gregg McClymont]

Thank you, Mr Speaker.

Royal Mail is a vital public service in Scotland. With 1,400 branches, the Post Office is Scotland’s largest retail chain. According to Consumer Focus Scotland, its services are used by 95% of the population. Scottish business, too, depends on the service. The Federation of Small Businesses estimates that one in six small to medium-sized enterprises relies exclusively on Royal Mail.

The Minister will be aware of the serious risks involved in privatising a Government-owned industry that provides a popular public service. Get it wrong and the Government of the day preside over a carve-up: executive pay hikes, job losses and the curtailment of services to the detriment of consumers. That is why I am seeking clarification of the Government’s plans tonight. I am keen to hear about how the Minister intends to protect the existing level of service provided by Royal Mail and the Post Office in Scotland.

The Government propose to split postal delivery and the management of the post offices—Royal Mail doing the former, and Post Office Ltd the latter. Both functions currently reside in Royal Mail Group, which has an obligation to provide a certain level of service to the public. That is the universal service obligation. These obligations are contained in the licence granted to Royal Mail Group. The licence requires that Royal Mail provide a certain number of deliveries at a certain time to homes and businesses and that Post Office Ltd retains post offices in all Scottish communities.

Royal Mail is also currently obliged to take the provision of all post office services from Post Office Ltd. That is called the inter-business agreement. That agreement, alongside a taxpayer subsidy of approximately £150 million per year, enables Post Office Ltd to fund its entire network of 1,400 post offices in Scotland. If neither of those conditions existed—the inter-business agreement or the public subsidy—the number of post offices would fall sharply, especially in rural parts of Scotland. The danger is real, for the Business Secretary has said that the Government do not wish to retain a stake in Royal Mail. That means full privatisation, with Royal Mail managers incentivised to seek maximum profitability. In these circumstances, the importance of postal services as a public service to the nation cannot be their priority. I say to the Minister that there is a strong memory throughout this country of former public service managers making unmerited fortunes at the expense of the public following previous privatisations in energy and in rail. Indeed, this tension between managerial freedom and the preservation of public services always emerges when utilities are privatised.

22:00

Motion lapsed (Standing Order No. 9(3)).

Motion made, and Question proposed, That this House do now adjourn.—(Stephen Crabb.)

[Gregg McClymont]

The response of policymakers is the universal service obligation, which specifies the services that the privatised entity is legally obliged to provide.

[Gemma Doyle (West Dunbartonshire) (Lab/Co-op)]

I congratulate my hon. Friend on securing this debate. As he may know, last month reports surfaced of a leaked letter from the Business Secretary to the Chancellor hinting that flexibility may be built into the Royal Mail Bill to scale back the universal service obligation from six days a week to a five-days-a-week service. Such a move would set a very dangerous and worrying precedent. Will my hon. Friend join me in calling on the Minister to give a categorical assurance that under no circumstance will the Government allow delivery services to be scaled back in West Dunbartonshire and, indeed, across Scotland?

[Gregg McClymont]

My hon. Friend raises a very good point, and I am sure that the Minister will wish to address it.

An under-specified universal service obligation and an inadequate subsidy, where that is necessary, mean that there will not be a good postal service. That is currently the situation in telecoms in respect of the provision of fibre-optic broadband to rural areas. A universal service obligation is contained in the Royal Mail Group licence. The number of letter and parcel deliveries is laid down in statute and in the Royal Mail Group licence. However—this is crucial—the rules regarding the number of post offices are much less tightly drawn. There is very little in statute and a limited number of criteria in the licence that Royal Mail is obliged to fulfil.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

Does my hon. Friend agree that far from considering cutting the number of post offices, we should be looking to ensure that every community has access to the post office service? Can he, or the Minister, say what plans there are to ensure that every community has that access, particularly communities where new housing developments and so on are being generated?

[Gregg McClymont]

My hon. Friend raises a very good point.

There is very little in statute and a limited number of criteria in the licence that Royal Mail is obliged to fulfil in terms of post office outlet numbers. That did not matter in the past because outside the formal rules the Government, as owner, could and did order Post Office Ltd to maintain the current number of post offices. However, it will matter in future. The statutory or licence conditions, if any, imposed on Royal Mail will determine the future of up to 4,000 of the existing 11,500 post offices.

[Margaret Curran (Glasgow East) (Lab)]

I, too, congratulate my hon. Friend on securing this debate. As has been evident so far, post offices are highly valued by the British public. Does he agree that instead of post offices facing a cuts strategy it would be much better if they were facing a growth strategy? Surely as part of that, the Government could, for example, insist that Royal Bank of Scotland, a state-owned bank, signed up to the post office universal banking counter service. In fact, in these days, we do have opportunities to grow post offices. What is his view on that?

