House of Commons

Wednesday 14th March 2012 Commons Chamber

Wednesday 14 March 2012

The House met at half-past Eleven o’clock

Prayers

Wednesday 14th March 2012 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Wednesday 14th March 2012 Commons Chamber

The Secretary of State was asked—

[Martin Horwood (Cheltenham) (LD)]

1. What support his Department is providing to assist with the humanitarian situation in Syria.

[The Secretary of State for International Development (Mr Andrew Mitchell)]

We have given direct support to 20,000 families for food rations, medical supplies and emergency water. We are today announcing additional support for humanitarian aid.

[Martin Horwood]

The massacres unfolding at the hands of the murderous Assad regime are now being compared to great humanitarian tragedies such as Srebrenica. Unhindered humanitarian access is desperately needed. Has the recent Valerie Amos mission on behalf of the United Nations offered any hope whatever?

[Mr Mitchell]

Any hope from that mission is severely limited. At the weekend I spoke to Baroness Amos, the head of the United Nations Office for the Co-ordination of Humanitarian Affairs, and on Monday night I spoke to Jakob Kellenberger, the head of the International Committee of the Red Cross. We continue to reflect the horror and indignation at what is happening in Syria—as my hon. Friend expressed—and to demand unfettered access for all humanitarian agencies.

[Mr Wayne David (Caerphilly) (Lab)]

13. Will the Government give a commitment that maximum pressure will be put on Russia in particular to ensure that it plays a far more positive role in future?

[Mr Mitchell]

The hon. Gentleman is entirely right to identify Russia as the key blocker to international agreement and to taking effective action on humanitarian relief, and more widely, in Syria. This subject is very dear to the heart of the Foreign Secretary, and he has repeatedly raised it in New York.

[Rushanara Ali (Bethnal Green and Bow) (Lab)]

I welcome the Government’s efforts to secure humanitarian access to help the people of Syria, but what steps are being taken to protect the estimated 230,000 internal and external refugees fleeing the violence, especially in light of reports that the Syrian regime is laying mines along the routes to the borders with Lebanon and Turkey?

[Mr Mitchell]

The hon. Lady rightly flags up the plight of those who have been forced to leave their homes, and not only the refugees who have fled across the border, but the internally displaced people. That is why some of our specific support goes to help 5,500 people who are in Syria and who have been forced to leave their homes.

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

2. What funding his Department has allocated to the Palestinian territories in 2011-12.

[The Secretary of State for International Development (Mr Andrew Mitchell)]

The UK has allocated funding for Palestinian development to help build a future Palestinian state that is stable, prosperous and an effective partner for peace.

[Andrew Percy]

I am sure the Secretary of State agrees that it is imperative that any funds provided by this country to the Palestinian Authority go towards securing the Quartet principles. Does he therefore share my concern that there are still Palestinian textbooks that contain anti-Christian, anti-western and anti-Israeli sentiments? Can he assure me that his Department is doing everything possible to ensure that no British taxpayer money is being used to fund textbooks of that sort?

[Mr Mitchell]

I have looked very carefully into this issue, not least because I know of my hon. Friend’s interest in it, and I have found no evidence in Palestinian school textbooks of what he describes. I was in Gaza just before Christmas, and I raised the specific matter then. I am sure my hon. Friend will share my pleasure in the fact that the State Department in America has set up an inquiry to examine the quality of both Israeli and Palestinian textbooks and will be reporting later this year, probably in the autumn. He and I will, no doubt, look with great interest at what the report has to say.

[Richard Burden (Birmingham, Northfield) (Lab)]

I was in Gaza at the weekend, as it witnessed the biggest escalation in Israeli air strikes and Palestinian rockets for three years. Although we all hope that the current truce holds, does the Secretary of State agree that the ongoing and daily madness of Israel’s blockade is illustrated by the fact that it incentivises a few to make millions from a tunnel economy and benefits armed groups, while legitimate Palestinian businesses cannot export, the UN cannot get the materials it needs to rebuild shattered schools and hospitals, and the poor are forced to rely on food handouts?

[Mr Mitchell]

The hon. Gentleman makes a reasonable point about the effects of this action in terms of the Palestinian economy, but he will know that the Government’s position is clear: we urge both sides to desist from the actions he has described.

[Robert Halfon (Harlow) (Con)]

Given that many hundreds of missiles have been fired from Gaza into Israel—some armed with ball-bearings and causing enormous hardship to many—will my right hon. Friend use the levers of aid to put pressure on the Gaza authorities and Hamas to stop firing them?

[Mr Mitchell]

I had an opportunity on a recent trip to Israel to visit Sderot and see for myself the effects of what my hon. Friend is describing. British development policy on Palestine is very clear: we concentrate on state building and strengthening financial management by public authorities; we support the private sector on growth, reducing unemployment and eliminating poverty; and we are working closely with the United Nations Relief and Works Agency and the World Food Programme on issues of humanitarian relief. I will, however, take on board the point he is making.

[Dame Joan Ruddock (Lewisham, Deptford) (Lab)]

The last time I was in Gaza the thing I thought was most cruel was the denial to the Palestinians of their land—35% of their land—and of 85% of their fishing rights. Does the Secretary of State agree that it would be so much better if people could produce food for themselves and for the local economy, and were not reliant on food aid?

[Mr Mitchell]

The right hon. Lady is entirely right to say that it is much better to produce food in a sustainable way than to have to rely on food aid, and that is one of the policies we are pursing vigorously around the world. However, as she will know, the answer is for both parties in this long, protracted and bitter dispute to negotiate with each other in good faith. That is the way in which we will reach a two-state solution.

[Ann McKechin (Glasgow North) (Lab)]

3. What steps his Department is taking to address governance issues in the Democratic Republic of the Congo.[Official Report, 26 March 2012, Vol. 542, c. 4MC.]

[The Parliamentary Under-Secretary of State for International Development (Mr Stephen O'Brien)]

Good governance is central to improving the lives of the Congolese people. We supported voter education for 2 million citizens; we are working to increase mining revenues by a total of $2.8 billion over 10 years through improved transparency; we are empowering 2,500 communities to control their own development; and we are strengthening public financial management in the DRC.

[Ann McKechin]

I am grateful to the Minister for his response, but he will be aware of the significant legal challenges to the elections that have just been held in the DRC and of the level of violence that has occurred in that country over many years, which has caused the deaths of more than 3 million people. What steps are the Government taking to work with the international community to ensure that good governance and the safety of the population is our priority in the weeks to come, as we await this outcome?

[Mr O'Brien]

The hon. Lady is entirely correct to say that this is a large challenge facing the Congolese people. We are working to review the priorities for future funding on the question of elections through the CENI, the DRC’s electoral commission. We are also urging the CENI to carry out an in-depth investigation into all the allegations. Good governance and, in particular, access to justice, not least for women and girls and in response to sexual violence and violent crimes, is one of the areas in which we are seeking to make strengthening partnerships.

[Lyn Brown (West Ham) (Lab)]

4. What proportion of his Department’s budget support was spent on projects promoting women’s rights and empowerment in the last year for which figures are available.

[The Minister of State, Department for International Development (Mr Alan Duncan)]

In DFID, we put girls and women at the heart of everything we do. DFID’s strategic vision for girls and women, launched last March, sets out four priority areas for greater action in all its 28 country programmes. It is not, however, possible to calculate the precise proportion of our budget that is spent on that.

[Lyn Brown]

I am grateful for that reply. Given President Karzai’s support for the ulema council’s statement, which classified women as “secondary”, what representations have the UK Government made to him on this issue? What projects are the Department developing specifically to promote Afghan women’s social and political rights, and participation?

[Mr Duncan]

Supporting girls and women is an integral part of the UK’s work in Afghanistan. We support initiatives to increase girls’ education and access to finance, and to increase women’s participation in governance. For example, we fund the gender unit in Afghanistan’s independent electoral commission.

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

I welcome the Government’s approach to putting women at the heart of international development efforts, especially the most recent drive to combat domestic violence and trafficking in the poorest countries. Will my right hon. Friend give some more information about how that will work in the forthcoming months and years?

[Mr Duncan]

My hon. Friend the Minister for Equalities is the UK’s ministerial champion on tackling violence against women and girls overseas. She has made successful visits to India and Nepal, for example, to raise awareness of this agenda, and DFID has increased its focus in 25 out of our 28 bilateral programmes to tackle violence against women.

[Ann Clwyd (Cynon Valley) (Lab)]

In assisting women’s groups in Egypt, the Select Committee on Foreign Affairs recently went on a visit and met some of them. One of the issues raised with us, particularly by women who had demonstrated in Tahrir square, was the forced virginity tests that many of them had to undertake. A military court has just acquitted the doctor responsible of the charges against him. Will the Minister raise this issue in conversations with any Egyptian counterparts?

[Mr Duncan]

The answer to the right hon. Lady’s question is most definitely yes. We are working through the Arab partnership that we set up specifically to encourage groups, and women in particular, in developing countries following the Arab spring. The agenda that the right hon. Lady has championed for many years is one that we share.

[Harriett Baldwin (West Worcestershire) (Con)]

5. What recent assessment he has made of the development situation in Ethiopia.

[The Secretary of State for International Development (Mr Andrew Mitchell)]

Ethiopia is making real progress in development and Britain’s programme plays a crucial role, as I saw for myself on the ground during January.

[Harriett Baldwin]

As my entry in the register shows, I travelled with Save the Children to Ethiopia during the February recess and I saw at first hand how UK aid is saving children’s lives in remote parts of the country. Will my right hon. Friend update the House on how UK aid is helping with malnutrition in Ethiopia and other parts of the world?

[Mr Mitchell]

I thank my hon. Friend for making that visit with Save the Children. I know she has both great interest and great expertise in that area. She asks about the results, and last year Britain secured provision so that some 1.7 million children are getting into school. We have also conducted a very successful pilot programme to help eradicate early marriage. Over the next four years, Britain will help to ensure that some 2 million children are able to go to school in Ethiopia.

[Fiona Bruce (Congleton) (Con)]

6. What steps his Department is taking to tackle malaria in developing countries.

[The Parliamentary Under-Secretary of State for International Development (Mr Stephen O'Brien)]

The UK Government are committed to helping halve malaria deaths in at least 10 of the worst affected countries by 2015. We will achieve that through support to country programmes and through multilateral channels. I recently visited Kenya, a country where DFID has provided 20 million bed nets. Those nets have played a part in the 40% reduction in child deaths over the past five years.

[Fiona Bruce]

I thank the Minister for that reply. Will he consider a discrete programme to support malaria treatment in a hospital in Kaesong in north Korea, where a remarkable South Korean doctor, Dr Kim—who spoke in Westminster recently—and his team attend the medical needs of thousands of North Koreans and have identified malaria as one of their most pressing problems?

[Mr O'Brien]

My right hon. Friend the Secretary of State also had the opportunity to meet the doctor and admire the great work that is being done. It is right that our methodology for support should be through our investment in the various multilateral organisations, such as the World Health Organisation and UNICEF. Working in the Democratic People’s Republic of Korea on that basis represents the best way to help the people of that republic.

[Mr Gregory Campbell (East Londonderry) (DUP)]

Many faith-based groups are doing excellent work on the continent of Africa. Will the Minister assure the House that those faith-based groups that carry out excellent work in education and in treating malaria can be of assistance in trying to combat its spread?

[Mr O'Brien]

Not only could such groups be of assistance, but they already are of great assistance. There are many examples of faith-based groups and others that are helping and complementing the national malaria control programmes and many of the large international programmes. We have set up a group in our Department to work with the Synod to consider precisely what more can be done and how that assistance and complementary activity can be more effective.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

One of the key players in eradicating malaria is the Global Fund to Fight AIDS, Tuberculosis and Malaria. Will the Government consider calling an emergency replenishment conference to increase the funds for that organisation so that it can work further and faster towards eradicating the diseases, saving money in the long run on treatment?

[Mr O'Brien]

The hon. Gentleman makes a valid point. The global health fund is making a significant contribution to the eradication of malaria over time as well as to combating HIV/AIDS and TB. With the cancellation of round 11, there is now a question mark over how we can continue the funding. I can assure him that the UK’s pledge of £1 billion between 2008 and 2015, of which we have contributed £638 million to date, is showing the UK’s leadership. We stand ready to make further funding available when the reforms that we want to see have been put through.

[Sheila Gilmore (Edinburgh East) (Lab)]

7. What recent progress he has made in bringing forward legislative proposals to set official development assistance at 0.7% of gross national product.

[The Secretary of State for International Development (Mr Andrew Mitchell)]

The coalition Government have set out how we will stand by the United Kingdom’s promise to invest 0.7% of national income as aid from 2013. The Bill is ready and we will legislate when parliamentary time allows.

[Sheila Gilmore]

May I therefore take from that answer that the Bill will be in the forthcoming Queen’s Speech?

[Mr Mitchell]

It would be quite wrong of me to anticipate the contents of the Gracious Speech, but as I have explained, the Bill is ready to go and will proceed when parliamentary time permits.

[Mr Peter Bone (Wellingborough) (Con)]

Does the very able Secretary of State—[Laughter]—no, genuinely, the very able Secretary of State. Does he understand the concern in the country that the overseas aid budget is to increase from £8 billion to £12 billion because of this commitment while brave men and women in our armed forces are being sacked because of the cuts?

[Mr Mitchell]

As I have said to my hon. Friend before, I yield to no one in my respect for the armed forces having served in the Army myself. However, Britain’s development budget is spent very much in Britain’s national interests. We do it because it is the right thing to do and because it is hugely in our national interests. There is enormous support across the country, which is not always reflected in all our tabloids, for Britain’s very strong commitment to this important policy area.

[Mr Ivan Lewis (Bury South) (Lab)]

The Secretary of State has been unable to give hon. Members a cast-iron guarantee today that the 0.7% legislation promised by the coalition parties will be in the Queen’s Speech. Can he now assure the House that he has made it clear to the Chancellor that any retreat in the Budget on the Government’s commitment to spend 0.7% on aid by 2013 would be a broken promise? It would be another nail in the coffin of the Prime Minister’s claim to have changed the Conservative party.

[Mr Mitchell]

The hon. Gentleman has set up a straw man that he knows to be untrue. We are the first Government in history who have set out very clearly precisely how we will reach the 0.7% target. As I have made very clear, the Bill inevitably has to take its place in the queue behind essential legislation for rescuing the country from the perilous economic condition inherited from the Government of whom he was a part.

[Ian Lavery (Wansbeck) (Lab)]

8. What his policy is on the production of biofuels in developing countries.

[The Parliamentary Under-Secretary of State for International Development (Mr Stephen O'Brien)]

The Government recognise the threats and opportunities for economic growth, poverty reduction and food security related to the expansion of biofuel production in developing countries, and that they are important subjects for analysis and debate.

[Ian Lavery]

Does the Minister agree that the development of biofuels, particularly in developing countries, should not be at the expense of ordinary people’s human rights, particularly with regard to water, insufficient food, health and workers’ rights? Will he outline the Government’s policy on biofuels?

[Mr O'Brien]

The hon. Gentleman is quite right to highlight the challenges and opportunities represented by biofuels, particularly in developing countries, and he ties those issues to human rights. UK biofuels policy is set by the Department for Transport, but I assure him that my Department continues constantly and rigorously to review the evidence on the impact of biofuel production in developing countries, not least in relation to land and water rights.

[Mr Edward Leigh (Gainsborough) (Con)]

9. What recent assessment he has made of the humanitarian situation in Somalia.

[The Secretary of State for International Development (Mr Andrew Mitchell)]

Thanks to British aid and support, the lives of hundreds of thousands of Somalis have been saved, but insecurity and drought continue to threaten lives, as I saw during my visits in recent months to Puntland, Mogadishu and Dolow, and to Hargeisa in Somaliland.

[Mr Leigh]

The Somalia conference, which my right hon. Friends organised, was a huge success with great hoo-hah, but now that the press caravan has moved on can the Secretary of State assure us that Somalia and its desperately sad situation remain central to his concerns?

[Mr Mitchell]

My hon. Friend is entirely right to identify the conference on Somalia organised by the Prime Minister as the beginning and not the end of the process. Certainly, there will be an absolute commitment across Whitehall to drive forward the results of that conference and make them meaningful on the ground in the way that my hon. Friend describes.

[Graham Jones (Hyndburn) (Lab)]

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

[The Secretary of State for International Development (Mr Andrew Mitchell)]

My Department is heavily engaged in achieving the development results set out to Parliament a year ago in the bilateral and multilateral aid reviews. Those include securing education for at least 11 million children, saving the lives of 50,000 women in childbirth, and getting clean water and sanitation to more people than live in the whole of the United Kingdom. Britain is also heavily engaged in difficult humanitarian situations around the world, including in Syria.

[Graham Jones]

On 24 February, Israeli authorities approved 500 new homes in the west bank settlement of Shiloh and retroactively legalised more than 200 built-without-permits, some in the settler outpost of Shvut Rachel. What does the Minister say to his colleagues in Israel to try to stop these illegal developments?

[Mr Mitchell]

As the hon. Gentleman makes clear, these settlements are illegal and the Foreign Secretary has made that absolutely clear to his opposite numbers, as did I when I visited Israel, the west bank and Gaza just before Christmas. [Interruption.]

[Mr Speaker]

Order. May we have some order in the Chamber? There are far too many noisy private conversations when we are discussing the plight of the poorest people on the face of the planet.

[Gordon Henderson (Sittingbourne and Sheppey) (Con)]

T2. What is my right hon. Friend doing to ensure that British funds provided to the United Nations Relief and Works Agency are not abused in a way that undermines the middle east peace process?

[Mr Andrew Mitchell]

I can tell my hon. Friend that I have looked in detail at that, not least because of the point that my hon. Friend the Member for Harlow (Robert Halfon) made earlier, and not least because during the latter part of last year I spent time with UNRWA in Gaza. We are very clear that the funds that we are allocating to UNWRA are buying the results that we have agreed they should buy.

[Tony Cunningham (Workington) (Lab)]

Last week the target was met on access to safe water, yet diarrhoea continues to be the biggest killer of children in Africa and the second biggest killer in south Asia. What priority is the Department giving to sanitation?

[Mr Mitchell]

The hon. Gentleman is absolutely right to flag up the importance of clean water and sanitation. That is why in the bilateral and multilateral reviews last year we set out clearly that this Government would seek to ensure over the next four years that we get clean water and sanitation to more people than live in the whole of the United Kingdom.

[Mr Edward Leigh (Gainsborough) (Con)]

T3. The people of Somaliland have deep wells of friendship towards this country and they have made a success of their country, unlike Somalia as a whole. Is it not about time that we recognised their independence?

[Mr Mitchell]

The Foreign Secretary has set out clearly the need to resolve some disputes which affect the land space of Puntland and Somaliland, but that the issue of the future of Somaliland is a matter for Somaliland, Somalia and the surrounding countries. [Interruption.]

[Mr Speaker]

Order. May we have a bit of order so that the House can hear Mr Graham Allen?

[Mr Graham Allen (Nottingham North) (Lab)]

T5. Will the Secretary of State commit not only to work on further food and shelter developments for the people who need them throughout the globe, but to look at the social and emotional development of the children and families of those suffering areas, and to learn from some of the early intervention techniques being pioneered in this country?

[Mr Andrew Mitchell]

I am grateful to the hon. Gentleman for giving me notice of this question. I have considered it in some detail. I agree with him about the importance of early intervention. Much of the Department’s work in relation to the early years is to try to make sure that contraception is available to women so that they can space their children and decide whether or not they want children; to focus particularly on nutrition, the lack of which causes stunting; and to get children, particularly girls, into school. I believe that those three things at least contribute to the agenda that the hon. Gentleman so wisely champions.

[Andrew Stephenson (Pendle) (Con)]

T4. As many residents of Pendle have friends or family in Kashmir, will my right hon. Friend update the House on the progress of reconstruction work and aid following the 2005 earthquake?

[Mr Mitchell]

My hon. Friend is right to point to the important work that is going on in Kashmir, not least following the earthquake. I can tell him that work has recently been completed. We have refurbished some 37 schools, affecting 10,000 children, and we have also managed to rebuild 35 bridges and secure about 66,000 latrines.

[Graeme Morrice (Livingston) (Lab)]

T8. Next Thursday is world water day, when we recognise that 743 million people worldwide do not have access to safe water, and more than 2.6 billion live without proper sanitation. Although I welcome the announcement last week that we have met one of the access to water millennium development goals targets, can the Secretary of State tell the House what ministerial representation the Government will have at the high-level meeting of Sanitation and Water for All on 20 April?

[Mr Mitchell]

The hon. Gentleman is entirely right to emphasise the importance of this. I referred earlier to the Government’s commitment on water and sanitation, and it is because of the importance of the agenda he has identified that I will be attending the conference myself.

[Tony Baldry (Banbury) (Con)]

Will my right hon. Friend confirm that the whole of the DFID budget is effectively allocated and that, if non-governmental organisations or others exhort him to spend more money on one aspect of international development, however worthwhile, it behoves them to explain where in the departmental budget other savings need to be made?

[Mr Mitchell]

My hon. Friend is absolutely right. The whole of the international development budget now focuses on outputs and outcomes, buying results, with the added extra that we now have an independent watchdog that can assure taxpayers that the money is really well spent.

[Mr Speaker]

Last, but never least, Sir Gerald Kaufman.

[Sir Gerald Kaufman (Manchester, Gorton) (Lab)]

In thanking the right hon. Gentleman for the way he dedicates himself to alleviating the suffering of the Palestinian people and congratulating him on the trouble he takes to go there and see for himself, may I ask him, with regard to textbooks for Palestinian children and children in Gaza, whether it would be valuable if there were schools in which they could study, in view of the large number of schools destroyed by the Israelis and their refusal to allow building materials in to rebuild them?

[Mr Mitchell]

The right hon. Gentleman, who has long and distinguished experience in championing this area, is entirely right. We will be meeting UNRWA on Monday, but I have seen for myself the effective way it is working to alleviate suffering and promote education in Gaza and elsewhere.

The Prime Minister was asked—

[Liz Kendall (Leicester West) (Lab)]

Q1. If he will list his official engagements for Wednesday 14 March.

[The Deputy Prime Minister (Mr Nick Clegg)]

I have been asked to reply, as my right hon. Friend the Prime Minister is visiting the United States for meetings with President Obama.

I am sure that the whole House will want to join me in sending our deepest condolences to the families and friends of the servicemen who died in Afghanistan last Tuesday: Sergeant Nigel Coupe from 1st Battalion the Duke of Lancaster’s Regiment, and Corporal Jake Hartley, Private Anton Frampton, Private Chris Kershaw, Private Daniel Wade and Private Daniel Wilford, all from 3rd Battalion the Yorkshire Regiment. These were men of outstanding courage and selflessness. This tragic incident will long be remembered by our nation, because it reminds us all of the immense danger that our armed forces regularly endure to guarantee the safety and security of our country.

We are also deeply shocked by the appalling news that a number of Afghan civilians were wounded and killed in Afghanistan on Sunday morning and send our sincere sympathies to the victims and families who have been affected by this terrible incident.

This morning I had meetings with ministerial colleagues and others. In addition to my duties in this House, I shall have further such meetings later today.

[Liz Kendall]

I would like to associate myself with the Deputy Prime Minister’s comments on the tragic events in Afghanistan. I am sure that Members on both sides of the House express our deepest sympathies for the families who have lost loved ones at this deeply distressing time.

Today the Prime Minister is in America, where unemployment is coming down and the economy is growing. In Britain, unemployment is now at its highest level for 17 years and the economy is flatlining. Will the Deputy Prime Minister explain what has gone wrong?

[The Deputy Prime Minister]

What went wrong was the Labour Government for 13 years. They created the most unholy mess in 2008, which we are now having to clear up. The only way to get the economy moving is to fix the deficit, get banks lending money again and make sure we have a tax and benefits system that pays people to work.

[Mr John Redwood (Wokingham) (Con)]

Will the Deputy Prime Minister introduce a freedom Bill to get rid of a lot of bossy and unloved regulations?

[The Deputy Prime Minister]

As my right hon. Friend knows, we have already introduced a large set of measures that have removed a lot of unnecessary clutter from the statute book, and we will grab any further opportunities to do so with open arms.

[Ms Harriet Harman (Camberwell and Peckham) (Lab)]

I join the Deputy Prime Minister in paying tribute to Sergeant Nigel Coupe, of 1st Battalion the Duke of Lancaster’s Regiment, and from 3rd Battalion the Yorkshire Regiment Corporal Jake Hartley, Private Anthony Frampton, Private Christopher Kershaw, Private Daniel Wade and Private Daniel Wilford. They died in tragic circumstances, serving our country with bravery and with determination. Their deaths remind us of the great sacrifice that our armed services make on our behalf, and our thoughts are with their families.

I join the Deputy Prime Minister also in expressing our horror at the appalling murder in Afghanistan on Sunday of 16 civilians, including nine children. We all deplore that crime and offer our deepest condolences.

Today’s figures show unemployment up, and the hardest hit are young people looking for work and women being thrown out of work. The Deputy Prime Minister says that the Liberal Democrats are making a difference in this Government. With more than 1 million women looking for work, what difference does he believe he has made to those women?

[The Deputy Prime Minister]

Of course any increase in unemployment is disappointing. It is a personal tragedy for anyone who loses their job—for them and their families. The right hon. and learned Lady should be careful, however, not to pretend that somehow this is a problem which was invented by this Government. Let us remember that unemployment among women went up by 24% under Labour. Youth unemployment went up by 40% under Labour—remorselessly from 2004. I suggest that we all need to work together to bring unemployment down.

[Ms Harman]

When we left government unemployment was coming down, and this Government’s economic policy is not only driving up unemployment but means that they will have to borrow more. It is hurting but it certainly is not working. For all the right hon. Gentleman’s bluster, the truth is that having five Liberal Democrats seated around the Cabinet table has made no difference whatsoever. This is what the Business Secretary said on economic policy: he said that this Government have no “compelling vision”. These days no one agrees with Nick, but does Nick agree with Vince?

[The Deputy Prime Minister]

It is worth dwelling on some of the details that have been published this morning on the unemployment statistics, because behind the headline figures long-term unemployment actually came down in the quarterly figures, and very importantly the number of new jobs created in the private sector outstripped the number of jobs lost in the public sector. Under the right hon. and learned Lady’s Government, the Labour party sucked up to the City of London and over-relied on jobs in the public sector. We are now having to remedy those mistakes, and we are creating new jobs in the private sector.

[Ms Harman]

The right hon. Gentleman is complacent about unemployment under his Government, and the Lib Dems are making no difference on unemployment, just as they are making no difference on the NHS.

When it comes to the NHS, the Deputy Prime Minister obviously thinks that he is doing a stunning job, so will he explain why he has failed to persuade the doctors, the nurses, the midwives, the paediatricians, the physicians, the physiotherapists and the patients?

[The Deputy Prime Minister]

The Labour party used to believe in reform. Now it believes in starving the NHS of cash and is failing to provide any reform. The right hon. and learned Lady’s own party manifesto in 2010 said—

[Hon. Members]

Answer!

[Mr Speaker]

Order. We must hear the response from the Deputy Prime Minister.

[The Deputy Prime Minister]

Indeed. The right hon. and learned Lady’s own party manifesto said that

“to safeguard the NHS in tougher fiscal times, we need sustained reform.”

The Labour party was right then and is wrong now. What happened?

[Ms Harman]

We are proud of what Labour did when we were in government: more doctors, more nurses, shorter waiting times, greater patient satisfaction. No one believes the right hon. Gentleman. It is no wonder that he cannot convince those who work in the health service; he cannot even convince his own conference. Does he not realise that people are still against the Bill because it has not changed one bit? It is still a top-down reorganisation—

[Hon. Members]

What?

[Mr Speaker]

Order. I said a moment ago that the Deputy Prime Minister’s response must be heard. The question from the deputy leader of the Labour party will be heard. That is the be-all and end-all of it.

[Ms Harman]

The Bill is still a top-down reorganisation, it is still going to cost the NHS a fortune, and it is still going to lead to fragmentation and privatisation. It is clear that the Deputy Prime Minister will not stand up for the NHS—the only thing he stands up for is when the Prime Minister walks into the room.

[The Deputy Prime Minister]

Some of the right hon. and learned Lady’s colleagues must think that the Liberal Democrats make a difference, because they were handing out leaflets at our conference in Gateshead while her leader was throwing a sickie and going to watch Hull City play football instead. She says that she is proud of Labour’s record. Is she proud of the fact that her Government spent £250 million of taxpayers’ money on sweetheart deals with the private sector that did not help a single NHS patient? Is she proud of the fact that the Health Act 2006, which the hon. Member for Leicester West (Liz Kendall) worked on, was a privatiser’s charter in which her Government offered an 11% premium to the private sector to undercut the NHS?

[Ms Harman]

We will compare what our Government did—[Interruption.]

[Mr Speaker]

Order. Some Members who are perhaps not initiated in the proceedings of Prime Minister’s Questions are yelling “Answer!” I remind the House that in these matters the Prime Minister or the Deputy Prime Minister does the answering; that is the situation.

[Ms Harman]

We will compare what our Government did on the NHS with what the Deputy Prime Minister’s Government are doing any day. He says that the problem with the Bill is that doctors and nurses just do not understand it, but the problem is that they do. However, even at this late stage it is within his power to stop the Bill. Next Monday, the Bill reaches its final stage in the House of Lords. There are 90 Lib Dem peers, and their votes will decide whether the Bill becomes law. Will he instruct Shirley Williams and his peers to vote to stop the Bill?

[The Deputy Prime Minister]

The right hon. and learned Lady has invited me to make a comparison. Let me make three comparisons. [Interruption.]

[Mr Speaker]

Order. I say it again: the Deputy Prime Minister’s response must be heard, and that is all there is to it.

[The Deputy Prime Minister]

The right hon. and learned Lady has invited me to make comparisons; let me make three comparisons. The shadow Health Secretary has said:

“It is irresponsible to increase NHS spending”.

So Labour Members do not believe in more money for the NHS; we do. That is comparison No. 1. Secondly, Labour Members indulged the private sector with sweetheart deals, which we are making illegal in the Bill. They want sweetheart deals with the private sector; we do not. Thirdly, they presided over inequality in the NHS; we are including a statutory obligation in the Bill to deliver more equal outcomes in the NHS, which they failed to deliver in 13 years.

[Ms Harman]

That is absolute rubbish. In undermining the NHS and making Shirley Williams vote for it, the Deputy Prime Minister has trashed not one but two national treasures. He did not need to sign the Bill, but he did. He could stop the Bill, but he will not. He says that the Lib Dems make a difference, but they do not. What has happened to that fine Liberal tradition? They must be turning in their graves: the party of William Gladstone; the party of David Lloyd George: now the party of Nick Clegg.

[The Deputy Prime Minister]

I know that the right hon. and learned Lady has her prepared script which she sticks to religiously, but it is worth having a question and answer session; that is what this whole thing is actually about. What we are doing—the two parties that have come together in the coalition—is to sort out the banking system, which she left in a mess; to sort out the public finances, which she left in a mess; to sort out the economy, which she left in a mess; and to stop the arbitrary privatisation of the NHS, which she left in a mess. Do you know what? In government, the Labour party ran out of money; in opposition, it is running out of ideas.

[Lorely Burt (Solihull) (LD)]

My right hon. Friend may be aware of the figures that were released this week, which show that there has at least been some progress towards the target of 25% of places on boards being filled by women by 2015. What will the coalition Government do to ensure that they meet that target and enrich our boards with a diversity of talent that will help to achieve the growth that our country needs?

[The Deputy Prime Minister]

It is excellent news that there has been real progress in the few short months in which we have been in government—far more progress than was delivered in 13 years under Labour—to get more women on to our boards. I think that everybody now agrees with the consensus that having more women on boards is good for all companies. There has been a woefully unrepresentative mix on our boards. I very much hope that we will continue to apply the right kind of voluntary pressure to see the representation of women increase further.

[Mrs Mary Glindon (North Tyneside) (Lab)]

Q2. I sincerely hope that the Deputy Prime Minister enjoyed our famous north-east hospitality and the support of Northumbria police at his spring conference in Gateshead. Will he tell the House when the 3,000 extra police he promised at the general election will be in post?

[The Deputy Prime Minister]

As the hon. Lady’s party acknowledges, the police need to make savings. The key thing is not what the total number is, but where the police—[Interruption.]

[Mr Speaker]

Order. I do not know what hon. Members have had for breakfast, but I want no part of it. The Deputy Prime Minister’s answers must be heard.

[The Deputy Prime Minister]

The key thing is whether police officers are properly deployed. Over the past decade, far too many police officers have been tied up in knots, filling out paperwork in the back office, rather than being out in our communities and on the streets where they belong.

[Mr Peter Lilley (Hitchin and Harpenden) (Con)]

Does my right hon. Friend share the priorities of my constituents, who believe that this Parliament should focus its attention on cutting the deficit, promoting growth and getting people off welfare and into work? They would be bemused if they learned that we were to spend much of our time discussing the reform of the House of Lords. How shall I explain that priority to them?

[The Deputy Prime Minister]

I suspect that my right hon. Friend will do so in the same way as he will no doubt explain to his constituents that there are other priorities, such as changing the boundaries of constituencies, which I know is close to his heart and that of his party. I think that Governments and Parliaments can do more than one thing at once. I also believe that it is a simple democratic principle that the people who make the laws of the land should be elected by the people who have to obey the laws of the land.

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

Q3. Mr Deputy Speaker—[Interruption.] My apologies, Mr Speaker. It is elsewhere that the deputies are present today. Study after study shows that it is crucial for older people that NHS services work closely with social care. My primary care trust in Blackpool has been doing that by working alongside the council’s social services in the same set of offices. Why is the Deputy Prime Minister still cheerleading for a Bill that scraps trusts and such co-operation, and that puts the health of older people, including those in my constituency, at risk?

[The Deputy Prime Minister]

I am backing a Bill that includes, for the first time, statutory obligations to integrate social and health care. The hon. Gentleman is right that one of the abiding failings of our health service is that social and health care are not properly integrated. There has not been much integration over the past 10 years. We are trying to change that. Secondly, the creation of health and wellbeing boards will bring together representatives of the NHS and social care.

[Andrew Griffiths (Burton) (Con)]

As the chairman of the all-party parliamentary beer group, I commend the Government for their efforts to tackle the irresponsible pricing of alcohol by supermarkets. Does the Deputy Prime Minister agree that the safest place to drink is in the community pub, that beer is a lower-strength drink, and that scrapping the beer duty escalator would create 5,000 jobs? Will he take his Treasury colleagues out for a beer and tell them not to put up the duty on the great British pint?

[The Deputy Prime Minister]

As my hon. Friend knows, all such matters are for the Chancellor to announce at the time of the Budget, but I am sure everyone across the House agrees with his sentiment that we should support community pubs, which are such an important part of the fabric of our communities up and down the country.

[Mr Dennis Skinner (Bolsover) (Lab)]

Q4. Is the Deputy Prime Minister aware that now that the gang of four Tories are gallivanting around America, he has got a chance to shine? What does he really, really think about this Murdoch sleaze and the latest development—the Prime Minister riding borrowed police horses, having employed Andy Coulson in the heart of government? Man to man, what does he really think? I will give him a chance to separate himself from the serried ranks of Tories behind him. Come on, be a man!

[Hon. Members]

More!

[Mr Speaker]

Order. Let us hear the answer.

[The Deputy Prime Minister]

We had to wait a while for the hon. Gentleman to get going, but it was great when he did. I think we are soon going to celebrate, if that is the right verb, 42 years of his presence in this House, and I am delighted to see that in all that time he has not mellowed one bit.

[Mr John Whittingdale (Maldon) (Con)]

Will the Deputy Prime Minister join me and my right hon. Friend the Member for Chelmsford (Mr Burns) in congratulating the citizens of Chelmsford on their newly acquired status following Her Majesty’s announcement that Chelmsford is to be a city? Does he agree that it is entirely appropriate in Olympic year that Essex’s first city should be chosen when Essex is also looking forward to hosting the mountain biking competition during the Olympics?

[The Deputy Prime Minister]

I am not sure whether my hon. Friend the Member for Colchester (Sir Bob Russell) would entirely share that sentiment—we are all aware of the Colchester-Chelmsford rivalry. However, I can confirm the announcement today of the results of the civic honours competition in honour of Her Majesty the Queen’s diamond jubilee, namely that Chelmsford, Perth and St Asaph have been awarded the right to call themselves cities, while Armagh will from now on have a lord mayor. Although I know there will be disappointment in other communities that entered the contest, this is another announcement that will really lift the spirits of the nation in this, the year of the Queen’s diamond jubilee.

[Helen Goodman (Bishop Auckland) (Lab)]

Q5. Before the general election, the Deputy Prime Minister said that he was profoundly hostile to the closure of Remploy factories. Now, 1,700 disabled people are losing their jobs because of the closure of 36 factories. What difference has he made?

[The Deputy Prime Minister]

As the hon. Lady will know, this is a consequence of a review conducted by Liz Sayce, the head of the UK disability forum. Her conclusions are supported by such organisations as Mind, Mencap and others, and I do not want to disagree with them lightly. They say—this is their conclusion and what they think we should be doing—that segregated employment, which was started in the aftermath of the second world war, is not the best way to promote the interests of disabled people in this country in the 21st century.

[Stephen Hammond (Wimbledon) (Con)]

Q14. Last weekend, the Deputy Prime Minister spoke about the need for a tycoon tax. Does he intend that to include individuals who claim that they want tax raised on the rich, yet set up companies so that they pay only 20%, not 50%, of their income, such as Ken Livingstone?

[The Deputy Prime Minister]

It is worth dwelling for a minute on the explanation provided by Ken Livingstone for his exotic tax arrangements. I quote from an interview that he gave just this weekend:

“I get loads of money, all from different sources, and I give it to an accountant and they manage it”.

That is modern socialism for you.

[Rosie Cooper (West Lancashire) (Lab)]

Q6. In September 2010, I raised with the Prime Minister the case of a part-built college in my constituency that lost £4 million following the closure of the regional development agency. I asked the Prime Minister for a hand-up, not a handout, for the young people in my constituency. Last week, that college was officially opened, yet 18 months on there is no sign of progress in addressing the shortfall. As the Deputy Prime Minister has said, there should be“no…barriers to people’s talent and aspiration”.Will he help give the young people of West Lancashire a hand-up?

[The Deputy Prime Minister]

Of course, Ministers will be more than willing to look into the case of the hon. Lady’s college. Colleges are unbelievably important in providing skills and support to young people seeking to get the right qualifications to get into work. They have been working successfully with the Government, not least, for instance, to provide a hugely expanded apprenticeship programme—the largest expansion in apprenticeships ever in our country. I am more than happy to ensure that Ministers look at the case she raises.

[David Morris (Morecambe and Lunesdale) (Con)]

Q7. After the 2004 Morecambe bay cockle pickers disaster, the Gangmasters Licensing Authority was created. Although the GLA has protected vulnerable workers, it has also been a burden to business. Will my right hon. Friend assure me that any cuts in red tape will not leave workers unprotected, particularly those in the shell fisheries industry?

[The Deputy Prime Minister]

I hear what the hon. Gentleman says. This is an important issue and it is important to get the balance right. The Department for Environment, Food and Rural Affairs is working to ensure that the GLA works effectively and bears down on abuse, such as that in Morecambe bay to which he alludes, but that it does so in as business-friendly a manner as possible to minimise the amount of unnecessary red tape.

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

I am sure the Deputy Prime Minister would like heartily to congratulate the city of Perth on the restoration of its city status in today’s diamond jubilee announcement on official city status. He will know of the fantastic cross-community, cross-party support that has led to the restoration of that fantastic civic honour. May I thank the palace, the Deputy Prime Minister and his Department for organising this competition and for that tremendous award today?

[The Deputy Prime Minister]

Those are the kind of questions I like. It is a good thing, and of course, on behalf of everybody in the House, I would like to convey my congratulations to all the people of Perth who have worked in such a fabulous way, and on a cross-party basis, to get this accolade and award today.

[Martin Horwood (Cheltenham) (LD)]

Q8. One treasured piece of green space near Cheltenham is attracting a lot of sporting attention this week, but other local green spaces treasured by local people will be at risk if the national planning policy framework does not help us to follow Germany’s example of combining economic success with tough controls to protect the countryside. Will my right hon. Friend reassure us that a truly green planning framework is still a safe bet?

[The Deputy Prime Minister]

The Government will publish the national planning policy framework shortly. It is important that we do everything, including through the planning system, to promote growth, because we need growth, jobs and new homes, particularly for young families who are unable to have a home to call their own. Of course, that should be tempered by social and environmental considerations. That balance will be properly reflected in the planning framework when it is published—I hope—shortly.

[Jeremy Corbyn (Islington North) (Lab)]

On Monday, the Housing and Local Government Minister told me and the House that the Government have no plans or wish to introduce rent controls in the private sector. Is the Deputy Prime Minister aware that the increase in private sector rents in central London and the capping of housing benefits means, in effect, that many families on benefit are being forced out, and that a process of social cleansing is going on? Will he give a commitment that the Government will examine the case for private sector rent controls?

[The Deputy Prime Minister]

As the hon. Gentleman knows, we accompanied the restraint on the housing benefit budget—there was a commitment in the Labour party manifesto to bring that part of the benefits system under control—with a major fund to deal with hard cases. We have also unveiled a number of measures that should lead to a significant increase in the building of affordable homes. The lack of supply of affordable homes is the underlying problem in London and elsewhere in the country.

[Mr Douglas Carswell (Clacton) (Con)]

Q9. Changes to child benefit will mean that a single-income family earning £43,000 a year, with one parent staying at home to care for the children, will subsidise a couple earning more than £80,000. Does the Deputy Prime Minister think that that is fair?

[The Deputy Prime Minister]

I think it is fair that someone who is earning far, far beyond the average should not be subsidised by, and receiving child benefit from, people on much lower incomes. The hon. Gentleman raises a perfectly valid point, which is that the cut-off point can create those anomalies and cliff edges—as he said, one earner on £43,000 will have their child benefit removed while two earners earning £80,000 will not. We have all said that we will look at a pragmatic way of implementing this in a sensitive manner.

[Naomi Long (Belfast East) (Alliance)]

The Deputy Prime Minister will be aware of the very serious incidents in my constituency involving three separate explosive devices planted since Friday, the most recent being adjacent to two local schools. Will he join me in condemning such reckless attacks, which bring misery to the community and place lives at risk, and will he assure the House that, in the absence of the International Monitoring Commission, the UK Government will continue to monitor closely any linkages between such activity and proscribed organisations?

[The Deputy Prime Minister]

I am sure I speak on behalf of the whole House in utterly condemning the cowardly pipe bomb attacks in east Belfast, which endangered the lives of all those in the surrounding areas, including those of young children attending school. It was totally reprehensible. I understand that all these attacks are now being investigated by the Police Service of Northern Ireland. There is no indication, at present, that these were terrorist attacks, and they therefore fall to the purview of the Northern Ireland Justice Minister.

[Martin Vickers (Cleethorpes) (Con)]

Q10. The EU is currently consulting on changes to the rules governing state aid in assisted areas. The Government have shown commitment to northern Lincolnshire by establishing an enterprise zone to attract large businesses. The changes will restrict aid only to small and medium-sized enterprises. Will the Deputy Prime Minister assure me that the Government will fight these proposals and look for alternatives?

[The Deputy Prime Minister]

I am delighted that the enterprise zone in north Lincolnshire and the Humber area is now taking shape. It will be a huge boost, not least through investment from such major investors as Siemens in the renewable energy sector in that part of the world. I hear what the hon. Gentleman says about the European Commission reviewing how those rules will be applied for regional aid—from 2014 onwards, I think. We are extremely mindful that we do not want those rules to undermine the excellent work taking place in north Lincolnshire.

[Fiona Mactaggart (Slough) (Lab)]

Q11. The Ministry of Justice announced today that it had given two new contracts, worth £30 million of public money, to A4e. This company has been under investigation by the police, the Department for Work and Pensions and the Public Accounts Committee, and since I have been raising concerns about it, I have received 40 or 50 e-mails from members of the public alleging fraud and bad practice. Are the Government going to continue handing out public money to A4e?

[The Deputy Prime Minister]

The hon. Lady raises a very serious issue. The police investigation into allegations of fraud at A4e concern contracts entered into by the previous Government. We have now launched our own audit of the existing contracts that A4e has received from government, and if there is any evidence of systematic abuse, of course we will end all contracts with A4e.

[Jason McCartney (Colne Valley) (Con)]

The six British servicemen killed in Afghanistan last week will be repatriated next Tuesday and include three of my constituents: Corporal Jake Hartley, Private Danny Wilford and Private Anthony Frampton. At this difficult time for the families, will the Deputy Prime Minister assure me, and my constituents, that everything is being done by the Government to support the families?

[The Deputy Prime Minister]

I know how strongly the hon. Gentleman must feel about this terrible accident, given that three of his constituents have, sadly, lost their lives. I know that the MOD and, I am sure, the Secretary of State would wish to confirm to him personally that they are doing absolutely everything possible in quite difficult circumstances to ensure that the bodies are returned to the families as soon as possible.

[Mark Durkan (Foyle) (SDLP)]

Q12. Has the Deputy Prime Minister considered the implications of the Treasury’s planned changes to the controlled foreign companies rules, which will incentivise multinationals having recourse to tax havens? Opening this new tax loophole is estimated to cost developing countries some £4 billion in fair and much-needed revenue and the Exchequer here £1 billion in fair and much-needed revenue. Will this perverse and invidious change be corrected in forthcoming Budget measures?

[The Deputy Prime Minister]

The hon. Gentleman raises an important issue. I have spoken to campaigners about this matter, and I know that ActionAid, for instance, has spoken to Treasury Ministers as well. Like all international tax matters, it is incredibly complicated once we get into the detail, but it is something that was not dealt with in the past 13 years and which we are now prepared to look into.

[Mr Edward Timpson (Crewe and Nantwich) (Con)]

Will my right hon. Friend join me in welcoming today’s launch of the Government’s adoption action plan, which sets out how we can achieve more adoptions more quickly? Does he agree that making adoption work well everywhere should be the priority of all of us who have the interests of vulnerable people at heart?

[The Deputy Prime Minister]

I am sure that we speak on behalf of everyone in the House when we say that it is very frustrating for couples and parents who want to adopt children, and not good for the children concerned, when there are inordinate delays. That is why I think it is a very good thing that there seems to be a general consensus on the announcements made recently by the Secretary of State for Education and the Prime Minister to accelerate the adoption process to ensure that this will now indeed happen.

[Mr Stephen Hepburn (Jarrow) (Lab)]

Q13. Is it right that when my constituent took her young daughter to A and E, she later received a letter from her GP saying that the visit was inappropriate and also reminding her of the cost? Is this going to be the future of the NHS under this Government, with vulnerable and elderly people scared to ask for treatment?

[The Deputy Prime Minister]

Of course not, and clearly that letter was issued under the current system. However, the hon. Gentleman touches on a serious issue that not only we in this country face, but every developed society faces, which is that we have health care systems that were not designed for a massively ageing population or for an increasingly large number of older people with long-term chronic conditions spending much, much longer in hospital than before. That is why we need to ensure that they are kept well and strong, so far as possible in their homes and in their communities. That is what this NHS Bill is all about.

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

Students at comprehensive school are just as likely to study A-level history as their private school counterparts, but are only half as likely to study maths or physics. What are the Government going to do about the social mobility issue that we face in the sciences, and does he support the proposed Sir Isaac Newton maths school in Norfolk to help to address this issue?

[The Deputy Prime Minister]

The hon. Lady highlights an incredibly important point. It is one of the reasons why the new English baccalaureate places great emphasis on those scientific disciplines; it is why we have protected the science budget, in order to send out a clear signal that we value sciences; and it is why we have placed such an emphasis on STEM subjects—science, technology, engineering and maths—because we need more youngsters, particularly those from disadvantaged backgrounds, taking up maths and science courses for our collective future and the country as a whole.

[John Woodcock (Barrow and Furness) (Lab/Co-op)]

Q15. The Deputy Prime Minister says that the Health and Social Care Bill would be going through unamended without the Liberal Democrats, but will he listen to people up and down the country who know the real truth: that the Tories would not be getting their shambolic Bill at all without him and his MPs propping them up?

[The Deputy Prime Minister]

As I said before, I would have thought that the hon. Gentleman would welcome legislation that outlaws the practice, indulged in on an industrial scale by his party, of giving sweetheart deals to the private sector.

Food Waste

Wednesday 14th March 2012 Commons Chamber

Motion for leave to bring in a Bill (Standing Order No. 23)

12:38

[Kerry McCarthy (Bristol East) (Lab)]

I beg to move,

That leave be given to bring in a Bill to require large food retailers and large food manufacturers to take steps to reduce food waste and donate surplus food to charities for redistribution and, where food is unfit for human consumption, to make it available for livestock feed in preference over disposal; to encourage and incentivise all other businesses and public bodies which generate food waste to donate a greater proportion of their surplus for redistribution; to protect from civil and criminal liability food donors and recipient agencies where food has been donated in good faith; and for connected purposes.

This Bill is backed by Friends of the Earth, WWF UK, FareShare, FoodCycle and Feeding the 5,000, as well as the chef Lorraine Pascale and many others who have expressed their support over the past few days. People have been shocked to hear of the absolutely scandalous levels of food waste in this country and they want Parliament to act. Many MPs have been visiting food banks in their constituencies recently to see the excellent, although sadly necessary work that they do, and we had a well-attended debate on food poverty in this Chamber a month or two ago.

Now is not the time to debate why so many people are having to turn to food banks to feed themselves and their families. These are tough economic times, food prices are rising at above the rate of inflation, and many people are struggling to make ends meet. The charity FareShare is feeding 35,500 people a day, which involves 8.6 million meals a year. It is supplying 67 food banks and other outlets across Bristol alone. Many other organisations are doing the same or similar work, including the Trussell Trust, which has 170 food banks and predicts that up to 500,000 people will rely on food banks by 2015, and FoodCycle, which gets volunteers to run community cafés providing good-quality nutritious meals at low cost or at no cost to anyone who wants to drop by. Those organisations would be able to do much more of that great work if more food were made available to them. At the moment, however, about 50% of edible, healthy food across the EU that could be eaten is not being eaten. Globally, 1 billion people could be lifted out of malnourishment with less than a quarter of the food that is wasted in the US, the UK and Europe.

The Bill is not just about tackling food poverty. By creating unnecessary demand, waste drives up food prices and the surplus puts pressure on scarce land and resources, contributes to deforestation and needlessly adds to global greenhouse emissions. In fact, 10% of rich countries’ greenhouse gas emissions come from growing food that is never eaten. The water used globally to irrigate wasted food would be enough to meet the domestic needs of 9 billion people—the number expected on the planet by 2050.

Government policy has to date focused on slightly environmentally better methods of disposal, such as anaerobic digestion and composting, ahead of landfill. However, there is no Government incentive for diverting surplus food from disposal to levels higher up the food waste pyramid such as human consumption and, when it is unfit for human consumption, livestock feed. Only action such as that could properly justify the carbon footprint created in making that food.

I am well aware that about half of all food waste is down to householders, but that sector is starting to achieve steady reductions, with a 13% reduction over the past three years. Supermarkets and manufacturers have played a role in supporting that reduction. For example, Warburton’s has removed “display until” dates from its bread, and Asda has introduced resealable salad bags.

There is also a significant food waste problem at the start of the food supply chain. Inequitable business tactics employed by some supermarkets, such as obliging their suppliers to accept the risk on unsold food, are due to be addressed by the much-delayed groceries code adjudicator Bill. I very much hope that that Bill will be included in the next Queen’s Speech, and that the adjudicator will be given the teeth that it needs to be effective.

I am by no means saying that retailers and manufacturers are totally to blame, but they do waste a staggering 3.6 million tonnes of food per annum. Reasons for that include over-production caused by inaccurate forecasting; labelling errors and barcode problems; a few damaged items resulting in a whole tray of goods being rejected; and expired promotional campaigns and seasonal offers. For example, any products carrying Olympics promotional offers will be dumped as soon as the games are over.

It is important to note that the main problem is not the so-called back-of-the-store waste—that is, the unsold food that is put into skips at the end of the day. By far the bigger problem is food that never makes it on to the supermarket shelves in the first place—the food that never even leaves the distribution centre. I have been told of one premium brand of breakfast cereal, for example, that is not put on the shelves if it has less than six months to run till its sell-by date. If the supermarket does not need to bring it from the distribution centre before then, it is wasted even though it would be edible for at least six months and probably a lot longer.

The food industry’s progress under the phase 2 of the Courtauld agreement is slow. The agreement set a relatively unambitious target of a 5% reduction in product and packaging waste in the grocery supply chain by the end of this year. This already compares badly with the equivalent Norwegian and Dutch targets of 25% and 20%. Despite the low hurdle, the work of the Waste and Resources Action Programme—WRAP—and the expenditure of millions of pounds of public money to subsidise big business’s waste-reduction efforts, the UK’s performance has been described by Tristram Stuart, the author of “Waste: uncovering the global food scandal” as “spectacularly dismal”. Businesses have cut their food waste by a mere 0.4% in the first year. Unfortunately, we see only the figures published for the sector as a whole, but I know that some companies are doing considerably better than others, showing that where there is a will, there is a way. As it stands, it is estimated that only 1% to 3% of the food that retailers could give to charities is actually donated, and that the percentage from food manufacturers is even smaller.

To turn to the detail, the Bill has three main provisions. In 1996, a law was introduced in the USA—the Bill Emerson Good Samaritans Food Donation Act, which has been replicated in every state in Australia. It protects good-faith donors and recipients such as food banks from civil and criminal liability. This has made a huge difference to the willingness of donors to donate food, as we heard yesterday at this Bill’s parliamentary launch from Jim Larson of Food Donation Connection. He works in the US with companies such as Starbucks, KFC and Pizza Hut, arranging for their unsold food to be frozen and passed on to hostels, shelters and other charities. He said that the lack of liability protection was a

“recurring theme in his discussions”

with UK branches of US food companies, which cited this as their main barrier to donating. Exempting companies from liability in the USA has led to a surge in food donation.

I was grateful to the Department for Environment, Food and Rural Affairs Minister in the House of Lords for attending my launch yesterday and, as a consequence of what he heard, for asking his officials to meet Jim Larson this morning. I gather it was a very successful meeting, and I must stress that this legislation imposes no burden at all on businesses—on the contrary, it frees them from liability.

The Bill calls for large retailers and manufacturers to be required to donate more of their surplus food to charities, and for Government to encourage all other businesses and public bodies that generate food waste to do the same. It basically enshrines in law the waste hierarchy that will have to be implemented by all businesses and public bodies by the end of 2013 under the latest EU waste framework directive. This ranks measures according to their environmental impact, giving the first priority to preventing waste from occurring in the first place, but stipulates that when surplus does arise, the next priority should be feeding humans, then livestock feed, and so on, on to disposal methods such as anaerobic digestion, composting and, worse of all, landfill.

As I said, my Bill would apply to public bodies, too, encouraging them to reduce and redistribute food waste. The Houses of Parliament are, I am told, one of the biggest catering outlets in the country. Answers to parliamentary questions have revealed that a huge amount of food—of course, that also means money—is wasted here. I will be trying to persuade both Houses to sign up to an agreement for the hospitality sector, managed by the Waste and Resources Action Programme, as many Government Departments, perhaps all, have now done. I have an offer from the Sustainable Restaurant Association, which is prepared to carry out a food audit of Parliament’s catering services and to see how waste can be reduced or redistributed. We need to put our own House in order if we want others to do so, too.

This is a Bill whose time has come. In tough times when people are struggling to make ends meet and to put food on the table, the waste and profligacy in the food supply chain seem ever more obscene. I am gratified to see the number of people who have turned up to support this Bill today, and I hope that we can achieve a cross-party consensus and take these measures forward.

12:47

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

It is with a degree of regret that I want to oppose the Bill—not the whole Bill, just a tiny bit of it. With all the good will intended in my speech, I hope to draw the hon. Lady’s attention to my concern.

May I first congratulate the hon. Lady, as she absolutely right that too much food is wasted and that many things could be done to ensure that more food is utilised rather than wasted. I was particularly disappointed when Open Door in St Albans lost the food that had been available from Marks & Spencer because of the very worry to which the hon. Lady has referred—that it would face liability if something went wrong. That was a real wasted resource.

The problem that I hope can be addressed as the Bill makes progress—in some ways, I hope it does; I am worried about only a tiny bit of it—is the provision that refers to

“food…unfit for human consumption”

being made

“available for livestock feed in preference over disposal”.

I am completely sympathetic to the aims behind that, but I remind the hon. Lady that in June 1988, the Government banned the use of mammalian products in feeds destined for ruminants. She might remember that, unfortunately, Creutzfeldt-Jakob disease was contributed to by the prion that existed when mammalian products were put into the feed of ruminants. The disease’s spread was not stopped and, in March 1996, the Government banned the use of all flesh in the feeds for domestic animals because the prion linked to CJD lived through the processing of the two products.

I ask the hon. Lady—I am sure everyone is hugely sympathetic to what she wants to achieve with the Bill—whether she could tweak the wording so that there is no obligation to make all food waste available for animal feed. I hope that that would stop any future recurrence of inappropriate foods being fed to livestock and diseases potentially crossing the species divide.

That is my only objection to the Bill, and I congratulate the hon. Lady on presenting it. I am one of the old school who look at an apple and, if it is not wrinkly with a few things growing out of the top of it, will happily eat it regardless of the date on the label. My children look at the top of a yoghurt pot and say, “Oh mum, that was due to be thrown out yesterday,” but the hon. Lady is absolutely right: we have moved too far down the road of throwing away perfectly good, edible food. Years ago, people would use common sense to determine whether food was still edible.

[Daniel Kawczynski (Shrewsbury and Atcham) (Con)]

I use food a week after the date on the label.

[Mrs Main]

My hon. Friend says that he eats things with green mould on them.

[Daniel Kawczynski]

No—not green mould.

[Mrs Main]

My concern relates only to the small part of the Bill that requires all food products to be available for processing. If that could be tweaked, I would withdraw my objection.

Question put and agreed to.

Ordered,

That Kerry McCarthy, Luciana Berger, Robert Flello, Andrew George, Zac Goldsmith, Kate Green, Caroline Lucas, Dame Joan Ruddock, Laura Sandys, Henry Smith, Joan Walley and Dr Alan Whitehead present the Bill.

Kerry McCarthy accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 27 April 2012, and to be printed (Bill 318).

[David Wright (Telford) (Lab)]

On a point of order, Mr Deputy Speaker. I do not know whether you have seen this morning’s edition of The Times, but it states:

“The Chancellor will announce details in the Budget next week to borrow money cheaply”

from international monetary funds.

This is a very serious matter. It appears that there has been a leak from the Treasury a week before the Budget. Have you, Mr Deputy Speaker, received any indication from the Chancellor that he intends to come to the House immediately to make a statement on these issues? They relate to the bond markets, and they have a market impact. It is clear that information relating to next week’s Budget has been leaked directly from the Treasury. When we raise issues and questions about fiscal matters in the House, we are told by Treasury Ministers and others that we must wait for the Budget. Is it not time that Ministers did the same?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

As the hon. Gentleman is well aware, what is in the Budget is sacrosanct until Budget day. He has certainly put his point on the record, and I think that everyone, including the Chancellor, is aware of the ministerial code.

[Jeremy Corbyn (Islington North) (Lab)]

On a point of order, Mr Deputy Speaker. This morning news emerged that water cannon and CS gas are apparently to be available to police forces in London and, indeed, other parts of the country. Have you received any intimation that such a major change in policing tactics is indeed being contemplated, and that a Home Office Minister wishes to come and make a statement to the House?

[Mr Deputy Speaker]

No information has been given to the Chair, and, as the hon. Gentleman is well aware, the matter that he has raised is not a matter for the Chair. However, he has made everyone in the House aware of it.

Business without Debate

Wednesday 14th March 2012 Commons Chamber

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Local Government

That the draft Localism Act 2011 (Consequential Amendments) Order 2012, which was laid before this House on 9 February, be approved.—(Mr Newmark .)

Question agreed to.

Motion made, and Question put forthwith (Standing Order No. 118(6)),

That the draft Parish Councils (General Power of Competence) (Prescribed Conditions) Order 2012, which was laid before this House on 9 February, be approved.—( Mr Newmark.)

Question agreed to.

Water Industry (Financial Assistance) Bill

Wednesday 14th March 2012 Commons Chamber

Considered in Committee

[Mr Lindsay Hoyle in the Chair]

Clause 1

Financial assistance to reduce charges

12:55

[Gavin Shuker (Luton South) (Lab/Co-op)]

I beg to move amendment 1, page 2, line 2, at end insert—

‘(5A)

(a) In exercising the power under subsection (3) the Secretary of State may make an order containing a scheme for the provision of financial assistance to customers whom the Secretary of State considers are disproportionately adversely affected by the water charges with a view to reducing the impact of those water charges.

(b) The scheme shall—

(i) specify the customers whose charges are covered by the scheme,

(ii) set out the basis of the adjustment of the charges, and

(iii) specify the duration of the adjustment.

(c) An order shall not be made under this section unless a draft of the statutory instrument containing it has been laid before, and approved by a resolution of, each House of Parliament.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

New clause 1—Water company social tariffs—

‘(1) The Secretary of State shall provide in regulations for the introduction of minimum standards for water company social tariffs, by 1 April 2013.

(2) Regulations made under subsection (1) above shall be made by statutory instrument and may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.

(3) Ofwat shall publish 12 months after the passing of this Act and every year thereafter a league table of water companies reporting the performance of the provision of social tariffs and the number of households spending more than 3 per cent. and more than 5 per cent. of their disposable income on water bills.’.

[Gavin Shuker]

Both the amendment and the new clause deal with the issue of water affordability for customers, but they do so in two different ways. Although I feel certain that a man as reasonable as the Minister will want to accept both improvements to the Bill, I should add that I intend to press them to a vote if necessary.

We made clear on Second Reading that, as a responsible Opposition, we would not seek to frustrate the will of the Government in legislating for a reduction in customer bills throughout the south-west. We accept that Government action should be taken to ensure that water remains affordable for South West Water customers following the botched privatisation of the early 1990s. We all benefit from the “national treasure” status of Cornwall and Devon’s spectacular coastline, just as—this was pointed out by the hon. Member for St Ives (Andrew George) on Second Reading—we benefit from London’s incredible museums, which are also supported by Government action.

I pay tribute to Members in all parts of the House who, over a period of years, have sought to correct this historic injustice. Our work in government in commissioning Anna Walker to look at the problem of water affordability in the south-west has been coupled with action by the present Government in legislating for payments to be made. Let me make it clear to all Members that we support Government action to reduce customer bills in the south-west.

Amendment 1 is not in any way a wrecking amendment. It seeks to improve the legislation by providing for proper parliamentary oversight of the wide-ranging powers in clause 1, which—let me be honest—I suspect are intended not to involve the Secretary of State in some kind of land grab, but to avoid the Bill being classified as something other than a money Bill. I can reassure south-west Members that if the amendment were adopted, we would not use the additional scrutiny for which it provides to frustrate the will of the House. Its inclusion would, however, serve as an entirely proper safeguard to prevent the Secretary of State, or her successors, from abusing the powers given to her and extending financial inducements in any way for any reason.

Amendment 1 would ensure that the Secretary of State makes an order when she wishes to exercise the power in clause 1 to give financial assistance to a water and sewerage company in order to secure a reduction in household bills. The amendment requires the scheme contained in her order to

“specify the customers whose charges are covered by the scheme”,

so that there is clarity about the households who will benefit from a reduction. It requires the scheme to set out the basis for the reduction in charges, so that everyone understands why the reduction is being made in the first place and to ensure that the Government’s logic is tested and sound. Crucially, it requires the scheme to

“specify the duration of the adjustment”,

so that this Parliament does not write blank cheques, and so that the most cost-effective option can be considered over an appropriate length of time.

In short, the Government will be required to answer the questions that need to be answered if effective parliamentary oversight is to be exercised. We feel that that is especially important given that the Secretary of State can give the assistance in any form whatsoever, including grants, loans and guarantees, and given that, because this is a money Bill, it will receive just one day of scrutiny in the other place.

We believe that when the Secretary of State wishes to use the powers granted by the Bill in the future, the least she can do is lay out her argument before a representative Committee of the House. I say that for one simple reason. As new clause 1 makes clear, there are numerous, increasing and varied threats to affordable water, and as the Government’s own water White Paper makes clear, our climate is changing, which has profound implications for the scarcity of water. New infrastructure may be required to supply fresh water, while—as the Government have also made clear—complying with higher standards for waste water will require expensive construction projects such as the Thames tunnel. More regions will seek to make a similar case to that of the south-west, and now that the principle has been established by the Government’s actions, we require a mechanism to test the logic of successor Secretaries of State.

Let me give an example. According to yesterday’s Evening Standard,

“The boss of Thames Water today warned that bills will have to rise to pay for new pipes and reservoirs if customers are to avoid more hosepipe bans in future.

Chief executive Martin Baggs, who announced yesterday that the first hosepipe ban in six years will come into force on April 5, said Thames was ‘living on the past’ and needed to step up levels of investment.

He told the Standard: ‘The last two years have been exceptionally dry and there needs to be flexibility in the system to deal with that.

The flexibility needs to come from one of two directions: it means people must use less water during those extreme conditions or we have got to have extra resources so people don’t have to have those restrictions.’

Mr Baggs wants clearance from the regulator Ofwat to step up investment when the company negotiates its next five-year funding plan from 2015.

London water bills are already set to go up by an inflation-busting 6.7 per cent next month to an average of £339 per household.”

13:00

We therefore know that the south and east of our country in particular will require additional investment, putting strain on household budgets. What is a future Secretary of State to do now that the principle in respect of giving taxpayer assistance to regions that are struggling to pay their water bills has been breached and after the power in this Bill has been enacted? We are pondering what might happen under a benevolent dictator, but let us suppose for a few moments—I am sure it will be hard for you to conceive of this, Mr Hoyle—that a successor Secretary of State, or even the current one, decided to use the power to reduce bills in an election year. Indeed, this year’s mayoral election in London might serve as a good example in this regard. We believe that the least the Secretary of State can do is come to a Committee Room of this House and demonstrate that she has worked through the pertinent issues.

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

The amendment is defective in that there would be regulatory implications in respect of Ofwat, but they have not been considered. Indeed, I am struggling to understand why we need this amendment at all, given the current text of clause 1.

[Gavin Shuker]

The purpose of the amendment is to ensure that when the power under clause 1 is triggered, there is proper parliamentary accountability and oversight at the time of making any reductions. The hon. Lady mentions the regulatory regime. It would not be particularly affected under clause 1 as it currently stands. Ofwat’s role will be to see the money coming in and the money going out. This amendment would not change that situation at all, except that we in this House would have the opportunity to examine any scheme that is to be established and to have answers to any questions we might have: namely, how long, for which customers and for what duration.

As I have said, we agree with the proposals to give financial relief to the south-west from April 2013. Indeed, we examined this issue when in government and laid the groundwork for helping 700,000 households in the region. We therefore accept the argument that the south-west requires additional help to keep water affordable, but stopping there misses the point.

The south-west has the highest bills in the country and about 200,000 people are under water stress. In the Thames region, that number is 1.1 million, however. Our new clause 1 therefore starts with the simple proposition that by April 2013—the month when financial assistance will start flowing to Devon and Cornwall—the Secretary of State should bring forward minimum standards for a company social tariff. We think that is not too much to ask.

The numbers speak for themselves. As I established on Second Reading, 400,000 households in Wales, 460,000 households in Yorkshire, 780,000 households in the Severn Trent region and 1.1 million households in the Thames region pay more than 3% of their disposable income on water. The squeeze on living standards is real. This Government’s actions are contributing to high inflation and pressure on family budgets. The rise in VAT has pushed up the price of petrol, and the cost of child care is going up at twice the rate of wages, just as the Government cut that element of the working tax credit. Families with children who cannot raise their working hours from 16 to 24 could find themselves almost £3,000 worse off from next month. Energy prices have risen, while for many people pay has been frozen.

The crunch will be felt first and worst by low and middle-income families, particularly those with children. A single-earner couple household with kids that is earning £44,000 might sound well-off—and, indeed, in comparison to many, it is—but it will be hit hard by the £1,750 a year that it will lose overnight when child benefit is scrapped.

[Dan Rogerson (North Cornwall) (LD)]

I am intrigued that the hon. Gentleman wants to have a debate about tax credits, as we recently had a vote on such issues. Is he going to mention the fact that this Government are delivering free nursery places for the most disadvantaged two-year-olds, and that increasing numbers of children will be covered by that in the course of this Parliament?

[Gavin Shuker]

I will not test your patience, Mr Hoyle, by continuing that debate. The hon. Gentleman puts his case on the record, but one of the key arguments in respect of new clause 1 is the squeeze on family living standards. We believe it would be wrong to park that argument in a different silo from the rising costs of water bills.

People are facing falling living standards, frozen wages and rising water bills. Our amendment would ensure that the power to introduce a company social tariff—a power that we legislated for when in government—is followed by Government action to ensure that these schemes are effective at making water affordable for those who are struggling to pay. Under the current Government’s plans, the design of any social tariff is entirely in the hands of each of our 20 or so water companies. Apart from WaterSure, there will be no national tariff, and there will be no national branding of water affordability schemes. Outside the south-west, there will be no new Government money to help those who cannot pay.

Under this Government’s plans, it is even down to the individual companies to decide whether to introduce a social tariff scheme at all. Although we believe the industry and Government should be working towards a national affordability solution, the first part of new clause 1 would require the Secretary of State to bring forward plans for minimum standards for water company social tariffs.

The second part is just as important. We know that if we cannot measure it, we cannot manage it. Therefore, water companies should be held to account by ensuring a league table is published each and every year reporting on the performance of company social tariffs. In the energy sector, Ofgem sets parameters for what can be included by suppliers as part of their spend on social initiatives, and it annually monitors suppliers’ progress against the voluntary commitment. A handful of water companies already have good social tariff schemes, but we want to raise the bar for all companies to the standards of the rest of the industry, both by requiring the Secretary of State to have minimum standards approved by Parliament, and by the monitoring and reporting of all companies, shaming those poor performers into action. By also requiring the number of households spending more than 3% and 5% of their disposable income on water to be published, we can monitor the scale of the affordability problem and make meaningful comparisons between companies.

Our amendment 1 and new clause 1 are attempts to improve the Bill. We welcome the money for the south-west, but stopping there misses the point. People’s ability to pay for something as basic as water should not be subject to a postcode lottery. This issue is at the heart of shaping a socially responsible water industry in the years to come. I hope the Minister will accept the amendments.

[Miss McIntosh]

I followed the arguments of the hon. Member for Luton South (Gavin Shuker) very closely, and I went along with a great deal of what he had to say, particularly his congratulations to the Minister and the Government on introducing what is a very timely Bill. I think I understand the spirit in which the Opposition amendments have been tabled. The Front-Bench colleague of the hon. Member for Luton South, the hon. Member for Ogmore (Huw Irranca-Davies), is present, and he will recall that we spent many—happy—hours scrutinising the provisions that were to become the Flood and Water Management Act 2010. That Bill was fairly good, but it was improved as we went along—although we did not have sufficient time to address many of its measures, of course.

That Act gives enormous order-making powers to the Secretary of State, and I would be interested to learn from the Minister why the Government have chosen not to draft a parliamentary order in respect of interested parties on this occasion. For the record, a number of hon. Friends—I hope I may call them that—on both sides of the House would normally be discussing the business of the Select Committee on Environment, Food and Rural Affairs, but we deem this debate so important that we thought it was our priority to be here to discuss the Bill and these amendments. Obviously, I am entirely at one with the Government, given that we have worked so hard under successive Governments to come up with a novel means of helping people with water bills in the south-west, but it would be helpful to know why clause 1 made no provision for parliamentary scrutiny. I, therefore, have some sympathy with what the hon. Member for Luton South and his colleagues have proposed.

Amendment 1 and, even more so, new clause 1, on social tariffs, raise the question of why the hon. Member for Ogmore and the previous Labour Administration did not introduce social tariffs as part of the 2010 Act. In addition, why were they not minded to introduce amendments at this stage to deal with bad debt, an issue that is exercising water companies? The Select Committee took evidence just last week on the water bills that the average household is having to pay because of the position on bad debt.

[Gavin Shuker]

The hon. Lady is making her points clearly, and I welcome the spirit in which she makes them. We have accepted the timetabling for this short Bill, which will go through quickly. We have been promised a comprehensive water Bill and if we had more time, we would have much to say about bad debt and we would look favourably on any amendments seeking to deal with it. Unfortunately, such amendments have not been tabled for today.

[Miss McIntosh]

I am grateful to the hon. Gentleman for those remarks. I hope that the Minister will confirm that the draft water Bill will contain provisions on social tariffs and tackling bad debt—I do not know whether there is any more recent news as to when it may be published.

The hon. Gentleman also referred to the Anna Walker report and water efficiency measures. Again, I wonder why he did not include any more detailed provisions on water efficiency measures in his amendment. I also wonder what the Minister and the Government are thinking on such measures, given that we are on the brink of the worst drought for at least 40 years. Anna Walker proposed some imaginative measures that households and businesses could take, and it is disappointing that they were not elaborated upon to a greater extent in the natural environment White Paper or the water White Paper. It would be helpful to know the Minister’s thinking on that. A lot of unfinished business on the 2010 Act could have found its way into this small Bill, but we await confirmation that such things will be dealt with in the wider and more comprehensive draft water Bill.

On new clause 1, I am not sure that I entirely followed the hon. Gentleman’s thinking on minimum standards for water company social tariffs. In what regard are these to be “minimum standards”? Are they to be minimum standards for comparative purposes or will they govern how the social tariffs would apply?

[Gavin Shuker]

I understand the hon. Lady’s confusion on this point. A number of options are available to us in terms of amending the Bill. We felt that the most appropriate route to go down was to allow companies discretion on whether or not to introduce a company social tariff, but to ensure that, at the very least, any such tariff met minimum standards set by the Secretary of State and approved by this House. At the moment, we are at the lowest rung of all the possible interventions and we simply seek to move things up one, in the hope of getting towards a national affordability solution.

13:14

[Miss McIntosh]

I am most grateful for that clarification. It would be interesting to know the background to the amendment and, in particular, to new clause 1. It would be helpful to know what discussions took place and what level of support the hon. Gentleman has from water companies and from Ofwat.

I did not have the opportunity to discuss this matter on Second Reading. It is appropriate to examine new clause 1 and amendment 1, as I have a concern and I am trying to help the Minister. A helpful Library note spells out clearly:

“The Government intends that bills be reduced from April 2013. The funding will come from the HM Treasury Reserve until the end of the spending review period in 2014-15. After that time funding will come from the Department for Environment, Food and Rural Affairs…budget.”

I understand that that was confirmed in a House of Commons debate in January.

“The payment will continue until ‘at least the end of the next spending review period’.”

So my question is: from which part of the Department’s budget is this funding going to come from 2014-15 until, presumably, 2019-20?

I must make a general remark about departmental budgets, and I do not think that the Department for Environment, Food and Rural Affairs is any different in this regard. We had the opportunity to question the Secretary of State on the annual report, in its new revised format, and the annual accounts. I think that there is a lack of transparency and clarity in all the departmental accounts—I do not single DEFRA out. I am deeply concerned about the position for those in the south-west whose water bills will or could benefit from this Bill, and for those in other areas who could benefit subsequently, as highlighted in amendment 1 and new clause 1. My real concern relates to how this will be funded in the next spending review period, given that we have not yet worked through all the savings in the budgets of the Department and other agencies, such as the Environment Agency. I am prepared to give any assistance I can in arguing with the Treasury that this money should be ring-fenced. Obviously, there is real concern that if it is not ring-fenced or if additional money cannot be found, other parts of the budget currently being spent on farming or flood defence will simply be hijacked for this purpose.

With those remarks, I welcome the opportunity to have this debate and to understand a little more about the thinking behind these proposals. However, I shall have to disappoint the hon. Member for Luton South by telling him that I will not be following him into the Lobby.

[Dan Rogerson]

It is a pleasure to serve under your chairmanship, Mr Hoyle. I follow the hon. Member for Thirsk and Malton (Miss McIntosh), whom I customarily refer to as “Madam Chairman” in the Select Committee. Obviously, it is a delight still to be considering this Bill. We are doing so rapidly, in order to make progress and get it on the statute book, so that it can start delivering fairness for my constituents and those of other Members across Devon and Cornwall, and so that we can start putting in place the framework for the necessary works here in our capital.

Although the amendment and the new clause proposed by the hon. Member for Luton South (Gavin Shuker) present a number of opportunities for discussion, they will not necessarily take us that much further forward. The amendment makes a reasonable point: if in future the Secretary of State or any other Secretary of State wishes to use the enabling powers of the Bill to make a difference to another part of the country that seems to have been disadvantaged, that should be explained to the House. I would have thought that it would be extraordinary, however, for such a thing to happen without a great deal of public debate or decades of campaigning, such as that which we have experienced in Devon and Cornwall. Perhaps other parts of the country might have such a keen hold on the Secretary of State or any future Secretary of State that they could get it all pushed through within a matter of weeks, but I suspect that that would not be the case. The Treasury would want to know very plainly and in great detail why the money was required and why it was felt to be a priority.

[Alison Seabeck (Plymouth, Moor View) (Lab)]

From a south-west perspective, the money we are getting is clearly welcome. As the hon. Gentleman has mentioned, other parts of the country might have demands, and given drought measures and so on, there might be reservoirs or other very large schemes in small areas that might impinge on us as our water bill payers could be asked to pay towards the costs. That would not be unreasonable, as we are expecting the payment to go the other way. Does the hon. Gentleman share my concern that, as the hon. Member for Thirsk and Malton (Miss McIntosh) mentioned, the money is not ring-fenced and how it is spent in future will be at the discretion of the Secretary of State?

[Dan Rogerson]

The hon. Lady is referring to the money identified for the south-west, and the worry that it might, to use a watery phrase, be diluted and spread out across the country. I suspect that that could potentially happen, but I know that the coalition Government are absolutely committed to seeing this provision through for the people of Devon and Cornwall. Who knows what might happen under a future Government? I hope that they would take the plight of our water bill payers equally seriously and continue that level of support. The hon. Lady makes an interesting point.

As I understand it, the amendment seeks to ensure that if a Government wished to offer such support to further areas, a statutory instrument would have to be tabled and debated. I find it hard to believe that any Government would consider doing such a thing without a debate not only in this place but out in the country at large and, I am sure, a debate in the Treasury too, which would have to be conducted publicly as well as privately. I know that that has been the case with the programme we now have for Devon and Cornwall. Although I accept the logic of what the hon. Member for Luton South said, I will wait to hear what the Minister has to say in reply before I decide what approach to take. Naturally, I want to support the Government—as I would on every occasion, but particularly as regards the provisions in this Bill.

The new clause concerns social tariffs and the next steps that we might want to take to help people who are under water stress, which, as the hon. Gentleman pointed out, will still be a significant problem for people in the south-west after the support set out in the Bill is delivered. Of course, water stress is also a worsening problem in other parts of the country.

I am delighted to see that the hon. Member for Wakefield (Mary Creagh) is in her place. On Second Reading, when we debated this subject, I intervened on her and made the point that any social tariff within a water company area presents problems as well as opportunities. If there is to be a social tariff at a significant level for those experiencing the worst problems in an area such as the south-west, despite the fact that many people will benefit we must be aware that within an area with a small population, a huge amount of the funding for the tariff will be provided by people just above the qualification threshold. I am very worried that in-region social tariffs will be unable to deal with the problem. When the hon. Lady set out where she would like the Bill to be improved, she said that she would do something about national water tariffs. It is a shame that we do not have such a provision and Devon and Cornwall MPs have put the matter before the Government. I understand that there are issues with the Treasury’s response, as that might be regarded as a tax, but we must consider how we can address that situation.

I do not see how a league table will help, however. Indeed, it might mean that water companies were under pressure to introduce the tables in such a way that it might disadvantage those people about whom I was talking—those just above the threshold who will not benefit from the tariff but whose water bills will increase to pay for their hard-pressed neighbours.

[Andrew George (St Ives) (LD)]

My hon. Friend is making a very good point. At the risk of delaying the process of the Bill through the further elaboration on the amendments, does my hon. Friend agree that the best way of addressing the issue would be to seek the assurance of the Minister that the issue will be addressed in the forthcoming water Bill as quickly as possible after the Queen’s Speech?

[Dan Rogerson]

My hon. Friend makes an excellent point. The water Bill will be a further opportunity for us to revisit these issues and I welcome the fact that hon. Members across the House are still considering this matter as one that needs further exploration.

[Mary Creagh (Wakefield) (Lab)]

I want to reply to the hon. Gentleman’s point about league tables. The idea came from Ofwat and is meant to ensure that there is transparent information for customers, shareholders and the Government so that they understand who is levelling the tariffs, where they are going and where the money is going. That was Ofwat’s idea and I cannot claim any credit for it, much as I would like to.

[Dan Rogerson]

The hon. Lady is very generous in ascribing the idea to Ofwat. I suspect that Ofwat could probably do that anyway and would not need legislation; if it wanted to publish a league table, it could get the information. Ofwat would have information from companies about where the money was coming from and where it was going and could publish it without that needing to be on the face of the Bill.

[Miss McIntosh]

I remind my hon. Friend that, as those on the Opposition Front Bench might not be aware, the Select Committee had some very compelling evidence from the water companies about social tariffs paid for by charitable trusts from each water company.

[Dan Rogerson]

I thank Madam Chairman—my hon. Friend—for putting that on the record. I am delighted that the Opposition Front Benchers support what the Bill seeks to do for bill payers in Devon and Cornwall and that they have chosen not to oppose it in any way. I do not think that the case is proven that either amendment 1 or new clause 1 will make a huge difference or improve the Bill significantly, but they do touch on two areas that I hope the Minister will address.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

I call the Minister—

[Julie Hilling (Bolton West) (Lab)]

rose—

[The Chairman]

Ah, I call Julie Hilling. You were a little late, but I am glad that you have joined us.

[Julie Hilling]

I apologise, Mr Hoyle, for being a little slow in standing to indicate my intention to speak. You can take it that I was confused about which clauses were being debated at which time.

I want to speak briefly about new clause 1 and, in particular, to press the point of a national social tariff. In the north-west, the affordability of water is affected by deprivation. Unlike the south-west, it is not affected by geographical issues or expenditure. We are a region with considerable difficulties and the bills of United Utilities, which is the north-west water company, are close to the national average, but income deprivation is worse than in any other region. More than half of the country’s most deprived communities are in the north-west, even though we have only 13% of England’s population. Ofwat’s analysis shows that once households in the South West Water region receive their proposed £50 bill reduction, affordability problems will be more severe in the north-west than in the south-west. Company social tariffs will not solve the problem, however, as too many customers in the north-west are in financial need to make the in-house cross-subsidy work properly. We therefore need a national social tariff scheme that all water companies would pay into. Taking the hands-off approach of leaving it to water companies to provide their own affordability schemes, and certainly giving them the choice of whether or not to provide it, will not help the people who are most in need in Bolton West.

13:29

There is no definition of water poverty, but if someone is paying 5% or even 3% of their income on their water bill, they are pretty poor. Some 840,000 households in the north-west spend 3% of their income on water, and 370,000 households spend more than 5% of their net income on water. It is United Utilities that is telling me that company social tariffs will not work in the north-west; we therefore need national action on social tariffs. Water debt is just part of the problem facing so many low-paid people. In my constituency, people are dependent on food handouts, are losing their homes and are unable to heat their homes or pay their water bills. Very poor people are paying the price for global economic failure. Let me finish by asking a few questions. Will a water Bill be announced in the Queen’s Speech and will we see action on this in the next Session of Parliament? If not, will the Government do something about a national social tariff?

[The Parliamentary Under-Secretary of State for Environment, Food and Rural Affairs (Richard Benyon)]

As Members know full well, the only purpose for which we currently plan to exercise the power in clause 1 is to reduce the charges on household customers in the South West Water area. We have recognised that the circumstances in the south-west are exceptional and we will be addressing that unfairness. I am grateful to Opposition Members for bringing forward the amendments because they allow us to explain a little more clearly what we are trying to achieve in this part of the Bill.

Our policy has been set out clearly both in the water White Paper and by the Chancellor in the autumn statement. We will fund South West Water to reduce its customers’ bills by £50 a year from April 2013 and we have committed to do that until the end of the next spending review period. To answer the question that my hon. Friend the Member for Thirsk and Malton (Miss McIntosh) asked, yes, from then it will be for the next comprehensive spending review period to negotiate this out of the Department for Environment, Food and Rural Affairs’ budget, but that certainly does not imply cuts across other vital parts of its budget. I assure her that this is an absolute priority. It has been hard-fought for by hon. Members from across the south-west, and there is an absolute commitment from the Government to continue the important work to address an unfairness that we recognise.

As hon. Members from the south-west will testify, this support for customers in the south-west is the result of their long campaign. They have fought hard for this and the problem of high water bills in the region has been raised many times in the House. I am proud that the Government are making progress on this issue but I am a little disappointed that the Opposition wish, through amendment 1, to force a further round of discussion on the merits of reducing bills in the south-west before we can move forward. Let me explain why. The Chancellor’s Budget or autumn statement is the appropriate place for setting out Government spending plans and for doing so within the broader economic context in which such decisions are made. It is inappropriate to micro-manage the economy through individual statutory instruments committing future Government spend. The Government make many decisions on spending and Parliament does not examine each one in detail through a process involving the laying of statutory instruments. However, the opportunity for parliamentary scrutiny does exist. DEFRA spending is subject to scrutiny by the excellent Environment, Food and Rural Affairs Committee and, if so wished, by the Public Accounts Committee. Government spending is also subject to the usual supply and estimates procedures with which we are all familiar. If the Government decided to use this power to provide further support, I would fully expect Members to scrutinise the case and to ensure that assistance was given only where and for as long as it was right to do so.

I draw to the attention of the hon. Member for Luton South (Gavin Shuker) the fact that new section 154A(1) within clause 1 focuses on an “English undertaker” and a “licensed water supplier”. We have to accept that there is not a lot of money floating around in Government at the moment—I am sure he recognises that—and so the idea that the Government are going to start sloshing money around freely without any public debate is absolutely ridiculous. One must also accept that that would be the case in future. We do not know what the future holds, but we want future Secretaries of State to be able to use the power where genuinely necessary. We therefore do not think the amendment is necessary. The Government are not going to start doling out money to water companies on a whim. We are using this power this time after years of debate, but it is unimaginable that any future use of the power would not attract the same level of debate.

In a similar vein, new clause 1 would threaten the action we are taking to deal with wider affordability problems. I point out that we will have the opportunity to develop the House’s thinking on this with the water Bill. I know that the Bill is eagerly sought by Members on both sides to take forward many of the issues we set out in the White Paper, which have been the subject of past reports to the Government. The Government have given a clear commitment that the Bill will be available for proper and full pre-legislative scrutiny and I hope that we will be able to publish it soon. Whether or not it is in the Queen’s Speech is not a matter for me.

[Julie Hilling]

May I press the Minister a little more on this? When he says “soon” does he mean in the next Session or the Session after that?

[Richard Benyon]

The hon. Lady will understand that I am not privy to what is in the Queen’s Speech. I very much want a water Bill as soon as possible, but we have given a commitment that the Bill will be available for pre-legislative scrutiny, and that is not something that happens overnight—it requires a process and it would be tight to get in the full level of pre-legislative scrutiny and a Bill in the next Session. However, I accept her point that it is needed by many people as quickly as possible.

We know that some households in the south-west and other regions—let me reiterate that other regions are also affected—struggle with their water and sewerage charges. We will soon be issuing guidance that will allow for the development of company social tariffs. Water companies will be able to reduce the charges of customers who would otherwise have difficulty paying in full. In consultation with their customers, companies will decide who needs help in their area and then design local solutions to address local circumstances. Water companies know their customers and local circumstances. Companies vary in size and customer base, and average bills also vary from company to company. On Second Reading, Members spoke about the different kinds of affordability problems faced by their constituents. They also recognised that in some parts of the country there might be less scope than in others for customers to cross-subsidise others in the region. I urge hon. Members to consider the Cholderton company, which serves only about 2,000 people. The difficulty of having a nationally mandated tariff that would apply to that company as well as to Thames Water, which has several million customers, accentuates the problem.

Imposing one-size-fits-all standards, as new clause 1 would require, on companies that decide to develop social tariffs would prevent them from reflecting the circumstances of their customer base and what their customers want. Some companies might be less likely to introduce social tariffs if the model did not suit their local circumstances. If hon. Members intend that all private water companies should be forced to introduce a centrally imposed social tariff scheme, I cannot support the introduction of that regulatory burden.

[Mr Matthew Offord (Hendon) (Con)]

The shadow Secretary of State said that she did not wish to take the credit for some of the amendments because they were the initiative of Ofwat. Having looked through Ofwat’s response to DEFRA’s consultation on company social tariffs, I think the amendments all came from Ofwat, apart from the question of what concessions to offer. Ofwat says that it supports the view in the draft guidance that it is preferable that the companies themselves should design concessions that best suit their customers’ needs. It says this so that companies, rather than the Government, will have greater scope to innovate, which I think the Minister is saying too.