[Gregg McClymont]

My hon. Friend makes a good point. I am sure that the Under-Secretary will want to address a future strategy for growing the Post Office, and not letting it fall into decline.

I said that 4,000 post offices in the UK are at risk. Individuals with industry experience suggest that between 2,500 and 4,000 post offices would be at risk if the existing licence criteria remain unchanged. Scotland is likely to be at greater risk given its disproportionately large number of rural post offices. That is why I say that maintaining the current level of public service means not only retaining existing conditions for Royal Mail’s licence, but adding new criteria. I would be grateful if the Under-Secretary clarified which obligations will be maintained, and to which body they will apply, if Royal Mail is to be privatised.

I also hope that the Under-Secretary will agree that the scope of the universal service obligation must be a decision for Parliament, and not delegated to the regulator or to an individual Minister, even one as capable as the Under-Secretary. I say that as a matter of both pragmatism and principle: pragmatism because a Minister or the regulator would be subject to enormous pressure from the privatised entity to reduce the required service; principle because, if there is a will to amend the universal service obligation, it must be done transparently and publicly by Parliament. My constituents and those of my hon. Friends care deeply about the service that Royal Mail and the Post Office provide. They demand no less.

Moving from the universal service obligation to the future of the inter-business agreement, what happens if the current exclusive agreement between Royal Mail and Post Office Ltd is ended? There is a danger that the Post Office will be undercut unfairly by competitors. For example, a supermarket chain could say to Royal Mail, “We can provide post offices more cheaply than Post Office Ltd. We will include no loss-making outlets.” To avoid such an outcome, there needs to be a level playing field. Fair competition would depend on a strictly written set of licence criteria. Any business that wished to compete for supplying post offices to Royal Mail must fulfil exactly the same objective licence criteria on a national basis as Post Office Ltd currently does. The contract for providing post offices must be set on just such an aggregated basis, otherwise bidders will cherry-pick the profitable post office locations.

The Government have given a welcome guarantee that Post Office Ltd will remain in public ownership when Royal Mail Group is broken up, but, without a guaranteed revenue stream from Royal Mail, many branches will be at risk from public spending cuts. I fear that some of the Under-Secretary’s colleagues perceive privatisation simply as a way to generate a commercial incentive for reducing the demand for post offices, to which the Government will then acquiesce. Can the Under-Secretary confirm whether the public subsidy to Post Office Ltd will be maintained? I am sure that we would all like an answer to that question.

I urge the Under-Secretary to adopt measures that protect current postal services to the public. For deliveries, that means maintaining the current number. For post offices, the Government have two choices. They could adopt an exclusive supply arrangement between a privatised Royal Mail and a publicly owned Post Office, or they could set the universal service obligation criteria at a level that provides for maintaining the current number of post offices. Long-term protection of Scotland’s postal services means giving Parliament the power to agree the level of service and any subsequent changes to it.

22:09

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Mr Edward Davey)]

I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) for giving me this opportunity to begin a debate that we will have over the next few weeks and months about Royal Mail and the Post Office. If I am not able to answer all his questions tonight, he will understand why, and I am sure that he knows that all his questions will be answered over the weeks and months to come. I hope that he will like many of the answers that he hears.

Let me start by saying that I am absolutely committed to the universal postal service. As Minister for both postal services and consumer affairs, nobody is more keenly aware than I am of the critical importance of postal services to our communities, small businesses and the country at large. That is why I will introduce a postal services Bill in this Session to ensure that the universal postal service remains one that we can rely on for the future and that will safeguard those two separate but highly valued businesses, Royal Mail and the Post Office.

The hon. Gentleman raised concerns about the post office network in Scotland. The Government fully recognise the important social and economic role played by post offices in communities throughout the UK and particularly in rural and deprived urban areas, whether in Scotland or elsewhere. More than 99% of the population live within 3 miles of a post office and 93% within 1 mile, and it serves 20 million customers per week. It is a fantastic network.

We remain wholly committed to maintaining this nationwide network of post offices. Let me be clear about what that means: we will not repeat the mass closure programmes of the previous Government, which saw around 5,000 post offices close across the UK, including 600 in Scotland and six in the hon. Gentleman’s constituency. Labour’s closure programmes tore the heart out of rural communities up and down the UK: I opposed them in opposition and I have no intention of repeating them in government. Instead, we have protected £180 million of Government funding for the Post Office in 2011-12—before the spending review has been announced—to maintain the network at around its current size, with further funding for future years to be finalised within the spending review and announced shortly.