[Richard Benyon]

I am grateful to my hon. Friend for making that point. It shows when one prays in aid an organisation, one has to do so in the context of all the evidence that has been given by it to many organisations, not least a Select Committee of the House.

We want companies to be imaginative in the way they tackle affordability in their areas, not to force them into a straitjacket. Our guidance will not dictate eligibility criteria, the level of concession or the amount of cross-subsidy. It will give companies the freedom to make judgments, with their customers, on what can work in their areas. This addresses the point made by my hon. Friend the Member for Thirsk and Malton (Miss McIntosh). Social tariffs are a new tool in the tool-kit for companies, but they are not the only tool. Companies have many other effective tools—for example, win-win tariffs, which are self-funding from savings on bad debt and do not rely on cross-subsidies. They have trust funds, as has been mentioned, which are set up by the company to pay off the debts of those most in need, as well as payment plans and referrals to holistic debt agencies such as Citizens Advice, arrangements made locally that really work.

We must not see a social tariff as the only show in town. There are no state secrets here. The information from water companies about the social tariffs that they develop will be produced in negotiation with DEFRA, working on the guidance that we will publish in a few weeks. The proposals from the water companies and the decisions that DEFRA makes will be available for scrutiny.

[Alison Seabeck]

This is slightly tangential. The companies are working to tackle unaffordable water charges, but there is one thing that they probably cannot deal with, which was mentioned on Second Reading by one of the Minister’s colleagues and by me. Once the £50 payment comes through the system, which will help most people on low incomes, the companies will not be able to guarantee that it goes to the person who pays the bill. Instead of going to the vulnerable party, the money may be going to a park home owner who is not reputable, or a private landlord. What discussions has the Minister had, perhaps with the Ministry of Justice, about whether it would be a criminal offence—a fraud—if the park home owner did not pass the money on?

[Richard Benyon]

The hon. Lady could lead me down a long path of personal frustration on this subject, which I am happy to share with the Committee. I have a number of park homes in my constituency. Some are well run. It is a style of living that we across the House should encourage because it allows people at a certain age to release some capital and live in a smaller dwelling surrounded by people in similar circumstances, but there are too many park home owners who are appalling human beings. Various Governments, including this Government and the Government whom the hon. Lady supported, have sought to address this. I am working with my hon. Friends in the Department for Communities and Local Government to ensure that the alternative arrangements that the Government are making for park homes will be fit for purpose.

I thank the Committee for that bit of therapy. I can assure the hon. Lady that we intend the £50 to get to precisely the people whom she describes. I am happy to talk to anyone. In my Department we are keen to make sure that that money is not siphoned off by anybody and gets to the householder, even if that householder is a park home owner on a site owned by somebody else.

13:45

I shall outline some of the other measures available to water companies. We are working to make sure that the issue is looked at holistically. We do not believe that social tariffs are the only method of addressing affordability. All these methods are in addition to the existing statutory WaterSure scheme which provides a safety net for the most vulnerable customers. We fully expect different companies to use these tools in different ways, and make no apologies for that.

It remains the case that most water bills are not high in comparison with other household costs, such as energy bills. Customers struggling with water charges are likely to be struggling with other living costs. The Government have other measures in place to tackle the broader problem of low incomes. Universal credit will make work pay and combat worklessness and poverty. Our social tariff guidance will say that we expect companies to keep their social tariffs under review and work with Ofwat on how best to do this.

We do not propose to require the kind of annual reporting suggested in new clause 1, which would be just the sort of regulatory burden that David Gray’s recent review of Ofwat warned the regulator away from. Ofwat already has a primary duty to protect the interests of consumers and will act in their best interests. A league table would also fail to show the real picture on the ground. The measures of 3% and 5% of a household’s disposable income are useful indicators of risk, but they are not absolute measures of the number of households struggling to pay their bills. In short, therefore, we think that enabling companies to work with their customers to design schemes best suited for their area is a much better solution. I therefore ask hon. Members to withdraw their amendments.

[Gavin Shuker]

The Minister was articulate and charming, but his argument was unconvincing. I am sorry to say that because I have a great deal of sympathy for him and his position. This is a short Bill and the Government want to get it through quickly and cleanly, but we believe our amendments serve a useful purpose.

The Minister clearly ruled out the possibility of a national water affordability scheme. I think I am right in saying that. The Minister is not willing to give that assurance at this stage, but I will go back through Hansard. I thought it was pretty clear from what he said that a national water affordability scheme was ruled out. We believe that that is the wrong approach and that work can be done. If provision is not made in this Bill, we would like to engage with the Minister and work collaboratively to try and find a way to respond to the concerns of the hon. Member for North Cornwall (Dan Rogerson), who raised the possibility of such a scheme, as we have done on previous occasions.

The hon. Member for Thirsk and Malton (Miss McIntosh) asked about the opinions of the water companies. In my experience, the water companies would like a level playing field. It is clear to me that in new clause 1 we do not ask for a one-size-fits-all solution, as the Minister described it. We simply ask that at the same time as the south-west receives the benefits of the Bill, the whole country should receive the benefits of a set of mandatory minimum standards for those tariffs. We do not even require water companies to introduce the social tariffs, but when those are introduced, we ask that they be effective—that they are not just based on guidance, but that the House has the right to weigh in on what they should be. My hon. Friend the Member for Bolton West (Julie Hilling) dealt with issues of national water affordability. She is a strong advocate on behalf of her constituency.

In conclusion, despite my sympathy for the Minister, I intend to press amendment 1 to a Division.

Question put, That the amendment be made.

13:48

Division 491

Ayes: 200

---

Labour: 188
Democratic Unionist Party: 6
Independent: 2
Social Democratic & Labour Party: 1
Alliance: 1
Green Party: 1
Plaid Cymru: 1

Noes: 263

---

Conservative: 228
Liberal Democrat: 34

Clause 1 ordered to stand part of the Bill.

Clause 2

Financial assistance for major works

14:00

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

I beg to move amendment 4, page 3, line 3, at end insert—

‘(5A) Financial assistance may only be given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

Amendment 5, page 3, line 3, at end insert—

‘(5A) Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.’.

Amendment 10, page 3, line 3, at end insert—

‘(5A) The Secretary of State may only grant financial assistance after a business plan for the proposed infrastructure has been approved by Ofwat and the National Audit Office.

(5B) The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the infrastructure project.’.

[Simon Hughes]

This issue is of significant interest to those of us who live in the Thames Water area. Some 20% of the population of the United Kingdom do, so it is not an irrelevant issue to people across the country who pay water rates. Specifically, I am talking about colleagues who have constituencies in Gloucestershire, Northamptonshire, Essex, Kent, Hampshire and Greater London, and the issue raises broader questions about how the Government and Ofwat, the regulator, deal with water companies, their financing and, specifically, the financing of major projects.

I shall make some preliminary comments that relate to all three amendments. I am grateful to the Minister and to the Secretary of State for engaging with the issue; I am grateful for the engagement on Second Reading; and I am grateful for the correspondence that I have had with the Secretary of State since Second Reading. I shall refer to that and read some of it into the record.

First, in parts of London and, certainly, in my constituency, one of the most significant current debates is about whether there will be a Thames tunnel, and Thames Water’s proposal is that to address the current system’s inefficiency and inability to deal with London’s sewage, understandably because the system was created in the Victorian era, new infrastructure—a main sewer, in effect—needs to be built to cope with current and future needs.

There is an ongoing debate, which I do not propose to get into today, about whether the current plan for the proposed tunnel is the right answer. In summary, sewage capacity is already being built to the east of London, in the Lee valley; and there is a proposal—the projected costs of which have risen to £4.1 billion—for a long tunnel, travelling from west London not far from here, along my constituency and ending up at the sewage treatment works in east London.

Some people say that the only solution is the currently proposed tunnel; others say that it would be better to have a shorter tunnel and some other forms of sewage alleviation. That debate is ongoing, but in the end decisions will have to be made. There is a whole planning process for deciding whether the tunnel will be built.

Secondly, there is a debate—in constituencies such as mine and in boroughs such as Hammersmith and Fulham, and Wandsworth—about where, if there is to be a tunnel, the main sites of activity should be. In the middle of Bermondsey, a very large site is proposed for drilling down to create the shaft from which the tunnel boring will happen, both west and east, at a place called Chambers wharf. In the first round of consultation, the proposed site was King’s Stairs gardens, by the Rotherhithe tunnel. That is a greenfield site, and the proposal was not at all popular. We have managed to persuade Thames Water that that is not a good idea, but there is a tale of unexpected, or unwished-for consequences, because having won a battle to save one site we then found that the company came up with another site next door, taking the pressure off one community but immediately transferring it not far away. That is a separate debate, and I do not propose today to get into the detail of where the sites should be. I see my constituency neighbour and colleague, the hon. Member for Cities of London and Westminster (Mark Field) in the Chamber, and many of us have a constituency interest—big and small—in where the sites should be.

The third issue—the issue of the Bill—is whether the Government should, if necessary, provide financial support to Thames Water for such a project, and if so, the terms and conditions under which it should be granted. Clause 2, which all my amendments would change, is entitled “Financial assistance for major works”. I shall not read it all into the record, as people can turn to it, but it proposes the insertion into the Water Industry Act 1991 of a new provision, section 154B, of which I shall read the first proposed subsection:

“If the Secretary of State considers it desirable to do so, the Secretary of State may give financial assistance in connection with—(a) the construction of water or sewerage infrastructure, or (b) the carrying out of works in respect of existing water or sewerage infrastructure.”

In further proposed subsections, there are various conditions, one of which is:

“Financial assistance may be given in any form and in particular may be given by way of—…grant…loan…guarantee…indemnity…the provision of insurance, or…the acquisition of shares in or securities of a body corporate.”

My first amendment, amendment 4, proposes:

“Financial assistance may only given under subsection (1) if the financing of the infrastructure is being secured by a group company which has adopted the equator principles.”

I shall come back to that.

Secondly, I want to test the Government’s reaction to amendment 5 and my proposal:

“Financial assistance must not be given to any company which has a debt to equity ratio of more than 65%.”

That precise figure is relevant, but there is a much bigger issue about what the financial past and present of a company should be if it is to receive Government support.

My third amendment, amendment 10, states:

“The Secretary of State may only grant financial assistance after a business plan for the proposal infrastructure has been approved by Ofwat”—

the regulator—

“and the National Audit Office…The business plan must demonstrate that the company carrying out the infrastructure has adequate capital resources to complete the…project.”

[Mark Field (Cities of London and Westminster) (Con)]

I appreciate that the right hon. Gentleman’s debate is not entirely abstract, but on amendment 5 how would the Government be able to judge financial assistance on the basis of that debt to equity ratio? Presumably, assistance will come in different tranches, so any group company’s activity might at various times fall on either side of any category that the right hon. Gentleman has in mind, and any assistance might be for a specific project in different tranches. Does he not feel that his amendment would over-complicate what he is trying to achieve? Will he detail precisely how he thinks it would operate?

[Simon Hughes]

Some of this is quite technical, but these are important issues. The reason I chose that figure, which is not a matter of precise science but a starting point for debate, is a Financial Times article in 2006 suggesting that Ofwat’s expectation was that gearing levels for Thames Water should remain below 65% for any project. There was then a debate, in public, between Thames Water and its owners—they have a history in this matter—and the regulator as to what the percentages of borrowing against capital, borrowing against income, and borrowing against profits should be. The company should have sufficient capital to fund the project and should not be giving away its capital by way of dividends so that it has to look elsewhere for funding that it could have had if it had not been paying out capital that it had acquired previously from its investments.

[Mark Field]

The right hon. Gentleman will be aware that Thames Water is looking to secure a large-scale investment from a Chinese sovereign wealth fund. Is he concerned that such an investment—this is a specific case, but it could apply generally to anyone who was getting such financial assistance—would help to distort, and could, at particular levels of investment, deliberately distort the debt to equity ratio in such a way as to negate any benefit created by the provision that he hopes to put into the Bill?

[Simon Hughes]

As the hon. Gentleman knows, Thames Water has a very complicated corporate structure: the graphic picture shows that there are about 10 layers of corporate entities. At the top are investors Macquarie—an Australian company—and the new Chinese investor that was recently announced when the Chancellor was in China, and there have been other acquisitions.

We must not prevent Thames Water and its holding company, and its holding companies, from obtaining money from external investors; indeed, we need to encourage that. However, we, the Government and Ofwat must ensure that we do not condone, particularly in relation to Kemble Water, which is the relevant driving company, and Macquarie, a practice that is unacceptable in two respects. First, it allows the company to pay out in dividends to its shareholders very large profits while not retaining the money that it needs for its capital investment, thereby forcing it to come to Government and, in turn, to the taxpayer, to underwrite something for which it should not have had to come to the taxpayer. Secondly, these processes should not result in our corporate sector avoiding the taxes that we would expect it to pay. One of the issues for next week’s Budget is the need to ensure that people, personally and corporately, who can afford to pay their due taxes do pay those taxes. There has recently been a pretty unpleasant history regarding Kemble, Macquarie and Thames Water whereby people have paid far less tax than the hon. Member for Cities of London and Westminster and I would believe to be acceptable. They have been using various onshore and offshore mechanisms to avoid tax liabilities involving money that should have come back into the Treasury to the general benefit of the taxpayer.

Ofwat has said that on the previous two occasions when it carried out price reviews, it assumed, for the purpose of setting price limits, a gearing within the range of 55% to 65%. It worked from that starting point, although it was simply an assumption for the purpose of price setting, not a requirement. My suggested figure is therefore also a starting point to see whether we should write in a figure that requires a balance between payment out of dividends and the retention of capital and earnings to ensure that there is no abuse of the relationship with the taxpayer, to the detriment of the consumer.

At the end of the day, this is about the level of water bills for people in the Thames Water area. The current projection is that as a result of the Thames tunnel project, bills will rise by about £80 a year indefinitely. I do not want Thames Water to charge every ratepayer roughly £80 a year extra and, at the same time, not pay much money into the Treasury by way of tax and indefinitely siphon off huge amounts of profits to national or extra-national investors while we are paying for something that we ultimately do not own. There are parallels in the history of the private finance initiative regarding public sector investment in projects where the money then goes off into the private sector. The M6 toll road, in which Macquarie had an interest, has not been a happy tale of investment benefiting taxpayer and users, with some people apparently creaming off the profit to the disadvantage of those taxpayers and users.

[Dan Rogerson]

My right hon. Friend has set out a number of measures relating to safeguarding public investment. Is it fair to say that he is seeking to bring a far greater level of transparency where matters are a little opaque, particularly because we might see an emerging relationship between private companies and levels of public subsidy, and that makes the need for transparency paramount?

14:15

[Simon Hughes]

That is exactly the position. I want us to address this now and not to discover, when the system gives planning permission for this big project, that we have a corporate financial structure that is not going to work for the interests of the water rate payer or the taxpayer. I have a double interest on behalf of the water rate payers of the Thames Water area—144 colleagues represent people in that position—and on behalf of the taxpayer. I want to ensure that we are not shelling out money when we should not be doing so and the private sector should be picking up the tab. Transparency is hugely important, and it is not helped by a corporate structure that has 10 layers of involvement where it is not clear who owns what, and where one of the layers at the bottom appears to be based in the Cayman Islands. That is not a place where I thought that we were encouraging schemes that we, as taxpayers, were supporting financially.

[Mark Field]

There is plenty of water around the Cayman Islands, but that may not be entirely what Thames Water had in mind. I thank the right hon. Gentleman for making clear his concerns. I hope that he and I will both speak on Monday in the debate on the Government’s waste water national policy statement, specifically on the issues relating to the Thames tunnel, which concern many of us as Members of Parliament. It is rather distressing that a very small minority of us seem to be concerned about this, yet no fewer than 144 Members, many of whose constituencies are well outside London, but none the less within the Thames Water area, will be directly affected by the huge and ongoing increases in bills to which he refers.

[Simon Hughes]

I am not pretending that we are hugely disadvantaged in the Thames Water area at the moment. My colleagues in the south-west and their constituents have had hugely greater bills over very many years. I am not arguing that we should not have to pay more money as Thames Water ratepayers, but that if we are going to do so, we should be paying it for a project, if it is agreed, where we know that the taxpayer is not being fleeced and water rate payers are not paying more than they should be. This must not be seen as a method for allowing private sector companies—all the water companies are now, in effect, private sector companies—to export profits indefinitely, at a higher level than they ought to, when they should be putting that money into the project and making sure that bills are lower.

[Andrew George]

Bearing in mind that the probity or otherwise of Thames Water is outwith the purpose of the Bill, would my right hon. Friend care to comment on the fact that, as I understand it, Thames Water might not undertake this project and that the question then arises of what happens to the asset, which is the tunnel? Surely that is the key issue, and then there is the separate issue of the probity, management and proper regulation of Thames Water as a company.

[Simon Hughes]

My hon. Friend is right. Perhaps it would helpful if, rather than trying to go round the circuit twice, I quickly summarise my letter to the Secretary of State in which I set out my concerns and the history of the matter, summarise the key points of her response, which deal exactly with my hon. Friend’s point about the mechanism regarding the tunnel, and then raise the three specific issues that should be addressed before colleagues and the Minister speak.

The provisions could, of course, apply to any water company. I am talking about Thames Water because we know that the Thames tunnel is the big project that the Government have in mind. However, the Bill relates not just to Thames Water, but to financial assistance for major works by any water company throughout the country, so the issues could relate to any constituency across the United Kingdom.

I will give a brief history. Thames Water was previously owned by the German utility company RWE. As I well remember, at that time it had one of the worst records for leaks and failed to meet its agreed targets for remedying leaks for four consecutive years. Despite that, RWE raised the dividend that Thames Water paid out to the company by 52%, took £216 million from the company and simultaneously announced a rise in profits as it prepared to sell the company on. At that time, Thames Water had a debt to capital ratio of about 45% and an excellent credit rating with all the major rating agencies.

Thames Water was bought by Kemble Water in 2006 in a deal worth £8 billion. Kemble Water is a financial vehicle for a consortium of investors, primarily made up of private equity funds led by Macquarie, the Australian bank. The deal included £3.2 billion of debt, which was incorporated into the company through whole company securitisation. That was undertaken for a special purpose finance company that Thames Water set up in the Cayman Islands, presumably to allow the owners of Thames Water to avoid taxes on the income that they received from the interest raised. That increased the debt ratio sharply to 67.9% of regulated capital value. The company has continued to borrow heavily and the debt to capital ratio has now increased to 72.9%.

That has happened at a time when Thames Water has paid extremely high dividends, which have regularly exceeded its earnings. For example, in 2010, the ratio was 141.5%. In other words, it paid out in dividends nearly one and a half times as much as it received in earnings. By contrast, South East Water, to take another local example, had a payout ratio of 48%—just a third of that of Thames Water. That strategy has had a serious detrimental effect on Thames Water’s credit rating. It has fallen from a corporate credit rating of A plus on the Standard & Poor’s rating scale when the company was bought by RWE in 2000 to a position today in which some of Thames Water’s debts have been assigned a triple B rating, which is considered to be the lowest investment grade rating possible.

For 10 years, Thames Water has been owned by two companies that have sought to extract the maximum possible value from the company. It has prioritised that over the necessary prudential financial arrangements that would have allowed it to make the large, long-term capital investments that it knows it has to make. As a result, Thames Water no longer has the capacity to access the finance required to make large infrastructure investments. It is not as if this project is a new idea. It has been, excuse the pun, in the pipeline for a long time.

The company has therefore asked the Government to provide financial backing for its Thames tunnel scheme. It is not yet clear to me why our Government should help this company after its years of excessive and unjustified borrowing and extraordinary dividend payments, which have eroded the company’s capital position. At the end of the Second Reading debate, the Minister said that the financial arrangements of the company were a matter for the regulator, Ofwat. That is in part true, but Parliament certainly has an interest and the Government must have an interest. If Ofwat’s controls are not sufficient, we need to address that. That is why I have raised this matter in the amendments.

Before the sale of Thames Water by RWE, Ofwat made a clear statement warning potential investors not to follow the very strategy that Kemble Water has since followed. Ofwat said that potential bidders should preserve Thames Water’s investment grade credit rating, which would have meant keeping the company’s debt to capital ratio below 65%. That is the link between solvency, external financial respect for the company and the percentage ratio, which my hon. Friend the Member for Cities of London and Westminster raised with me earlier. Since then, the regulator has, in effect, stood by and done nothing to prevent Kemble Water from further saddling the company with debt. Ofwat has stated that that is acceptable because the company has kept its investment grade credit rating. In fact, the credit rating has deteriorated to the lowest investment grade possible. Ofwat appears to have neglected the need for the company to incur more debt in the future to pay for large capital investments.

I am troubled that, unless we amend the Bill, there will be nothing to prevent that behaviour from continuing. I am trying to make the Government address how we will prevent it. I do not propose to force the amendment to a vote, but I want to hear the input of Members, if they want to contribute, and the Minister’s response. I am keen to ensure that we do not let go of this matter. My constituents want me to raise it now and the constituents of many colleagues in London have an equally strong vested interest in it.

[Mark Field]

It is important that we do not just see this as a problem with Thames Water. This is a fundamental issue about the financial structuring of a range of companies, many of which are getting ongoing financial assistance from PFI schemes, which often have years or decades to run. The right hon. Gentleman has made it clear that he will not press the amendment to a vote. I hope, however, that not only this Department, but other Departments that have responsibility for companies that have gone through this sort of financial restructuring and that are receiving ongoing financial assistance give serious thought to the matter.

[Simon Hughes]

That point is very helpful. I have raised this subject as a matter of general Government policy with my right hon. Friend the Chief Secretary to the Treasury, because it is not just an issue for the Department for Environment, Food and Rural Affairs, but an issue across Government and for the Treasury in particular. It is also a matter for the Public Accounts Committee, audit organisations and others. In a second, I will link the points that I have made with the PFI issue, which my hon. Friend just raised, and other places where we are spending public money on projects that are excessively encouraging or facilitating private gain to the disadvantage of the state and the taxpayer.

[Dan Rogerson]

My right hon. Friend is making some excellent points and shedding a little light on fairly shady areas of corporate restructuring. Sports fans are well aware of such things going on at their beloved sports clubs. He referred to Ofwat’s handling of the situation over a number of years. He has clearly raised the matter with the Department. In his scrutiny of these affairs, has he received any response from Ofwat on why it has not taken action up to now?

[Simon Hughes]

I have sought from Ofwat an explanation of its current policy. I have not sat down with Ofwat to go through what more it might do. I want to raise the matter here and see what colleagues think. There is a debate to be had about Ofwat and I hope that changes in what Ofwat does and how it behaves will come out of it. These issues also relate to other regulators, such as those for gas and electricity. This is an issue about regulators and private utilities.

The Secretary of State kindly replied to me, as the Minister knows. I will quote the key points from her letter that responds to the issues that I have raised in Committee. The first matter relates to the point made by my hon. Friend the Member for St Ives (Andrew George):

“I would first like to point out that it may not be Thames Water Utilities Limited who carry out the project. We have consulted on provisions that would enable the project to be delivered by a separate Infrastructure Provider to be regulated by Ofwat separately from Thames Water Utilities Limited. Any contingent financial support will be directed at assisting the entity that is building the Tunnel—and so not necessarily Thames Water Utilities Limited.”

I understand that. It does not change things, but it is important to realise that although Thames Water may be the supplicant, it may not be Thames Water that does the building.

The Secretary of State continued:

“The level of gearing and the securitised structure of Thames Water Utilities Limited is similar to that of some other water companies. Our and Ofwat’s analysis shows that contingent financial support from government would be required for Thames Water Utilities Limited (or any other water company) to build a single project of the scale and complexity of the Tunnel whatever its financial structure (within the norms for water companies).”

I do not dispute that. I am not denying that this is a very big project, or that it may need the reassurance that comes from being supported nationally, rather than just being the project of a regional water company.

The Secretary of State went on:

“Our goal is to ensure that the level of this contingent financial support is kept to a minimum and that we achieve best value for money for customers.”

Amen to both of those things. We all have the same objectives. She continued:

“It is in that context that we are considering whether the Tunnel should be built by the Thames Water Utilities Limited or a separate entity.”

The Secretary of State then discusses the question of where Ofwat’s rules currently bite. She states:

“Ofwat regulates each water and sewerage company in England and Wales under the terms of its Instrument of Appointment…The licence contains conditions aimed at ensuring that each water and sewerage company has sufficient financial and managerial resources to carry out its functions and that the regulated company is operated separately from the rest of the group.”

That is quite important. She continues:

“These licence conditions are collectively known as the regulatory ring-fence.

It is Ofwat’s view that it is for the management of each regulated water company to determine its own optimal financial structure.”

Within limits, I do not dissent from that, but it seems to me that Ofwat is there to hold the reins properly.

14:30

The Secretary of State continues:

“Where companies have proposed alternative financial structures, including refinancing arrangements which include securitised structures, it”—

Ofwat—

“has introduced amendments to the regulatory ring-fence to reassure itself and customers that companies remain in a position to finance their functions and that consumers’ interests are not adversely affected by a company’s capital structure.”

I could go through the finances of Thames Water since its last purchase in 2006, but I will not, to save the Committee’s time. Instead, I shall summarise them. The Secretary of State confirms:

“The publicly available Regulated Accounts of Thames Water Utilities Limited show that the only year in which Thames Water paid out unusually high dividends was in 2006-07 following the capital restructuring. In 2010 for example…the dividend paid out was a total of £307.9 million…covered by profits after tax at £331 million.”

It paid out in dividends nearly as much as it received in profits—just £30 million short. In the previous year, 2009, the dividend paid out was £222 million and the profits after tax were £314 million. That was obviously a more healthy balance.

[Mark Field]

While the right hon. Gentleman is going through the financial figures, it would be useful to know what the level of reserves was during those years. Were they building up, or had Thames Water, in its own mind, already built up a war chest for the works that it is looking to do—or was it essentially draining its profits by more than 90% year on year?

[Simon Hughes]

I do not want to misrepresent the position, and I do not have with me the full accounts over those five years—the Minister may be able to help us with that—but my understanding is that the reserves have reduced over that five-year period. That is one reason for my concern about the balance of decisions on dividend payments and capital retention. That should trouble us and cause us to ask questions.

The figures that I have show that 2008 and 2009 were the only recent years in which dividends did not exceed profits. I understand that in 2010 there were £295 million of dividends and £237 million of profit after tax. Probably 30% or 40% more was paid out in dividends than received in income and earnings.

The Secretary of State rightly says that Ofwat does not enforce limits on dividend payments. I do not dispute that in principle, but she states:

“However the licence conditions of each water company’s licence include a requirement to ensure the dividend policy rewards efficiency and good management of economic risk, and will not impair the company’s ability to finance its functions as a water undertaker…Ofwat does not place a cap on levels of gearing. Instead, it determines a notional capital structure for an efficiently financed and operated company for the purposes of setting the cost of capital and assessing the financeability of the price limit it sets. This approach is consistent with the approach Ofgem has adopted in its regulation of the gas and electricity sectors. In the last two Price Reviews this nominal capital structure assumed that water companies would have gearing”—

the figure that I have mentioned before—

“in the range 55%-65%; this was a modelling assumption and not a requirement. The requirement was that they should maintain an investment grade credit rating, plus some headroom and it is this together with the regulatory ring fence that provides the protection for customers. Several of the large water and sewerage companies have a similar gearing ratio of around 80%.”

I pause there to note that if the licence conditions are meant to be about both the ratio and the credit rating, it seems to me that we again have cause for concern.

The Secretary of State continues:

“The regulatory ring-fence also requires a company to ensure that it, or any Associated Company, maintains an issuer credit rating which is an investment grade rating. If a company’s investment grade is threatened, the cash lock up provision within the licence means that if a company is placed at the minimum level for investment grade (i.e. BBB- or equivalent)…the Appointee cannot transfer cash or other assets to an Associated Company without the prior consent of Ofwat.”

Thames Water is moving slowly down towards that position. She continues:

“Moody’s provides a corporate family rating of Baa1 to the whole business securitisation that encompasses Thames Water Utilities Limited. Standard & Poor’s do not provide an equivalent rating for whole business securitisations; instead they rate individual bonds…These bonds are rated in the range A- to BBB…These credit ratings are very similar to other water and sewerage companies and provide headroom against the floor for investment grade credit quality.”

However, it remains the case that we have seen a drop in the credit ratings of Thames Water collectively, and some of its activities particularly. That should start ringing alarm bells with us.

The Secretary of State ends:

“Finally, discussions with Thames Water on financing the Tunnel are ongoing. Achieving best value for money for customers and safeguarding taxpayers are top priorities for Government”.

I wish to mention two other matters, if I may. I am conscious that this is a much longer speech than I would normally want to make, but I am dealing with all my amendments together and this is a fairly complex issue.

Ofwat’s statement of its position is that the ring-fencing licence conditions require a company to

“conduct its business as if the regulated business were substantially its sole business”

and

“have adequate financial, and facilities and management resources to carry out its regulated activities and to confirm each year that it will do so for the following 12 months.”

A further condition is that a company must

“ensure that its dividend policy will not impair the company’s ability to finance its functions”.

I am not sure that Thames Water has done that. It seems to me that its dividend policy has impaired its ability properly to carry out its functions, but it has put it in a position whereby it may not be able to finance on its own, or principally, a project that it knew it would want to finance.

Ofwat states:

“Our long established policy is that it is for each company and its management to determine a capital structure that is appropriate for its circumstances. But our view is that if investors choose to adopt highly geared structures, it is right for customers that both those investors and the companies bear the risks associated with their choice of financial structure.”

That is fine, but now the company is coming to the Government to ask for help to support it. Finally, Ofwat states that capital restructuring generally

“involves the replacement of equity capital with debt capital. This can have a tax benefit.

Consistent with our view that capital structures are a matter for the companies, we set the price limits for companies on the basis of a notional financial structure for an efficiently operated and financed company”.

The Secretary of State also made that point. Ofwat continues:

“We do not set the cost of capital on the basis of each company’s actual capital structure.

However, in setting price limits, we separate the treatment of tax from the cost of capital. This includes tax as a company-specific cost based on the company’s actual gearing projections.”

We could well do the following things. First, if we applied the equator principles, we would put in place a credit risk management framework for determining, assessing and managing environmental and social risk in project finance transactions, which is recognised in this country and around the world. Equator principles financial institutions—there are four eminent ones in the UK, Barclays, HSBC, Lloyds and Standard Chartered commit to

“not providing loans to projects where the borrower will not or is unable to comply with their respective social and environmental policies and procedures that implement”

the equator principles. There are 76 financial institutions in 28 countries that have adopted the principles, covering more than 70% of international project finance debt in emerging markets. If we were to have that accountability mechanism, which would allow communities to have redress when companies do not meet environmental and social norms, that would provide added reassurance that companies involved in financing large infrastructure projects would uphold high standards. That would apply not just to the water industry but to public financing as a whole.

My amendment 5 suggests that no financial assistance be given to a company with a debt to equity ratio of more than 65%. That ratio is a measure of a company’s financial strength and demonstrates how much the company has borrowed against its assets. It has a direct effect on a company’s credit rating, and consequently on its ability to borrow on the financial markets. I appreciate the Government will not accept the principle of the amendment today, but they might do so in the other place or in another way. If they did so, they would send a message to water companies that if they want Government support to build new infrastructure, they will need to demonstrate that they have the financial strength to be a credible and reliable partner of the Government.

That is also the purpose of amendment 10, which would require any company seeking financial support to come forward with a business plan. Any bank or building society would ask that safeguard of any business in our constituencies. They would say, “Show us your business plan. We’ll then tell you whether we are willing to lend you the money.” A reputable bank involved in financing an infrastructure project would demand to see a business plan, but so far, Parliament is being asked—unless I am corrected by the Minister—to allow the Secretary of State to give financial assistance to water companies, which may include grants, loans, guarantees, indemnity or equity, without any obligation on the Government to seek such guarantees.

We should be concerned about that not just because of the recent history of Thames Water, but for the reason given a moment ago by my hon. Friend the Member for Cities of London and Westminster and given the history of the private finance initiative. The previous Government went through a period of giving blanket permission—effectively—to engage in large-scale infrastructure projects financed by PFI, to build hospitals, schools and many other things. The Treasury Committee has made it clear that PFI projects often lead to higher costs and produce poorer-quality buildings and services. It has said that those costs are eventually borne by the taxpayer, and that PFI projects were unacceptable if the costs were simply diverted to private profits in the private sector for companies that pay little or no tax.

A further disadvantage of PFI—this was touched on by my hon. Friend the Member for St Ives—is that the asset passes from the public or accountable sector into the private sector. We therefore lose the asset and the revenue stream to the public purse. We do not reduce the public’s payment, which in the end is more expensive.

[Mark Field]

An issue not specific to this debate is ongoing financial assistance from the public purse for many years to come, often through an artificially created special purpose vehicle rather than a more straightforward process. Such vehicles, as the right hon. Gentleman rightly points out, are often driven by maximising profits, potentially by minimising tax and all other returns to the Treasury.

[Simon Hughes]

To turn that into a picture, that could mean that the Thames tunnel will be built by a separate company, not Thames Water. The company will own the tunnel indefinitely, and rent, as it were, the use of the tunnel to Thames Water. It will collect the income indefinitely and do what it will in terms of distributing the profits, while we—the 12 million people in Thames Water constituencies—continue to pay charges, with no control over the profit being made by the owners.

The M6 is the best example I can find. The M6 toll road is currently the only cash motorway in the UK. In May 2003, Macquarie executive Dennis Eager boasted:

“'We can put up the tolls by whatever we like and start the tolls on day one at whatever we like. If motorists don’t complain about it being too high, we have done our job properly.”

I went through the toll the other day and paid £4.60 or something. That was the weekend rate, which is slightly cheaper, but cars using the toll during the week are charged £5.50, and lorries pay £11, making the M6 toll one of the most expensive toll roads in Europe. You, Mr Hoyle, may know the price more accurately than me because you have probably used it more frequently than I have.

Traffic using the M6 toll is declining, but it is soaring on the neighbouring non-toll M6. The number of cars using the M6 toll declined by 10% in the past year, meaning that it is ineffective at relieving traffic on the M6, which was its whole purpose. In 2005, the company operating the toll road had a net worth of £67 million and paid no corporation tax.

[Mark Field]

One concern with the Thames tunnel is that there is so little incentive for Thames Water to have a cost-effective scheme in place because of the nature of the payouts. Many hon. Members will recall that at the outset, the project was to cost £1.6 billion, but we are now looking at a £4.1 billion project. There seems to be no sense whatever of an incentive for Thames Water to have something that is more cost-effective, which would obviously benefit hard-pressed bill payers from 144 constituencies in the House.

[Simon Hughes]

That is exactly the point. I should have gone on for another paragraph before I let my hon. Friend intervene. I shall finish the figures on the toll and then address the point he makes.

In 2006, Macquarie Infrastructure Group, the owners of the M6 toll, cashed in £392 million in profits despite contributing only £1.5 in equity to the scheme. The link is that Macquarie is behind Kemble Water, which owns Thames Water. My concern is exactly that alluded to by my hon. Friend. There is an incentive to build the biggest, most expensive tunnel because the largest amount can then be charged to get the maximum revenue stream indefinitely, and no incentive to have a cheap, good-value product at the end of the day. My question to my colleagues in government is this: are we asking the serious questions as to whether the taxpayer should be putting up any financial support for the scheme?

14:45

Since 2003, RWE and Kemble have vastly increased the debt held by Thames Water. Debt has been taken out of the company not because of a vast capital renewal programme or investment in infrastructure. A normal company might take out debt to invest in capital, increase assets or pay down debt over time. Under those circumstances, we could expect to see a short-term increase in debt, which would fall over time as the debt is paid off, and expect shareholder equity to increase to reflect the value of the investments made.

Thames Water, despite being a highly profitable company, has shown no increase in shareholder equity in almost a decade. That is demonstrated by the Thames Water balance sheet, which since 2003 has shown a fall in shareholder equity at a time when the company has taken out more than £5 billion in additional debt. Last year alone, the company increased its debt by £1.25 billion. The accounts of Thames Water show that it paid out £271 million in dividends and moved £685 million of loans to other group companies—almost £1 billion in assets were moved out of the company, to be covered by even more borrowing.

Given that we now have a project estimate cost of £4.1 billion, Thames Water should be asked whether it would have been able to finance the tunnel project had it followed a different policy over the last decade. The policy has clearly had a serious impact on its ability to borrow. The company’s corporate rating on the Standard & Poor’s scale has gone from A plus with a positive outlook to a position in which some of its debt has been downgraded to triple B, which is just above junk bond status.

What has the regulator done about that? Thames Water steadily degraded its credit rating to the point at which it does not have the capacity fully to borrow all that it wants, and has asked the Government for financial support. Ofwat regulates the industry to ensure that companies do not get themselves in a position in which they can no longer operate as going concerns. That is entirely right: water companies are local monopolies, and there would be devastating consequences for the local population were they to fail, because people cannot go anywhere else to get their water.

Provisions include companies having to keep their investment grade status and the ring-fencing of capital assets. If the credit position of water companies falls below investment grade, a cash lock-up mechanism prevents them from paying dividends and ensures that profits are kept within companies. That mechanism is intended only to stop companies going bust; it is not intended to encourage prudential long-term financial management that allows companies the capacity to borrow to make large capital infrastructure investments when they need to do so. The case is perfectly demonstrated by Thames Water, which is currently right on the margin of losing its investment grade status despite the fact that it has known for many years that the tunnel is coming. I believe that that needs to be addressed as a matter of urgency.

My last point is that the current system allows companies to move their money around. Among Thames Water’s debts is a £4 billion debt to a post box in the Cayman Islands. The post box is called Thames Water Cayman Finance Ltd, which is based in Ugland House—I have never been to the Cayman Islands and cannot tell the House exactly where that is, but 18,000 other companies use it as their registered address.

Thames Water Utilities Cayman Finance makes no profit because it owes £4 billion to its creditors. It might be a bit difficult to follow the trail of corporate involvement, but as my hon. Friend the Member for North Cornwall (Dan Rogerson) said, it does not seem like transparent public accounting in the interests of the taxpayer and water rate payer. This company, being a monopoly supplier of water to 20% of the UK’s population, needs to be transparent.

Furthermore, Thames Water can deduct its interest payments from its taxable profits, which is one reason that on the £600 million in operating profits that Thames Water made last year it paid only—wait for it—£16 million in tax. That was after a £400 million deduction for interest payments. And guess where they went! Most went to its subsidiary in the Cayman Islands. If we are about closing tax loopholes and dealing with tax avoidance, the regulators should not be condoning mass tax avoidance by companies providing a monopoly utilities service such as water to people in London and the surrounding counties.

Ofwat’s position paper on the Kemble takeover of Thames Water stated that tax efficiencies from capital restructuring should be passed on to consumers. I do not sense that consumers are getting the benefit, although I do not think they should get benefits as a result of a tax dodge involving huge sums of money that ought to be going into the UK Treasury to deal with the public financial crisis. A sensible gearing ratio of about 65% would also limit tax avoidance by limiting how much interest could be deducted from taxable profits.

I am grateful for your indulgence, Mr Hoyle. I am sorry if it was a rather longer perambulation even than what people thought the ring main would have been had it been a ring main—although actually it is going to be a long pipe. There will be further debate next week on other issues, but I am keen that DEFRA, the Government and all other Departments focus on the need to end this scandal, which has existed for several years, and do not allow Thames Water to get away with what is probably the worst example of financial management leading to the worst exploitation of the consumer and the taxpayer. I hope that the Government will be robust in their response.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

The good news is that I am not going to judge the speech or the ring main.

[Mr Andy Slaughter (Hammersmith) (Lab)]

I will, I hope, be a little briefer than the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). I just want to make a few remarks arising from his comments and amendments.

I am absolutely with the right hon. Gentleman on the general principle that in going ahead with the Bill, which I believe has all-party support—I am not sure about him but he is not pressing his amendment—we must protect both public money and the money of the public. By public money, I mean, first, any underwriting of major capital schemes, such as the Thames tunnel. Secondly, this is a large private multinational company—I appreciate his research into its holdings and complex structure—and we must ensure that it pays taxes in the UK.

At the same time, however, we must also look after the money of the public and ensure that not a penny more is paid in increased water charges, particularly given that water charges are already rising above the rate of inflation for all water users across the UK, including Thames Water customers. I was somewhat reassured on Second Reading when the Minister said that the Government shared those concerns and that he was sceptical about the project—at least about whether its financing was what Thames Water said it was. There would be broad agreement on that.

I also agree with many of the comments of the right hon. Member for Bermondsey and Old Southwark about Thames Water, particularly under the ownership of RWE. During my first two or three years in the House, Thames Water was my bête noir, partly because of how it dealt with leaks—digging up roads all around London in a completely ad hoc, unconcerned way and leaving workings for months at a time—while still not getting to grips with the problem. Furthermore, the problem of sewer flooding, particularly in west London, has been a blight on people’s lives. Year on year, thousands of basement and ground-floor properties in my constituency are flooded by sewers, yet little attention is paid to it. And, indeed, there are Thames Water’s financial arrangements, which the right hon. Gentleman spoke about.

It is only right to balance that, however, by mentioning that Thames Water’s performance has improved markedly in the past few years in many of those areas, although we should continue to be concerned about its financial structures. A lot has been written in the papers in the past few days about the current drought and impending hosepipe ban and other possible measures, and the water companies are rightly under scrutiny. I note that in total—this is not just Thames Water—water companies are likely to report annual profits of £1.5 billion and that they are currently leaking about one quarter of the water they provide. They provide about 14.6 billion litres daily, and about one quarter of that is being leaked. It has been pointed out quite correctly that the hosepipe ban will save only 20% of the water being leaked daily.

The water companies, then, have a long way to go. Many of their problems were caused by the botched privatisation under the then Conservative Government and the fact that, as the right hon. Gentleman said, there has been an incentive for companies to beef up their profits to make themselves ripe for takeover, to sell on at a profit and not to worry during those years about their consumers and the cash cow that comes from having an effective local water monopoly.

Everyone will be grateful for the research that the right hon. Gentleman has done into the financing structures. I am less sure, however, that his amendments would deal with that. I will not spend long on this because I suspect that the Front-Bench spokesman, my hon. Friend the Member for Luton South (Gavin Shuker), will explain, not as eloquently as me but forensically and analytically, how the Labour amendments would provide the necessary safeguards in a less prescriptive and detailed but more effective way to ensure that if any projects come forward for financial assistance, they are tested in the House first to ensure that the assistance is necessary.

I depart from the right hon. Gentleman in respect of the effect that his amendment might have on the clause. In the end, we need a project in London that will resolve the daily, sometimes weekly, regular flow of huge quantities of sewage into the Thames. On this, I am not sure where he is coming from. When we debated this matter last September in Westminster Hall, he said:

“I also put in a short response to the private commission that was set up by some interested local authorities and chaired by Lord Selborne.”—

in fact, it was set up by Hammersmith and Fulham council—

“The commission has argued that we must have a totally different direction. I am not persuaded by that. The Thames tunnel is the best direction. The previous Government came to that view and the present Government have held to it.”—[Official Report, 14 September 2011; Vol. 532, c. 316WH.]

That was in September. In February, he said:

“I am now clear that, since the end of the first round of consultations in 2011, the arguments for a review of the full tunnel proposal and possible alternatives have substantially increased.”—[Official Report, 29 February 2012; Vol. 541, c. 391.]

I am not sure what happened between September and February. This is important because we must find an effective solution. There is no point putting forward half measures.

[Jeremy Corbyn (Islington North) (Lab)]

I have met Thames Water and looked at the situation. Pollution of the Thames is totally unacceptable—as are the levels of sewage going into the Thames. There has to be a better drainage system to ensure that that does not continue. However, does my hon. Friend agree that after this process we need much tougher regulations to deal with the paving over of large areas of London and the Thames basin, which leads to excessive water run-off from rainfall, which then joins the sewage, becoming a sewage surge in the Thames? That water should be replenishing ground water, not being flushed away with the sewage and thus causing pollution in our river.

15:00

[Mr Slaughter]

My hon. Friend is absolutely right. The schemes that he describes, which are collectively known as SUDS—

[Heidi Alexander (Lewisham East) (Lab)]

Sustainable urban drainage systems.

[Mr Slaughter]

I am grateful to my hon. Friend for that prompt. Local authorities have woken up to the possibility of SUDS, albeit perhaps somewhat late in the day. Many are now insisting in planning applications that there should be no more paving over, while many are rightly taking enforcement action where those conditions are disobeyed. However, it is quite wrong to think that SUDS on their own will be a solution to the problem; rather, they offer additional assistance. The idea that we can suddenly convert road surfaces and pavements into permeable surfaces across London is highly impractical—look at the problems we had with simply replacing the water mains—and it would also cost four or five times more than the highest estimated cost for the tunnel. However, we must use SUDS, and indeed other measures

I am grateful to my hon. Friend the Member for Islington North (Jeremy Corbyn) for his intervention, because he brings me back to the point that I was making. I was pleased to receive an invitation from the right hon. Member for Bermondsey and Old Southwark to attend a meeting on 6 March in this place. This perhaps draws attention to the point that the hon. Member for Cities of London and Westminster (Mark Field) raised, because although probably 140 to 150 MPs would have been invited if the right hon. Gentleman had asked all those with an interest in Thames Water, I think only three turned up—me, the hon. Member for Hendon (Mr Offord), who is in his place, and my right hon. Friend the Member for Greenwich and Woolwich (Mr Raynsford), who was here a moment ago. That perhaps shows a certain lack of interest among some of our colleagues. I am sure that the hon. Member for Cities of London and Westminster would have been there, had he not had a more pressing engagement—I am sure that it was not the Campaign for Real Ale reception that was on at the same time, but there we go.

The invitation asked us to come and listen to Chris Binnie, the engineer who served as the independent chair of the Thames tideway strategic study steering group, which recommended the full tunnel solution. He was going to be present to explain

“why he now believes the costs have exceeded the benefits, and why there are quicker and cheaper solutions that should be considered urgently.”

I am familiar, as many Members are, with Mr Binnie’s proposal, which is what he has called the “Binnie Bubbler”, It is designed to aerate the Thames in a way that prevents the death of the fish and other livestock—if that is right phrase—in the Thames. I have read the arguments for and against the “Binnie Bubbler”, and I have always been rather sceptical about it, because I am not sure that it is suitable for the tidal Thames—it has apparently worked in Cardiff bay in a lagoon area—and also because I do not think it acceptable to allow raw sewage into the Thames at current levels and then simply to try to aerate it and possibly skim off the worst of it.

I therefore went along to the meeting—although I am sorry that I could not stay for the entire time—to see whether Mr Binnie had something more to say on that issue. It would be fair to say that he had something quite surprising to say. I appreciate that I am about to read from a note about the meeting that was written up by a supporter of the tunnel—I had left by this stage—but it says:

“Chris Binnie announced that he had changed his mind again and now supported Thames Water’s view that we should implement the single Thames Tunnel option. Wow! You could hear the gasps around the room and Simon Hughes’ chin nearly hit the floor.”

That might be slightly unfair: the right hon. Member for Bermondsey and Old Southwark is unfazed even by things greater than engineers changing their minds, for the second time. However, this issue draws attention to an important point in the argument about the Bill, and brings us back to the financing. I think everybody—certainly everybody present in the Chamber today and most other Members of the House, albeit with certain exceptions, my neighbouring Member of Parliament being one of them—supports the idea that something must be done to relieve sewer flooding of the Thames in a substantive way that will last us, we hope, as long as the Bazalgette solution did.

[Simon Hughes]

I do not want to prolong this unnecessarily, but would like to say clearly that my presumption has always been that something needed to be done. I started from the view that the Thames tunnel was the right solution. However, I want to be sure—not just for myself, but for my constituents, for the reasons that have been set out—that we are not about to embark on an expensive project if it is not entirely needed and has not been objectively assessed to be the right solution. Hence, I come to this issue with a “Let’s check and be certain before we press the button” approach. That was my view before I went to the Binnie meeting and when I came out of it, and it remains my view today.

[Mr Slaughter]

I am grateful for that clarification. I have never signed up to the concept of the tunnel uncritically or without reservations—or, indeed, at all—because I have always held open the option that there might be a better solution, and if that is what the right hon. Gentleman is saying, then we are on all fours with each other. That is why I have looked in some detail at proposals such as the “Binnie Bubbler”, SUDS and the idea of separate rainwater and sewerage networks, which would also create the problem of huge disruption and much additional cost. Some of those projects, including water conservation, can be done and should be effective, both environmentally and from a cost perspective; the difficult thing is to find an alternative that does what the Thames tunnel would do.

[Jeremy Corbyn]

My hon. Friend represents a riverside constituency, and therefore must have studied the issue in detail. I understand that the tunnel will not last for all time and will become overloaded within the next three or four decades. Therefore, we need to examine how we use water and how drainage systems operate, rather than hitting another crisis in three or four decades’ time.

[Mr Slaughter]

I agree, and something that is effectively a large sewer pipe stuck under the River Thames can sometimes look like old technology in some ways. There has to be a more organic and continuing process of developing solutions to avoid tunnelling, but it remains the case, first, that this solution has been preferred in many other capital cities around the world and, secondly, that at the end of the day, it is the simplest, clearest and most effective solution. Therefore, as well as considering other, additional measures, all our attention should be focused on how the Thames tunnel can be contained as a project, particularly financially, but also in terms of the disruption that it would cause.

However, I take my hon. Friend’s point entirely, and conclude by going back to basics and why we need this project. When I spoke on Second Reading last week, I invited my hon. Friend the Member for Luton South to join me last Saturday on the foreshore of the Thames by the CSOs—combined sewer overflows—in Hammersmith for the Thames21 clear-up. I was very disappointed to see that he obviously had pressing constituency business, because he would otherwise have joined me and about 100 of my constituents—although they might have been from Bermondsey and Old Southwark or Cities of London and Westminster. However, they were all hard-working people—they worked longer than I did. Together, they cleared up several skips of industrial, commercial and consumer waste—if I can put it that way.

[Jeremy Corbyn]

I rise to intervene on my hon. Friend for the last time and to thank him, because I visited the Hammersmith shoreline on Saturday evening, and it was absolutely brilliantly clean. I looked over that pristine area of mud and sand, and thought, “This is amazing! This is how the Thames can be. I wonder which guardian angel has been here and cleaned it up”—and now I know.

[Mr Slaughter]

Modesty forbids; all I would say, without going into too much graphic detail, is that when I left, I washed everything that I was wearing, yet it was still Monday morning before I got the smell out of my nostrils. Unfortunately, I did not go and wash everything I was wearing immediately, because I had to go canvassing for Mr Livingstone in between. I cannot think how many votes I must have lost in the condition I was in, following my outing on the foreshore.

It is a lot cleaner on the foreshore, and I appreciate absolutely what the Thames tunnel coalition, Thames21, has done, and all the fantastic consumer groups involved, in organising the clear-up. I pay tribute to them, although I wish that they did not have to do that work in those appalling conditions.

One of the people who was working hard there on that morning was a young man called Conor Newman-Walley, aged 15. He and his dad were there, working away. He goes to the same school in Hammersmith that I went to many years ago, and he is in the rowing team. It is a very good rowing team, as it was then. He is a founder member of Rowers Against Thames Sewage—RATS—and this is what he has said to the Thames tunnel organisation:

“In Victorian times, the people of London solved the first sewage crisis by implementing one of the most influential engineering projects of its time. As young people we learn and marvel about these feats in history at school. The challenge of sewage in the Thames today is too big for our generation. We look to those above us to put the projects in place that will solve this problem for generations to come. Our call to you is to build something amazing that our children will learn about in school.”

That attitude is one that we should adopt as we contemplate the Bill.

It is our duty to scrutinise the Bill and, more importantly, when it is passed, to scrutinise the project and any public money that might be committed to it and possibly put at risk. I hope that the amendments are not designed to stand in the way of ensuring that the clean-up of the Thames takes place. For Conor, a regular user of the Thames, this is not a lifestyle question, or a matter of the river looking pretty or smelling nice; it is a question of health, and of whether he can feel pride in his community when he goes to the river to take part in his sport. He needs to be able to take part in that sport without feeling personally inconvenienced or put at risk.

The Thames brings huge benefits to people, particularly my constituents who live alongside it and use it regularly. We have a duty to the public purse, as well as to ensuring that London has a river that is fit to look at, to use and to enjoy. I appreciate the attention paid by the right hon. Member for Bermondsey and Old Southwark’s to the financial detail, but I hope that he has not strayed so far from the path that he cannot also commit to those aims.

[Mark Field]

I do not necessarily regard the proposals as a scandal, as the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) seemed to suggest when moving his amendment, but I share many of his general concerns about the financial engineering. I say that as the very proud Member for the Cities of London and Westminster. I do my bit to stand up for the banking fraternity and for large corporates, many of which are based in my constituency. Deep concerns have been raised by the amendments, however. The amendments will not be put to the vote; they are testing amendments that will enable us to have a useful debate on this matter.

I would not wish this debate to be seen as hostile to Thames Water. I have had fairly positive dealings with it over the significant amount of work that is being done in my constituency, in the City of London and in the City of Westminster. It is carrying out a huge amount of work there, and there is no doubt that it has been very disruptive, but I hope that central London will have a far better water system in the years to come as a result.

Deep concerns have been raised about how necessary it is to spend as much as £4.1 billion. It is quite respectable for the right hon. Gentleman to raise his concerns, although I suspect that he might have been less concerned if the huge amount of building work had been due to take place on the other side of the river, perhaps in Wapping rather than Rotherhithe. We all know that there has been a lot of disruptive work. I have seen it happening in my constituency with Crossrail. I have always been a firm supporter of Crossrail, although I have often said that there were no votes in taking that position. Indeed, votes have been lost through so doing.

We are proposing to spend a huge amount of money on the Thames tunnel, and I am not convinced that that is entirely justified. I do not disagree with what has been said by the hon. Members for Hammersmith (Mr Slaughter) and for Islington North (Jeremy Corbyn). Significant work clearly needs to be done to improve the quality of the water in the Thames, although, compared with early Victorian times, it is now wonderfully clean. That is no cause for complacency, however.

15:14

The financial structuring of the Thames tunnel project seems almost to provide an incentive for Thames Water to adopt a bells-and-whistles approach. As I mentioned earlier, the total bill has gone up from the £1.6 billion that was being touted four or five years ago to the present figure of £4.1 billion. The impact on bill payers will be enormous, particularly in these times of austerity, which will be with us for some years to come. I suspect that the measures will go through, but Thames Water customers will be up in arms only when they are faced with an additional £80 a year on their bills, much of which will be justified on environmental and other grounds. By that time, it will be too late, as the permission for the project will already have been given. I hope that the Minister will look seriously at this, and make his own representations to Thames Water.

This brings to mind an important point made by the right hon. Member for Bermondsey and Old Southwark about the more general problem of financial assistance for a range of deals that are already in train, particularly in relation to private finance initiatives in schools, hospitals and roads that have already been built but which have not been fully paid for. The financial engineering that could be put in place could be detrimental to the Treasury, and to taxpayers and ratepayers, for a considerable time to come.

This has been a worthwhile debate, in that it has allowed us to discuss those matters. No one disputes the fact that we need to do something about the Thames Water area and the Thames tunnel, but there is a notion that that should be driven by Thames Water alone. As I have said, Thames Water has no disincentive to raise the cost, knowing that it will be reflected in higher bills in perpetuity. We had a good history lesson from the hon. Member for Hammersmith earlier, and we clearly need to do some work to ensure that the arrangements are fit for the 21st century, rather than being set in aspic in the 19th, but I am concerned about the financial arrangements. This relates to my more general concern about the controversy that will inevitably surround many City-related financial deals in the future. It will do great discredit to the large amount of financing that goes on if there is a sense that the wool is being pulled over the eyes of taxpayers and residents in this kind of scheme. That will undermine the credibility of the important infrastructure work that needs to be done in the interests of us all as users of Thames Water’s products.

[Jeremy Corbyn]

I missed the first 45 minutes of the speech by the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), but I have discussed this matter with him before and I am aware of his concerns. He is quite right to raise the financial issues surrounding the Thames tunnel, because they are serious matters.

Bazalgette and his colleagues who did such fantastic work in the 19th century to create the London sewerage system created a world-class achievement. However, they could never have predicted the way in which London’s population would change, or the great increase in the use of appliances such as washing machines, which use much more water. Those changes have led to an increase in waste, the overflowing of the sewerage system and the pollution of the Thames. Having improved the condition of the river from being foul and putrid to very clean, we are now heading quickly back in the wrong direction. Not so long ago, we were all very proud of the water quality in the Thames; we are not any longer. We see what happens every year when storm drains overflow into the river. We need to think carefully whether the proposed measures are the solution, and whether they are the solution for all time.

[Mark Field]

I hope that the hon. Gentleman would agree that this is also a reflection of much higher expectations. We rightly have higher expectations in relation to water quality. It would be wrong to suggest that we have gone in totally the wrong direction, although there are problems with water quality. I accept that problems of sewage and effluent in other parts of London, which do not affect my constituency, are a good reason for implementing some improvement, but it does not need to be the all-embracing scheme that is being proposed at the moment.

[Jeremy Corbyn]

There is a serious danger of many Members agreeing with each other here, which will not do the House’s reputation any good at all. [Interruption.] It will not do the reputation of the hon. Member for Cities of London and Westminster (Mark Field) or mine any good at all, either. I think the hon. Gentleman makes a fair point. I do not wish to exaggerate by saying that quality of the water in the Thames is heading back to what it was in the 19th century. It is not, but it is deteriorating because of the amount of effluent being pushed into it and because the sewerage system cannot cope. Ergo, something clearly has to be done.

I have discussed this issue with my hon. Friend the Member for Hammersmith (Mr Slaughter). As I see it, the Thames tunnel is a solution and it is necessary. My concern is with the cost and the impact; I am also concerned about whether the solution will last. That is why I hope that the Minister will inform us, when he comes to reply, that his Department is seriously looking at other issues, such as permeable surfaces, reducing the use of water, using other forms of drainage that do not pump everything down towards the Thames, and perhaps other forms of sewage disposal that will not lead another generation to have to spend an equally large amount of money on the next new solution to this problem.

I recognise that we have a problem; I recognise that London has to wake up to it. I believe that the Thames tunnel is probably the only solution on offer to deal with it. We have to look ahead as well, just as Parliament was forced to face up to the pollution in the river in the 19th century when it stank Members out of the building. We are not at that stage yet, but Londoners deserve a decent and clean river of which they can be proud. We look forward to the days when the salmon and dolphins are back in the Thames, as they could, should and ought to be.

[Mr Offord]

I shall comment on the proposals of the right hon. Member for Bermondsey and Old Southwark (Simon Hughes). Some of his comments were interesting and opened me up to some of his concerns, which are shared by some Conservative Members. I shall investigate some further issues afterwards, but I wish to put some comments on the record now.

I am a supporter of the Thames tunnel. I do not think I am considered a spendthrift politician. I am often described as a right-wing Conservative—a moniker with which I am very comfortable. On this occasion, however, I am supporting Thames Water in its endeavours to clean up the river.

I am most concerned about amendment 4, proposed by the right hon. Member for Bermondsey and Old Southwark, according to which financial assistance should be given for “the financing the infrastructure” only if

“secured by a group company which has adopted the equator principles.”

I was not initially aware of what the equator principles were, so I went away to conduct a little research.

The equator principles were established to guide investment for major works and projects in developing countries, particularly those countries that have a limited environmental regulatory framework. Although they are now described as applying to all major projects across the country, the relevant environmental directives here in the UK set much higher standards than anything that appears in the equator principles.

Applications for projects on the scale of the Thames tunnel will be considered by an independent body—in this case, the Infrastructure Planning Commission. I understand that back in September 2010, Thames Water referred the matter back to the IPC. Beyond that, I understand that after investigation, the Secretary of State will be required to look at the project to establish whether it is acceptable; that will be followed by acceptance or rejection by Parliament.

The scale and the nature of the Thames tunnel project has triggered the need to undertake an environmental impact assessment in accordance with the EU EIA directive and the EIA regulations. The EIA process will seek to identify the likely significant effects of the project, which we hope will inform part of the design process and facilitate design improvements, ultimately identifying suitable mitigation measures for any residual environmental and social effects on our constituents. The output of the EIA process—the environmental statement—will convey to decision makers, such as ourselves, the environmental effects of the project, including on local communities.

Other studies have been undertaken that will inform the independent decision makers during the IPC process, including an equalities impact assessment, a health impact assessment and a sustainability assessment. In addition, as we all know, local authorities will be able to make their case directly to the IPC, and they will be able to produce their own local impact statements. Finally, the extensive consultations undertaken by Thames Water comply fully with the Planning Act 2008 and are in line with the Aarhus convention.

It is certainly my view—and I believe it is the view of Thames Water, which is proposing the scheme—that the directives and guidelines are being complied with to an extent that far exceeds the requirements of the equator principles, and I am particularly uncomfortable with that. I am disappointed that the amendment will not be pressed to the vote. I feel that when amendments have been tabled, we should test the view of the Committee on them. I do not understand why the right hon. Member for Bermondsey and Old Southwark tabled this amendment. I would have thought that he had done enough work to be able to speak eloquently about his other concerns. I do not think that he really believes in this measure, which rather muddies the water generally.

The second part of my speech is about the Chris Binnie meeting, which I attended. I was quite surprised to hear that the person who promoted the original plan had decided, after seven or so years, that he felt an alternative was more viable. The viability of the scheme, he said, lay in the fact that it would cost only £60 million as compared with the £4.1 billion he originally envisaged. What he did not address in the meeting, however, was the fact that the £60 million scheme would not fundamentally address the problem of sewage and other contaminants in the river. All it would do is scrape some of the 39 million tonnes of effluent off the top of the Thames and aerate some of the river, affecting fish and livestock living in it. It does not address some of the issues in the EU environmental legislation that we need to address fundamentally as part of the super-sewer scheme.

I was rather concerned to hear that someone who had proposed a scheme only seven years ago had suddenly changed his mind. I felt that some of these aspects should have been considered seven years ago. He said that circumstances, including the financial situation in which the country and Government find themselves, had changed. That reminded me of an old African proverb—that the best time to plant a tree is 20 years ago, and the second best time is now. I ask myself why he did not push this scheme forward at the time. We have had to wait seven years and he now claims that it is unaffordable. I am very suspicious of people who come forward with a professional opinion and then, when circumstances change, decide that better alternatives could have been proposed. In hindsight, it would have been better if he had advocated these proposals originally.

I do not believe that the amendment will be pressed to a vote. If it were, for the reasons I have outlined, I would certainly be against it. I do not wish to detain the Committee any longer—certainly not for as long as the right hon. Member for Bermondsey and Old Southwark did. I look forward to hearing the Minister’s response to some of the points that have been raised.

[Gavin Shuker]

The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) raises a number of important issues through these amendments. In so doing, I believe he makes our case, which we will come on to discuss in the next group of amendments, for proper parliamentary scrutiny in the exercise of clause 2. However, we take a different view on the correct mechanism in this case. We believe that rather than attempting to restrict the powers of the Secretary of State—despite the rather ingenious way in which he has crafted the amendments—the best way to debate major infrastructure works is through a statutory instrument process, before triggering the powers in clause 2. Because we believe that our amendment provides a superior mechanism, we are reluctant to support the right hon. Gentleman’s amendments, although I accept that he has already said that they are, to a degree, intended to probe the Government’s position.

I admit that I was a little confused about the right hon. Gentleman’s own position. Last week he said that he was no longer convinced of the arguments in favour of the Thames tunnel, and I hope that the amendments are not designed to allow him to sit on the fence. In view of climate projections that forecast a substantial increase in the number of flash floods in the region—it is expected that by 2060 the UK’s current single occurrence in 30 years will become one in 11, and that the current single occurrence in 100 years will become one in 30—we think that the need for the tunnel is obvious.

We do, however, agree that the scheme could be accompanied by a number of other measures. It should be borne in mind that the Thames tunnel will still be overwhelmed by large storms occurring perhaps every three months. That demonstrates that the design is not over-engineered, as some would claim, but provides a decent standard of protection for the Thames.

The right hon. Gentleman has indicated that he does not intend to press his amendments to the vote. I invite him to support our amendment 2 later, when these points can be properly addressed.

15:30

We agree that an investment programme to comply with waste water requirements should not disproportionately enrich the balance sheets of a private water company. That should not be the purpose of installing new infrastructure. It is for the Minister to confirm the exact arrangements, but I remind the Committee that in 2010 we legislated for a financial mechanism allowing the Thames tunnel to be built and operated by a company other than Thames Water to ensure that Thames Water did not profit disproportionately. The current proposals build on that, seeking to enable the Government to take the powers they believe they should take to ensure that the tunnel goes ahead.

Let me conclude by saying—I hope to be painlessly brief—that we cannot support the amendments, and that we call on the right hon. Gentleman to withdraw them in favour of our amendment 2. We also invite him to join us in debating the statutory instrument on the Thames tunnel, and to deploy arguments as skilful as those that he has deployed today.

[Richard Benyon]

Everyone in the Chamber recognises that the words “Thames Water” appear nowhere in the Bill. Nevertheless, my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) has raised some legitimate points.

I am certainly not here to be the voice of Thames Water. While I entirely understand the concerns that have been expressed by Members in all parts of the Committee, I think we should be careful about debating the structure of companies, or our perceptions of their virtue or otherwise. It is not for me to talk at length today about tax loopholes, perceived or actual, and in any event you would not allow me to do so, Ms Primarolo. The Government intend to block such loopholes where they exist, and it is the job of Her Majesty’s Revenue and Customs to hold companies to account.

I recognise that there is an issue that needs to be addressed by Thames Water in respect of its customers and the 144 Members of Parliament—including me—who are concerned about it. However, we should be wary of trying to prescribe such matters as debt equity ratios in legislation. Shifting the percentage from debt to equity could have a serious effect on bills in some water companies’ areas, and although debt levels are obviously of concern and we must ensure that they are as low as possible, it is not for Ministers to make such prescriptive decisions.

[Mark Field]

Does my hon. Friend not accept that legislation is the only mechanism whereby Members can address fundamental issues such as this? Many of us find it quite distressing that Ofwat, as the regulator, is not doing the job that it should be doing in relation to what are fairly high-profile issues. Is he suggesting that we can rely entirely on Ofwat to judge whether debt equity relationships are appropriate? The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) pointed out that although there are distinct guidelines in Ofwat’s own documentation, they seem to have been largely ignored by Thames Water, and may well have been ignored by other water companies. Indeed, the same may apply to other regulators which many of us believe are simply not delivering the goods.

[Richard Benyon]

My hon. Friend makes an entirely legitimate point. It is absolutely Parliament’s role to hold debates and adopt positions and, in many cases, hold to account corporations who are responsible for products such as water, which is so important to our constituents’ lives. I am sorry if I gave the impression that that might in some way be diminished. There are many forums within Parliament, not least the Select Committee process, for holding organisations such as Ofwat to account for the decisions they take. I assure my hon. Friend that we have regular discussions with all three regulators of the water industry, as well as with the water companies, to ensure that decisions are taken properly in relation to us in Government, and he is also right that Parliament should debate such matters, too.

I want to rattle through some of the points raised in the debate before addressing the questions asked by my right hon. Friend the Member for Bermondsey and Old Southwark. First, I want to put on the record that I celebrate the fact that another country’s sovereign wealth fund wants to invest in water companies in this country—indeed, that has received a generally positive reception. It is also worth putting on the record that no decision has yet been made as to whether the Thames tideway tunnel should form part of Thames Water’s regulated asset base.

I also want to say that I share the admiration for Thames21 expressed by the hon. Member for Hammersmith (Mr Slaughter). I have visited that organisation on a number of occasions, and it does fantastic work around our capital, reminding us not only why this river is so important to those who live in London, but also that it passes through one of the seven most important cities in the world. That must motivate us to get this project right.

There has been some comment about this project being a private finance initiative venture. As I am sure Members understand, it is not a PFI project because it would not involve the public sector entering into a contract with the private sector.

Some uncertainty will always be associated with projects of this size and complexity. The current cost estimate of £4.1 billion includes a significant contingency element of £0.9 billion for risk allowance and optimism bias. Together with Ofwat, Infrastructure UK and the Major Projects Authority, we will continue to scrutinise the costs and ensure that the project is delivered efficiently, with a structure and financing mechanism that delivers value for money for customers and taxpayers.

Lessons learned from other successful projects will be applied to ensure that this project is delivered within budget and on time. I promise my right hon. Friend and other Members that I and my ministerial colleagues remain healthily sceptical about the cost of this project. We must remain sceptical about any projects that have such high capital costs and that involve an annual charge for so many people, some of whom are on low incomes. It would be wrong of us to sleepwalk into an arrangement and not be rigorous about the cost element.

We are taking the best possible advice. We have taken on Ernst and Young to advise us on the structure and financing of the project, and we have also taken the best advice on engineering solutions. We talk to Thames Water regularly, too. I cannot share with Members some of the details that I would like to share with them, because we are currently in a very sensitive negotiating time in respect of this project. In due course, I hope, and expect, to be able to share more details, however.

I was asked under what circumstances financial assistance would be given for the tunnel. We are still considering the most effective financing mechanisms for the project. We are talking with Ofwat, Thames Water and our own advisers. No decisions have yet been made on the form of any financial assistance, or how it could work.

I entirely agree with the hon. Member for Islington North (Jeremy Corbyn) that we must also have clear policies on public open green space and green spaces generally. We have published policies on that and the green infrastructure partnership that we are creating. We are also working on the use of permeable surfaces, which is largely a building regulations matter, but also comes under the remit of the Department. We will be announcing our policy on sustainable urban drainage systems following the consultation on that in the near future, so he is right to raise the matter.

Let me deal with the points made by my right hon. Friend. He has tabled amendments to attach to the granting of financial assistance several mandatory terms and conditions relating to the financial structure of the undertaker responsible for the construction or works. I take his concerns seriously and share his desire to ensure that should any public financial support go to the Thames tunnel or similar projects—it is important to understand that this is not just about the Thames tunnel—it is tightly controlled.

My right hon. Friend has put on the record his letter to the Secretary of State and much of her reply to him, and I do not intend to go through that in detail. However, in dealing with his amendments, I should, first, reiterate that the clause, as drafted, already allows terms and conditions to be attached to the financial assistance. As with amendment 3, I do not accept, however, that it is necessary or appropriate to include a detailed listing of potential terms and conditions in the Bill. Those may vary from project to project, and it is better to retain flexibility on the most appropriate terms and conditions that would protect customers and taxpayers, and ensure that infrastructure projects can be delivered.

That said, the amendments appear to raise questions about Ofwat’s independent economic regulation of water and sewerage companies. Although the Secretary of State has written recently to my right hon. Friend on this point, it may be useful to set out briefly how the sector is regulated. A greater awareness of this regulatory system may help to reassure hon. Members about the checks and balances relating to the financing of the water sector, and how taxpayers’ and customers’ interests are properly protected. Every water and sewerage company in England and Wales is regulated in accordance with Ofwat’s primary duties to protect the interests of customers and to enable the companies to finance their functions. Each water company is subject to the terms outlined in its instrument of appointment or, as it is more often known, its “licence”. The licence contains conditions to ensure that each company has sufficient financial and managerial resources to carry out its functions, and that the regulated company is operated separately from the rest of the group. Those licence conditions are known as the regulatory ring fence.

It is for the management of each regulated water company to determine their own optimal financial structure. Where companies have put forward new financial structures, Ofwat has introduced amendments to licence conditions, such as the requirement to maintain an investment grade credit rating, which has been mentioned, to ensure that companies can still finance their functions and that consumers’ interests are not affected adversely. High gearing ratios are, in part, reflective of lenders’ confidence in this regulatory regime.

I will now discuss the amendments in detail. On amendment 4, my right hon. Friend’s intention may be that the project should secure finance only from institutions that have signed up to the equator principles, but that would limit the market from which finance can be sought, thus potentially adding cost on to customers’ bills. In addition, as was pointed out by my hon. Friend the Member for Hendon (Mr Offord), non-membership of the equator scheme does not mean that a financial institution is not following sound principles. My right hon. Friend’s intention may be that the company seeking the finance should sign up to the principles, but it would be inappropriate to ask Thames Water, its holding companies, its infrastructure provider or any other water and sewerage company to sign up to a set of principles designed for financial institutions active in providing project finance, rather than for companies involved in providing utility services under a well-established regulatory regime, which already balances the economic, social and environmental aims of sustainable development.

Amendment 5 deals with debt to equity ratios as a condition relating to the provision of financial assistance. I should explain that Ofwat does not find it necessary to place an absolute cap on levels of gearing. Its requirement for the past two price reviews has been that companies should maintain an investment-grade credit rating. To have this credit rating, companies must maintain sufficient levels of equity in their business. It is that requirement, together with the regulatory ring fence, that provides the protection we all want for customers.

15:44

On amendment 10, Ofwat would expect to see proposals on how infrastructure would be delivered and financed before awarding or modifying a licence. We would not want to see legislation enshrining a duplication of effort between Ofwat and the National Audit Office. The clause already allows for terms and conditions to be attached to financial assistance, but, whatever the merits of the specific amendments, I do not believe it is necessary on the face of the Bill to enter into the level of detail proposed by my right hon. Friend on what might or might not be suitable terms and conditions. There are existing mechanisms to regulate water and sewerage undertakers effectively and to protect customers, and there are systems to scrutinise and challenge departmental expenditure.

In conclusion, as I said at the outset, it is right that Ministers should be held accountable for the overall cost of this project and for how we approach it with Thames Water. It is also important to understand, however, that this clause and the Bill allow a wider application. Detailed and professional negotiations are taking place with Thames Water. I think they are working well and hope to be able to make more announcements on them in the future.

For the reasons I have stated, I ask my right hon. Friend to withdraw his amendment.

[Simon Hughes]

I am grateful to colleagues who have contributed, from both upstream and downstream. Both banks of the Thames have been represented, which is a good thing. I should probably have started by declaring two interests. I chair the Mayor of London’s Thames festival, which has a regular interest in ensuring that we celebrate our Thames, and I am a patron of the London Wildlife Trust, which has done lots of work on the Thames. I am also a supporter of Thames21, which has been applauded by Members on both sides of the House and has done fantastic work, as have other environmental bodies.

I join the Minister in celebrating the fact that another country’s sovereign wealth fund is interested in investing. That is a good thing. The announcement of the Chinese investment interest in the past few weeks was very welcome and I share his view.

I shall be brief and shall just pick up on the comments that have been made. The Minister has been very courteous and recognised that I was seeking to put on the agenda items that I and my constituents think that the Government ought to bear in mind as they take the Bill forward. I accept entirely that the Bill, as drafted, has a subsection of proposed new section 154B that allows the terms and conditions for any financial assistance to be inserted by the Secretary of State. The debate we are about to have, which will be initiated by the hon. Member for Luton South (Gavin Shuker) on behalf of the official Opposition, is a sort of halfway house. The proposal is that we do not get into the detail but that we have a mechanism—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. Shall we wait until we start to discuss those amendments before we start referring to them? The right hon. Gentleman should concentrate on the amendments that he has tabled.

[Simon Hughes]

Thank you, Ms Primarolo, and of course I will.

I understand that the Minister realises what the issues are. I heard what the Minister said, and I tell my hon. Friend the Member for Hendon (Mr Offord) that the equator principles are now well-established principles for finance companies that are lending nationally and internationally and they were the best form I could find of a benchmark of ethical standards for financial companies that are lending to utilities. Yes, they were developed in the context of the third world, or the developing world, but they do not just apply there. I understand the points that were made.

The negotiations to which the Minister referred are being conducted confidentially, of course, and I understand that, but I hope that after today’s debate we will be able to ensure—the Minister has offered to do so—that there is engagement across the parties and across the House, including with those of us whose constituents, like his, have an interest in our ending up with a rigorous system for ensuring that Thames Water is accountable. We have flagged up the wider issue, which we want to take elsewhere, with Government.

On the comments of Opposition Members, not least those of the hon. Member for Hammersmith (Mr Slaughter), about the meeting held upstairs, I am grateful that colleagues came to that meeting and others held in this and other buildings about Thames Water. My view is that an evidence-based conclusion should be reached about what the right systems are for dealing with what has been a growing problem for the Thames. We need to make sure that we are all confident that we come up with the right solution, and it is perfectly proper to call people who have views and experience to give evidence. Like the hon. Gentleman, I was slightly surprised that Professor Binnie appeared to move from a view that he had moved on to, back to a view that he had originally held. It is important not to ignore the principle that we should not overspend on a capital project if there are other ways of doing things that give better value for money.

I am grateful for the time we have taken to look at this issue, which is now on the agenda. I am determined that engagement with Ministers should continue and I hope that Ministers will be very positive about making sure that not only the Government but Thames Water and Ofwat engage. May I end by correcting one thing that I mis-said when I was talking about an example that should give us a warning? I was talking about the M6 project and the way it had been funded. I said that the company that ran the project, which is linked to the company involved in Thames Water, had a net worth of £67 million and paid no corporation tax, but I should have said that it had a net worth of minus £67 million. I hope that this makes my point a better one—that a company may appear not to have any money but can be paying out large amounts in dividends. I am grateful to have had the opportunity to put that right and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Gavin Shuker]

I beg to move amendment 2, in clause 2, page 3, line 5, at end insert—

‘(6A) No financial assistance may be given under subsection (6) unless the Secretary of State has laid a draft of a statutory instrument setting out the terms and conditions including the duration of such assistance before, and such draft has been approved by a resolution of, each House of Parliament.’.

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

With this it will be convenient to discuss amendment 3, page 3, line 5, at end insert—

‘(6B) Before making regulations or an order under this section, the Secretary of State must lay a report before Parliament on her proposals to make apprenticeship programmes including at a Level 5 and Level 6 standard part of any major works, as well as an estimate of the number of jobs created and benefit to the local economy.’.

[Gavin Shuker]

In this final grouping, we seek to improve the Bill by ensuring that the same parliamentary scrutiny is applied to the wide-ranging powers in clause 2 as we sought to introduce for clause 1, and that the benefits of major works are shared with the whole community, not just shareholders. Amendment 2 recognises that the powers in clause 2 for the Government to provide contingent financial support for exceptionally large or complex water and sewerage infrastructure should be subject to proper debate in the House before they are triggered. As I have already said, it is not our desire to frustrate the will of the House; indeed, there is, by and large, consensus across the House that something must be done to correct the issues with the Thames and that the Thames tunnel presents the best solution for that problem. However, I feel that the clause needs to be considered beyond the context of today and the policy statement that I believe will come out in the House on Monday night.

[Rory Stewart (Penrith and The Border) (Con)]

Will the hon. Gentleman reflect on the idea that proper debate in the House should be required on triggering very detailed financial amendments? Given the lack of attendance in the broader debate about this Bill, is it realistic to expect proper parliamentary scrutiny of something so minor?

[Gavin Shuker]

I am grateful for that point from the hon. Gentleman who has joined us in the debate. I ask him to hear me out regarding this measure. I am sure he has read the amendment and understands that it refers to the process for statutory instruments under which Members who had a particular interest in the matter would be able to go and make representations. We use that system quite commonly across the House and I feel that such additional parliamentary scrutiny would be appropriate for projects such as those we are discussing, which could involve costs of up to £4.2 billion and a long period of tunnelling works and the like, let alone for other projects that we do not currently know about.

As Members of Parliament we scrutinise, debate and legislate, and we are elected to do so. By putting the power to decide whether public money should be risked on large water infrastructure projects solely in the hands of the Secretary of State, we lose that thorough process, which is the most accessible way for Members to engage in legislation here in Parliament. We will see how much interest the Thames tunnel has attracted in the Chamber today as part of the Bill. The debate so far has allowed MPs who represent constituencies that will be affected by the plans to come forward and express the views of their constituents, but it is limited. The debate has also allowed those with experience and expertise in the field from both sides of the House to feed in their knowledge and advice.

However, the clause in its current form concerns us because it means that from here on we risk writing blank cheques for the Secretary of State and her successors when it comes to large water infrastructure projects. The clause will see the decision-making process remain in the Secretary of State’s office—decisions which might lack awareness of how enormous these infrastructure plans are and how they will affect people’s homes and lifestyles.

Let us compare the Bill with other Bills that will be introduced in this Parliament before 2015. We know that a hybrid Bill process will be used in some cases. This is not a hybrid Bill, so it is important that we get the groundwork right in relation to the decision-making process on the Thames tunnel and other infrastructure.

Our amendment requests that such proposals come to the House for debate and allow Members to contribute their knowledge and experience. Accountability and scrutiny are needed if infrastructure plans are to reshape constituencies that Members are elected to represent. It is only right for their input to be considered. Amendment 2 will improve the Bill in that way.

As an aside, although it is essential to our decision whether to move the amendment, I noted on Second Reading in the discussion of the decision-making process on the Thames tunnel that reference was made to the policy intent in the Government’s document, “Major infrastructure planning reform: Work plan” of December 2010, which states:

“Following Royal Assent of the Localism Bill major infrastructure applications will return to ministers for decision as follows: . . . the Secretaries of State for Communities and Local Government and Environment, Food and Rural Affairs will jointly determine water supply and waste water applications.”

I have checked and DEFRA has confirmed that the joint decision-making process is undertaken by administrative means, not statutory means. In other words, although the Localism Act 2011 amended the planning legislation to give Ministers the final decision-making responsibility for major infrastructure, it did not lay down a legal duty imposing the policy intent. So DEFRA will lead on waste water and DCLG will handle planning, including the report from the planning inspectorate, but the Departments have not yet, as I understand it—I look to the Minister to clarify this—decided how Ministers will act jointly in the final decision. That falls short of a legal duty to make joint decisions that place a legal responsibility on both Secretaries of State. It could result in messy horse-trading between the two Departments. If the Minister clarified the exact process, that would be helpful. It may not address our particular concern that proper parliamentary scrutiny is applied to the decision through the statutory instrument process, but it will help us decide whether to press the amendment.

The Minister said earlier that he would share the discussions that he has had with his officials and, as I understood it, with Thames Water, to reassure us about the cost and the process for implementing the tunnel. We have another debate on Monday to approve the guidance on waste water. If not during this debate or the one on Monday, when will he share the discussions that he has had, which he sought to use to reassure Members that the process would be properly managed?

Amendment 3 will sharpen the mind of anyone proposing major infrastructure works by obliging them to consider the requirement to make apprenticeship programmes a key part of that work. Thames Water estimates that the Thames tunnel project will directly create more than 4,000 jobs in the construction sector. The majority will be employed through contractors. Of course, the true number is likely to be higher, given the secondary employment effect. A partnership is emerging with Crossrail’s tunnelling and underground construction academy, which is currently training and placing about 70 apprentices each year. Last week the Minister gave an assurance at the Dispatch Box that the Thames tunnel project will specify in its contracts the number of apprentices who will be employed by contractors.

In amendment 3 we commend that approach, not just for the Thames tunnel project but for future projects. It would require the Secretary of State to lay a report before Parliament on her proposals to encourage level 5 and 6 training programmes—for those Members not fully versed in those programmes, they are equivalent to foundation and bachelor degree qualifications. These major works can take a decade or more to complete, which means that there is ample time to bring a generation of young people into the trades, if the political will is there to require it.

16:00

[Simon Hughes]

On that important point, I know from my experience of the Jubilee line extension and other major projects that often the issue is not whether a deal is done that in theory ensures jobs, apprenticeships and training for local residents, but whether such a deal is then monitored and delivered. Often the will is there but it does not turn out that way in practice.

[Gavin Shuker]

The right hon. Gentleman makes his point explicitly and brilliantly. If the lessons of the past 20 years on major infrastructure projects where we have required special social benefits are to be learnt, monitoring is absolutely essential. That is why I think that our amendment’s approach is very sensible. It would require the Secretary of State to bring forward her plan, and an agreement with the infrastructure provider, so that it could be approved by this House. The additional level of scrutiny given would not just be an assurance in the contracts; there would be proper parliamentary accountability to ensure that the benefits, for Londoners in this case, are spread across the capital and give young Londoners a fair start.

We know that the Thames tunnel will be a huge infrastructure project, and we have all seen the bad news on youth unemployment today, so we are calling on the Government to ensure that young Londoners get a fair share of the 4,000 jobs the tunnel will deliver. In short, this is a real opportunity to help guarantee apprenticeships and high-level skills. I hope that the Minister will be able to accept both amendments, which would improve the Bill for Londoners now and for all households in the years to come.

[Rory Stewart]

The hon. Member for Luton South (Gavin Shuker) has made a powerful case for apprentices and for better scrutiny of financial mechanisms. I stand, with enormous modesty, not as someone representing the Thames, but as someone representing a large body of water in Cumbria. However, my disagreement with the amendments, and I suspect my party’s disagreement, is based on profound Tory principles. It is a disagreement not on the nature of scrutiny or the importance of apprenticeships, but on the basis of law, the way statutes should be created, the way administration should be driven through and the importance of the issue. We begin in agreement: apprenticeships are important, as is scrutiny. But Parliament is not the way to do this.

This is an elegant and unencumbered piece of legislation. What we have seen in infrastructure investment over the past 50 years is a complete misunderstanding in this country about the importance of Parliament in infrastructure and where Parliament should not be involved. We have been a catastrophe— not just the Labour Government, but the previous Conservative Government—when it comes to making the right infrastructure investments for this country. Why? It is because, unlike Denmark and Germany, we have never developed a proper attitude towards infrastructure or investment. We have never developed a national investment bank. We continue to believe that highly technical matters, such as those relating to the deployment of water or the details of the financing of infrastructure, can be resolved by Parliament, rather than the kinds of specialists in the World Bank who deliver these projects effectively around the world. We see that in water and, just as powerfully, in broadband.

If the Government are pushing ahead with this legislation, and if we are pushing back against the Opposition, it is because the failings over the past 13 years in delivering infrastructure are reflected in the comments of the hon. Member for Luton South. There are better ways of looking at the financing; there are better ways of looking at apprenticeships.

We have in place flexible apprenticeship mechanisms that are currently delivering more than 100,000 apprentices. Encumbering this legislation or, indeed, any future infrastructure legislation with that degree of detail would not only, as my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) pointed out, prove generally ineffective, as it has in the past owing to a lack of monitoring, but take away from civil servants—which is where it should lie—the real responsibility and accountability for delivering good, imaginative infrastructure projects, well financed and with apprentices in place.

Given the importance of this issue, given that water matters so much to us, given that the drop in public sector demand means that we should make more infrastructure investment, given that we need to be much more creative about how we bring financial mechanisms to bear, given that it is so cheap at the moment to borrow money, and given that it should be possible to make not just this but many more profitable investments on the basis of public sector insurance or financing, I beg the hon. Member for Luton South to withdraw the amendment. It would tie the hands of the Government at a very important moment, when we need exactly this kind of infrastructure and exactly this kind of investment in water not just for apprentices but for economic growth.

The way to proceed is with a serious, responsible approach to infrastructure investment, which will not be delivered through the kind of statutory commitments that the hon. Gentleman proposes.

[Miss McIntosh]

I shall limit my remarks and take a slightly different view from that of my hon. Friend the Member for Penrith and The Border (Rory Stewart), because I believe that there is some merit in parliamentary scrutiny and that, often, we have better laws as a result. Given that there is all-party and, indeed, consumer support for what the measure and, in particular clause 2(6), is trying to achieve, I am sure that in moving amendment 2 the hon. Member for Luton South (Gavin Shuker) is not seeking to delay matters through parliamentary scrutiny.

Will the hon. Gentleman consider this approach, however, which I have shared with the Leader of the House? When we have—as was mentioned in the debate about the first group of amendments—parliamentary scrutiny of draft orders under the Flood and Water Management Act 2010, for example, is it not unsatisfactory that all we are required to do is to vote for or against the statutory instrument? Would there not be some merit in being able to amend it?

I have chaired and served on Statutory Instrument Committees, as all of us have been privileged to do from time to time—although I hope that the Whips do not take that as a bid to serve on any in the future. As a humble Back Bencher, however, I believe—and this is where I part company with my hon. Friend the Member for Penrith and The Border—that if we are going to have scrutiny we should be able to amend statutory instruments. I find it unsatisfactory that we may have an amendable motion but not the power to amend a statutory instrument. I just plant that thought in the minds of the hon. Gentleman and of other hon. Members.

[Gavin Shuker]

I am grateful to the hon. Lady for her warm approach to our amendments and for her suggestion. To be clear, we would not necessarily have chosen the process that we are engaged in with this Bill, which is a money Bill. A hybrid Bill might have provided an opportunity really to scrutinise the two projects that, as the Minister has already said, the Bill is about.

[Miss McIntosh]

Bearing in mind the history of hybrid Bills in this House, and the length of time and the amount of dissent that they can involve, I am not sure that that is the path the hon. Gentleman really, truly wishes to go down.

[Richard Benyon]

I am grateful to the hon. Member for Luton South (Gavin Shuker) and his colleagues for tabling the amendments, because that allows me to explain—and, I hope, to reassure the House—about the use and the powers of the clause.

First, I will address a couple of the points that the hon. Gentleman made. I assure him that I am happy to discuss the process with him and for him to meet my officials to see how it is progressing. He is a very honourable individual and he will respect the fact that because some aspects of what we are dealing with are extremely sensitive and are being watched closely by a number of organisations and, not least, the markets, we have to be extremely careful. I am pleased about how things are going. He also has the opportunity to meet representatives of Thames Water, Ofwat and others to express his concerns on this and related issues, and I know that he has already done so.