The hon. Gentleman raised a point about the future relationship between Royal Mail and the Post Office. Our starting point must be to recognise that the Post Office and Royal Mail are different businesses facing different challenges. This Government are committed to safeguarding both, but our approach must reflect those differences. It is a commercial reality. I have already made it clear that the Post Office will not be for sale—as the hon. Gentleman recognised—so the two businesses will need to have a different relationship in the future. This should be seen as a real opportunity for the Post Office: separation will give its management greater freedom to focus on growing its revenue and getting the most out of its branch network.

There should be no doubt that Post Office Ltd and Royal Mail will continue to work closely together in the future. Post offices carried out more than 3 billion mail transactions for Royal Mail last year, and the two are closely entwined in the public mind. These companies need each other, and that will continue to be the case after separation.

Our reforms will not end there. We want to see a sustainable network offering a wider range of financial and Government services to boost revenues for local sub-postmasters and the network. We are working intensively across government to examine the scope for the Post Office to act as a “front office” for the Government, where local post offices are the natural place for citizens to access face-to-face Government services, and where the Post Office has an important role in supporting e-government, for example helping people to access online Government services through their local branches.

We are also considering the case for a Post Office bank. We must remember that the Post Office already offers a wide range of financial services and is increasingly taking on many features of a bank, but I want to go further and to see a situation in which 100% of current accounts are accessible at post offices and 100% of people know about that. Of course, those are ultimately commercial decisions for the banks involved. However, as a Government, we have a role to play in encouraging that process and explaining to the banks how important we think it is. Hon. Members can rest assured that we are doing that.

There are interesting opportunities, too, in the growing trend of community groups, charities and local people getting involved in the running of their local post offices. That is what the big society is all about: Government getting out of the way and letting the people who know best have a real say in running their services. We are fully behind this trend and are open to all ideas that can contribute to a vibrant and sustainable post office network on which communities can rely.

The hon. Gentleman also raised concerns about how the universal postal service must not be downgraded as a result of any Government action. Let me start by explaining why the Government are taking action. In 2008, the hon. Gentleman’s own party commissioned Richard Hooper to lead an independent review of the postal services sector, seeking recommendations to sustain the universal postal service, so that many of our small businesses and communities could continue to rely on them. However, those recommendations were never implemented, for reasons that I will not go into because I wish to spare the hon. Gentleman the embarrassment. However, for the past two years Royal Mail has continued to suffer under the perfect storm of a declining market in letters, a volatile and crippling pension deficit, and frankly outdated working practices, which continue to cause problems despite the welcome modernisation agreement.

In June this year, my right hon. Friend the Business Secretary asked Richard Hooper to update his report. His latest diagnosis, published in September, is stark, and I recommend that hon. and right hon. Members read the report. Royal Mail’s financial position is worse now than it was in 2008. The decline in the letters market has been faster and deeper than predicted. In the UK, we now send 13 million fewer items a day than we did just five years ago. The trend is set to continue, with worldwide volumes predicted to fall by 25% to 40% over the next five years alone. They dropped by 7% in the UK last year, and by over 12% in the United States. This is a serious issue that we have to tackle.

Fortunately, it is not all bad news. The online revolution has opened up a series of opportunities—we all know about parcels and packets—but as Richard Hooper has made clear, they do not offset the decline. If we are to seize those opportunities and make the best of them, Royal Mail urgently needs more modernisation and investment, yet modernisation takes capital and commercial disciplines that I am afraid Royal Mail simply does not have at the moment. Let us remember that the taxpayer has made £1.2 billion available to Royal Mail since 2007 to support the current modernisation programme.

Frankly, if we are serious about dealing with the problems, we will have to modernise and invest much more. So where will the money come from? I am afraid that economic times have changed. There is enormous pressure, as every Member must realise, on the public purse. We simply cannot expect taxpayers to continue to provide the ongoing investment that Royal Mail needs when it could be supplied by the private sector, as has been shown with Deutsche Post in Germany, which has seen massive investment since it was first floated in 2001. This is not just a question of cash: Royal Mail needs private sector disciplines and the freedom from Government intervention to innovate and take the right commercial decisions to secure its future.

I say to the hon. Gentleman that we have a choice: to do nothing and allow Royal Mail to slip into a slow decline, requiring ever-increasing handouts from the taxpayer; or to take action, which I will come to.

[Margaret Curran]

The Minister referred to working practices that he believes are causing difficulties. Will he outline what those practices are, and say how the Government intend to change them?

[Mr Davey]

I refer the hon. Lady to the agreement reached by the Communication Workers Union and Royal Mail recently, which looks at significant reforms to working practices. For example, I strongly support the fact that the CWU has agreed to a reduction in the number of sorting offices in order to reduce costs. That kind of change is very welcome.