The hon. Gentleman asked which Ministers will make the final decision on such matters. The Secretaries of State for Environment, Food and Rural Affairs and for Communities and Local Government will jointly take decisions on water and waste water applications. The Secretary of State for Communities and Local Government will take the lead on considering the Planning Inspectorate’s recommendations. My officials are due to meet his officials shortly to agree the process, and I am happy to keep the hon. Gentleman informed as that develops.

I should like to outline the practical problems associated with accepting the amendments. Together with advisers, the Treasury, Infrastructure UK and Ofwat, we are engaged in discussions with Thames Water over the financing of the Thames tunnel project. Those discussions are focused on reaching the right balance between protecting bill payers and taxpayers and ensuring that the project can be financed and delivered by the private sector. By necessity, a project of such scale and complexity as the Thames tunnel involves a complicated and lengthy negotiating process. I can foresee a host of practical problems in stopping that process at the point at which we feel that a reasonable package has been reached, which balances the risks and enables the project to be delivered, publishing a report on apprenticeships and a further cost-benefit appraisal, and then translating the agreement reached into a statutory instrument for debate in both Houses. Even if we can find a way around addressing potentially commercially confidential material in a published draft order, that additional regulatory process would prolong the completion of the project and add cost that is ultimately paid for by the customer. It would also create an extra layer of risk, with likely implications for securing and retaining the interest of investors in the project.

[Mel Stride (Central Devon) (Con)]

Is it not also the case that, almost of necessity, Parliament will scrutinise very large infrastructure projects in one way or another anyway?

[Richard Benyon]

My hon. Friend is absolutely right. It is worth reminding ourselves of the kind of project that we are talking about. Subsection 1(a) refers to

“the construction of water or sewerage infrastructure”

and subsection 1(b) refers to

“existing water or sewerage infrastructure.”

We have therefore narrowed this down to a particular area of work. Subsection (2) refers to

“exceptionally large or complex works.”

Such an item of expenditure could not just sail under the radar of due parliamentary process. I appreciate the comments of my hon. Friend the Member for Penrith and The Border (Rory Stewart) who eloquently described the necessity for smooth operating in such circumstances, but we are talking about major projects that cannot avoid high levels of scrutiny, and I cannot see that adding an extra tier to that process would be effective.

In the event of the statutory instrument being rejected by Parliament, we would have to return to the negotiating table and reopen discussions. That might put in jeopardy the interest of investors that had previously been attracted to the project. That would add further costs, call into question the project’s viability and ultimately delay action to tackle the significant environmental problems that, in the case that is the driver for the Bill, are being caused by excessive sewage discharges into the Thames. That would, in turn, increase the risk of infraction fines against the UK for non-compliance with the urban waste water treatment directive.

16:15

In addition to the practical problems that I have described, I do not believe that the additional layer of scrutiny is necessary. As I mentioned when we discussed the proposed amendments to clause 1, putting a further requirement in the Bill for detailed approval in relation to the use of financial assistance powers is unjustified when there are existing mechanisms for scrutinising and challenging the exercise of financial powers by Departments. In addition to Treasury monitoring and control of expenditure, Government spending is subject to the usual estimates procedure. As always, DEFRA spending would be subject to the scrutiny of the Environment, Food and Rural Affairs Committee and, if it so wished, the Public Accounts Committee.

Given the significance of the Thames tunnel project and the significance that any project that fitted the wording in the Bill would have, I have no doubt that hon. Members will be especially vigilant in ensuring that, as a project proceeds, the House will give proper attention to any events where scrutiny is necessary and appropriate. We have already made statements to the House on the Thames tunnel project and have published several documents explaining our involvement in it and the progress to date, such as last November’s publications on the strategic and economic case and the cost-benefit analysis.

I am sympathetic to the concerns of the hon. Member for Luton South about jobs and growth, as are all hon. Members. Jobs and growth are central to the Government’s agenda. I agree that large projects such as the Thames tunnel have a significant role to play. As I explained on Second Reading, Thames Water estimates that the project will directly employ about 4,200 people in construction and related sectors. I understand that Thames Water has 40 apprentices in training, and that future intakes are planned to maintain that number. Thames Water’s tunnel team actively support Crossrail’s Tunnelling and Underground Construction academy, to which the hon. Gentleman referred, which is currently training and gaining employment for 70 apprentices a year. The Thames tunnel project is also committed to following the Crossrail model of specifying in its contracts the number of apprentices who will be employed in the contractors’ work force. I hope that that gives him the reassurance that he needs.

[Rory Stewart]

Does my hon. Friend accept, as a general philosophical principle, that one should not micro-manage the detail of a Bill to the extent that is called for in the amendments, because one would end up with endless and voluminous legislation? Does he agree that the issues of apprenticeships and financing are better left to the contracting authorities and to the administration of civil servants, and that if too much of this micro-managing happens on sectoral issues and specific projects, Parliament will be mired in complexity?

[Richard Benyon]

I agree with my hon. Friend. It would be wrong to put in the Bill requirements that might or might not suit today’s world, but that would be wrong for the future. The Government, in negotiations with private sector companies and through the planning process, are involved at many levels in the development of such contracts. We can impose our desires and our will. The companies and the Government can be held to account if they fail on these matters. I believe that to prescribe to such a level of detail would be wrong.

Thames Water is holding the launch for a jobs and skills report in the House on 20 March, to which MPs are invited. Its jobs and skills forum will promote the work that it is carrying out in this area. Thames Water will also look to gain from the experiences of other large-scale infrastructure projects. It is right for the Government to support and encourage Thames Water in those efforts.

Apprenticeships are central to ensuring that our work force are equipped to help build economic growth. There are huge opportunities in the project, if we can embrace them, for Londoners who are seeking work and training to be involved in a really high-profile scheme for a number of years. They can then take the benefits into other sectors and industries. However, we do not feel the need for further legislation to provide that encouragement. Nor is it necessary or appropriate to require the terms and conditions involved to be included in a statutory instrument. For that reason, I ask hon. Members not to press the amendments.

[Gavin Shuker]

I thank all Members who have participated in the debate. I listened carefully to what the Minister said, and I am slightly concerned that he and the hon. Member for Penrith and The Border (Rory Stewart) have tried to talk up amendment 3, a modest amendment, into a big, overbearing piece of regulation. It is not. It would not just apply to this project but protect us in future, and I gave a clear commitment to the Thames tunnel throughout my speech.

I listened to what the Minister said about apprenticeships, and I believe that his heart is in absolutely the right place. We will all want to pull together to ensure that the Thames tunnel project, which I am certain will go ahead, employs apprentices and ensures that there is a legacy for London. I will therefore not press amendment 3, but I do seek to press amendment 2 to a Division.

Question put, That the amendment be made.

16:21

Division 492

Ayes: 231

---

Labour: 212
Democratic Unionist Party: 6
Social Democratic & Labour Party: 1
Plaid Cymru: 1
Alliance: 1
Green Party: 1

Noes: 300

---

Conservative: 256
Liberal Democrat: 43

Clause 2 ordered to stand part of the Bill.

Clause 3 ordered to stand part of the Bill.

New Clause 1

Water company social tariffs

‘(1) The Secretary of State shall provide in regulations for the introduction of minimum standards for water company social tariffs, by 1 April 2013.

(2) Regulations made under subsection (1) above shall be made by statutory instrument and may not be made unless a draft has been laid before, and approved by resolution of, each House of Parliament.

(3) Ofwat shall publish 12 months after the passing of this Act and every year thereafter a league table of water companies reporting the performance of the provision of social tariffs and the number of households spending more than 3 per cent. and more than 5 per cent. of their disposable income on water bills.’.—(Gavin Shuker.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

16:35

Division 493

Ayes: 226

---

Labour: 214
Democratic Unionist Party: 6
Plaid Cymru: 3
Social Democratic & Labour Party: 1
Alliance: 1
Green Party: 1

Noes: 297

---

Conservative: 253
Liberal Democrat: 43

The Deputy Speaker resumed the Chair.

Bill reported, without amendment.

Third Reading

16:48

[Richard Benyon]

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

I begin by thanking all Members who have contributed to the debates on Second Reading and in Committee today. I pay particular tribute to the hon. Member for Luton South (Gavin Shuker), who was decent in consulting me and put forward articulately how he viewed the Bill and how he believed it could be changed. I am sure we will have many further discussions over future legislation. Many right hon. and hon. Members contributed to the debate. I pay particular tribute to my hon. Friend the Member for Thirsk and Malton (Miss McIntosh), who spoke with her customary knowledge on this issue.

For the record, I would like to correct an impression I might have given in Committee about the funding of water bills in the south-west. I can confirm the Government’s firm commitment that the funding will continue until the end of the next spending round. The Treasury will fund the bills until the end of the current round, and the impact on DEFRA’s budget in the next round will of course be a matter for us to discuss.

The Bill is straightforward in its intent and drafting. It fulfils two spending commitments set out by the Chancellor in his autumn statement, both of which were designed to reduce the costs of infrastructure investment falling on water and sewerage customers.

Through the amendments that we have discussed today—which I have considered carefully—ran a common thread: a desire to limit and delay Government action to help hard-pressed bill payers. After so many years of debate, we want to get on with funding South West Water to enable it to cut bills for its household customers. We have a separate package to deal with wider affordability problems. We also want to reassure potential investors in the Thames tideway tunnel at an early stage that the Government are willing to provide contingent financial support for exceptional project risk when that offers the best value for money for Thames Water customers and taxpayers.

I shall refrain from discussing the need for the tunnel today in order not to repeat myself, as on Monday the House will debate the waste water national policy statement, which includes a statement of need. On Second Reading, Members rightly mentioned their constituents’ concern about the potential local impacts of the tunnel’s construction; I assure them that they and their constituents can provide input on such issues at all appropriate stages of the planning process.

I also understand the concern that has been expressed about the breadth of the powers in the Bill, but those powers are by no means unusual in containing flexibility for the purpose of future circumstances, and they do not remove the need and opportunity for proper parliamentary scrutiny of Government spending plans in the usual way.

Our water White Paper, “Water for Life”, sent the strong message that we need to be prepared for an uncertain future. The current drought is just a small taste of what may follow if we do not act to make our water supply and sewerage systems more resilient. That will require continuing investment in infrastructure, as well as action by all of us to conserve water.

As I have said, we are confident that our system of economic regulation can ensure that bills remain affordable generally, while the existing WaterSure scheme, together with targeted social tariffs and other support delivered by water companies, can help those in need. More than £90 billion has been invested since privatisation, while bills remain on average around £1 per day. That is testimony to the strength of the current system. However, exceptional circumstances do arise. We have seen it in the south-west, and we have seen it with the Thames tunnel.

Of course, infrastructure investment does not just bring cost. As I said earlier, jobs and growth are central to the Government's agenda. Thames Water currently estimates that the Thames tunnel project would directly employ around 4,200 people in the construction and related sectors, and would provide several thousand secondary jobs in the supply chain and the wider London economy. That is not in itself a reason to support the construction of the tunnel, for obvious reasons, but it is nevertheless a big win for London and for the country in terms of what it can do for our skills base and our economy. Thames Water aims to ensure that local workers make up 20% of its tunnel construction work force.

I am grateful for the swift passage of the Bill, and for the many thoughtful contributions that have been made to our debates. As a number of Members have noted, there has been a cross-party effort by those representing constituencies in the south-west to keep the issue of high water bills in the region on the political agenda. I am pleased that Members in all parts of the House also recognise the need to deal with the sewage discharges that are sullying the most important river going through one of the most important cities in the world.

I commend the Bill to the House.

16:54

[Mary Creagh]

I agree that we have had a very good debate on the Bill. This week’s drought announcement illustrates the increase in weather volatility, however. If there are floods in Australia, it is likely that there will be droughts in other parts of the planet and we are going to have to plan for a lot more climate change disruptions.

As constituency MPs, we are all mindful of the fact that this April water bills will be rising by an average of 5.7%. At the same time as those bills drop on to customers’ doormats, 20 million people—about a third of our population—will be faced with a hosepipe ban across many parts of the country. The Bill puts in place assistance for the people in the south-west, however, and thereby corrects an historic injustice. It also gives powers to provide finance for infrastructure investment. We shall not oppose it on Third Reading, therefore.

I want to reflect on some of the Minister’s comments about our amendments. Amendments 1 and 2 would have introduced the principle of parliamentary scrutiny. He said Parliament does not examine spending decisions by Government, but, of course, Parliament does do that. Indeed, next week we will have the Budget and a lengthy Finance Bill that will examine Government decisions in detail.

The Water Industry Act 1991 stated that water companies could get money from the Government only if that was in the interests of national security, and that if they were ever to receive money from Government, that should be reported to Parliament. Under this Bill, that important principle of parliamentary oversight of the spending of considerable sums of taxpayers’ money is being broken.

We know that the assistance to the south-west will cost £400 million over the seven or eight years of the scheme. The Minister said it was “unimaginable” that any other water companies and customers would get public money. [Interruption.] I listened to the Minister’s remarks, and he used the word “unimaginable”. He said money would not be “sloshing” about and that the Government would not be “doling out” money to the water companies and their customers. However, in 1991 it was unimaginable to Ministers in the then Conservative Government that any water companies should ever receive money, which is why they stated that very important principle in the 1991 Act. We must not forget that the 22 water and sewerage companies are, of course, monopoly providers. At a time when bills are going up and hosepipe bans are being introduced in what is a monopoly industry, we now have to explain to our constituents why this money is being provided.

The right hon. Member for Bermondsey and Old Southwark (Simon Hughes) talked about the debt to equity ratio of Thames Water, as well as the structuring of the company and the packaging up of debt. Government infrastructure investment bonds might be useful in this regard. We heard this morning about the new 100-year bonds. They could be a prime candidate to be the long-term investment vehicles to finance large infrastructure projects such as the Thames Water tunnel.

This Bill’s title includes the phrase “Financial Assistance”, and we know that the groups that are most vulnerable to water poverty are single parents, pensioners and jobseekers. However, only a third of eligible households access the current WaterSure scheme. We want to see much more action from water companies to ensure that the most vulnerable access either national or company social tariffs. As my hon. Friend the Member for Bolton West (Julie Hilling) said, we should not expect water companies to be philanthropists, and so our new clause 1 was intended to be helpful. I am sorry that the Minister thought it an unacceptable regulatory burden on water companies.

When Labour was in government, we found league tables to be a very effective benchmarking tool in driving up performance in public services—schools and hospitals—allowing consumers, customers and taxpayers to understand where their money goes and where they are getting value for money. League tables provide transparency and equity, and in providing a public service—I cannot think of a more crucial infrastructure one than water—it is very important to end the postcode lottery on people’s eligibility for financial assistance.

Labour Members think that in future financing projects we need to be very careful about the burden we place on water customers, and we use the idea of league tables as a benchmarking tool. Many companies use benchmarking groups, which, on an anonymised basis, provide data to researchers, with the companies then getting the data back so that they can benchmark their performance. We do not see anything wrong, or any regulatory burden for the companies, if these companies are forced, by the regulator, to disclose what they are doing, so that we can bring the poor performers up to the level of the best and spur the best performers on to innovation on social tariffs.

We know that the Thames tunnel will add £70 to £80 to Londoners’ bills. Obviously, a number of questions have been raised about that, but I am concerned that the House may not have a large number of opportunities to debate this infrastructure project in the future, and so we need to make sure that proper consultation takes place. The House has debated the Crossrail Bill, which was a hybrid Bill—I made my comments clear on Second Reading as to why this was not a hybrid Bill. The Thames tunnel will create up to 4,000 direct jobs and our final amendment sought to ensure that the benefit of that £4 billion investment accrues to London and Londoners, as they will be paying for it.

Let me cite the example of what I found when I travelled to the Stade de France in Paris, in 1996, and met people from Bouygues, the big French construction company which was building the stadium. The French Government had taken the decision to build it in Paris Saint-Denis, a very poor suburb. This was about 16 years ago, a long time ago, but I was shown the number of apprenticeships at levels 4, 5 and 6—we are talking about master’s-level qualifications—that would accrue throughout that construction project. As my party perhaps did in government, this Government are potentially letting construction companies off the hook by saying that it is an unacceptable regulatory burden to ask them to do more on apprenticeships. Where does the 20% apprenticeships figure come from? Over a four-year project, why can we not get bright young undergraduates in, give them the on-the-job training and make sure that they then become the next generation of London’s civil engineers?

If I may, I shall leave the last word to my hon. Friend the Member for Hammersmith (Mr Slaughter). He talked about his young constituent rowing on the Thames, who said that we have a duty to protect our river in this great world city and that his generation is looking to our generation to build something amazing. We hope that that is what will result from today’s discussion, and that we will protect our great global capital city and one of the world’s great rivers for the next century.

17:04

[Miss McIntosh]

It is a pleasure and a privilege to follow the hon. Member for Wakefield (Mary Creagh). We have had a good debate and I warmly congratulate my hon. Friend the Minister on delivering this Bill and the official Opposition on their constructive approach. I understand their request for greater parliamentary scrutiny and their case was well argued, sincere and well meant. In relation to clause 1, the explanatory notes state in paragraph 12:

“The power is discretionary and may be exercised for such reasons as the Secretary of State feels desirable.”

Any parliamentarian will relish the opportunity of scrutinising such orders and it need not take long. Unfortunately, the Opposition failed in their quest.

The Bill covers a number of important matters. On the affordability of South West Water bills and funding, I take this opportunity to thank my hon. Friend for his remarks and the clarification. I understand that the commitment is there to fund the South West Water bill until the end of the next spending round. I personally will pledge—I am sure others will do so, too—to give him any support we can in his discussions about the funding with the Treasury.

[Neil Parish (Tiverton and Honiton) (Con)]

I endorse what my hon. Friend says about the Treasury, because the situation in the south-west will not go away. We have 3% of the population and 30% of the beaches, and the beaches must be kept clean, which costs a lot of money. We will need help in the future, so if the Treasury could find that money we would be most obliged.

[Miss McIntosh]

I am grateful to my hon. Friend for his support and I want to record how well represented the Select Committee on Environment, Food and Rural Affairs has been in the debate. He obviously has a particular interest in the south-west, and if the money is available only until the end of this spending round, we will then have to find the money for South West Water at the beginning of the next spending round. The powers are there and the Secretary of State has the discretion to extend the scheme to other areas, but, given the economic turmoil in which the country still finds itself, such a result seems highly unlikely. I shall watch this space with interest.

I know that we will continue the discussion on the Thames tunnel on Monday when we debate the waste water national policy statement, but although it is an extremely exciting project, we must not lose sight of the fact that it is a giant project. Londoners and those of us who spend our working week in London should be under no illusion about the fact that there will be a degree of disruption during its construction. I warmly welcome what my hon. Friend the Minister said about the local work force. That is very good news for the Thames tunnel and, obviously, if we have relevant expertise in Thirsk, Malton and Filey, I hope we can provide some of the work force for it.

The Committee has recently heard evidence on other issues, including the White Paper “Water for Life”, the current drought, water efficiency, regulation and introducing competition. As my hon. Friend knows, I have an interest in implementing all the outstanding recommendations of the Michael Pitt report. There is some argument that this Bill should rightly have formed part of the broader Bill that we are still waiting for, but this Bill will enable the Government to meet the commitment given in the water White Paper and confirmed in the Chancellor’s autumn statement.

The Committee stands ready, willing and enthusiastic and is looking forward to pre-legislative scrutiny of the draft water Bill. It is a matter of some regret that that Bill will be delayed, particularly as regards affordability. The water White Paper proposes that companies should be encouraged to introduce company social tariffs to help poorer customers, funded by a cross-subsidy from the water company’s other customers. The Minister said that there are many tools at the disposal of water companies, but it is appropriate that we should consider the suggestions made in the Anna Walker review.

Water affordability is increasingly becoming an issue. Ofwat figures show that 11% of households spend more than 5% of their income on their water and sewerage bill, and we now hear about water poverty as well as about fuel poverty. Company social tariffs can be introduced only where they have the broad support of the company’s customer base. Alternative approaches would be to provide Government funding for social tariffs or to operate customer cross-subsidy at a national level. I am sure we will have the opportunity to explore those ideas in the wider Bill.

Water companies have called on the Government to make available to them information regarding the customers who are most likely to be struggling with their bills—for example, from Department for Work and Pensions data on benefits—to allow them better to target their social tariffs. I listened carefully to what the Minister said and I am not sure that he was able to respond on this point, but the sooner we can make that information available the sooner we can extend these tariffs. I am delighted that the Consumer Council for Water supported this idea in the evidence that it recently gave to our Committee, and the Government have said they are considering this suggestion. I hope we will not be hampered by data protection provisions.

It was shocking to learn in a Select Committee evidence session that bad debt in the water sector costs every paying customer approximately £15 a year. A large part of the problem is the fact that there is no obligation on landlords to provide details of their tenants, which means that water companies do not know who to bill for their services. I welcome my hon. Friend’s comments. It is entirely appropriate to place a statutory obligation on landlords to provide details of their tenants or else be held liable for water bills at their properties. There is an urgent need for such measures, as were included in the Flood and Water Management Act 2010. Those provisions have not yet been implemented and the Government have consulted on using a voluntary approach, which is welcome, to encourage landlords to provide information rather than implementing the provisions in the 2010 Act. Clearly, that was a source of disappointment to water companies. In their evidence to the Select Committee, they said that was a rather retrograde step and argued that the Government should implement the provisions on landlord liability as soon as possible. I am delighted to make that case to the Minister today.

The Minister is aware of my interest in and passion for SUDS—sustainable drainage systems—and I hope that we will have early implementation of those. I pay tribute to the work of Gray and the regulatory aspects of the Gray review, to the work of Anna Walker in her review and to the work of Cave in his review. I hope that the Government will give some teeth to the recommendations not only on affordability, in the measures before the House today and in the wider Bill, but also on water efficiency. This is precisely the time when we should be considering those measures because of the imminent drought. I know that the hon. Member for Wakefield will be as concerned as I am that it is reaching parts of Yorkshire, including my area. That is something on which we need to proceed apace.

I shall be delighted if we do not proceed to bring in the provisions of the 2010 Act to reduce the 25,000 cubic metre limit in reservoirs to a 10,000 cubic metre limit. My hon. Friend knows that I have been extremely patient—or not—in waiting for the provisions on reservoir safety. I hope they will come forward sooner rather than later. We are going to need more reservoirs to be built. Increasingly, engineers have a safety issue and I am sure that there would be a benefit from bringing forward that safety review.

I believe this Bill is a great success. It allows water and sewerage companies to raise the finances and investment they need, particularly in relation to the south-west. We very much look forward to the wider draft Bill, but I commend this Bill and wish it a speedy and fair passage through the other place.

17:14

[Mr Slaughter]

Perhaps we should have more of these short Bills as they provoke such agreement between the two Front Benches. It is slightly surprising that there is such a degree of agreement, given that when the Bill is stripped down, it is about two specific initiatives. I have heard the argument about whether it should be a private or a hybrid Bill. It is a public Bill, but unless the Minister wishes to correct me, we are talking, first, about the subsidy to South West Water customers, and secondly, about the underwriting of the Thames tunnel scheme, both of which potentially commit large sums of public money. Given the rhetoric about public money that we have to hear all the time from the pattern book of this Government, and given the concerns expressed from the Opposition Front Bench, we can say that this must be an important measure or we would not be undertaking those commitments.

My first concern is about the Government’s reluctance to support the amendments tabled by the Opposition. I am at a loss to understand why that is the case. I hear what the Government say about the control of finance, as addressed in clause 2, but it seems to me, without going to the lengths to which the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) went in pinning down the fine detail, it is important that the House continues to have a supervisory role and scrutiny of the finance of projects, particularly given what we have heard about Thames Water, in whatever guise or ownership. The same would apply to other water companies. I believe that the chief executive of Thames Water had a salary package of about £1.6 million last year. There is a lot of money sloshing around in the utilities companies.

Although I do not accept that the Thames tunnel is over-specified or is doing more than is needed for the job, we need to keep a close eye on the project. It is, as I said, an unfortunate outcome of the previous Conservative Government’s privatisation strategy that we have, potentially, people running our utilities who are more interested in their shareholders and their remuneration than in the welfare of their water customers. That gives us a particular responsibility, and I cannot understand why the Government will not accept what we propose.

Water bills are rising, and any project designed to relieve the problems of sewer flooding in London or flooding into the Thames will cost a lot of money and will inevitably add to bills. That is another reason for controlling costs and for protecting those who cannot afford to pay. That was the purpose of new clause 1. Again, I cannot see why that has been rejected by the Government at this stage. It is disappointing and shows a lack of concern on the Government’s part about the potential financial impacts of these measures.

Another concern I have—I shall be brief, as I spoke about this on Second Reading—is about those who would muddy the waters, so to speak, on the Thames tunnel project. If anybody can come up with a cheaper project that will have the same or better effect, I am sure it would be extremely welcome and we would all like to hear about it.

I shall say something nice about Mr Binnie, who has had a bit of a rough ride in the debate. He is, after all, speaking as a professional and, given his previous association with the Thames study, as someone who cares genuinely about the quality of water in the Thames. Even at his most sceptical, before his second road to Damascus conversion, he said:

“The full tunnel would be the best thing for the river…Are there cheaper alternatives for producing similar results?”

The same question was posed by the right hon. Member for Bermondsey and Old Southwark. Mr Binnie’s answer, on mature and professional reflection, is no, there are not.

I do not think that that means we should stop looking for ways of bringing down the cost. Indeed, the cost has already been reduced by adapting the route of the tunnel that was previously envisaged. I hope that the Government will take that on board and not simply accept that the current route, the current combined sewer outflow linkages and such matters are a done deal and a fait accompli. That is important not only with regard to cost, but in relation to the disruption that will be caused where the CSOs are linked to the river—I declare an interest, as one of those CSOs will be in my constituency and two are close by. Substantial progress has been made, because originally many more riverside sites were going to see that level of disruption. We are working on that all the time. Let us not stop working on that and trying to find solutions that will be less disruptive for local communities in London.

As I have said, there are some loud naysayers. I am afraid that the Selborne commission lacked all coherence. Its report did not even contain the proposal for the half tunnel that was in its press release. Anyone who has looked at that proposal will realise that it is simply a non-starter, and for those who live in west London, as my constituents and I do, it would be a complete nightmare. Not only would it cause greater disruption, because there would have to be more storage points—clearly, there is nowhere for the sewage to go once the tunnel fills up—but the sewage would stay in the tunnel and fester for days or weeks before being taken away by the existing sewerage system. I can see why it might have had a superficial attraction for the right hon. Member for Bermondsey and Old Southwark, because it would not have caused disruption in his constituency, but sooner or later we would have had to face up to the fact that we must have something that works.

When I hear the leader of my local council saying that we cannot afford to make the river clean enough for fish, or my neighbouring MP saying that rowers and sailors are seeking a personal benefit by not having the river flooded with sewage every week, I have to ask that they grow up a bit and be a little more sensible. As the shadow Secretary of State, my hon. Friend the Member for Wakefield (Mary Creagh) said when quoting my constituent, Conor, a 15-year-old can put us right and tell us that we ought to have the courage and enthusiasm that our forefathers had when they designed the great civil engineering projects of the 19th century, and indeed the enthusiasm we have in supporting schemes such as Crossrail and High Speed 2, which are much bigger than the Thames tunnel. We must bear in mind two slightly contradictory facts as we go forward. First, cost control is not just important as a matter of probity, but absolutely vital, particularly for those on low incomes who will be paying the bills. Secondly, whatever version of the tunnel is finally approved, it has to be fit for purpose not only now, but for the next 100 years.

17:23

[Andrew George]

I congratulate all those Members, particularly those from the south-west, who have contributed and campaigned, in many cases for two decades, to achieve what is certainly a positive outcome—I will not describe it as a triumph—and one that is richly deserved and will certainly alleviate some of the pressure that many South West Water customers have had to endure for a very long time. When the Government bring forward this measure, it is important that they look at ensuring that South West Water delivers it efficiently and effectively and reflect on the impact it will have on water affordability for customers in the south-west.

The hon. Member for Wakefield (Mary Creagh), the shadow Secretary of State, following the words of the Minister on the issue, implied—I think, because this has been a fairly consensual Third Reading—that there was somehow a risk of some of the money benefiting the company itself. But I was reassured earlier in the debate by the Minister’s response, that not one penny should fall by accident or design into the pockets of the company or its shareholders. It should not touch the sides as it goes through to benefit customers, and it is really important that that—the Minister’s reassurance—is delivered after the Bill is enacted.

My right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes), through his amendments, raised some important concerns that I know my hon. Friend the Minister will take on board as the contracts for the tunnel are let. I recognise that issues of probity and the effectiveness of regulation, in ensuring that the taxpayers’ interest—the public interest—is protected by the way in which this essential project is rolled forward, will need to be taken account of.

I hope that the contribution of my right hon. Friend and others to today’s debate—it is reassuring having two learned Members watching what Thames Water will do—indicates the manner in which the company will be handled and the manner in which concerns, one could argue, might reasonably be raised about any benefit to its customers, because it is important that as this essential project is rolled out those central public and taxpayer interests are clearly protected. I know that my hon. Friend the Minister will be seized of the great importance of that.

Given the comments that have been made, certainly by the hon. Member for Wakefield and others, perhaps the Bill has been incorrectly titled now that we reflect on it. Instead of being called the Water Industry (Financial Assistance) Bill, it might have been called the water customer (financial alleviation)—or (financial protection)—Bill, because in effect that is how the Minister described the Bill’s purpose, and that is what the Bill attempts to do. I do not propose on Third Reading to introduce an amendment to the title of the Bill, but by making that point I hope simply to emphasise its importance in protecting customers and taxpayers. I certainly hope that that is taken forward.

Finally, I congratulate the Government, and especially the Minister, on the elegance, charm and good humour with which he has brought forward the Bill. It explains how the Bill was brought forward so quickly and effectively, with cross-party support and consensus. The debate has been very constructive, and I am sure that the Bill will not be held up in another place but will be enacted quickly and be to the benefit of customers in the south-west and in the Thames region.

17:28

[Simon Hughes]

Briefly, I too welcome our constructive debate over the past few weeks and the Minister’s helpful response. I have two things to say.

First, I want to flag up the important point, made by a Labour Front Bencher but supported by Members across the House, that as we do big infrastructure projects we absolutely have a general interest to ensure that they maximise the development and use of our home-grown talents and skills—I do not say that in a racist way; I mean those people who live in this country, who have skills to contribute and who are here—so that for generations to come, one generation’s learning, whether in engineering, building or all the rest, can be carried on. If the Thames tunnel goes ahead, either in its currently proposed form or as a variation on it, I hope that from the beginning we build in such a plan that, as it were, sweeps in the work force and the training with it. If we do that, it will command much more public confidence as well us giving us continuing skills and opportunities for the future.

My hon. Friend the Member for Cities of London and Westminster (Mark Field), who is not in his place at the moment, was fully engaged in the earlier debate about the financing of major projects and asked me about the five-year cost-profit ratio figures for Thames Water. I could not answer him at that point, but I have since had the figures checked, and I will put them on the record.

In the year ending 2007, the cost-profit figure after tax for Thames Water’s activities was £234 million and the dividend paid was £594 million. That represented an excess of £360 million in dividend payments over income—exceptional, unusual and clearly not good precedent as normal practice. In the following two years, there was a much more normal pattern, with £382 million of cost-profit and £105 million of dividends, and therefore a net retention of profits of £276 million. In 2009, there was £285 million of cost-profit and £226 million of dividends paid out, thus retaining a sum of £58 million. In the past two years, the picture has slipped back to something much less healthy. In the year ending 2010, there was £237 million of cost-profit, after taxation, on activities, with dividends paid out of £295 million, and therefore £57 million more paid out than money retained. In the last financial year for which we have figures, cost-profit was £247 million and dividends paid out were £262 million, with therefore a net excess payout of £14 million.

I hope that those figures are accurate, as I am reliably informed that they are. They make the general point that when the Government are being asked to support private sector activity and private sector companies, we should ensure—whatever those companies’ relationships with each other in a collection of companies—that they have had disciplined financial activity that does not result in taxpayers, council tax payers or ratepayers being asked to foot bills that should be met by the companies themselves but are not being met because they have paid off the money elsewhere to shareholders who walk away with the profits. When they come to the table in future to say that they want joint enterprises, supported by Government, for major infrastructure projects, whether they be tunnels, roads, bridges, schools, hospitals or whatever else, we need to make sure that there has been ethical and appropriate financial accounting.

My plea is that we should learn these lessons across the regulatory activities and across public finance to ensure that the Treasury is not put into a difficult position. I hope that Thames Water and the other water companies all over the UK hear this message loud and clear: “We are watching you, and as a Parliament and, I hope, a Government we will be very insistent that there is good value for the taxpayer, council tax payer and water rate payer, and that you do not take out money from projects that should be there for investment, but pay your full and proper share.”

17:33

[Dan Rogerson]

It is a great pleasure for those of us from the south-west to be talking about some measure of help for our constituents who have laboured for a long time under an unfair burden of very high bills. That is a legacy given to them by privatisation, which has hardly been mentioned without the word “botched” in front of it, certainly in the case of Government Members, but also Labour Members; I am delighted that they have followed the same pattern.

Two great injustices were done to my constituents at the time of water privatisation in the late 1980s and early ’90s. The second one, sadly, has become topical in the context of this debate.

The first injustice, as I have said, was the lack of a sufficient green dowry to deal with the huge cost of cleaning up the sewage along the beautiful coastline of Devon and Cornwall. That work has been done and has been funded by the bill payers of the south-west, through extra debts taken on by the company. We have praised the steps that the management of the company have taken in recent years to engage with the Government, Members of Parliament and their customers to get to where we are today. I would also like to pay tribute to former Members of this House who are not here to blow their own trumpet, although I am sure that they would be too modest to do so anyway. Linda Gilroy has been mentioned. I would also like to mention Julia Goldsworthy, the former Member for Falmouth and Camborne, who did a great deal both inside and outside this place to advance this cause.

The second injustice followed the incident in July 1988 in which 20 tonnes of aluminium sulphate was dumped into the water at the Lowermoor water treatment works. For about a fortnight, 20,000 residents in that part of North Cornwall were unaware that they were drinking a potentially poisonous cocktail. The aluminium sulphate generated acids that flushed out everything else in the pipes and it was in the water supply for many days. My predecessor, Lord Tyler, campaigned for a full inquiry into that issue before he was elected to this place and afterwards. The right hon. Member for Oldham West and Royton (Mr Meacher), when he was a Minister, at least commissioned a committee to look into the issue.

I am grateful for your forbearance, Mr Deputy Speaker, in allowing me to raise this matter today. The reason I do so is that Michael Rose, the West Somerset coroner, has issued a narrative verdict today on the sad death of Mrs Carole Cross in 2004. Her husband, Doug Cross, was one of the members of the committee, along with Peter Smith, a lay member who was from the area and experienced the incident. Doug Cross has been a tireless campaigner on behalf of the people who were affected by the incident. It is tragic that he lost his wife.

The coroner’s verdict today was that there was a “very real possibility” that the ingestion of aluminium contributed to the death of Mrs Cross. He also criticised the South West Water board for

“gambling with as many as 20,000 lives”

by not telling people about the incident for a fortnight. There was also evidence, thanks mostly to the work of Lord Tyler, the Western Morning News and others over the years, of a cover-up at the time of privatisation. The coroner said that it was “deeply suspicious” that the incident was handled in the way it was, due to the impending privatisation.

People in North Cornwall and elsewhere will want to reflect on what the coroner has said today. However, I believe that the many people who have been arguing for years in the face of the response from Government that what they experienced did not really happen and that the medical consequences were all in their minds will feel that there is some real progress. I hope that we will now start to get the answers that people should have had at the time of privatisation. I hope that the way in which the Minister and his colleagues have today dealt with the injustice of the inadequate green dowry will be matched by a proper inquiry into and discussion of the incidents following the pollution of the water at Lowermoor in 1988.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Dangerous Dogs

Wednesday 14th March 2012 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Mr Vara.)

17:38

[Mrs Eleanor Laing (Epping Forest) (Con)]

At the beginning of January this year, a little girl, aged six, who lives in my constituency, was viciously attacked by a dog that was out of control. Her ear was partially bitten off and she was covered in bites. Her mother was also badly injured while trying to rescue her. The dog’s owner was prosecuted and found guilty. He was given a three month suspended sentence and 200 hours of community service, and was ordered to pay compensation of £450. That was not an adequate penalty, and its imposition was not an encouragement to others to control their dogs properly. The way in which the case was handled has done nothing to prevent such a tragic incident from happening again.

I know that there is a lot of strong feeling about this issue in the House, and I commend the efforts of many hon. Members who have recently raised it here, in Westminster Hall debates and elsewhere. In particular, the House ought to thank my hon. Friends the Members for Romsey and Southampton North (Caroline Nokes), for Ealing Central and Acton (Angie Bray) and for Romford (Andrew Rosindell) and the hon. Members for Penistone and Stocksbridge (Angela Smith), for Kilmarnock and Loudoun (Cathy Jamieson), for Liverpool, Wavertree (Luciana Berger), for Coventry North West (Mr Robinson) and for Strangford (Jim Shannon), each of whom has made considerable efforts to bring the matter to the fore.

I also commend the Minister of State, Department for Environment, Food and Rural Affairs, my right hon. Friend the Member for South East Cambridgeshire (Mr Paice), and his colleague in another place, Lord Taylor. I know that the Government have carried out an extensive consultation and are trying to balance the various interests involved in the issue of controlling dangerous dogs. I understand that the consultation has recently closed, and I hope that the fact that I have secured the debate will give the Minister the opportunity to put certain matters before the House.

[Angela Smith (Penistone and Stocksbridge) (Lab)]

I congratulate the hon. Lady on securing this important debate at exactly the right time. Does she agree that legislation must be consolidated and updated as soon as possible to shift the emphasis to preventing the type of attack that she has eloquently described and that has triggered the debate?

[Mrs Laing]

Yes, I entirely agree. The emphasis has to be on prevention. The House will be pleased to know that in the case I described, the little girl and her mother are now recovering. The little girl is having to endure a series of long operations, effectively to rebuild her ear. It is a dreadful thing for her to have to endure. We must all have in our minds the thought that the next child who is attacked by a vicious dog might not be fortunate enough to escape with injuries that the medical profession can put right.

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I thank the hon. Lady for giving way and congratulate her on securing the debate and on the work that she has done. Does she agree that criminal injuries compensation must be examined? I had a young constituent who suffered very bad injuries, and unfortunately she has not received any compensation whatever because it was deemed that there was no intent. Nobody set the dog on her, so she has had no compensation.

[Mrs Laing]

That is a very valid point, and when the Minister and his colleagues examine the consultation responses that they have received, I hope that they will consider the possibility of requiring insurance for dogs. The totally inadequate compensation that is being paid to my constituent’s family—£450 at a rate of £50 a month—does not even begin to cover the loss that they have endured through both the mother and father taking time off work, the costs of going to hospital and so on. Of course, they are thinking not about the money but about the health of their little daughter, but it is our duty to consider that side of things as well. I hope the Minister can give those matters adequate consideration.

I pay tribute to the many charities and organisations that campaign on such issues and that have taken part in the Government’s consultation. Since it was known that this debate would take place, I have been flooded with information by well-meaning and well-organised institutions that have taken the matter seriously for some time. I acknowledge their help and am sorry that I cannot mention all their points in the time available—I note that we have another hour and three quarters to go, but I shall limit my remarks to a reasonable length.

I pay tribute in particular to the Dogs Trust, the Royal Society for the Prevention of Cruelty to Animals, the Kennel Club, and the Communication Workers Union and its “Bite Back” campaign. Not surprisingly, there are calls from all sectors of society that we must do something.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Lady for bringing this matter to the House. I mentioned to her before the debate that new dog legislation is being introduced in Northern Ireland in April. It will introduce many changes, including the compulsory microchipping of dogs. Will the hon. Lady comment on that? Dog owners in Northern Ireland already pay for an annual dog licence, but The Daily Telegraph columnist and former vet, Pete Wedderburn, stated:

“It seems to me that the Northern Ireland”

legislation

“might be effective at achieving some of DEFRA’s key goals: to allow better enforcement of the law and ensure that dog owners take responsibility for their animals.”

Is this the time to put Northern Ireland’s legislation into what the Department for Environment, Food and Rural Affairs is doing and to put matters right?

[Mrs Laing]

I am very grateful to the hon. Gentleman for educating the House on what is happening in Northern Ireland. I entirely agree with the points he has made and will come to them shortly.

I have paid tribute to my colleagues in the House and the professional organisations involved, but I also pay tribute to Mr and Mrs Smith, the parents of the little girl who was attacked. They have set up a campaign to stop other children suffering in the way their daughter suffered. They have also set up a petition, which is gathering an enormous amount of support, which I am glad to see.

Not surprisingly, the incident gave rise to an outcry in the media. People are rightly asking: “Why do we put up with laws that are so ineffectual?” I was shocked to discover that some 6,000 postal workers are attacked by dogs every year.

[Angela Smith]

The hon. Lady is generous in giving way to me once again. I would add to what she just said. Given the sheer number of postal workers who are attacked every year, is it not therefore necessary to extend the law relating to dog control to private property, and recognise that many children die in the home as a result of attacks by dogs that are out of control?

[Mrs Laing]

I agree with the hon. Lady. One anomaly in the current law is that the owners of a dog that behaves in a threatening, vicious, bad way on private property cannot be prosecuted. I hope the Minister comes forward with Government plans to correct that anomaly, if not today, in the near future. I have not heard anybody say, or read any evidence suggesting, that the contrary is the right way forward.

I was genuinely shocked when I discovered how many people suffer from dog attacks every year.

[Luciana Berger (Liverpool, Wavertree) (Lab/Co-op)]

I thank the hon. Lady for graciously giving way and for securing this debate on this crucial issue. Since 2006, 11 people have lost their lives because of dangerous dogs, and around 5,000 are hospitalised every year. She mentioned the Smith family, but she may know of the tragic death of John-Paul Massey in my constituency. Like the Smith family, Angela McGlynn, John-Paul’s mother, has campaigned on the issue. Does the hon. Lady agree that we need urgent legislation and changes so that the police, local authorities and dog wardens can take preventive action so that we see no more needless deaths?

[Mrs Laing]

I am grateful to the hon. Lady for her contribution. I am sure that the whole House sends its heartfelt sympathy to the family of those little children who have died.

It is tragic. If in any other area of life we discovered that in the past three years or so six children and two adults had been viciously killed, we would take action, but because we are a nation of dog-lovers, we say, “Oh, but we must think about the dogs and look after the dogs.” Yes, of course we must look after dogs, but six little children have died, and we must look after the children first and the dogs second. I know that I will get hate mail from subscribers to the Royal Society for the Prevention of Cruelty to Animals for saying that, but I will say it again: we must put the safety and lives of children and other vulnerable people first, and dogs second. Having said that—I will deal with this in more depth later—it is dogs that are badly treated by their owners that behave badly towards other people. Dogs that are cared for, looked after and loved do not normally cause the sort of trouble that we are discussing.

I was also shocked to discover that blind people, who depend on guide dogs, are suffering as a result of the increase in the number of vicious dogs in our country today, because guide dogs are being attacked by vicious dogs that are badly behaved and out of control. What worse situation can anyone imagine than a blind person, dependent on a loving and caring labrador, having that little labrador attacked by a pit bull-type dog that is out of control? It is totally unacceptable, and action must be taken sooner rather than later.

[Luciana Berger]

Does the hon. Lady share my concern that the number of attacks on guide dogs has more than doubled in the past year, having risen from three to seven attacks every month? The training and cost of a guide dog over its lifetime is about £50,000. That training is run by a charity, the Guide Dogs for the Blind Association, that receives no state support for the work it does. Does she share my concern about the cost of those attacks to those people who depend on their dogs and the charity?

[Mrs Laing]

I certainly do. We all, in one way or another, raise money for good causes, and Guide Dogs for the Blind is one of the best. I am thinking of an excellent organisation in my constituency that raises money for Guide Dogs for the Blind. People put a lot of work into that. More than anything, however, those poor guide dogs themselves, trained to be calm and not to fight other dogs, are being attacked by other dogs. It is an utterly tragic situation, and one on which action must be taken. In saying that, however, I am quite sure that the Minister will tell us that action will be taken, because the Government cannot possibly ignore these dreadful situations, which are occurring every day in parts of our country.

Let us consider first the problem and then possible solutions. The problem, as we have just agreed across the House, is not that well-trained, well-cared-for dogs suddenly turn upon children, postmen or other dogs. The problem is that increasing numbers of dogs are being deliberately bred and trained as so-called status or weapon dogs. This has been recognised, and in London alone, about 1,000 such dogs were seized last year. I am pleased to note that Boris Johnson and Kit Malthouse, at the Greater London authority, have taken this matter very seriously and have set up a unit to deal with status dogs. I should also say that both Boris Johnson and Kit Malthouse have met the family of the little girl who was attacked in my constituency and have spoken to them very sympathetically. I have every confidence that action is being taken in London to combat what is a growing problem. I commend Boris Johnson and Kit Malthouse for their understanding and their efforts, but let there be no misunderstanding: we are talking about a growing problem of deliberate bad behaviour, often associated with drug dealing and crime. This is not about old ladies with cute little spaniels or children with labradors. Any laws would have little effect on responsible dog owners, but would make life very difficult for irresponsible dog owners.

What we really need to do, however, is change public attitudes. Being something of a libertarian, I am always against state interference when it is not absolutely necessary. However, controlling dangerous dogs falls into the same category as wearing seatbelts in cars or smoking in public places. I was one of those who argued against the restrictions on personal freedom that the laws on seatbelts and smoking in public places imposed. I spoke against those laws on the grounds that we should not interfere with personal freedom, until I saw the proof that the evil done by the imposition of the rule was a very much lesser evil than that which resulted from not imposing it. In order to change public attitudes, the Government have to give a lead. First, we need a system that is simple to implement, and cheap and straightforward to enforce. The police and local authorities need to have adequate powers, adequate resources—preferably self-financing—and public support.

My constituent Mr Smith’s campaign, which has received an enormous and growing amount of support, has come up with the slogan, “Chip them, lead them and give kids freedom”—I think that is quite good. Microchipping, the use of leads and muzzles, and creating dog-free areas in parks are certainly possible ways forward. However, as other hon. Members have said, we must put the emphasis on prevention. I know that there are arguments against compulsory microchipping—the hon. Member for Strangford gave us a good example of how it is about to work well and is supported in Northern Ireland. There are arguments against microchipping, restricting freedom and imposing more red tape on yet another walk of life.

However, like everything else, it is a question of balance. I would argue that it would be perfectly reasonable to phase in a system of microchipping new puppies before they are sold. The cost would be minimal—I am told that the cost of inserting a microchip is often less than £10—and some 60% of dogs are already microchipped. Charities that look after dogs already microchip them, and many would offer to microchip the dogs of those who could not afford to do so should a compulsory system be introduced. I did not know much about what microchipping meant, but it might surprise the House to know that the microchip is about the size of a grain of rice. All that happens is that this little thing is injected into the scruff of the neck when the dog is about six weeks old. I am told that it does not hurt, and that it is simple and cheap.

Let us look at the benefits. It could be argued that making microchipping compulsory would have no effect, because the good dog owners already do it and the bad ones would simply ignore the law, as they do now. However, that is the very point of a compulsory microchipping system. We need a system that is simple for the police and local authorities to administer, and that will give an officer of the law or of a local authority an easy way to impose a penalty if the law is broken. That is why I propose that the imposition of a microchip in dogs born after a certain transition period should be a strict liability matter. Anyone in charge of a dog that did not have a microchip would be subject to a strict liability penalty for breaking the law, rather like a parking ticket.

The advantage of such a system is that it would bring speedy resolution, rather than involving long court cases in which evidence needed to be brought and people prosecuted. It would be easy, and it would give the RSPCA and local authorities the power to intervene. If a dog was not being properly trained or looked after and was viewed as a potential problem, the authorities could intervene simply because it was not microchipped. That is what I call the Al Capone effect. Hon. Members will remember that Al Capone was a notorious gangster and, no doubt, a murderer and torturer, but he was arrested for tax evasion. People who breed dogs for nefarious purposes might not be brought to justice for drug dealing or extortion, but they could be arrested for non-payment of the fine for not chipping their dog. That would give more power to the police and other authorities to take serious preventive action.

I understand that some local authorities are considering making microchipping a condition of allowing a dog to live in local authority accommodation. Could that not be extended? Preventive action could be taken, rather than reactive action; it would be simple to achieve, and would require no long drawn-out court proceedings. We license our cars, after all, and some dogs are just as dangerous as cars. We should have to register our dogs and accept responsibility for them.

Another possible solution is the compulsory use of a lead or muzzle. Again, I appreciate that most responsible dog owners would not dream of taking their dog into a public place without putting it on a lead. I can see the argument for not requiring a lead or a muzzle in all places at all times, but in certain designated areas—especially around children near schools and play parks, and in other obvious places—it would be perfectly reasonable for the law to require a dog to be kept on a lead or muzzled.

I am sure that the Minister will make the point about not bringing in more and more regulations and laws that are difficult to enforce, but I do not see the way forward as involving the placing of more burdens on the enforcement authorities or on law-abiding citizens. If he is reluctant to introduce a law requiring the use of leads and muzzles, would he consider a public information campaign to educate people about the benefits of keeping their dog on a lead, and the responsibilities involved? Once again, I am talking about changing public attitudes so that, instead of it being normal for a dog to run around and for people to have to accommodate the dog, it would be normal for a dog to be on a lead and for people to look at it suspiciously if it were not.

[Angela Smith]

I completely agree with the hon. Lady’s comments about the need for a public information campaign, including perhaps information and advice about not leaving a dog alone in a house with a child, for instance, which is one reason why we have had some casualties and fatalities. Would it not also be useful to have a system of dog control notices in place, which would mean that when a dog is obviously out of control, local authorities could implement this system to encourage better behaviour, such as by putting the dog on a lead or muzzling it?

[Mrs Laing]

I understand the hon. Lady’s point about dog control notices. I suspect that they would work rather like dog ASBOs or antisocial behaviour orders. That might work, but I am and always have been rather sceptical about ASBOs in the first place, and my scepticism about them spills over to the idea of having dog control notices. Because we are talking about preventing serious tragedies from occurring in future, I would say that almost anything the Government could do would be welcome.

The third possibility is to have dog-free areas. Local authorities already have the power to make certain areas dog-free. Would it not be sensible—I am thinking about a particular park in Buckhurst Hill in my constituency where Epping Forest district council is currently considering this matter—to say that a small part of a park that is set out as a children’s playground should be dog-free, and that no dog should be allowed in that part? Another part of the park is perfectly okay for dogs, as they are not likely to come across children, so no tragic incidents would be likely to occur there. Where children are playing in a designated play area, however, it makes sense to say that there should be no dogs. Once again, I am ready for the hate mail from dog owners who will say that my suggestions would penalise those who look after their dogs. I honestly believe that people who train and care for their dogs responsibly would find somewhere other than a children’s play area to take their dogs for a walk. We need to put the children first and the dogs second.

The fourth suggestion for the Minister is that there should be some sort of system of compulsory insurance, coupled with compulsory chipping and registration of dogs. I am told that this could be done at minimal cost to the individual and that subscription to one of the dog charities could cover a block insurance for all dogs. If an incident occurred, proper compensation could then be paid to the injured party.

Finally, I turn to the question of penalties. Penalties imposed on people who have let their dogs get out of control and injure other people should be severe so that they have a deterrent effect. The current penalties are not taken seriously. They must be easily enforceable and sufficiently serious to act as a deterrent. Once again, I put it to the Minister that a system of strict liability fines along the lines of parking tickets could work. The last thing any of us want to do is to give the police even more work or to place even more burdens on their time. However, strict liability fines would make the system much easier to enforce. At present, anyone who parks on a yellow line a car that is registered as being in their care is given a penalty charge notice, and if they do not pay the charge, they are dealt with by the criminal justice system. A similar penalty charge notice could be issued to those who allow their dogs to behave in an unacceptable way—to threaten other people, for instance, or to enter a dog-free area.

I know that the Minister must consider cost. I put it to him that the cost to the national health service—which is some £10 million a year—and the cost to businesses of the working time that is lost as a result of dog attacks are far greater than the administrative costs of a licensing scheme would be.

[Luciana Berger]

We should also consider the cost to the police of kennelling dogs while investigations are under way. According to figures that I obtained through a freedom of information request, the kennelling costs incurred by just 26 of our police forces in a single year were close to £4 million.

[Mrs Laing]

I thank the hon. Lady for making that point. It is utterly appalling that taxpayers’ money is wasted on a scheme that is not having the right effect. It is not controlling the number of so-called status dogs and weapon dogs, it is not preventing 6,000 postmen and 5,000 ordinary citizens from being attacked every year, and it is not saving the lives of children. I know that the Minister is sympathetic to my view. I hope that the impassioned pleas that are being made this evening will increase his power when he negotiates with his colleagues, and will enable him to act quickly to deal with all the matters that I have raised.

[Jim Shannon]

There are more than 10 million dogs in the United Kingdom. If DEFRA adopted compulsory microchipping, coloured tags and dog licences, as Northern Ireland has, £125 million of income would be created.

[Mrs Laing]

I thank the hon. Gentleman for making that point. I have not had time to go into the details of the microchipping scheme this evening. I hope it will be noted that, although I have spoken for about half an hour, I have given way to all who have sought to intervene because I appreciate the support that they have given.

I believe that a properly organised system would be self-financing. I also believe that all responsible dog owners would consider the small extra expense a very small price to pay for the protection of their dogs—and other people—from dogs that behave badly. The people who ignored the law, those who would not bother to microchip their dogs and would not register them, are the very people who neglect their dogs and train them to behave wrongly and viciously, and they are the very people who would be caught after breaking the law.

I appreciate that the new laws will work only if they are simple and can be easily and quickly enforced. I hope that the Minister will take some encouragement from what has been said this evening as he considers, along with his colleagues, the results of the Government’s long, detailed and very worthwhile consultation.

I conclude by saying once again that what we have to do is change public attitudes. That has worked in respect of wearing seat belts, using a mobile phone while driving a car and smoking in public places. Some Members and others said those changes could never happen, but they have happened, because public attitudes do change. At present, the balance of public opinion says, “My dog can go where he likes and do what he likes, so you’d better control your child.” From now on, we ought to say, “My child should be safe wherever he goes and whatever he does, so you’d better control your dog.” Dogs are never the problem; it is the owners of dogs who are the problem. All we want is to require all dog owners to behave as good dog owners have always behaved.

18:15

[Mark Reckless (Rochester and Strood) (Con)]

It is a pleasure to follow my hon. Friend the Member for Epping Forest (Mrs Laing), who deserves great credit for having secured this debate. I assure the Minister that I will try to be reasonably brief so we do not break any records for marathon achievements in Adjournment debates.

First, I want to put on the record my appreciation of those organisations who have been working incredibly hard on this matter for a long time with very little public recognition. The work of the Royal Society for the Prevention of Cruelty to Animals is well known, but I also want to express appreciation of—and I do not often say this—the Association of Chief Police Officers for the lead it has taken in this area. Gareth Pritchard, assistant chief constable of North Wales police, has done a huge amount of unsung work, and he has done so in a very consultative manner, working with a lot of other organisations to bring that work together. Rather than simply pushing his own line or claiming to speak on behalf of all police forces without having done the necessary groundwork to be able to do so, he genuinely does speak not only for all police forces across the country, but for a far wider range of stakeholders. We are all indebted to him for his work in this area.

I have changed my mind on dog legislation and regulation. I welcomed the abolition of the old dog licences, which I considered to be bureaucratic and to have little effect. I believe that at the time 15p had to be paid at the post office in order to register. However, recently I have come to understand the scale of the problem. After all, there are 6,000-plus injuries per year. I was really quite moved by the recent appearance on “Newsnight” of the hon. Member for Liverpool, Wavertree (Luciana Berger). The seriousness with which she has addressed this issue and others has impressed colleagues across the House. I have no doubt that we must provide relevant regulation; indeed, I think there is almost certainly a need for primary legislation, which should be consolidating legislation that pulls together the existing patchwork of unsatisfactory legislation and provides a new, more effective approach.

The focus must move away from the proscription of particular breeds to the behaviour of those dogs. We should not introduce a big-bang change, however, until we are sure the new legislation is working. Therefore, for a transitional period at least, dangerous breed legislation may still have a part to play, and I certainly have respect for ACPO’s position on this issue.

Much greater focus must be placed on prevention. There must be a criminal offence. If someone is causing, encouraging or allowing a dog to be aggressive, or is using a dog to cause harassment, alarm or distress to another person or to attack a protected animal, that should be an offence. We need to consider circumstances where a dog’s behaviour, where the absence of effective restraint on a dog or where dogs acting in packs have given rise to an injury to a person or a protected animal. We also need to consider situations where a reasonable person would consider the behaviour of a dog or dogs to be antisocial, intimidating, irresponsible or dangerous. We need legislation to deal with those scenarios. If we go down the road of microchipping, a link could be presumed, through that microchip, between the registered owner and the behaviour of the dog. We could, thus, tie those things together and have effective legislation.

The criminal concept of mens rea is almost being applied uniquely here, because the dog is doing the action but what is the owner’s intention? Protection for the potential suspect in this area is difficult to retain. Where an owner is allowing a dog to behave dangerously, causing intimidation to people, there may need to be a presumption as to their responsibility—although there should be appropriate defences—unless they can show that they have taken the appropriate steps.

On prevention, I support the call that we have heard from Members across the House for something akin to dog control notices. My work on the Select Committee on Home Affairs and my knowledge of these areas has not convinced me that relying on the Home Office’s antisocial behaviour legislation, or on its replacement, will be appropriate in this field. I ask the Minister at least to consider whether something more specific is needed on dog control. Should we be allowing authorised officers, whether from councils or elsewhere, to take preventive steps to issue an order in respect of a particular dog or owner, so that things can be followed up, where necessary, in a given case without having to go through the full criminal procedure or bureaucracy on each occasion?

I wish to conclude by discussing a particular issue. I should declare a personal interest, because this happened to my wife before she became either my wife or my constituent. She was chased by boxer dogs while skiing on the hills above Edinburgh. These dogs assumed that she was prey and chased her as if she were a beast of which they were in pursuit. It was the most extraordinary, heart-rending experience for her and she never found that there was any effective action that could be taken on it. Those boxer dogs were part of a party of 13 dogs being walked by a commercial dog walker, who was profiting from purporting to control 13 dogs as the agent for other people. Surely no one can properly control 13 dogs, let alone 13 large dogs or dogs of that type of breed.

I hope that DEFRA will consider as part of this process whether particular arrangements applying to commercial dog walkers—where people are earning money—are justified. This is, if not a profession, at least something done for commercial return. We can talk about particular measures, but I suggest that someone walking four or more dogs should be over 18—it should be adults who do this—and should have appropriate public liability insurance. They should also stay away from areas where little children are playing. Regulation on that matter would be justified and I hope that Ministers will consider it. One particular model that works well is the byelaw developed by Wandsworth council, and it may well be an example that we can sensibly apply elsewhere.

As the Queen’s Speech approaches, I am not sure whether the pressure of legislation is as much as it might necessarily be in a normal year. We hope that we have at least three years of this coalition Government to run, and I hope that we take the opportunity to legislate in some non-contentious areas, where there may not be the major political impetus for a Government to make their mark but where there is agreement across the House and where there is a clear and pressing danger, as there is on this issue. I hope that we will use the opportunity to have proper consolidating legislation that puts a proper focus on prevention and can help to prevent at least some of these terrible incidents of injury that we see every year across the country.

18:24

[The Minister of State, Department for Environment, Food and Rural Affairs (Mr James Paice)]

I congratulate my hon. Friend the Member for Epping Forest (Mrs Laing) on securing the debate. As she and many other hon. Members have said, the timing is very appropriate. I also congratulate her on the fact that she has clearly done so much research, not just into the tragedy that affected her constituents, the Smith family, but into much wider issues, including the thought she has given to potential measures to redress the situation.

I entirely endorse my hon. Friend’s comments about many other hon. Members and the diligence with which they have pursued these issues. I am not saying that I agree with every aspect of their suggestions, but I fully respect and understand their genuine concerns. I am sure the whole House—and certainly the Government—endorses her sympathy for the Smith family, the family of John-Paul Massey and countless other families who, as Members have said, have been affected by out-of-control dogs.

The Government are aware that the issue is important to many people. I am a dog owner myself and I see it as both a privilege and a great responsibility. It should not be taken lightly by individuals, as it is a serious responsibility, and the owner is clearly responsible for how the dog behaves. Several hon. Members have mentioned that the owner is often at fault. We all know that certain breeds and crossbreeds are more prone to bad behaviour or attacking people, but in many cases the actions of the owner are responsible for how the dog behaves.

As a former owner of a boxer, I say to my hon. Friend the Member for Rochester and Strood (Mark Reckless) that the vast majority of boxers are placid and quiet. The behaviour to which he referred, where dogs chased his wife before she was his wife—I am not in any way suggesting that it did not happen—was obviously horrendous for her and none of us would want to be in that situation, but it would be wrong to damn the whole breed because of those animals. We all know that some breeds are more prone to the problem, and pit bulls and their crossbreeds are a clear example of that.

[Mark Reckless]

Of course, I respect what the Minister has said, but does that not go to show that it is not the breed but the behaviour and the circumstances that matter? In my example, a commercial dog walker was purporting to control 13 dogs, including some significantly large breeds.

[Mr Paice]

I entirely agree with my hon. Friend. I am jumping into specifics, but as far as the issue of commercial dog walkers is concerned—although I confess I do not have a particular note or brief on the subject—I do not think that anybody could dissent from what he has said. It defies belief that anybody could be in control of 13 dogs, however competent they were. No doubt somebody will write to me and say that that is possible, but I suspect that not many people would agree with them.

Having a dog that is out of control is clearly an issue of public safety. It is not fair on the dog if it is not being properly cared for and has not been trained to behave appropriately. Sometimes, one can witness examples of dogs that appear to be out of control and one wonders what care they are getting and whether the treatment the dog is receiving is fair.

My hon. Friend the Member for Epping Forest referred to the Smith case and she properly made the point that the owner of the dog has been prosecuted successfully and convicted. I fully understand her concern about the penalties imposed, but it demonstrates that even when an offence is committed, it does not always force people to do the right thing. I fully understand her comments about the penalty, but I must say that we have not had any pressure from the courts to increase the penalties. However, I fully understand and endorse her concerns.

I am also very much aware that I and other Ministers have said that we are close to making an announcement on a package of measures designed to tackle irresponsible dog owners. I confess that it is a matter of personal disappointment that I have not been able to make that announcement before today. I had very much hoped that that would be possible but I am afraid it has not been. If hon. Members want to intervene on me about this issue, I shall treat them with my usual courtesy, I hope, but for obvious reasons I will not be in a position to enlighten the House in great detail about what might be in the package. I know that many Members in the House and people outside it await our announcement with keen interest.

[Angela Smith]

Will the Minister give way?

[Mr Paice]

I have committed myself now, so of course I will.

[Angela Smith]

The Minister made it impossible for me not to intervene. Could he at least tell us whether we will get a package of measures that will fit into existing legislation or whether there will be an offer of primary legislation in the Queen’s Speech?

[Mr Paice]

Perhaps the hon. Lady will enlighten me at some point as to what I have to do to make sure that she does not intervene. She will know that I cannot presage what will be in the Queen’s Speech. All I can say is that we are looking at measures that can be brought into play and are enforceable and effective. She cannot tempt me to go further than that in giving the detail.

[Luciana Berger]

Can the Minister kindly confirm—he has said this in the past few weeks—that we will see this package of measures before the recess, and therefore before the end of the month?

[Mr Paice]

I am happy to confirm that that is still our intention and desire.

The issue of irresponsible dog ownership spans a number of areas, with the police, courts, local authorities, dog re-homing centres, veterinary surgeons and charitable bodies, many of which are dog re-homing centres, all having an interest. It is therefore important to strike the right balance between penalising irresponsible dog owners and not placing unrealistic burdens on the majority of responsible dog owners. The serious implications that irresponsible dog ownership can have for individuals mean that we regard it as a form of antisocial behaviour. It is important that the police and other professionals have effective tools and powers to deal with antisocial behaviour. That is why the Home Office published a consultation document that proposed a streamlined set of faster, more flexible and more effective tools to allow practitioners to protect victims and communities and get to the root of the problem. The Home Office received more than 1,000 written responses to its consultation from the police, other front-line professionals, members of the judiciary, local authorities, interest groups and members of the public, and it has worked with DEFRA officials on the detail of the proposed new criminal behaviour order and the crime prevention injunction to ensure that they adequately cover dog-related issues and could apply to antisocial behaviour by dog owners.

We also want to encourage informal measures to tackle inappropriate behaviour before it escalates into something more serious. Such measures could include raising awareness of examples where local areas are taking a more informal approach to issues through, for example, restorative justice or working with potential offenders. My hon. Friend the Member for Epping Forest mentioned that some local authorities could require dogs to be microchipped before their owners could have local authority accommodation. That struck me as a very good example of a local initiative that could be used without the need for legislation.

[Cathy Jamieson]

May I return the Minister briefly to the point I made in my intervention on the hon. Member for Epping Forest (Mrs Laing) about criminal behaviour and the definition of criminal intent? She talked about victims. Will the Minister discuss with his colleagues in the Home Office and the Justice Department, if he has not already done so, the issue of criminal injuries compensation in circumstances in which innocent victims are severely injured through no fault of their own because of irresponsible dog owners?

[Mr Paice]

I am happy to undertake to discuss that with my colleagues. My understanding is that the Home Office has considered the matter. I do not wish to presage what may or may not be announced by Ministers there. Suffice it to say that I do not think they are fully persuaded. I shall say a word in a moment about other financial aspects.

Currently dog control orders are available to local authorities, under the Clean Neighbourhoods and Environment Act 2005. These allow local authorities to impose restrictions on the walking of dogs in certain public open areas. Typically, as my hon. Friend the Member for Epping Forest suggested, this allows child recreation areas in parks to remain dog-free and thereby helps to provide a safe area for children to play. It also allows local authorities to place restrictions in areas where there have been substantial complaints about unruly dogs in general causing problems. My hon. Friend rightly said that the part of a park where the children’s play area is should be free from dogs. I entirely agree. The powers exist and local authorities can ensure that. One would encourage them to do so in the appropriate situations.

As the House may know, dog control orders will be replaced by the new measures available under the Home Office’s proposed revised antisocial behaviour measures, but there are no proposals to remove the power to create dog-free areas. Another proposal being looked at by my Department is to extend the criminal law on dangerous dogs to all private property. My hon. Friend rightly made a great deal of this. The proposal would allow the police to investigate dog attacks on private property. However, we need to make sure that any new measure gets it right. There is an issue of balance here. Nobody would disagree with my hon. Friend’s comments about the Communication Workers Union. Clearly, someone going about their duties as a postman, milkman or anybody else who goes on to private property should not expect to be under attack from a dog. That, I hope, goes without saying.

My hon. Friend also raised the issue of children. None of us wants to see children attacked anywhere, but there is a distinction to be made between people who are legitimately on premises, whether a postman or postwoman, a child whose home it is or who is staying with their grandparents or whatever it may be, and somebody who should not be on the property—a potential burglar or other trespasser.

I am carefully trying not to lead the House into any conclusions about what may be announced. All I would say is that there is an issue of getting it right. We are discussing a first-class example in which haste does not get it right. I was here—I do not think anyone else in the Chamber this evening was—when the Dangerous Dogs Act 1991 was passed. We all realised that we as a Government, of which I was a very junior member at the time, acted in haste. Perhaps we could say that we have repented at leisure. We clearly did not get it right.

I do not support any cause for delay, but deliberation is required. I have therefore pointed out the balance that we have to strike between those who have a right to be on a property and those who should not be there in the first place. Do we really want to see a trespasser successfully prosecuting a home owner because a dog has acted in a way that many people would consider only natural towards somebody who the dog would not expect to be on the premises? There are major implications to extending the law into the home. We need to make sure that all the potential risks are understood and can be addressed.

[Luciana Berger]

The Minister rightly referred to postmen and women coming to homes, and the need to protect children, but the issue is broader than that. Social workers visit homes, as do health workers and health visitors, telecom workers and people coming to read meters. There is a plethora of people who have to enter someone’s property for one reason or another and who could be and have been under attack from dangerous dogs.

[Mr Paice]

I fully accept everything the hon. Lady says. I referred to postmen and women only by way of example; it was not meant to be an exclusive list, as I am sure she appreciates.

A number of people, including some hon. Members, support the idea that if breed-specific legislation is not repealed, and frankly we have no intention of repealing it—as my hon. Friend the Member for Rochester and Strood said, the police point to its benefits and do not wish it to be repealed—owners should be allowed to apply to the courts to have their dogs added to the index of exempted dogs. I would want the police to have the final say on whether a dog should be seized, and there might also be scope for not kennelling other types of dogs that are not a danger.

In answer to another point that was raised, we are very much aware of the costs of kennelling not only to the Metropolitan police, who are the biggest example, but to many others, including some charities, and we are aware that those costs have risen steeply over the past few years. We are not aware of the police having any central records for all forces in England, but we might be wrong about that, so my officials will make inquiries with ACPO to see whether those central records exist. In all cases, the police would need to be satisfied that the dogs are in the care of a responsible owner, as there would be no point in putting them on the list of exempted dogs if they were then left in the care of someone who would not be responsible. The idea would clearly save the police money, which we fully appreciate.

Another proposal referred to by several hon. Members, including the hon. Member for Strangford (Jim Shannon), is the compulsory microchipping of dogs. My officials in DEFRA keep in close and regular contact with officials in the Northern Ireland Executive. We are aware of what they are doing and are watching the development of their new initiative carefully. There are obviously benefits to the compulsory microchipping of dogs, one of which is the ability to identify the owner of a dog that had become dangerously out of control, even if they were not present at the time of the incident. Better traceability of owners could discourage owners from letting their dogs run loose and, therefore, reduce the likelihood of attacks. We have to consider the downsides. My hon. Friend the Member for Epping Forest is probably right about the issue of cost, which some people raise, but updating the records is more important. Clearly, if a dog changes hands or its owner moves, the record becomes useless unless it is updated. Again, it is an example of not just a simplistic approach, but one that has huge merits.

We have made it a priority to see how the issue is being dealt with on the ground by many local authorities and are looking at how local community initiatives are promoting responsible dog ownership. My hon. Friend the Member for Epping Forest referred to initiatives for local authority accommodation. One example is Ealing borough council’s “dog watch” initiative. I know that Waltham Forest district council has also carried out many initiatives in part of my hon. Friend’s constituency. I have a long list of initiatives and congratulate the council on its work. All of them are key to tackling the problem of irresponsible dog ownership. They can provide suitably tailored local approaches to local problems.

The guidance that my Department issued to law enforcers in 2009, under the previous Government, also reminds local authority housing providers and other landlords that they can play an important part in addressing antisocial behaviour in areas where they have jurisdiction, as we have discussed. Housing providers are strongly encouraged to have a clear and positive policy towards dogs, with sanctions and consequences if a tenant fails to adhere, and of course that applies just as much to housing associations as it does to local authority housing.

I said that I was going to return to the issue of finance and, in particular, to insurance, which my hon. Friend the Member for Epping Forest raised as one of her proposals. The previous Government considered the matter when they launched their consultation in 2010. [Interruption.] The hon. Member for Penistone and Stocksbridge (Angela Smith) is, I am pleased to say, nodding in agreement. At the time, however, the insurance business was not at all supportive of the proposition, and if the industry is not prepared to offer such policies it is difficult to see how one could make insurance compulsory, as my hon. Friend suggested.

I am also not sure that insurance is a necessary prerequisite, bearing in mind that the vast majority of dog owners would therefore pay for it to deal with the behaviour of a tiny but nevertheless significant minority of irresponsible dog owners, but I reaffirm that it has been a matter of consideration and interest for the Department. I should not want to discourage any individual who wanted to take out such insurance, but part of me wonders whether, if they want to take it out, they have doubts about their ability to control their dog.

I apologise to the House for not being able to be more specific about what we are proposing, but the House will be very much aware of the constraints on Ministers before decisions have been made. I reaffirm, however, that we are working on two separate packages of measures—although we hope that they will come together—in DEFRA and in the Home Office, and we are determined to take action.

[Mark Reckless]

I hear the Minister’s point about the issues regarding compulsion for every dog owner in the country, but before he leaves the issue of insurance entirely, will his Department consider the case of insurance for the much narrower category of commercial dog walkers, who earn money for supplying a service that purports to look after and control dogs?

[Mr Paice]

Yes, of course. I am happy to confirm to my hon. Friend that we will look at that issue. My immediate concern is the definition of “commercial dog walker”, but I do not want to sound negative.

I apologise to the House for not being able to be more precise, and I hope that we can be in the not too distant future, but we want to be clear that we are not producing changes with a load of unintended consequences that we shall live to regret. We will continue to work up our proposals both to reduce dog attacks and on antisocial behaviour involving dogs, including the whole issue of trophy dogs and their use for intimidation. They might never attack anybody, but if they are intimidatory that can be just as antisocial.

We clearly want to promote responsible dog ownership, and I emphasise that the Government believe that the vast majority of dog owners are responsible, but we need to address the minority.

[Angela Smith]

I thank the Minister for giving way and for his very full response this evening. Can he confirm that any announcement will be made by way of a statement to the House, rather than through a written ministerial statement?

[Mr Paice]

The hon. Lady asks me a question above my pay grade. I do not make those decisions, much as I should like to, but I hear what she says, and what she urges us to do.

What I can say is that once proposals have been finalised we will announce measures to tackle the issues that we have all discussed today, to make our communities safer and to make those who own dogs accept and respect the responsibility that is placed upon them partly for public safety and partly, as I said earlier, for dog welfare, which is an equal part of the matter.

Question put and agreed to.

18:49

House adjourned.

Westminster Hall

Wednesday 14th March 2012 Westminster Hall

Wednesday 14 March 2012

[Mr James Gray in the Chair]

First-time Buyers

Wednesday 14th March 2012 Westminster Hall

Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Newmark.)

09:30

[Steve Brine (Winchester) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray; this is the first time that I have done so in a leading role.

I am pleased to have secured the debate, which covers an issue that is important to me and certainly to the people I represent in Winchester and Chandler’s Ford, as well as to people across the country. I am pleased that so many of my colleagues have turned out this morning. I suspect that the postbags of many right hon. and hon. Members suggest that the topic is important to their constituents, too. The issue is about the strivers in our constituencies. I am not sure where that term came from, but it seems increasingly to be a feature of the political spectrum.

It is frequently asserted that we are a nation of home owners, as well as a nation of shopkeepers. Home owning, or striving to own one’s house, makes financial sense. It brings independence and is a source of great pride for many. It was Anthony Eden who first set out the noble vision of a nationwide property-owning democracy, and for much of the 20th century home ownership steadily increased. That was a good thing. There has been a striking increase in recent years in the number of people, particularly in the younger generation, opting to rent instead of buying, as property prices have shot up, deposit requirements have rocketed, and the economic outlook has remained uncertain. People’s aspiration, however, one day to own a property of their own remains as strong as ever.

I had an acute reminder of that yesterday, when I was proud to cut the ribbon in the Dell—not that Dell—the old Dell in Willis Waye in Kings Worthy. There are 29 brand new homes, which have been built by Homes and Community Agency partner Radian Housing, with a nice mix of shared ownership and rental, constructed to the highest standard possible, using local architects. I was fortunate enough to meet some residents yesterday, and they do not see home ownership as an unnecessary burden; they are proud as Punch to live in the Dell. I am proud that we have a positive Conservative city council in Winchester, with a forward-thinking portfolio holder in Councillor Tony Coates, and people such as my colleague Councillor Ian Tate on the planning development control committee; they have a passion to help the people we represent to realise their aspiration to own their homes.

[Mr Marcus Jones (Nuneaton) (Con)]

I congratulate my hon. Friend on securing this important debate. Opportunity for first-time buyers is extremely important to all Members, from all constituencies, so is my hon. Friend a little surprised, if not concerned, at the lack of Opposition Members here to support the debate, which affects their constituents?

[Steve Brine]

Yes. My hon. Friend tempts me. The turnout in debates in the House and Westminster Hall is a matter of fact and public record, not my judgment; that is for others. However, I thank my hon. Friend for pointing that out.

I mentioned aspiration and I shall say the word again—as, I am sure, will many of my hon. Friends. That is the starting point for me. The Government should exist to help people to realise their aspirations: not through a handout—although, yes, sometimes—but often through a hand up. The debate is unapologetically, for me, about our values. Politicians do not talk enough these days about what they believe in. It is as if ideology has become a bad word, and it is suddenly a crime to say what drives us. Of course policy making and implementation is about the head, but it must also be in equal measure about the heart. Why do we want to be in this place? Why did my party, and many hon. Members who fought seats for longer than I did to get here, work so hard to return our party to government and run the country, if not to pursue our mission? Part of that mission and why I wanted to come here was to help people to own their home. I do not accept that that is somehow to let people aim higher than they should be allowed to by the state. I know that Conservative Members utterly reject that.

[Mr Mark Williams (Ceredigion) (LD)]

Will the hon. Gentleman give way?

[Steve Brine]

Yes. Good timing.

[Mr Williams]

I congratulate the hon. Gentleman on securing the debate. Does he also accept that the question goes deeper than simply owning a house? The ramifications of denying first-time buyers the opportunity to buy property affect the community as a whole. Where I come from in west Wales the issue is that young people are moving away from our communities; they cannot educate their children in local schools, and there are other community aspects.

[Steve Brine]

Absolutely. We have often debated the future of sub-post offices, pubs and primary schools where falling rolls lead to changes and school reconfiguration. There is a need for new people to enter communities, to regenerate them. I ask hon. Members who are home owners to remember when they first walked into the first house they owned, and the excitement of that. We may remember how exciting it was as a child to play house; but that was playing house for real. I remember how exciting it was, and I want other people to experience that excitement. That is what the debate is about, which brings me back again to that word “values”.

I want to outline the scale of the current challenges to the UK housing market, and the difficulties that young families and first-time buyers experience in taking their first tentative step on to the property ladder. It is a daunting challenge. Since 2008, the number of first-time buyers has declined from a long-term average of about 500,000 a year to just 200,000. One of the key factors accounting for that is, of course, the astonishing rise in average house prices relative to earnings in the past 20 years —even taking into account the slight decline in prices in more recent years. I emphasise the word “slightly” because the situation in the part of the world that I represent may be different from that in some other constituencies.

[Andrew Bingham (High Peak) (Con)]

I congratulate my hon. Friend on obtaining this debate on an important issue that affects so many of our constituents. I am not an expert on house prices in his area, but High Peak is a particularly beautiful rural area, and consequently house prices are disproportionately high, so it is even harder for first-time buyers to get on the ladder.

[Steve Brine]

I thank my hon. Friend, who argues passionately for rural housing in his constituency. The changes that the coalition Government are bringing in—the neighbourhood plans that will be part of the localism agenda, which will work with the council’s local plan—are critical in achieving local buy-in to add stock sensitively and to increase supply in rural areas. That is not to impose, but to enable local planning, through the neighbourhood plan process, to increase supply, so that local people who have grown up in villages can afford to stay in them. That is critical. The new rules that the Government are bringing in, on local allocation, mean that we can make local homes for local people a reality. I know that my hon. Friend will press for that on behalf of the people he represents.

We know from figures from the Department for Communities and Local Government that between 2000 and 2007 the average UK house price more than doubled, from £106,000 to £214,000. For many first-time buyers, particularly those unable to access finance from the bank of mum and dad—a term that I suspect we shall return to over the next 90 minutes—those high prices have either delayed or ended hopes of owning bricks and mortar. In Winchester, the mean house price in the third quarter of 2011 was £368,500, whereas the mean price for England in the same period was just £245,000. The problem is particularly acute in my constituency.

It is a widely accepted fact of economic reality that house prices are high partly because housing is in relatively short supply in this country. As for the future, I know, having listened to Communities and Local Government questions on Monday, that the Government do not like to make forecasts of house building; but they must surely look carefully at what has happened in the past. In 2007, there were 178,000 housing starts, but by 2009—the last full year of the previous Government—that figure had crashed to just over 78,000. In 2011, the first full year of the coalition Government, it had risen to just over 98,000—a rise of 25%—but we are still clearly well short of where we want and need to be. Building more new, affordable homes should clearly be a priority. I hope, for all our sakes, that the new incentive-led, plan-led approach combined with policies such as the new homes bonus and genuine local buy-in through neighbourhood plans will make a significant difference.

As I have said many times in my constituency and in the Chamber, the stick approach to increasing supply has failed. Under the previous Government, house building fell to its lowest level since the 1920s. My aspiration for the new system of localism is simple: local authorities will step up to the plate and stop looking to London for their orders and work with local communities to deliver the homes that their area needs.

When I talk to people in my constituency—I am sure that Members from across the House will recognise this point—it is clear that they recognise the facts; they understand that we need to build new homes because they know that the people who are looking for those homes and who are locked out of the system are their children and their grandchildren. My children are aged four and one, so they are obviously a long way from owning their own home. None the less, that is what I want for them one day—actually at 5 o’clock this morning, I felt that it would be a good idea right now. I want them to be able to stay near mum and dad, perhaps not too near, but relatively near.

People in Winchester do not want housing estates forced on them that are so big that they can be spotted from the lunar surface, and that are without the support services a community needs when it accepts 200 or even 2,000 new homes. They want to be involved. When we involve people, we find that they take the right decision for their community. That is what localism is about; nothing more and nothing less.

I welcome the coalition’s plan to release public sector land with the capacity for up to 100,000 new homes, and the £400 million that the Treasury has put into the get Britain building fund to support firms in need of development finance. I look forward to hearing more from the Minister about her aspirations in that respect.

Although the housing shortage and high prices have conspired against first-time buyers, undoubtedly the biggest obstacle is the size of the deposit that is required before a mortgage can even be considered. The Council of Mortgage Lenders has estimated that the average deposit for a first-time buyer now stands at more than £26,000. That represents 79% of the average annual income from which the mortgage is paid.

A constituent wrote to me last month:

“All the mortgage providers we have spoken to have offered 5% deposit mortgages but these come with massive consequences, such as interest rates which would make monthly payments the same as one of our monthly salaries, or a family member/friend who would invest £35,000 for three years to stand behind the loan. I don’t know about you, but we don’t know anyone who could spare £35,000 that they wouldn’t touch for 3 years, do you, Steve?”

No, Steve doesn’t, and that is the problem; I wish I did.

As the credit crunch took hold in 2007, liquidity dried up and more restrictive lending took hold. Thus, even though house prices have started to fall slightly in recent years in some areas, challenging funding criteria have meant that ever larger deposits are required, making the dream of home ownership for many first-time buyers nothing more than a remote fantasy. Add to that the rising costs of living and job uncertainty, and the picture can appear bleak for aspiring home owners.

In preparing my remarks for this morning’s debate, I asked myself whether we had a Government who were prepared to wash their hands of these young people. Do we have a Government who prefer to walk on by, on the other side of the street, and consign a generation of young people to a life living with mum and dad, which can have benefits; sofa-surfing, which does not have benefits; renting in the social or private sector, which works for many; or even, in extreme cases, homelessness? If I thought for one moment that this Government took that view and wanted to turn their back on young people, I would be their fiercest critic and we would be having a very different debate today. Yes, there are limits to what Government can do, especially with a national debt the size that we have, but there are a number of actions that can be taken to boost Britain’s housing market and to assist first-time buyers in getting a foothold on the first rung of the property ladder.

The most important step the Government have taken to support greater home ownership is their commitment to ensuring that interest rates are kept as low as possible for as long as possible. They are getting to work on tackling the national structural deficit. It is a factor that is easily overlooked, but without a credible plan to put the public finances on a stable footing, the inevitable higher interest rates that would result would also lead to higher monthly mortgage payments and increased repossessions. That key point should never be understated.

As well as maintaining the conditions necessary to secure a low interest base rate, the Government have introduced a range of initiatives designed to support prospective first-time buyers to own their own home. With the sort of timing that I could not have planned for—for the record I did not—two key announcements were made this week. The NewBuy guarantee scheme tackles the deposit problem head on, and I am pleased to see that it is led by the Home Builders Federation and the Council of Mortgage Lenders.

At the launch this week, the executive chairman of the Home Builders Federation said:

“NewBuy will help thousands of people to meet their aspirations to buy a new home, freeing up the housing market and helping first-time buyers and those unable to take the next step on the ladder.”

Paul Smee, the director general of the Council of Mortgage Lenders said:

“These mortgages will help creditworthy borrowers. It is good news for home-buyers and potentially good news for jobs and the wider economy too.”

Mortgage applicants are typically required to give a deposit of between 15% and 20% at the moment, whereas NewBuy makes it possible for first-time buyers and existing home owners to get a mortgage on a new-build property with only a 5% deposit, without all the strings that my constituent told me about earlier. With that new deal, instead of having to save a deposit of between £30,000 and £40,000, first-time buyers will now need only £10,000. The scheme indemnifies lenders against a limited amount of any future losses, opening up mortgage lending and stimulating demand for newly built houses and flats.

Only new homes built by house builders signed up to the scheme will qualify, but I am told that most of the major and many of the smaller builders are in the process of registering. Yesterday, I was encouraging Radian Housing to be part of the scheme, and it told me that it already was, which was excellent news.

Under the scheme, individual home builders will partner up with one or more mortgage lenders who will offer loans of between 90% and 95% on their properties. Let me stress that NewBuy has nothing to do with sub-prime lending, when mortgages were given to people who could not afford the repayments. Mortgages of 95% operated perfectly well in this country for many decades, and the criteria for lending are now much stricter. Nobody will get a mortgage who is not able to pay for it.

[Stephen Lloyd (Eastbourne) (LD)]

My hon. Friend is making an important point because there have been one or two concerns about that issue. Will he confirm that the Financial Services Authority will be watching this extremely closely? The scheme has been through a rigorous regulatory route, and there should be no concerns about comparisons with some of the sub-prime activity.

[Steve Brine]

Yes, the FSA is monitoring the situation very carefully. There are some new lenders coming on to the market who are keen to step up to the plate, and the FSA is treating them with all the due care and diligence that we would expect. I know that as chair of the all-party parliamentary group on Citizens Advice, my hon. Friend takes a great interest in the matter, and I thank him for coming along this morning.

Nobody will get a mortgage who is not able to pay for it, not only at today’s low interest rates but at interest rates that will possibly rise at some future point. NewBuy is most welcome.

[Mr Sam Gyimah (East Surrey) (Con)]

I thank my hon. Friend for organising this debate. While we are on the sub-prime crisis, is it not the case that we need to ensure that we do not have a situation in which people are borrowing 120% of their salary, which they clearly cannot afford, or self-certifying their earnings? Those aspects of mortgage lending led to the sub-prime crisis. Here, the focus must be on affordability first.

[Steve Brine]

Absolutely. Affordability is the key word. One of the key lessons that must be learned from what happened in 2007 is that affordability must be at the heart of mortgage lending. That is why I am so pleased that the Council of Mortgage Lenders is backing this scheme. Obviously, through its lenders, responsible lending will be the watchword, but affordability is critical.

NewBuy is most welcome. I have taken great care to inform many of my constituents about it already and I understand that the website NewBuy.org.uk has, unsurprisingly, been very busy in its first 48 hours. Although I welcome it, I will just make this point to the Minister. Many first-time buyers will welcome any home, and a new build ticks many boxes, but I urge her to work with colleagues at the Treasury and in the Department for Communities and Local Government to explore ways in which we can extend NewBuy to not-so-new-buys because not all mature properties are thatched cottages worth a couple of million pounds, and sometimes first-time buyers do not want to choose a new build. There is much housing stock out there that could come on to the market, especially as we change the rules on assured tenancies.

[Mr Mark Williams]

Does the hon. Gentleman welcome the initiatives taken by some local authorities to develop their own local authority mortgage schemes? My local authority, Ceredigion, is pursuing that, and it is also being pursued in Conwy—I say that to add a slightly Welsh dimension to this debate.

[Steve Brine]

I see absolutely no reason why such initiatives should not be developed; I suggest that they are a key part of localism. Perhaps I will rather unfairly pass the hon. Gentleman’s question on to the Minister, because I see no reason why a responsible local authority setting up an accredited scheme such as that could not be part of the NewBuy scheme. I thank the hon. Gentleman very much for making that point.

I turn to right to buy, which, as we know, has been relaunched this week, with all the passion and enthusiasm of its creator, the former Member for Finchley. To this day, I meet people every time that I knock on doors on the big estates of Winchester who were given the chance to join the property-owning democracy by that lady and her policy when it was introduced the first time around. I am extremely proud that my party made that possible. The subject even comes up in conversation from time to time—started and prompted by me. I am extremely proud of that policy and we should never stop saying that we are proud of it.