[Gregg McClymont]

I have been listening intently to what the Minister has said and, as far as I can tell, he is replying to a speech that I did not make. I am asking whether the licence criteria, as currently constituted, protect the 11,500 post offices in the UK and the 1,400 post offices in Scotland. Unless I am mistaken, he has not addressed that point yet, and I hope that he will be able to do so.

[Mr Davey]

I thought that I had made it clear that, under this Government we will see no major programme of closures as we did under the previous Government. The hon. Gentleman will know the number of post offices that closed in his constituency. There were six, and I can list them. Greenfaulds, Queenzieburn, Banton, Rosebank, Waterside and Kildrum all closed in his constituency under the previous Government, and we will not see such a closure programme again.

[Gregg McClymont]

rose—

[Mr Davey]

Does the hon. Gentleman wish to intervene? I hope that he is going to apologise for those closures.

[Gregg McClymont]

I understand the determination in a political culture to ask people to apologise for things in which they played no role. I do not intend to go down that route. The Minister has given an undertaking to protect the level of Post Office services, but he has not explained how he intends to do it, beyond making some rather vague allusions to the path that the Post Office might go down in the future. I say again that, in my estimation, the licence criteria as currently written can be met only by 7,500 post offices, and I am waiting with great interest to hear something specific about how the 4,000 post offices are to be maintained.

[Mr Davey]

Over the next few weeks and months the hon. Gentleman will hear a huge amount about our proposals to ensure that we can make good on our pledge not to repeat Labour’s mass closure programme. I have already mentioned the extra revenues—whether from Government services or financial services—that will form a critical part of delivering on that. Frankly, it is not through regulation that we will save the post office network; it is by getting business through the network so that sub-postmasters can have a decent income and post offices can be financially viable. That is the way to do it.

[Cathy Jamieson]

Given that the Minister believes that a number of the previous post office closures were wrong, what provision will he make for the communities that wish their post offices to be reopened?

[Mr Davey]

As the hon. Lady will see in the weeks ahead, we want to empower communities and to ensure that the post office network is financially viable for the long term. She will have to wait until she hears this Government’s full policy statement, but I hope that she will support it. We saw 5,000 post offices close across the UK under the previous Government, and we will not see a repeat of that. Those closures left my constituents—and, no doubt, those of the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East—far worse off than they were before.

I should like to continue, as I want to deal with an issue that the hon. Gentleman spent some time on. This Government have made a clear choice. We will take action to safeguard Royal Mail and its universal service—the six-day, one-price-goes-anywhere service that is so essential to consumers, small businesses and rural communities. I recognise the hon. Gentleman’s particular interest in this matter, as that service is highly valued in Scotland, as it is in other extensive rural and remote areas of the UK. He was right to make that point.

Protecting the universal service is our primary objective. That means giving Royal Mail the access to the private sector capital and disciplines that it needs to modernise, innovate and thrive in the modern communications market; it means putting in place a regulatory regime that recognises that post is now competing in a wider communications market; it means giving the regulator an increased focus on safeguarding the universal service, regardless of who owns Royal Mail; and it means making sure that postmen and women have a real stake in the future success of the company. That is why we will be introducing the largest employee share scheme in a privatisation for 25 years—bigger than that of British Gas, BT or British Airways. Indeed, as a percentage of the shares, it will be the largest employee share scheme of any major privatisation. I firmly believe that our proposals for an employee share scheme will help to increase engagement and productivity, and will align the long-term interests of the company with those of its employees.

Let me return to the hon. Gentleman’s specific concern. Some have said that privatisation will lead to a degraded service, but they are wrong. The forthcoming postal services Bill will be all about protecting the universal postal service by establishing new, stronger safeguards and a firmer focus on its continued provision.

I do not know whether the hon. Gentleman is aware that our obligation under EU law is to a lesser service than the one that we currently enjoy in the UK. When it comes to the universal postal service and the minimum service that member states are required to provide, the European postal directive specifies only five days per week, with no obligation to keep the service uniform throughout the UK. I am sure that, as one who comes from Scotland, the hon. Gentleman agrees that a non-uniform service would be unacceptable here in the UK. However, the power to downgrade our service to that level already exists, and could be used by a future Government without a parliamentary vote or any need for consultation. That is completely unacceptable to me.

As I said earlier, I intend to establish new, stronger safeguards for the universal service. The Government have no intention of downgrading the service, and will never allow a situation in which the service required in one area of the country is not the same as that required in another. I hope that the hon. Gentleman will support the safeguards in the Bill when they are debated in the House, because they relate to the very points that he has made so eloquently tonight.

The measures that I have described will ensure that our communities continue to benefit from a vibrant post office network and a reliable universal postal service. Safeguarding the Post Office and the universal postal service is at the very heart of the Government’s policy, and I hope that I have been able to reassure the hon. Gentleman on that point.

Question put and agreed to.

22:27

House adjourned.