I am delighted that the Government are ploughing ahead with their task of reinvigorating the right-to-buy scheme, by raising the maximum discount available from the current limit of between £16,000 and £38,000 to £75,000. Every home that is sold under the scheme will be replaced by an affordable home for rent. I am sure that the Minister will want to elaborate on the fine details, but I can report to her good news from the Queen’s own land of Winchester, where the Conservative-led Winchester city council has recently confirmed plans to build the first new council homes in the district since the 1980s. Those plans have been met with great excitement by local people. With 4,500 people on the city council’s waiting list, the plans are great news and, as the city’s MP, I could not welcome them more. I pay great tribute to the work that the Treasury has done with the Department for Communities and Local Government. I believe that it is a £19 billion deal to allow authorities such as Winchester to get themselves out of the housing revenue account—the so-called “tax on tenants”. That deal is making the new policy possible.

We often hear that the Government are taking us back to the 1980s, and dare I say that that is not said in favourable terms by some Members? As a child of that decade, I can see no problem with a return to music that people can really dance to. Seriously, however, if that kind of time travel gives us back the right to buy, as well as new council homes in Winchester and across this country, I say, “Bring it on.”

Let me refer again to the new homes bonus, whereby local authorities will be financially rewarded for delivering new housing, with matched funding based on new council tax receipts. For the first time, a premium for affordable homes will be included and the next sets of allocations have already been announced. Winchester is due to receive more than £1 million in allocated funding, which I am sure will be welcomed by city councillors of all colours. May they use it wisely and to maximum effect; that would be my message to them from Westminster Hall today.

I would like to probe the Minister a little on one issue in particular before I close. In 10 days’ time, the stamp duty holiday for first-time buyers will end, so any first-time buyer who buys a home worth between £125,000 and £250,000 must pay the 1% stamp duty tax. Evidence given to me—I must say that it is from Charters estate agents in Winchester—suggests that first-time buyers are moving quickly to avoid the tax. The head of mortgages at HSBC has reported that HSBC has seen a 20% increase in approvals for first-time buyer loans in the first six weeks of the year, as first-time buyers rush to take advantage of the stamp duty holiday.

I mentioned Radian Housing earlier. It operates the HomesinHants website and it told me yesterday that that website was receiving some 78,000 hits per day in January and February of this year compared with just 67,000 hits per day in the same two months of last year. It also says that many of the inquiries that it has received are from first-time buyers, who have been encouraged to get a move on by the stamp duty holiday.

I realise that there is a view in the Government that this stamp duty holiday has not been a huge success everywhere, but I ask the Minister in her reply to the debate to expand on that issue some more. It seems logical to me, and constituents have reported as much to me as their local MP, that in some areas and in some markets, this holiday can provide a nudge to the market and free up cash for those who take the plunge to spend that extra money elsewhere in the economy. In saying that, I appreciate that the Winchester housing market is different from some other areas of the country, to put it mildly. Nevertheless, I look forward to hearing the Minister’s response.

I will make one final point that seems odd to raise in a debate about Government help for first-time buyers—about interest-free loans to help employees with the cost of a rail season ticket. To say the least, the amount available has not kept pace with fare rises on the service from Winchester and Southampton to Waterloo, for instance, and for many of my constituents this outgoing is now one of the largest that they face each month. I believe that the Government need to look urgently at the interest-free loan figure; I have tabled questions to that effect. I would welcome the Minister’s comments on that, which will probably come in writing after the debate.

In conclusion, giving people the chance to own their own home is one of the best things that a Government can do for their people. My parents’ generation saw owning a home as a rite of passage, but it is more complicated than that these days, for many of the reasons that I have outlined this morning. In my opinion, young people have every right to believe that, if they work hard, do the right thing and save, they have a Government on their side and they can get on the property ladder. I welcome the steps that the Government are taking to reinforce and, yes, to lower the bottom rung of that ladder. I look forward to hearing from my hon. Friends in the debate ahead and, of course, to the Minister’s reply in due course.

09:54

[Iain Stewart (Milton Keynes South) (Con)]

It is always a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Winchester (Steve Brine) on securing this important debate, and I am very happy to echo all the views that he has ably expressed this morning.

I will make a few comments in particular about the Government’s Firstbuy and NewBuy schemes, as they are of special importance to my Milton Keynes constituency and, indeed, to the whole of Milton Keynes. For Members who do not know, Milton Keynes is a new town that is still very much growing; we have not yet reached our desired size. Indeed, we may become a new city in the fullness of time. We are awaiting the announcement of the diamond jubilee city with bated breath.

As I say, Milton Keynes is continuing to grow rapidly. We have more than 20,000 housing permissions already in place, and that is before we look at potential additional expansion areas. Figures from the National House Building Council show that monthly new starts in Milton Keynes run at a rate that is three to four times the national average. Despite the fact that there is certainly a good supply of new housing stock in Milton Keynes, there are still difficulties for people who want to get on to the housing ladder. As well as growing in housing numbers, the town’s economy continues to grow, so there is substantial inward migration to Milton Keynes, which of course puts additional pressure on the housing stock. For example, the new Network Rail national centre will open in Milton Keynes later this year. That is generating 3,000 jobs, about 1,000 of which will be generated locally, but about 2,000 people will come in from elsewhere in the country. That pushes up the demand for housing.

Also, there are issues from a demographic perspective. The first main expansion of Milton Keynes took place in the 1970s and 1980s, when, by and large, young families came to settle in the town. Now the children of those families are at an age when they want to get on to the housing ladder. So these two measures—the Firstbuy scheme and the NewBuy scheme—will have particular resonance in Milton Keynes, as they will help people on to the first rung of the housing ladder.

My hon. Friend the Member for Winchester referred to the Council of Mortgage Lenders, which has published a statistic that is very relevant to this debate: 85% of people aspire to own their own home. It is engrained into our national psyche that owning a home is desirable and, indeed, the right thing to do. Owning a home gives us a sense of stability and community. So it is absolutely right that the Government are taking all these steps to make owning a home as easy as possible, without—as my hon. Friend said—getting into the dangerous territory of unaffordable mortgages, which helped us to get into the financial mess that we are in. As I say, I will not repeat the very sound points that he made; I will just echo them.

I will also make some additional points about how these policies tie in to our localism agenda and our wish to develop sustainable communities. There has been a trend whereby we have had new housing developments, particularly flats, and a large percentage of the new properties have been bought up by people making buy-to-let investments. There is absolutely nothing wrong with that—it is a perfectly valid investment option—and there is absolutely nothing wrong with the private rented sector, which fulfils an invaluable role in the mix of housing stock that we have in our country. However, I have certainly noticed in Milton Keynes—it may be prevalent elsewhere, too—that so many of the properties, particularly the flats, in those new build estates are buy-to-let investments that there is a huge turnover of occupants. That makes it more difficult for a new community to build a sense of well-being and for the roots of community to be established. That is not impossible, but it is more difficult when there is a constant turnover of tenants. It is a question of balance.

I should like policies to assist a greater proportion of new estates, particularly new flats, to be owner-occupied, so that the bonds of community can more easily develop. That is a feature that characterised Milton Keynes when it first grew. It is often falsely characterised as a soulless place with identikit housing estates. The reality is different. There is a rich sense of community, generated by the people who came to the new areas of Milton Keynes at the outset and who wanted to build a new place together. Although the housing stock was new— 20 years before, the area was just open fields—a rich community quickly developed.

[Julian Sturdy (York Outer) (Con)]

My hon. Friend is absolutely right about the bonds of community. Does he agree that encouraging first-time buyers with the policies that the Government are proposing will have huge and positive knock-on effects down the line? He has talked about bonds within the community, but the policies would also free up more private and social rented accommodation, and that would have a real impact on homelessness, which is rising in North Yorkshire at the moment. Such policies would feed down the line and have positive knock-on effects across the board.

[Iain Stewart]

My hon. Friend makes a powerful point. I will be making a few additional points about how the policy will interact with the social housing sector. I congratulate my hon. Friend on making that point.

On localism and building sustainable communities, we need to get away from simply building new flats as the primary housing stock, which was a feature of the old top-down system. Local authorities were given targets for new houses, and the easiest way to fulfil the target was to build blocks of flats. There is absolutely nothing wrong with flats; they have their place. I live in a flat in my constituency—there is nothing wrong with it—but the situation has got out of proportion.

[Graham Evans (Weaver Vale) (Con)]

Does my hon. Friend agree that when local authorities give planning permission for such developments, the future of a community that involves children should be considered? We need appropriately sized houses for families. First-time house buyers will presumably get married and start families. Once people start families, we get community cohesion with schools, pre-schools and play schools and so on. That really does create a family community on new housing estates.

[Iain Stewart]

My hon. Friend makes an excellent point. The new neighbourhood plans in the Localism Act 2011 will help enormously. Having a proper mix of housing stock in an area will build up a sense of community.

My last point concerns how we can develop policies in future. I absolutely agree with the scope and direction of the two policies I have mentioned and the right to buy. As my hon. Friend the Member for York Outer mentioned, there is a link with the social housing sector. Even with additional help, taking out a full mortgage will still be beyond the means of some people. My wish is to see a much more flexible transition from social housing to owner-occupancy. We have had the shared-ownership scheme for some time, which has been successful up to a point, but it is a little limited in its scope. As we move forward, I want a scheme—this is a long-term plan over 20 or 30 years—whereby it will be easier for people who cannot afford a full mortgage at a particular point in their life but might be able to afford, say, a quarter of the equity of the house to take that. I want a flexible scheme so that, as people’s circumstances change, they might be able to build up more and more of the equity to reach full owner-occupancy later on. There are many suggestions about how we get there. I just want to put that on the table for the Government to consider and to build on what has been an excellent set of policies to help young people on to the ladder.

I will conclude my remarks now; I know that others wish to contribute. Once again, I congratulate my hon. Friend the Member for Winchester on securing this excellent debate.

10:05

[Sheryll Murray (South East Cornwall) (Con)]

I, too, congratulate my hon. Friend the Member for Winchester (Steve Brine) on securing this debate today. Buying a property for the first time is a huge undertaking for anybody, but doing so has become increasingly difficult, as we have heard, in the current economic climate. This issue affects my constituents in South East Cornwall. We have heard that it also affects the constituents of many hon. Members.

First-time buyer numbers have tumbled to levels not seen since 1974, with only 200,000 recorded first-time buyers in 2011, compared with 400,000 in 2005. People trying to get on the property ladder are struggling to do so, owing to the increase in house prices. The average UK property price increased from £163,000 to just below £165,000 in 2011. This correlates with the rising price of deposits, with many people needing to save for years to cover the cost.

[Caroline Nokes (Romsey and Southampton North) (Con)]

Does my hon. Friend agree that we should be worried about not only the falling number of first-time buyers, but the age of those first-time buyers? That is evidenced by the increase in deposits required. People have to get to a much greater age before they manage to save up the deposit.

[Sheryll Murray]

I was going to come to that point a little later. In fact, my hon. Friend is probably psychic. This is not purely an issue that affects young people; the average age of first-time buyers is 35.

The major issue is the fact that house prices are continually rising. Prices on the Nationwide index rose by 0.6% in February, and prices were 0.9% higher in February compared with a year ago. The house price to borrower’s income ratio has been gradually rising since 2007, making it harder predominantly for first-time buyers. Another issue is that the number of mortgage approvals has remained generally flat since early 2010, at below half pre-recession levels. Housing starts have increased since the recession, but still remain below pre-recession levels. The Government have recognised this issue. They have pledged to alleviate the struggle for first-time buyers, and I congratulate the Government on that.

In November, the Conservative-led Government launched a scheme to underwrite mortgages worth hundreds of millions of pounds for new homes. A central part of the new housing strategy is the £400 million get Britain building fund, which pays for the construction of up to 16,000 new homes. The fresh drive could result in a further 100,000 homes being built, so creating 200,000 jobs.

I also congratulate the Government on the two new initiatives that were launched this week, which will be crucial to aid first-time buyers. The NewBuy scheme makes it possible for first-time buyers and existing home owners to get a mortgage on a new build property with only a 5% deposit, as opposed to the 15% or 20% that we are used to. This deal means that where buyers have been typically required to save a deposit of between £30,000 and £40,000, they will now need only £10,000. The other scheme—it has been mentioned by previous speakers—is the right-to-buy scheme, which will enable council tenants to buy their homes at a discount and increases the maximum discount cap for tenants to £75,000. That will provide tenants who have the right to buy or preserved right to buy with a real incentive to buy their home, and that is no bad thing.

The schemes will make a big difference to the lives of constituents such as mine in South East Cornwall, where things are particularly hard for first-time buyers. Cornwall is a popular tourist destination, which attracts more than 5 million visitors each year. That has artificially raised house prices in my constituency, as it has become attractive to affluent people from all over the country buying homes or second homes. The average house price in Cornwall is £216,000, according to the Land Registry for England and Wales. That does not seem too high, but compared with the annual average wage in my constituency, it is very expensive. Average annual earnings in Cornwall are just under £21,000, well below the averages for the south-west and for Britain. That makes it hard for first-time buyers to come up with a deposit for a house or flat, as they are competing with wealthier holidaymakers who can afford properties in South East Cornwall. That is where the NewBuy scheme will have a positive impact.

The story was different 20 years ago. When I moved to my village from Stoke-on-Trent, I could buy a property that needed renovating. Although even then there was a massive difference in property prices, I had the opportunity to buy my own home. Sadly, young people in South East Cornwall do not have that option, as the older properties have already been sold and renovated. The situation is different from when I purchased a property in the 1980s.

As a Government, we are doing what we can to help first-time buyers. I am confident that the figures will become more encouraging after the Government’s introduction of these fantastic incentives.

10:11

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

It is a pleasure to serve under your chairmanship, Mr Gray. I congratulate my hon. Friend the Member for Winchester (Steve Brine) on securing the debate. The subject is important in a week when the Prime Minister has made two significant announcements. At a time when the Liberal Democrats are taking policies in my manifesto and planting a nice yellow flag on them as though they had always owned them, I want to ensure that we claim both those policies as having been born, brought to fruition, made aware and brought to life in the Conservative party, with a big blue sticker on them.

I am proud of what this party has done for first-time buyers, not just since I have been an MP but since I was born, and even since the party was founded. We have always been the party of the first-time buyer. I make no apology for that, and I am proud of it. I know that our critics—sadly, they could not arrive today—normally say that we are opposed to social housing and that we look down on it. Far from it; as my hon. Friend the Member for Milton Keynes South (Iain Stewart) pointed out, we see the importance of the tenancy escalator. We see social housing as a springboard or trampoline, not quicksand from which one should never escape.

There is a reason why that is in our party’s DNA: we are real people with lived experiences. In my family, on my mother’s side, I had relatives living in Myrtle Gardens, a modernist estate in the heart of Liverpool. It was rather like the Karl Marx-Hof in Vienna but, in that part of Liverpool, possibly more left-wing. In the 1930s, it was a model of its time, but by the 1980s and the Toxteth riots, it was a shadow of its former self. What happened? Along came Lord Heseltine, who made sure that Myrtle Gardens was rebuilt and sold off to local people at prices that they could afford, which turned that estate around. In the heart of Liverpool, the Conservative DNA flickered, and we should be proud of that as well.

Council estates should be more than just assemblages of houses where we put people for social engineering purposes, as many on the left have always sought to do. My home village of Weaverham, where many people bought their houses in the 1980s, was two-thirds council estates, mostly for people working in the local Imperial Chemical Industries plant. Looking around, I found that they built a community from within the houses that they bought; they did not rely on someone else to do it for them.

It is clear that after 13 years of Labour rule, the challenges that we face are far different. As other speakers have pointed out, numbers of first-time buyers are falling sharply, from 50% of all house buyers in May 2009 to only 20% now. My hon. Friend the Member for South East Cornwall (Sheryll Murray) cited the age of the average first-time buyer as 35. I heard 37. Maybe we will hear an upwards bid from the Labour spokesman, although I doubt it. That is Labour’s legacy.

Perhaps the most shocking legacy that we inherited was 50,000 statutorily homeless people. We do not mention that figure often enough, as my hon. Friend the Member for York Outer (Julian Sturdy) pointed out. Because the social housing market did not work as it should, we inherited 50,000 people trapped in temporary, substandard accommodation. That is not a legacy of which the Labour party should be proud for one second.

It is no wonder that groups such as Priced Out exist to campaign for people of my generation—20 to 35-year-olds—who are being priced out of the housing market, unable to afford a first house. I was fortunate. I bought in the last housing development in Greater London where prices were still under £100,000. I got in just in time. Another year or two and I would have been the sort of sofa surfer that my hon. Friend the Member for Winchester discussed.

Why should my generation be denied opportunities that previous generations had? We should enable people, not tell them how to live their lives. It is a cultural battle as much as a political or economic one, because it is about the belief that housing policy is somehow about social engineering. It most certainly is not. It is about enabling people to choose how to live their lives. Home ownership is a natural objective for 86% of people, according to the Department for Communities and Local Government. We should not sneer at that or think that it prevents our wider dreams of creating a new Jerusalem. Far from it. True communities come from families having a stake in the society in which they live. That is the nub in terms of policy.

When those on the left criticise our NewBuy policy, I want to take them to Westminster Gardens in Bispham or Hawley Gardens in Thornton in my constituency. The criticism is that we are doing it just for the sake of the house builders. I want to take them around those new estates. Westminster Gardens was being built five years ago, when I was first elected to fight the seat. It is still being built; it is what is called a stalled development. Those who think that we are just trying to benefit house builders should speak to the residents of that estate and find out what is actually going on there.

A stalled development means that the local council will not adopt the roads, so they are left with substandard paving and road quality. They are left with dangers to small children from building sites and higher numbers of road traffic accidents and injuries. Merely to say, “Oh, you’re just doing it for the sake of the house builders” shows once again the failure of the left to engage with people’s lives as they are lived. Once again, it is only seeing the schematics, which is deeply unfair to the people investing in those estates who want them to be completed.

More concerning still is how our social housing market is blocked up, as my hon. Friend the Member for York Outer said. Many social tenants now are not moving through the system. That is why large numbers are stuck in temporary accommodation: there is not sufficient turnover. Labour has almost destroyed the right to buy by tweaking criteria, lowering thresholds and trying to prevent people from buying their council homes. I am sure that Labour Members pay lip service to the concept, but they do not believe in their hearts that owning one’s own home is a good thing. They look on it with suspicion, distaste and almost distrust, which angers me.

I could easily do cheap politics—

[Owen Smith (Pontypridd) (Lab)]

You have been for the past half hour.

[Paul Maynard]

I am sure that the hon. Gentleman will get a chance to have a go at me later, and I look forward to hearing it, but since he encourages me, I will talk about union leaders occupying social housing and the fact that here in the royal borough of Westminster, there are 2,000 social tenants who earn more than I do as a Member of Parliament. Perhaps that should give us pause for thought. Perhaps we should reconsider how we use social housing and what it is for. I do not think that it is there to give Bob Crow a pleasant place for life.

[Damian Hinds (East Hampshire) (Con)]

He has the block vote.

[Paul Maynard]

I agree entirely. Perhaps we would like to see a gesture from leader of the National Union of Rail, Maritime and Transport Workers as to what he will do in future.

We need to use our social housing stock better, which is why I welcome the Prime Minister’s announcement on enhancing the right to buy. We have to stop seeing our social housing stock as ghettos that we create. When I first moved to London, into the housing development that I mentioned, as ever, the housing developer built the required proportion of affordable housing at the end of a cul-de-sac; there were two rows of cheaper housing. It became ghettoised and stigmatised, as is always the case. We need to move beyond that and to think of social housing as a resource for the use of the community, not areas of a town or village that are regarded as somehow less worthy. That has always been my concern about the social engineering aspect of housing policy, which many Labour Members seem to want to create—communities that they can somehow control. That strategy is desperately wrong.

[Owen Smith]

I am listening with interest to—perhaps “enjoying” is the wrong word—the hon. Gentleman’s comments. In his tour de force on the history of the left and its attitude to social housing, will he return to Nye Bevan and the great period of the invention of social housing in the aftermath of the second world war, and point to who on the left, in the Labour party, thinks of social housing as just a matter of social engineering?

[Mr James Gray (in the Chair)]

With regard to first-time buyers, of course.

[Paul Maynard]

I am grateful to the hon. Gentleman for mentioning Nye Bevan, because in the interest of brevity, I had crossed out my paragraph on him. I shall reintroduce it into my speech.

It was well known that what Nye Bevan wanted to do—

[Mr James Gray (in the Chair)]

Order. The hon. Gentleman might like to return to the subject under debate, namely, Government help for first-time buyers. Nye Bevan can wait for some other time.

[Paul Maynard]

Thank you, Mr Gray. I shall bear that advice in mind.

It is vital that the receipts from the new right-to-buy initiative are reinvested in affordable rented social housing, as I know has been made clear. The key aspect of the issue is the turnover of tenants in social housing. There needs to be an escalator. People may start off in a vulnerable situation needing full tenancies, but they need to be able to move swiftly and quickly on and escalate as high up as they wish. If that leads to home ownership, that is a good thing. However, we need to have fluidity in the social housing market, which we have not had under, I would suggest, any Government. The changes that the Government are announcing this week and those that are contained in last year’s housing Green Paper mark the start of trying to regard our housing stock as an asset for the whole community that is not geographically restricted.

Two of my favourite architects are Alison and Peter Smithson, a married couple who built many modernist buildings—probably many of them in Milton Keynes. Some of their views were bizarre, and they had a vision for housing. While they wanted to see the rubbish chute replace the village pump, somehow they believed that putting us all in high-rise blocks would enhance the bonds of community. As a Conservative—

[Mr James Gray (in the Chair)]

Order. I am sorry, but I fear that the hon. Gentleman is launching into something of a tour de force on the whole of housing policy. We have to focus. Two other hon. Members are trying to catch my eye before I call the Front Benchers. Perhaps he could focus his attention specifically on Government help for first-time buyers and possibly, out of courtesy to the two other hon. Members, wind up his remarks quite soon.

[Paul Maynard]

Thank you, Mr Gray, for your help. I shall therefore come to an end by quoting one of our predecessors, Mr David Eccles, a Member of Parliament for Chippenham, who said in 1948:

“Men are partly selfish and partly idealist, and they give their best when they believe they have a reasonable chance to put something in their pockets and to realise a fragment of their dreams.”

That is what the Government have been doing and what we need to keep on doing. I shall give way so that the two following Members have their chance.

10:24

[Mark Pawsey (Rugby) (Con)]

It gives me great pleasure to follow the passionate remarks of my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard). I compliment my hon. Friend the Member for Winchester (Steve Brine) on securing the debate. Like him and many other Members present, I am prompted to contribute to it both to represent my constituents and out of concern for the ability of my children’s generation to get on to the housing ladder. I have four children aged between 13 and 26, who will wish to buy their own home and rather sooner, I suspect, than the children of my hon. Friend the Member for Winchester.

The Government can support first-time buyers in two ways: through financial support to enable them to get started, and through support for the development process. We have heard accounts from many hon. Members this morning about why action is needed. There has been some dispute about the average age of first-time buyers—it varies between 33 and 37—but we know for sure that it is much older than it was for my generation and my parents’ generation.

As recently as 2005, 65% of first-time buyers were aged under 30. By 2011, that had fallen to 22%. As a consequence, young people are remaining in rented accommodation for longer, often permanently, against their will. Many remain at home with their parents, as I know from personal experience, and it is leading to a culture change among our younger people. That has happened because, in the first instance, house prices have risen beyond the reach of many people; they are outside the multiple of average earnings—significantly higher than previously. The second issue is about lenders’ deposit requirements, as lenders react to problems caused in earlier years by the granting of high loan-to-value loans. The differential in my constituency is rather smaller than the problems faced by my hon. Friend the Member for South East Cornwall (Sheryll Murray); in my constituency of Rugby, first-time buyers are looking to find sums of £25,000 as deposits. That is a significant sum for people getting started. It is ironic that the fall in house prices—something that we consider desirable from an affordability perspective—is exactly what has caused lenders to look for larger deposits, as they try to avoid making loans that exceed the value of the properties against which the loans are secured.

It is important to debate the matter because first-time buyers are drivers in the housing market. They enable others at the next stage of life to move on, and the supply of housing is in itself an important driver of economic growth.

Many colleagues have referred to Government initiatives, such as the Firstbuy initiative and the NewBuy guarantee announced only yesterday. There is also local support for first-time buyers provided by local authorities. My council in Rugby is helping first-time buyers. It announced, just a week or so ago, £1 million in its budget for 2012 as part of the local authority mortgage scheme, which will enable 50 first-time buyers in Rugby to make a start on the housing ladder.

I want to focus my remarks on the supply side. We can do whatever we like about supporting demand, but if we do not take action on supply, there will be no point. The Government’s housing strategy told us that in 2009-10, there were 115,000 new build housing completions in England. However, household projections are growing at a rate of 232,000 a year. Therefore, the housing that we are currently building supplies only 50% of the requirement. The cumulative position is worse, because the Chartered Institute of Housing tells us that there is a backlog of something like 1.9 million houses, or a total of 8% of all households, built up over previous years. Therefore, even if we build at the rate of existing household formation of 232,000 a year, we will not go anywhere near providing the number of houses that we need. Development therefore needs to happen quickly.

The Government can and are doing several things to make that happen. The national planning policy framework, which I understand is due to be announced on Budget day, with its presumption in favour of sustainable development, will encourage more land to be made available. We need our local authorities to be progressive and to develop plans that make land available for housing development, working with neighbourhood plans. People often say that local people do not want new housing, but in my opinion, whether existing communities accept new housing depends on the kind of question they are asked. If we ask them, “Do we want to build houses in an area that does not currently have housing on it?”, most people will say no. However, if we ask people whether they want housing that will enable young people to buy their first-time home and allow retirees to downsize, that usually gets the answer yes.

Neighbourhood planning will enable local people to have their say in achieving that. I am delighted that my authority takes a very positive attitude towards development. Work is about to start on a site with 1,300 new homes—the Gateway site by junction 1 of the M6 —and a site with 6,200 new homes in a sustainable urban extension is also being developed in my constituency. I urge Members and local councillors to encourage their councils to take as positive an attitude to new housing development as my local authority.

The Government can do other things to improve supply and they are taking action. There is the build now, pay later scheme, which will free up land for development. The Government objective is for that to deliver 100,000 new homes. Cash flow is an issue for builders, and that scheme will enable builders to buy the land out of the proceeds of a sale. The new homes bonus is a simple yet powerful incentive. It means that local authorities, such as mine, which promote and welcome growth will share in the economic benefits of development and use the funds derived from that to provide communities in which people want to live. The community infrastructure levy encourages a more positive attitude from local authorities to development, because it means that the development itself will pay for the infrastructure that goes along with it and that it will not be a burden on the local council.

A further reason why local authorities should support housing growth is that it can support existing town centres. Recently, the Portas report has dealt with the decline of many town centres. If populations remain stable, town centres will need to shrink as people spend more on the internet and go out of town. An alternative is to defend an existing town centre and allow for additional housing growth. I am delighted that my authority is taking that route.

I know that this is a debate about first-time buyers, Mr Gray, but I want to talk for a moment about people known as second-steppers, who want to move from their first home. It is crucial that those people who have started a family and want to move up from their first to their second home can do so, because if they cannot, it creates a block for first-time buyers. Lloyds Banking Group says that 61% of second-steppers want to move but have been stuck on the property ladder for 12 months. They often have the same problem as first-time buyers in that there is a limited supply on offer to them. However, crucially and often uniquely, they have to cope with the problem of negative equity as prices have fallen over the past couple of years.

In today’s market, many of those second-steppers would have bought close to the peak and, having got on the first rung of the housing ladder, they are finding it increasingly difficult to get off it. People can benefit from Firstbuy if they are moving to a new home, but there is no particular scheme to support second-steppers. I would like the Minister to consider providing some help for that group.

I welcome the Government’s initiative for first-time buyers. Schemes are being introduced that will assist people to get on to the property ladder. I commend my local council for its commitment to both the supply and demand side of support and for ensuring that land is available. I ask the Minister to consider second-steppers who want to move on.

10:33

[Graham Evans (Weaver Vale) (Con)]

I will keep my contribution short to give the Minister and shadow Minister time to have their say. I congratulate my hon. Friend the Member for Winchester (Steve Brine) on securing this incredibly timely debate, given the announcements made by the Government this week. I recognise his comments about having a young family who climb into the bed—normally my side—at 4 o’clock in the morning to warm their cold feet. I look forward to the day when they will move away—not too far, but far enough.

If there is any such thing as a British dream, it definitely involves owning one’s own home. I was born and bred in a council house on a council estate. During the 1971 Macclesfield by-election, I remember a parliamentary candidate knocking on our door. I went to the door with my mother and a man was there with his blue rosette. It was Nicholas Winterton saying, “Good evening, Mrs Evans, are you aware of the Government’s right-to-buy policy?” She was not, but we were after that and, in 1972, we bought our council house.

Most people think that that was a Thatcherite policy, but it was, in fact, the Ted Heath Government of 1970-74 who introduced it. As my hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) said, it is in the Conservative party’s DNA to give people the right to buy. However, for millions of people, achieving that dream seems further away than ever. One of the most important things that any generation can do is build enough good new homes for the next generation. However, the previous Government presided over a fall in house building to its lowest peacetime level since 1974. Inevitably, that led to a sustained decline in home ownership and soaring housing waiting lists.

The figures are most depressing. The number of first-time buyers fell from around 501,000 in 1997 to 185,000 in 2009. That is the lowest figure since records began. The average age of a first-time buyer without financial assistance from the bank of mum and dad is, as was mentioned by my hon. Friend the Member for Blackpool North and Cleveleys, 37. Admittedly, that age is somewhat exaggerated by the recording of divorcees buying a home on their own rather than jointly for the first time. However, it still highlights the current gloomy outlook for many young people in my constituency who hope to get on to the property ladder for the first time.

Luckily for those striving to own their own home, the coalition Government are pursuing an unashamedly ambitious housing strategy to help boost opportunity in our society. The Government are supporting an innovative new build indemnity scheme led by the Council of Mortgage Lenders and the Home Builders Federation that will allow home buyers to secure 95% loan-to-value mortgages for new build properties. That will help people in two simple ways: it will increase access to affordable mortgages, and it will encourage more homes to be built, driving down the long-term price of houses.

The Government are also investing £500 million in a new Firstbuy scheme that will help thousands of people longing to be home owners to get a foot on the housing ladder by contributing to their deposit on new build homes. Crucially, as announced on Monday, the coalition is also breathing new life into the hugely successful right-to-buy policy. That policy was so popular because it gave millions of people the chance to own their home when they had previously thought it impossible—families such as mine.

Labour disgracefully made repeated cuts to right to buy and deliberately reduced discounts and restricted eligibility. The new proposals to increase discounts dramatically will make it considerably easier for people living in social housing to buy their home. Under the new plans, for every home purchased under right to buy, a new affordable home will be built in its place. That should allow for a further 100,000 extra affordable homes to be built and help create a significant number of new jobs.

Finally, the Government have also created the new homes bonus. That multi-million pound programme rewards communities when they accept more house building in their area, creating a huge incentive to build the new homes that we desperately need. Critically, the programme also applies to empty properties brought back into use, which will help to end the scandal of thousands of good quality homes lying empty while people are left in limbo for years stuck on housing waiting lists.

It is very clear that there are many exciting developments that will help bring the dream of home ownership much closer to realisation for so many of our constituents. I am very proud to support the Government, who are absolutely committed to making that happen.

10:38

[Owen Smith (Pontypridd) (Lab)]

As ever, it is a pleasure to serve under your chairmanship, Mr Gray. It was a slight disappointment to me that you forced us to forgo what I am sure promised to be a stimulating aside on my great hero Nye Bevan, but perhaps we can hear that another day. I, too, congratulate the hon. Member for Winchester (Steve Brine) on securing a very entertaining debate and on giving me the opportunity to spend so much time with so many entertaining, warm and welcoming Government Members.

The debate is prescient given the announcements—or perhaps I ought to say re-announcements—earlier this week about the NewBuy scheme. I will come on to that in a moment. We have had an interesting range of passionate contributions. There has been a rerun of the golden greats of the Tory past—Thatcher, Heseltine, Eden—and I even heard about building a new Jerusalem. There were times when I could almost hear “Jerusalem” playing as the backing track to some of the tales of bucolic English home owning.

We have also heard some facts today, and I would like to add to some of them to provide some context. Let us be clear: there is a crisis in housing and home building. It is not new. It did not start under this Government. It has been going on for a long while and it is certainly getting worse. We need to be honest. Some of what the Government are doing is intended to help the crisis, but it is far from certain that they will be successful. As the Opposition, we intend to ask searching questions about what is intended and what will be achieved.

The facts are that, under this Government, house building is down, homelessness is up and it is harder to get mortgages. Rents in the private rented sector, where many have been forced to go, are climbing. In part, that is because the Government’s broader economic strategy is not working. The construction industry is being hit particularly hard as an effect of that failure to get the economy moving. Far from criticising the Government for seeking to assist the construction industry, the Opposition are urging them to go further.

Total construction, in terms of output, has declined by £2 billion since the Government came to power. New work output by the construction industry is down almost a quarter, by 23%. It is not getting better—it is getting worse. The previous two months, December and January, were the worst two months since May 2010. Compared with the last 18 months of the Labour Government, all house building has fallen by 11%. Completions, where a house builder finishes a house and brings it to market, are now at their lowest levels since the second world war, having fallen by 10% under this Government. That is not a new trend; it is an ongoing trend, but it is getting worse. The 60% cut to Labour’s affordable homes programme has meant that only 454 affordable homes were built in the past six months. Most shocking perhaps is that homelessness rose by 14% and rough sleeping was up by 23% in 2011. Those are the facts and Government Members need to remember them.

First-time buyers are key to getting the market moving. Government Members noted that the number of first-time buyers has decreased significantly over a long period, down from 700,000 per annum in 2004 to 350,000 in 2010. Why? There was a lot of comment about that. Ultimately, it is due to a squeeze between incomes and prices. House prices are high, and incomes have been depressed over a long period. As the hon. Member for Rugby (Mark Pawsey) pointed out, the reason for that is supply—we are not building enough houses. The number of houses in the market is very limited and successive Governments, including mine, have not done enough to arrest that. The current Government should not kid themselves that they are getting anywhere near arresting the problem.

There is also a problem of affordability, caused by the squeeze on earnings, limited supply and the contraction in mortgage lending that has occurred since the credit crisis. All those factors have combined to drive up the average deposit required by first-time buyers to approximately £100,000 in London and more than £50,000 across the UK as a whole. The average age of unassisted first-time buyers has risen from 37 to 44 right across the country in that same time period.

Labour understands—and understood—that something needs to be done to address that, which is why we set out to address supply. Between 2005 and 2010, we delivered 256,000 additional affordable homes in England. Contrast that with the scale of ambition shown by the current Government, who propose to build just 170,000 affordable homes—80,000 fewer affordable homes—in a comparative five-year period between 2010 and 2015.

What about helping first-time buyers get on the ladder? Hon. Members will have no doubt read in The Daily Telegraph this morning about the effect of the stamp duty holiday, which was introduced by Labour and is being cut by the Government. Although a couple of months ago, the Chancellor dismissed the stamp duty holiday as wholly ineffective, it has led to a 20% increase in recent months in the number of first-time buyers applying for mortgages. That indicates clearly that, far from being an ineffective measure, it was working and the Government needed to give it time to bed in and not abandon it, which is what they have done.

The Government have also abandoned Labour’s HomeBuy Direct scheme, which was funded to the tune of £380 million and designed to help 10,000 first-time buyers by providing a 30% reduction on the loan over five years. The Government have replaced that scheme with their own far less generous scheme, which is worth just £250 million, and offers only a 20% reduction. Other than that, the two schemes are largely similar.

The latest wheeze is the mortgage indemnity scheme, which was re-announced this week. It was first announced in November. It is designed to help a further 100,000 mortgage holders get on the property ladder through effectively giving them a 9% reduction—or indemnity—in the volume of their mortgage, thereby reducing the cost to the lenders and allowing them to offer 95% mortgages. There are many problems with that, but one is that 95% mortgages were already being introduced into the market at lower interest rates, in certain instances, than the ones announced by the Government. Barclays, Nationwide and some of the other lenders involved are lending at an average of 5.3% and 5.4% over the period on the 95% mortgage, whereas 5.25% was already available from the Leeds building society on precisely the same terms. We need to ask whether the scheme does what it says on the tin.

What guarantee is there that the scheme will actually assist first-time buyers? It is open to all prospective buyers up to £500,000. How can the Government be sure that this will help first-time buyers? How can they be sure that it will go to those families who are most hard pressed, as opposed to those who are slightly better off and can perhaps afford to raise a mortgage?

Finally, how can the Government reassure us that this will address the underpinning cause of the crisis in our housing market—the lack of supply? Can the Minister offer us any guarantees that this will lead to a dramatic increase in the number of houses being built, or will it simply displace activity, both in the mortgage market and in the house building market, that would otherwise have happened naturally as the economy bounces back?

10:47

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I start by joining the round of congratulations to my hon. Friend the Member for Winchester (Steve Brine). He has not only secured an important and topical debate, but spoken with real passion. I pleased to respond on behalf of the Government, both to him and to those who have also contributed with passion, whether from Blackpool, Milton Keynes, Cornwall or elsewhere. We have heard about homes, homelessness, history and our hopes for our children. We have heard about stalled development and proper community development, which I will touch on briefly. If Mr Gray will forgive me, I will also insert a small piece of history from my own constituency of Norwich North. I believe that the Mile Cross estate was the first council estate in England built outside London, something that I am very proud about. I shall stop there, before Mr Gray tells me to sit down.

My hon. Friend the Member for Winchester highlighted the package of support that the Government have introduced to help people own their home, and I will set out our progress on that. Before I do so, I will deal with some of the questions that were asked about the detail, principally by my hon. Friend. He asked whether NewBuy could be extended to existing properties, not just new properties. NewBuy builds on an industry-led scheme. That is very important, because it builds on support from both builders and lenders. It makes homes affordable, it stimulates economic activity, and, crucially, it increases supply.

The Home Builders Federation estimates that new build could deliver 25,000 additional homes in three years, supporting in turn up to 50,000 additional jobs, which I think all hon. Members will agree represents a real boost to the economy at a time when it is most needed.

On new versus existing, it is important to state that home building and the supply of new homes at present is not meeting the demand in the economy, so there is a pressing need for new build in that sense. A scheme focused on existing homes would be different and could have different financial consequences.

My hon. Friend also asked about the first-time buyer discount on stamp duty land tax, as did the hon. Member for Pontypridd (Owen Smith). Hon. Members will be aware of a review by Her Majesty’s Revenue and Customs in November 2011, which brought forth some staggering numbers that they may not be aware of. The review indicated that only 1,000 of the additional first-time buyers who bought a property between April 2010 and 2011 would not have purchased it without the relief. That 1,000 figure is derived from the 118,000 first-time buyers who used the relief, of whom it is believed 117,000 would have done so anyway. Hon. Members will agree that those remarkable numbers suggest that the relief was not effective in increasing the numbers of first-time buyers entering the housing market.

[Owen Smith]

Will the Minister give way?

[Miss Smith]

Before the hon. Gentleman asks me further questions, I must address his point about the cost of furthering the relief for a year being estimated at £150 million. I hesitate to give way to him, because in his comments and the questions that he asked me, he once again showed his party’s rather tenuous grip on credibility—if he thinks that such a sum represents value for money in helping first-time buyers and other purchasers. He then quibbled about whether the scheme that I shall outline really helps first-time buyers. He must ask serious questions if he thinks that £150 million spent in that way furthers that aim with no dead weight.

[Owen Smith]

rose—

[Miss Smith]

If the hon. Gentleman would like to justify that, I am happy to hear him.

[Owen Smith]

I would have to look at the numbers before lending them any credibility. It would also make sense for the Minister to concede that her comments are based on numbers predicated on a scheme that has not yet ended. She is talking about November numbers, whereas the scheme runs through to March. The Council of Mortgage Lenders suggested that there has been a 20% increase in the intervening period, which will radically change the figures.

[Miss Smith]

The hon. Gentleman knows as well as I do that the scheme ends on 24 March 2012. No doubt some will try to get in before then. Indeed, a review has to take place at a certain point and, on the broad thrust of a year, if figures such as those I mentioned have been achieved, it is unlikely that it would continue to be a sustainable way to support first-time buyers.

Let me turn now to the point of the debate, which is to query how we can best support those who wish to enter home ownership. There has been a clear correlation in recent decades between wider economic problems and volatility in the housing market. The best thing that we can do, first of all, to support the housing market is improve the country’s financial and macro-economic stability. That is why we are taking action to get public finances back on an even keel. Only through that action will we give people the confidence to invest in new homes and allow the building industry to go ahead and build the homes that we need.

We need to tackle the underlying structural issues that have had such negative consequences for the housing market. That is why the Government are taking action to improve stability in the credit markets and are reforming the planning system. Without such reforms we will face cyclical problems, time and again, of the sort experienced in recent years. However, we understand that we need to help people now, which is why we are taking action to help first-time buyers and other purchasers own their own home.

The effects of the recent financial crisis were particularly pronounced for first-time buyers, as mortgage lenders have cut back on low-deposit products. I can confirm, from Government figures, that the average age of an unassisted first-time buyer is 37, compared with 33 before the crisis. The Government are taking action now to help first-time buyers and others to attain home ownership.

On Monday, the Prime Minister launched the NewBuy scheme, which will deliver a significant increase in housing supply—I have already put numbers to that—and access to affordable mortgages for those without large savings who wish to purchase a new home. The scheme is not aimed at borrowers who cannot afford the mortgage, but at borrowers who lack the savings to fund a deposit, giving creditworthy borrowers a leg-up in the property market. I should like briefly to note hon. Members’ comments about second-steppers, who are important and have serious contributions to make in our effort to get the housing economy moving.

Detail on products is available to Hon. Members who wish to look for it, but I can confirm that although prior to Monday there were no 95% loan-to-value new build mortgage products on the market, today buyers will now be able to purchase a new build property with a 5% deposit. Builders are partnering with lenders to offer 90% to 95% mortgages. Three lenders are offering new mortgage products in that arena. We expect more builder-lender relationships and associated mortgage products to be confirmed over the coming weeks and months. Therefore, in total, the Government have made provision to help up to 100,000 families and young people to buy their own home.

We are committed to invigorating the right to buy, which hon. Members have applauded in today’s debate. On Monday, the Prime Minister announced that we will support social tenants who aspire to own their own home, by raising the discounts to make it attractive to do so across England. Right to buy has already helped nearly 2 million people since its introduction, but discount rates were reduced by the previous Government and the number of sales fell dramatically. From 2 April, the discount limit will be raised to £75,000 across England, so in London, for example, it more than quadruples the current limit. It will help thousands of people realise their home-owning aspirations. However, we are also committed to ensuring that it does not erode the social housing stock, which is why for every home bought under right to buy a new affordable home will be built.

NewBuy and right to buy sit within a broader suite of options intended to help first-time buyers and others into home ownership. Firstbuy, which was announced in Budget 2011, is a fixed-term measure designed to support the housing market, given constrained credit availability and challenging economic conditions. Under that scheme, the Government and around 100 house builders are together providing some £400 million to assist almost 10,500 first-time buyers to purchase with a 20% equity loan a new build property in England by spring 2013. We have had more 4,250 reservations since the scheme opened in September. The three largest participating house builders have reported sales of more than 1,200 homes in the first four months. Hon. Members will agree that those results show that the Government are taking action now, as needed, to support those who wish for the first time, or indeed at other times, to be a home owner and to continue to build the kind of communities that we all aspire to see throughout the country for our children and grandchildren.

Once again, I thank my hon. Friend the Member for Winchester for his reasoned, thoughtful and passionate contribution to the debate that he has given us the opportunity to participate in. I thank other hon. Members who have made equally passionate and inspiring contributions on what we all hope for those we represent.

Future Mobile Competition

Wednesday 14th March 2012 Westminster Hall

[Mr James Gray (in the Chair)]

If those hon. Members who took part in the previous debate would like to move on quickly and quietly, as Mr Speaker often says, we can start this debate early, because both the Minister and the hon. Member who proposed the debate are present in the Chamber.

10:59

[Alun Cairns (Vale of Glamorgan) (Con)]

It is a pleasure to serve under your chairmanship this morning, Mr Gray, and I am grateful for the guidance that you have offered.

What we are debating is extremely important to the whole United Kingdom, to the communication links in our constituencies and to the economy in general, and we are considering the future of the new generation of mobile communications. From the outset, I want to pay tribute to the Minister and the Secretary of State for Culture, Olympics, Media and Sport for the priority given and the commitment shown to the subject and for how they and Ofcom have reacted to the demands of the House and of the wider marketplace.

The new generation of mobile communications brings fantastic opportunities for use and management of data to benefit business, the public sector and lifestyle and for great efficiencies in ways that we can only imagine. I do not want to labour such points today, however, because I want to focus on some of the technical issues in the latest Ofcom consultation.

The UK has an extremely competitive mobile communication market, which has benefited the economy hugely and resulted in mobile communication prices that are among the lowest in Europe. Ofcom originally consulted on the 800 MHz and 2.6 GHz spectrum allocation and auction process last March. At the time, its proposal to require a 95% population coverage obligation caused considerable concern in Parliament. During an exceptionally well attended debate in the main Chamber, many Members called for an increase to a 98% population obligation.

I am delighted that Ofcom responded positively and revised its preferred options in the new consultation to include a 98% coverage obligation, which shows a significant commitment to areas that were left behind following the 3G auction. Rural areas in Wales, England, Scotland and parts of Northern Ireland suffered under those arrangements.

[Brandon Lewis (Great Yarmouth) (Con)]

I congratulate my hon. Friend on securing this important debate, although it is a shame that no one from the Opposition is present. Does he agree that the opportunity is hugely important for rural areas, because of the economic benefits provided to places that are otherwise remote and lacking in infrastructure?

[Alun Cairns]

I am grateful to my hon. Friend for underlining such a valid point. The launch of 4G mobile communications will be the last opportunity for a valuable area of the spectrum to be used, auctioned and marketed to benefit the whole economy. Ofcom and the Minister have reacted to the demands of my hon. Friend and many of our colleagues. Let us compare that reaction with the 3G launch administered by Ofcom under the previous Administration and the benefits for areas such as Wales. Despite an auction that netted £22.5 billion, Wales has been left with only 79% 3G coverage, against 98% coverage in England. The 2G coverage in Wales remains at 89%, compared with 99% in England. We might have expected the previous Government to invest some of that fantastic 3G windfall into some of the not-spots, along the lines now being followed for 4G by the Minister and the Secretary of State.

Even within the 98% 4G option, Ofcom presents two main alternatives, the first of which is to set the higher but specific population coverage obligation to include the outcomes of the Government’s mobile infrastructure project. The second option is to specify a coverage obligation by reference to the existing 2G network in combination, plus the additional mobile voice coverage added through the Government’s MIP. Strictly speaking, the second model risks not reaching the exact 98% population coverage, but it gives the opportunity to go well beyond that, dependent on the MIP roll-out and its nature and form.

I therefore support the second option, with its greater opportunity, but ask that Broadband Delivery UK consult actively in and outside Parliament on how best to use the resources that the Minister and Secretary of State have made available. I ask BDUK to pay particular attention to the sort of data on Wales that I mentioned as a result of the deficiencies of the 3G auction.

A further significant difference between the two Ofcom consultations relates to the breakdown and split of the spectrum and the proposals to guarantee national wholesale competition on the current scale. That is of fundamental importance to maintaining the strong competition and benefits thereof that I mentioned earlier. We need to remember that the 800 MHz spectrum is the most desirable to all operators. It allows the best coverage possible both in and outdoors. In simple terms, it travels further and penetrates buildings much more effectively than higher ends of the spectrum.

The March 2011 consultation guaranteed such provision for two operators, partly because Telefonica and Vodafone currently operate on the 900 MHz spectrum, which holds similar properties to the 800 MHz level. The auction was to be split into portfolios, starting at a pair of 5 MHz blocks. Some believed that such a level offered insufficient capacity and others objected to two operators gaining an absolute right to the 800 MHz spectrum. Responses to the consultation led to changes, by removing the preserved rights for two operators and increasing the portfolios to blocks of a minimum of 10 MHz.

The basis of that change is significant, because Ofcom revised its opinion on the interpretation of the reach of the 800 MHz spectrum, by comparison with that of the 1,800 MHz spectrum. At the outset, it believed that operators with a large amount of low-frequency spectrum would have an “unmatchable competitive advantage”, but the latest consultation shows that its position has changed and it now believes that low-frequency spectrum is not a necessity for all operators—if an operator had sufficient 1800 MHz spectrum, it would still be able to compete.

Ofcom now believes that an operator can compete with others operating at a lower frequency, possibly with a price trade-off in compensation for reduced indoor coverage. That is a respectable argument, but not one that I accept. I do not think that it is practical or realistic for consumers to differentiate in such a way, even if the technological claims are robust. There is no effective way, other than experience, in which even an informed consumer will be able to assess the quality of indoor coverage of a service provider.

Contract tie-ins range between one year and two years, so switching provider in the short term is not an option, and coverage and quality could also change within that period because of further investment in additional masts, so confusing the situation further. It could be argued that that was the position when each generation of mobile communication was auctioned and rolled out. At such times, however, the markets were developing and people were prepared to compromise in the short term. Even after the 3G auction, Hutchison used that business model to gain market share, but now that the market has matured, all operators compete on similar terms.

Intense competition would not exist over the longer term in a mature market without the availability of 800 MHz or any further spectrum auction to sustain market interest, and the whole intention of the policy to maintain four credible national mobile operators in competition would be undermined. Over the longer term, the operator without 800 MHz or 900 MHz would walk away or be subject to a takeover by one that had the desired spectrum.

I therefore urge Ofcom and the Minister to consider splitting the auction portfolios, so that four operators have the opportunity to secure low-frequency spectrum. That is less prescriptive than the first consultation, but each operator, including the possibility of a new entrant, must have the opportunity. There are only three pairs of 10 MHz blocks, and my proposal could mean splitting to up to six pairs of 5 MHz options with appropriate guarantees, which is similar but not identical to what was offered in the first consultation. That would deliver long-term sustainable competition, protecting the consumer in the best way, rather than by regulation at a later stage.

Finally, I want to turn to data roaming. Charges by all operators at the moment are wholly unacceptable, with monthly bills running into possibly hundreds of pounds for people travelling in Europe or north America. The European Commission recently proposed a cap of €100 per gigabyte, which could be multiplied by five to reach a retail price of up to €500 per gigabyte, equating to £420 per gig. Clearly, that is far too high and undesirable for individuals and businesses.

The European Parliament recently voted to halve the wholesale cap to €50 per gig, which is encouraging, but I would ask the European Council to move still further. Most infrastructure spend has already been made. By comparison, UK consumers pay £10 per gig within the UK, and even after reform, data roaming could still cost £164 per gigabyte at the reduced level by 2014. Clearly, it is necessary radically to reduce roaming prices. Lower wholesale rates drive market competition and allow operators to develop lower cost propositions. The regulations will be finalised in June, and I ask the Minister to respond to these calls in the same way that he and Ofcom responded so positively to the shift from the 95% coverage obligation in the 4G auction to the 98% coverage obligation.

I will bring my remarks to a close by emphasising the priority that the Government and the Minister have given to such an important policy. We are in the last-chance saloon in marketing the new generation of mobile communications strongly, effectively and efficiently to gain and maintain the right level of competition. There is a threat that some operators may pursue challenges through the courts, but I hope that an arrangement can be delivered on securing the right level of competition, so that all may be reassured, but with ultimate choice to the consumer, while driving prices down in a similar but not identical way to that in which the 3G auction was used.

11:11

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)]

It is a pleasure, Mr Gray, to serve under your chairmanship this morning. I congratulate my hon. Friend the Member for Vale of Glamorgan (Alun Cairns) on securing this important debate. I think that it is the first since we announced the mobile infrastructure project, so it gives me the opportunity to update the House on what is happening. My hon. Friend is fast gaining a reputation as something of an expert in the sector. In the Back-Bench debate, he led the calls to increase the coverage obligations for the 4G auction, and those calls were listened to, as he acknowledged in his speech. He has given a highly accomplished résumé of some of the key issues surrounding mobile competition, which only he and a select few others in the House probably understood. That is a measure of his expertise.

It was apparent to me when I took up my post as Minister with responsibility for communications that this matter is incredibly important and that we must get it right. I sometimes joke—perhaps I should not—that I never thought that I would be quite so excited by spectrum policy management as I am, and the reason is that it is fundamentally important to the future of the UK economy. We know that the internet has already contributed something like one quarter of the value of growth in gross domestic product in the UK in recent years, and without a vibrant communications sector that growth would be stunted. In the past year, almost two thirds of mobile handsets sold were smartphones. There is a huge hunger for data, and more and more people will access the internet and data on portable devices, whether smartphones or tablets.

To increase his already considerable expertise, I urge my hon. Friend to read the recent speech by Ed Richards, the highly effective chief executive of Ofcom, on dynamic spectrum management, which will be the next challenge to ensure that white space spectrum—the spectrum that sits between the spectrum that we allocate in more conventional ways—can be used. There is real hunger for spectrum as more and more people acquire devices. Spectrum is necessary not just for capacity, but for fast speeds. No one wants a smartphone that takes ages to download a website.

Spectrum and broadband access are becoming increasingly like utilities such as water, gas and electricity in that they are a fundamental tool with which to engage with modern life, because they allow people to access a wide range of services, such as handling their bank accounts, paying bills, doing homework, or accessing Government services. Equally important, they allow many small and medium-sized enterprises to increase their footfall and access to different marketplaces. All that needs to be sorted out.

When I was appointed, it was clear that unblocking the release of 4G spectrum to the market was essential. My hon. Friend alluded to the fact that the debate has been going on for a number of years. We were at one minute to midnight, so we ordered Ofcom to conduct a combined auction of 800 MHz and 2.6 GHz spectrum as soon as possible. Ofcom has consulted extensively on that, not once, but twice. The 4G auction is not just about faster broadband; as I said, it will help improve coverage. Having listened to my hon. Friend and others, the auction design now includes demanding coverage obligations of up to 98%.

We must not forget the important role of competition in the UK’s mobile communications market. When we directed Ofcom to design the auction rules, we made it absolutely clear that we want to maintain a four-operator marketplace. We want a competitive marketplace, not just because it drives down prices for consumers, but because it encourages innovation. We believe that it is important to retain that level of competition, so in the run-up to the auction, we directed Ofcom to assess both current and future competition in the UK market, and to take that into account in the design of the auction.

A major point that my hon. Friend made was his concern about the parcels of 800 MHz spectrum that are to be auctioned. He suggested that those parcels should be 5 MHz rather than 10 MHz, and pointed out that that was proposed in the original consultation document to enable all four operators to have access to the 800 MHz spectrum. Ofcom conducted genuine consultation. It is often said that consultation is a sham and that minds have already been made up, but Ofcom listened to the industry, and its overwhelming view was that parcels of 5 MHz were simply not big enough to have appropriate capacity, so Ofcom has proposed parcels of 10 MHz. The consultation has now closed, and we await the final auction rules and the mobile operators’ reaction.

As my hon. Friend well knows, the circle is difficult to square, because sub-1 GHz—that is, the 800 and 900 MHz to which he alluded—is seen by some as the best sort of spectrum because it travels further and penetrates further, as opposed to spectrum above 1 gig, which has greater capacity. In conducting its analysis of future competition, Ofcom took the view that that gap was narrow, and my hon. Friend will have seen that Ofcom announced proposals yesterday to liberalise 1,800 MHz for 4G services.

We now find ourselves in an unusual position. Operators above 1 gig have been arguing for a long time that they must have guaranteed access to sub-1 GHz, otherwise they cannot compete, and those operators with sub-1 GHz spectrum are jumping up and down and saying that those with spectrum above 1 gig now have a huge competitive advantage. Interestingly, whichever operator someone works for, it always appears in their world view that other operators have an extraordinary competitive advantage. However, I will adopt the tone taken by my hon. Friend and say to all operators that the time for arguing about such matters in the courts has long passed, and that for this country to maintain its economic edge and dynamic communications market, we must proceed with the auction and with spectrum liberalisation, which in any case we are required to do by the European directives.

I am immensely pleased that we have secured Treasury funding for the mobile infrastructure project that my hon. Friend mentioned. In the autumn statement, the Chancellor announced that £150 million would be set aside to fund that project which, where possible, is intended to cover mobile not-spots. As I said earlier, that money was secured because of the increasing recognition that mobile broadband coverage is becoming as important as fixed broadband coverage—if not more important—particularly in rural areas.

Since that announcement, my Department has worked closely with Ofcom to define the scale of the problem and identify the so-called not-spots. As my hon. Friend will know, a great deal of commercial sensitivity surrounds the precise location of those not-spots, and mobile network operators understandably guard such information closely. Subject to agreement with data holders, however, we intend to publish an indicative map that will give hon. Members a sense of where the project will focus. Additionally, we must communicate with the European Commission to ensure that the project meets the requirements of state aid regulations.

As I said earlier, the mobile infrastructure project is intended to cover areas where there is no coverage from any mobile operator—complete not-spots. In other areas, an individual might think that there is no coverage, but they may be with an operator that does not have coverage in that area—a partial not-spot. Ofcom is working closely with the industry to see whether that can be addressed. Of course, such matters are commercially sensitive because any operator that has invested in a network in one area would look askance at a second operator that was able to work in the same area with financial assistance from the Government. We must work with the operators to try and ensure that they all begin to provide coverage in areas that are not currently covered.

The definitional phase of the mobile infrastructure project is nearing completion and I am aware, not least from debates such as this, of the strong and increasing interest in it. My fellow MPs can rest assured that we will engage closely with the devolved Administrations and with those local authorities that will be most affected by the project—or, to put it another way, those that are destined to benefit most. Such engagement will ensure that people’s voices are heard when designing the overall solution, and that where choices need to be made, the project meets local needs. It will continue throughout the lifecycle of the project and allow local considerations to be taken into account.

A lot of work is being done to improve mobile coverage, and we must ensure that our planning complements that. We are also seeking to achieve synergies with the rural broadband programme, for which £530 million has been set aside, and that may include, for example, sharing backhaul—the fibre connections that are required for fibre in the ground and mobile connectivity to work.

Getting the industry on board is an essential part of delivering the project. We issued the first step in the procurement process, a prior information notice, before Christmas, and responses to that and to a further industry consultation document issued in January have given us a clear picture of what the industry is expecting to see throughout the process. We followed up that consultation with a series of meetings and workshops to ensure that what we are doing is fit for purpose, and that the capital infrastructure will be used to best effect.

Following detailed discussions with mobile operators about the best solutions to the problems of overall coverage, we are moving swiftly. We intend to begin a procurement process this spring with a view to signing a contractor to provide the necessary infrastructure by the end of the year. Ideally, benefits will begin to be felt this time next year, and the whole project will be delivered within a highly stretching three-year timetable.

My hon. Friend’s third point was about data roaming, and speaking as a layman rather than a Minister, I have an enormous amount of sympathy with that. On a recent trip to the United States, I experienced my own version of bill shock because of the sheer cost of data when abroad. That is also a huge issue in the European Union, and the point has been made time and again, not least by the effective commissioner for digital services, Neelie Kroes, that too many UK citizens who travel to Europe—as increasingly people do not only for leisure but for business—have to get into the habit of turning off their phones. That essential business tool and gateway to the things on which we increasingly depend has to be turned off when going abroad, even just across the channel to France, because of concerns about the price of data.

As someone who in principle is reluctant to intervene in the market, I looked slightly askance at the Commission’s efforts to reduce the prices first of voice roaming and now of data roaming. However, its efforts to reduce the cost of voice roaming have been effective, and in principle the UK is supportive of the directive on data roaming. There are probably a few details that need to be ironed out, but we have urged progress on that directive because we recognise that it presents opportunities that will allow consumers to conduct their business more cheaply and effectively.

The issue is more problematic outside the European Union because we would have to negotiate via the European Union, perhaps as part of the World Telecommunications congress, to provide a solution for global data roaming. That is not something on which the UK can take a unilateral decision for its customers and operators; it would have to be an EU-wide agreement on a global basis. I understand the concern, however, and progress on the data roaming directive this year should begin to make a significant difference to customers.

[Andrew Bingham (High Peak) (Con)]

I will be brief due to the time. Is the Minister aware that, on the fringes of the EU, if someone returns from a Greek island, for example, one minute they might be on a Greek mobile network but the next minute, because of its proximity, they move on to the Turkish network? That happened to me. When they get home and get their mobile phone bill, they find that some calls were quite cheap while others were extortionately expensive. People are perhaps not aware of that issue when they go to the fringes of the EU.

[Mr Vaizey]

My hon. Friend makes a good point, and countries such as Latvia and Lithuania, which are on the fringes of the European Union, have concerns about how to implement the data roaming directive. I will investigate the issue of roaming across Greek and Turkish networks, and I will write to my hon. Friend to explain whether the European Union is engaging with Turkey on that.

My hon. Friend the Member for Vale of Glamorgan has been a doughty champion of this issue, not only for his constituents but for all those who live in rural areas, in recognising that people must not be excluded from the digital revolution and that access to fixed and mobile broadband is becoming an ever more important part of people’s businesses and lives. I hope that I have used this opportunity to update my hon. Friend, and I invite his comments on the effectiveness of the mobile infrastructure project and on our progress on data roaming and the auction, which we hope will proceed with alacrity and minimum delay.

11:29

Sitting suspended.

Women’s Aid

Wednesday 14th March 2012 Westminster Hall

[Dr William McCrea in the Chair]

09:30

[Mr Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab)]

I am grateful to have secured this debate on women’s aid and safety and access to benefits, and to speak under your chairmanship, Dr McCrea. I am also pleased to welcome the Under-Secretary of State for Work and Pensions, the hon. Member for Basingstoke (Maria Miller), who has a great interest in the subject that we are debating, and of course my right hon. Friend the Member for Stirling (Mrs McGuire).

The theme of the debate is, unmistakably, women’s aid and safety and access to benefits, but it is also predicated on an enlightened understanding of the scourge of domestic abuse, which is the root cause of the problem. I believe that there is a moral duty not to just pay lip service to an endemic problem visited on far too many women. Domestic abuse was succinctly articulated by the psychologist and author Susan Forward, PhD, who described it as

“any behaviour that is intended to control and subjugate another human being through the use of fear, humiliation, and verbal or physical assaults…it is the systematic persecution of one partner by another”.

Having assimilated and carefully studied the erudite view expressed by Dr Forward, I wish to proceed. The consequences of domestic abuse are simply horrific and lead women into a very dark place. They live a life in the most sinister, corrosive and destructive environment, which is as near to hell as it is possible to get on earth. Living under a reign of constant fear and terror of mental and physical torture damages the self-esteem of the victims, but what incalculable damage does it inflict on innocent children? We can ponder that. They, too, are often scarred for the rest of their lives.

One of the foremost international diplomats, renowned for resolving conflict around the world, the former UN Secretary-General, Kofi Annan, once said that domestic abuse

“denies women their most basic human rights, such as the right to health, and undermines the social and economic development of communities and whole countries…Domestic Abuse is widespread and cuts across class, age, religion and ethnic group…it has long been established that there can be no justification for any form of Domestic Abuse.”

He concluded:

“Domestic Abuse is perhaps the most shameful human rights violation, and it is perhaps the most pervasive. It knows no boundaries of geography, culture or wealth.”

Monklands Women’s Aid provides a first-class service to women and children in my constituency. Before institutions such as Women’s Aid existed, many women were forced to suffer in a chilling silence for the sake of their children. When we think back to previous generations, we can only wonder with incredulity at how many women lived in hell. We will never know how many were driven to such a level of despair that they took their own lives.

Clearly, most women did not have a way out of their oppressive environment. I am sure we all agree, irrespective of our political differences, that we do not want a return to those days. We have to understand that many of the partners have not only a physical hold over those women, but a mental hold, an iron grip, which is extremely difficult for many women to break free from. Women’s Aid is now inculcated in our society. Thankfully, women of this generation are not alone and they realise that they have a place of refuge.

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

I congratulate my right hon. Friend on securing this important debate; I know that that sentiment will be echoed across the Chamber. Like him, I pay tribute to my local Women’s Aid and I also pay tribute to Trafford rape crisis centre. There are some excellent organisations, as he says. Does he agree that in addition to the physical and mental abuse that he describes, there is financial abuse? As has been shown, when women are under financial pressure, it is more difficult for them to flee an abusive relationship, so at times of rising female unemployment and reduced access to financial benefits, more women might be trapped in the home in exactly the circumstances that he describes.

[Mr Clarke]

I agree and I hope to deal with some of the issues that my hon. Friend raises. That was an excellent intervention.

As an organisation, Women’s Aid has supported women from all social and financial backgrounds and continues to do so. One in four women will experience domestic abuse at some point in their life. Two women a week are murdered by a partner or ex-partner. Women living with domestic abuse are five times more likely to suffer from depression. In 90% of domestic abuse incidents where children are present in the home, they will be in the same or the next room.

[Gloria De Piero (Ashfield) (Lab)]

My right hon. Friend is citing horrific statistics that are all too familiar. In some areas of my constituency, there are spikes in the occurrence of domestic violence that are way out of kilter with the national or local average. I ask that Ministers look at the areas where there are spikes and find out why they are happening.

[Mr Clarke]

I am grateful to my hon. Friend for making an extremely significant point. On average, a woman will be assaulted 35 times before reporting it to the police. It is the case that 30% of domestic abuse either starts or escalates during pregnancy. Domestic abuse can account for up to 25% of all recorded crime.

Let me outline current practices and why they should be cherished. What is the present position in terms of access to benefits? The present position permits organisations such as Women’s Aid to go through proper procedures to ensure the safety and health of women who come to them. Here, as they recognise, is the tragedy: many women who are experiencing domestic abuse blame themselves for what is happening to them. Clearly, it is not their fault. The only person to blame is the perpetrator carrying out the abuse.

Monklands Women’s Aid, in its last annual report, shone a light on the scale of the problem. The contact made with Monklands Women’s Aid involved 4,310 women, 1,202 children—from birth to 12 years—and 1,056 young people aged from 13 to 19. If such an organisation did not exist, we would need to invent one.

As I have discovered, if a woman requests refuge, a risk assessment is carried out to ensure that the service and refuge will meet her needs. A home application and benefit check is completed for the user. A doctor is then put in place to assess the health of the woman. If necessary, women are taken to hospital immediately. Social workers, community psychiatric nurses or various support networks are contacted, with the woman’s permission, for continued support. If the woman wishes, the police are called. Throughout the process, workers from Women’s Aid offer continued support. If children are involved, relevant schools and nurseries are contacted and provision put in place to make the transition for the woman as seamless as possible. A children’s service is put in place as part of the outreach programme. When women are leaving the refuge, support workers help them to move to their new tenancy and offer much needed help and support.

Institutions such as the NHS and police services can do only so much in providing support to women who are in desperate need of help and protection. The refuge is the foundation for all services provided by this organisation, and it signifies the basis of a new life for many women. It is still desperately needed by many women in emergency situations—when their lives or their children’s lives are at risk. A refuge is a haven that, on multiple occasions, has saved lives.

In all candour, the proposed reforms by the Government are worrying. All the services that I have described will effectively be wiped out, thus leaving Women’s Aid with the sole service of signposting women to other support services—if they still exist.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Before my right hon. Friend moves on to what may lie ahead for women in the future, may I remind him that when a woman seeks a Women’s Aid refuge, it may be the first time in their lives when they, as the partner of someone who has abused them, find themselves without money? The first port of call will be the Department for Work and Pensions. All too often the delay in securing money through the benefit system is bad, so much so that some 30% or 40% of women find themselves, out of sheer frustration, going back to the marital home and to the abuser, which is no answer to their problems. The system is already far too slow to respond to the needs of women.

[Mr Clarke]

My hon. Friend bases his contribution on experience, and he is absolutely right. He has outlined the problem that many have faced and sadly might face again, so we must take it seriously.

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

I congratulate the right hon. Gentleman on securing the debate. Its importance for me stems from the fact that the very first refuge in this country was created in my constituency. Does he agree that housing is an issue and that pressure needs to be put on councils to put women who are in a refuge, especially those with children, higher up the priority list for permanent housing? Temporary housing is not good enough. Bed and breakfast accommodation is not appropriate for children because they need some stability in their lives.

[Mr Clarke]

Housing is at the heart of everything that we are discussing and I welcome what the hon. Lady said. Perhaps this is an opportune moment to assess what is likely to happen, including in housing, post April 2013. Essentially, the key change is that housing benefit will be paid directly to the claimant through universal credit, which will adversely affect Women’s Aid.

I recognise the imposition of a system in which people are always better off in work than they are on benefits. However, the so-called simplification of merging income-related jobseeker’s allowance, housing benefit, child tax credit, working tax credit, income support and income-related employment support allowance into a single universal payment is not without problems. Although it may be desirable on paper, it will undoubtedly bring with it chaos for individuals and other charitable organisations.

Please be assured that the proposed changes would have a serious detrimental effect on Women’s Aid centres throughout the United Kingdom, and certainly in my constituency.

[Amber Rudd (Hastings and Rye) (Con)]

Like many Members here, I supported trying to get individuals responsible for their housing benefit. The fact that 75% now have to pay out of their own housing benefit is a positive step forward for individuals. However, I agree with the right hon. Gentleman that we must ensure that women in refuges or in Women’s Aid are allowed to have their housing benefit paid not directly to them, but to the supportive housing. I understand that the Department is still considering the matter, and I share his concerns that we need to ensure that the most vulnerable do not have to deal with their own finances and housing benefit in this way.

[Mr Clarke]

That is an important point and I am grateful to the hon. Lady for drawing our attention to the fact that the Department is now considering the matter. I hope that her points and those made by other hon. Members in this debate will be taken on board by the Department.

The changes under discussion would force women who go to Women’s Aid in moments of crisis to pay up front for refuge. That is money they simply do not have. The majority of women who seek help from Women’s Aid have few clothes and belongings, let alone the money to pay for refuge. Nevertheless, at present, Women’s Aid can provide refuge to any woman who turns up at its centres because it can claim a share of management costs through housing benefit. That crucial point was underlined by the hon. Lady, and will no doubt be underlined by others. The last thing that distressed women should be worried about is paying for refuge. Of all 4,000 women who were assisted by Monklands Women’s Aid group in 2011, not one of them turned up with enough money to cover the cost of the refuge.

There is an unshakeable belief, held by those who manage this service and by me, that existing resources will simply not be available. The private sector manager in North Lanarkshire council has confirmed that Women’s Aid received local housing allowance of £895.16 every four weeks for service users. Under the new rules, it may get £456.92 for four weeks. That is a terrifying prospect, which the Minister will have to address sooner rather than later.

I am now at the very heart of my argument. I have to pose the question: do the Government want women with small children walking the streets or, worse still, being forced to live in perpetuity under a reign of terror from an abusive partner? In 2013, is that the best we can do for abused women and children? I think not. Although I have political differences with the coalition Government on a range of issues, I simply do not believe that they want to make life any more unbearable for vulnerable women and children.

Let me now address my remarks to correspondence that I recently received from my right hon. Friend the Member for Normanton, Pontefract and Castleford (Yvette Cooper), Labour’s shadow Home Secretary and shadow Minister for Women and Equalities. She has launched a consultation on women’s safety, which will examine the impact of the Government’s decisions on women’s safety and consider how to protect and enhance it. The consultation is being chaired by Vera Baird QC, who will be supported by my hon. Friend the Member for Stretford and Urmston (Kate Green), the shadow Minister for Equalities, and my hon. Friend the Member for Walthamstow (Stella Creasy), the shadow Home Office Minister. I intend to contribute to this new commission.

I genuinely wish to report that I have made representations to the Government and that they have listened and acted in a manner that does not put women’s personal safety in jeopardy. For the record, I plan to invite Labour’s commission to visit and meet the management of Monklands Women’s Aid as well as the victims. In a spirit of fairness and even-handedness, I extend a similar open invitation to the Minister and her team.

On one unique occasion, I visited Women’s Aid to meet four women from different backgrounds and with different experiences of domestic abuse. Listening to each woman describe their lives was quite depressing; to think that so many have to live their lives in such fear and anxiety is truly distressing. Listening carefully to numerous examples of abuse, and sitting alongside the victims explaining their plight, was emotionally draining. There is a world of difference between reading about such stories in a book or newspaper and hearing first hand such dreadful experiences. The bottom line is that an abused household is no place for women and certainly no place for an innocent child.

I was shown a work of art that a victim’s young daughter had drawn. It had originally been on her bedroom wall in the abused household where she had lived. It was a self-portrait, showing a tear racing down her cheek. Yet, after a few days in the refuge, the girl took down the drawing from the wall. We all very much welcome that first step towards the happiness that that child was entitled to enjoy.

Women often come to the charity having had their family broken into pieces, yet there is a real sense of togetherness at the centres that allows them to feel as if they are joining a new family. The four women I met had differing stories of abuse, but there was one common feature—all of them felt trapped in their lives, as if there was no way of escape. They would never have been released from that stranglehold of entrapment and suffering had it not been for the help of Women’s Aid. The tremendous sadness that I felt initially turned to delight as I witnessed how these women had managed to turn their lives around, not only for themselves but, most importantly, for their children and for their loved ones.

[Kate Green]

My right hon. Friend is very powerfully evoking the experiences of women and their children who have suffered abuse. Does he agree that one of the things that those women particularly value when they go to a Women’s Aid refuge is that it is a service designed for, run by and informed by an ethos that is led by women’s experiences? If so, does he share my concern that increasingly services are being contracted out to organisations other than Women’s Aid—non-specialist organisations that do not have that necessary empathy with the women, however well-meaning they may be, and, indeed, can sometimes make quite crass decisions? For example, we heard just the other day of a provider that had advertised for new staff to work in its service and had actually put the address of the local refuge in a newspaper.

[Mr Clarke]

Again, my hon. Friend makes an excellent point. Certainly, the sheer dedication of the women working at the centres, which I have seen at Monklands Women’s Aid and elsewhere, is awesome, and I do not think that it can be replaced by commercial considerations. I therefore welcome what she has said.

[Amber Rudd]

May I just make the observation that men can also be very helpful and sympathetic on issues of domestic violence? I, too, congratulate the right hon. Gentleman on securing the debate.

[Mr Clarke]

I am again very grateful to the hon. Lady for her intervention. Although it was not going to be a theme of my speech—given the title of my speech, it should not be a theme—I am aware that a minority of men are also abused and I know that that is something that we would want to consider.

The women I met at Women’s Aid said that they feared for what their life would have been like if it had not been for Women’s Aid. Meeting those women first hand showed just how vital organisations such as Women’s Aid are to our country. In many cases they can literally transform an individual’s life for the better. I was given an opportunity by my local Women’s Aid office to meet some of the women they serve. Most people would never get that close and my abiding memory is of the warmth and friendliness that the organisation sends out in abundance, which colleagues have rightly acknowledged today.

We need to appreciate that women can be mentally and physically tortured by their partner and that they often turn up at Women’s Aid penniless, with nothing other than what they are wearing and with traumatised children who are in desperate need of urgent help. Women’s Aid is the last resort for victims who are in a state of anxiety and who—emotionally speaking—are standing on the edge of a cliff. In that situation, the last thing that women should be worried about is paying for refuge.

When women are provided with refuge, there is a full range of follow-on services to ensure that they and their children are safe. Along with support workers, the women plan their future and one of the most important factors taken into account is their safety and that of their children. Refuge is the foundation for all the services provided by Women’s Aid and for many women it signifies the basis of a new life.

[Esther McVey (Wirral West) (Con)]

As patron of the Wirral Women and Children’s Aid refuge, I know only too well the harrowing stories of women when they arrive in refuge, having suffered terrible abuse. Obviously, the imperative is that they are looked after straight away. However, time and again, we talk about how to break that cycle of violence and that continuation of abuse. Should that not be one of the main imperatives in future, because the figures on abuse have gone up year after year? We must break that cycle of violence immediately.

[Mr Clarke]

I agree absolutely with the hon. Lady, but if—as I saw at Monklands Women’s Aid—staff at centres are compelled to contemplate the financial circumstances that they are facing as an organisation, that might take away some of the time that they would like to allocate to the wider objectives that she quite properly identifies.

For many women, the fact remains that refuge is desperately needed in emergency situations when their lives and their children’s lives are at risk. I hope that I have convinced the Minster that Women’s Aid is indeed a special case.

[Jim Shannon (Strangford) (DUP)]

Just 10 days ago, I had the opportunity to visit the Women’s Aid centre in Bangor; it is in North Down, but it is also responsible for Strangford, which is my constituency. The staff there very clearly indicated the financial squeeze that faces them. They illustrated it by talking about the future not only of the centre in Bangor, which is responsible for a large catchment area, but of the staff. If the Government do not address those issues, I fear that the future of Women’s Aid will have a question mark over it, not only in the right hon. Gentleman’s constituency but in mine.

[Mr Clarke]

Again, the hon. Gentleman speaks from experience and I passionately believe that we should not ignore such experience. He is dealing with what he sees in his constituency, day after day, and also reflecting our experiences in our own constituencies elsewhere.

Frankly, life and death issues are at stake here, and children can be victims of abuse too. We need to ensure the provision of free and safe refuge, which is crucial to the safety of women and children who are suffering abuse. That is an inviolate principle. At a time of desperation, people in Monklands, across Scotland and—as we have heard—throughout the United Kingdom must be afforded the opportunity to seek refuge. Most regrettably, domestic abuse is a considerable problem across our country.

Women’s Aid also performs a major role in the continued development of the children who are affected by abuse. In many families, children are often caught in the centre of a storm, and thus Women’s Aid focuses its attention on providing continuity for such children.

I urge the Minister to reconsider the current proposals on housing benefit. My plea today is that she reflects upon the comments that I and others make. Later, other hon. Members will undoubtedly make valuable contributions to the debate, and it is more than likely that they will be based on the kind of experiences that we have already heard about from hard-working, conscientious constituency MPs.

This subject and the real people who suffer domestic violence are too important for there to be a partisan Government. I am leaving an escape route for the Government when I refer to the unintended consequences of their proposals. If the Government ignore my representations, that could have a devastating impact on women across the country, leading to more women and children walking the streets.

We need the continuation of the marvellous back-up services that are provided by Women’s Aid and—lest we forget—managed by outstanding, caring people. Today I want not only to convince the Minister but to gain support from all parties. We cannot and we must not abandon women who are seeking refuge. In the words of the late Mother Teresa of Calcutta:

“Being unwanted, unloved, uncared for, forgotten by everybody…is a much greater hunger, a much greater poverty, than the person who has nothing to eat.”

14:59

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

I congratulate the right hon. Member for Coatbridge, Chryston and Bellshill (Mr Clarke) on securing this debate on an incredibly important part of so many women’s lives. The right hon. Gentleman has already identified statistics that show us how important the subject is. He mentioned that one in four women will experience domestic abuse in their lifetime and that two women are murdered each week. That has been consistent over the past decade and not enough has been done about it. It is important, if I may say so, that a man—a gentleman—has raised this issue today. The more that men speak about the issue, the more that it is seen as important.

The physical, mental and financial abuse suffered has already been mentioned. I stress the importance of those three aspects. There is still a lack of understanding that domestic abuse can incorporate all three aspects. Physical abuse is easy to see, but mental abuse is not. People are less likely to understand it and therefore women are less willing to come forward and report it. The financial side that was mentioned earlier is about control. It often starts with financial control, which leads to other things.

[Kate Green]

I absolutely agree with the hon. Lady’s analysis. Does she agree, therefore, that we ought to be alarmed that one of the features of the universal credit is that it will be paid to one member of a couple? That may increasingly mean that women in abusive relationships will not have independent income, which will increase the possibility of financial abuse.

[Mary Macleod]

I think universal credit will help women in domestic abuse situations, and I am sure the Minister will address that issue in her reply. It is important to give women who are in such situations the support that they need and also emergency funds at the time they need them.

[Amber Rudd]

Does my hon. Friend agree that one of the benefits of universal credit, which I am sure we will hear more about, is that child benefit—as we know, it will be paid only to lower earners—will still be paid directly to women? That is important for protecting women’s financial situation. It is not going to be rolled up in universal credit.

[Mary Macleod]

I agree. That will make a difference to women in such situations.

In my constituency, domestic abuse and violence is at the top of the police agenda in west London. The police take it very seriously. The matter was brought home to me when I was out campaigning on the streets one day, as many of us do as Members of Parliament, and a 16-year-old boy asked me what I was doing. I explained and asked him, “What is the most important issue around here?” He looked me straight in the eye and said, “Domestic violence.” I was really moved by that. Perhaps some of the work that has been done on prevention and in schools is beginning to make an impact now and young people are beginning to understand that it is an important issue. I have visited refuges in my constituency. They are a haven for women who need them at their lowest point in life and at their time of need.

I raised the issue of housing earlier, because it is one of the important factors for allowing a woman to rebuild her life following an abusive situation. Hestia, an organisation in London, put together a report that I launched on international women’s day last week. The report made some good recommendations on housing, such as having someone at the council who is trained in and understands domestic abuse issues, so that they can make the right decisions. An important aspect is the link to temporary housing, which came home to me when a woman visited my weekly surgery one day. She has a seven-year-old child and for 18 months has been in one of the refuges in my constituency. She is currently on band C on the housing register, which in London probably means a wait of six or seven years to get proper housing.

I started a campaign to persuade Hounslow council—my council—to try to move victims of domestic abuse up the priority list. Avoiding temporary housing or bed and breakfast accommodation would really make a massive difference to the lives of women and their children, because temporary housing, unlike permanent housing, means more instability.

[Kate Green]

I totally agree with the hon. Lady. She will know that it is often necessary for women to move a long way from the family home and potentially to another local authority. Does she agree that local authorities receiving women who are fleeing abuse from a different part of the country should treat them with the same priority on the housing list? That is often not the case at the moment. I have a case in my constituency. A constituent wanted to be moved to the other side of Manchester—to a different local authority—but it simply was not willing to give her the same priority.

[Mary Macleod]

I completely agree; the hon. Lady is absolutely right. Women usually have to go far away from where they initially lived to ensure their safety, so they need councils to recognise that and give them priority. Even if councils initially gave priority to women with children, it would be a start. Then I would like to widen it to all women—all people—who are in refuges. It would make a tremendous difference and enable them to rebuild their lives. They have been through horrific circumstances and we have a duty of care and humanity to them. We should be able to say, “We will help you to create a fresh new start that is positive and could make a real difference to you and your children.”

I am pleased to see some of the work that has been done on rape crisis centres. We have opened additional centres in London. That will help to make a difference. I want to ask the Minister about work on preventive measures and early intervention, Some great work has been done on early intervention, including teaching young people about the importance of healthy relationships and respecting the right to say no. Preventive work is also being done with women at high risk. We have a sort of payment by results approach. Is there more that we can do to support the organisations that are doing great preventive work in that area and in schools?

I congratulate the Government on the call to end violence against women. The paper came out last year. I congratulate the right hon. Member for Coatbridge, Chryston and Bellshill on the positiveness of this debate. On such issues it makes me feel that we can work together to find solutions that will make a real difference. We can work across the House to find a solution that will make a long-term difference to many women who, unfortunately, go through horrific circumstances.

15:08

[Mrs Anne McGuire (Stirling) (Lab)]

I am delighted to follow the hon. Lady the Member for Brentford and Isleworth (Mary Macleod). It is a pleasure to be in Westminster Hall under your chairmanship, Dr McCrea. I do not think that we have met in these circumstances before. I am delighted to be here today.

I want to pay tribute to my right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr Clarke). I have known him for many years, long before he was a Member of the House. I know from previous experience that he has long been an advocate for support services for women, not only in his own constituency, but across Scotland. For Members who may not be as aware as I am of my right hon. Friend’s history, he was the president of the Convention of Scottish Local Authorities at one point.

My right hon. Friend has done rather a lot in his life—for a man who is only 45. He was president of COSLA when local authorities in Scotland were trying to come to an understanding of what violence against women—it was mainly, but not exclusively, violence against women—meant for those women, their families and their communities. He was part of the drive in Scottish local authorities to recognise the problem and deliver services. It is fair to say that that was not always easy. Many local authorities turned their face against the provision of such services, and many a battle had to be fought to establish the idea that there should be a discrete service focused on women’s needs as part of mainstream activity. I hope my right hon. Friend does not mind my embarrassing him, but we sometimes forget that people had a life before they came into Parliament, and it is worth putting part of that history on the record.

From my right hon. Friend’s analysis, we can see the benefit of the experience that he brings to this subject. He is an assiduous constituency Member of Parliament and he keeps in touch in a way many of us might replicate; I am not saying that we are all bad constituency MPs, but I can verify that he is one of those Members who is known to all his constituents and who knows all of them. It is not often that we get the opportunity to pay a little tribute to one of our colleagues, and I hope that his ego can stand it.

My right hon. Friend’s analysis of the situation was telling. He emphasised that it is not only statistics that are important. As politicians, we talk about statistics, but every one of them represents an individual person who is part of a family, a street and a wider community. That was echoed in the contribution by the hon. Member for Brentford and Isleworth and in other Members’ interventions.

There are two themes in the debate, but I want to concentrate more on one of them, although I appreciate that the Minister will wind up on both. One theme is the responsiveness of the benefits system to women—it is mainly women we are talking about. I hope, however, that that is not misunderstood; as the hon. Member for Hastings and Rye (Amber Rudd) mentioned, this is not just about women, and there are men who find themselves in this position. However, the overwhelming majority of cases involve women, so, for shorthand purposes, I will talk about them.

[Amber Rudd]

My point was that welcomed the fact that men are participating in a debate that is primarily about women. I totally support what the right hon. Lady says, but I also welcome the fact that it is not only women who are supporting action on this important issue.

[Mrs McGuire]

I appreciate that. I may not have explained myself properly. I was saying that there are men who find themselves on the receiving end of domestic violence. However, I fully endorse the hon. Lady’s comment that this is not just a women’s issue; it affects women, but we should all be interested in it. I am more than happy to make that clear.

As I was saying, there is the specific issue of how the benefits system responds. There are then the wider elements that have been highlighted, and there is significant expertise at practitioner and political level on some of them. It is fair to say that some of the issues about the benefits system relate to continuing uncertainty about what the new Welfare Reform Act 2012 will deliver. People who rely on some element of benefit support and who are in or—this is increasingly the case, sadly—out of work face uncertainty, as the Government roll out their welfare reform programme. We have had some pretty robust debates on welfare reform, and I will not go back over them. However, we want to see what can be delivered under the new legislation to make sure people understand what its impact on them will be.

I want, therefore, to deal with some specific points about the impact of the new welfare legislation on women who face domestic abuse or domestic violence. As the Minister will be aware, the benefits system is designed for the many, but it must also show sensitivity to individual circumstances. I hope we all agree that such circumstances are sometimes difficult to anticipate and, even when we do anticipate them, difficult to frame provisions for in primary legislation. I hope that she will be able to give Members and, more importantly, those who face the trauma of domestic violence some confidence that what is being put in place can respond to individual circumstances. The test of any benefits system is not the high-level principles or the high-level legislation, but what the system means to an individual when they are at a point of need and how responsive the system is.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The right hon. Lady has come to an important point. Does she agree that one consideration for women who face the threat, or who are victims, of domestic violence in deciding whether to go to Women’s Aid or other such groups is often the impact that that could have on the benefits to which they or their family are entitled? The female at risk often gives more serious consideration to that than to the fact that she is being abused.

[Mrs McGuire]

I totally agree. That echoes the point made by my hon. Friend the Member for Dumfries and Galloway (Mr Brown)—he is no longer in his place—who said that, given that uncertainty, women go back go the household where they were abused. If they have never engaged with the benefits system—and even if they have—there is an element of uncertainty about the time frames. It may not be entirely clear what will happen to their child benefit. Who gets the child benefit at the moment? Technically, it goes to women, but that might not be the case in some abusive relationships. As well as having to deal with violence and abuse, women face that financial uncertainty. We should not underestimate how difficult it is for women who are trying to get out of a violent situation not only to have to worry about the impact of the violence on them and their children, but to face uncertainty because they might be stepping off the edge of a cliff and they do not know what will happen. I totally endorse what the hon. Gentleman says.

Will the Minister tell us how organisations that offer hostel and supported accommodation will be treated in the assessment of housing support assistance in the new system? Currently, supported accommodation providers are allowed to breach the local housing allowance cap, because an element in the costs allows them to charge for additional support services, such as those provided by Women’s Aid or similar organisations, although Women’s Aid is obviously the principal provider.

We are seeing a real-terms cut in supported housing costs across the country, and we cannot run away from that. Local organisations that offer accommodation will therefore face a cut in any circumstances. Indeed, there is evidence to suggest that women’s aid organisations are receiving a greater funding cut than local authorities—there is a differential of 4% or 5%. There is therefore uncertainty, and if organisations that offer supported accommodation cannot make up the additional costs, there will be a real threat—this is what my right hon. Friend the Member for Coatbridge, Chryston and Bellshill was alluding to—to the financial viability and, indeed, the very existence of their hostels.

The Minister understands the commitment of those in organisations such as Women’s Aid who are able to give the support that is needed at a very difficult time; but although that voluntary activity is important, it is not the only element of the support that is given. There are services that have a cost attached to them, and we cannot ignore that.

[Kate Green]

Does my right hon. Friend agree that that might have an impact on providers of specialist services, such as those for minority ethnic women, or very young women? Such organisations cannot take advantage of economies of scale, by providing for large numbers, as some housing associations can; but if we lose that specialist provision, some very vulnerable young women will be reluctant to go anywhere for support.

[Mrs McGuire]

What my hon. Friend says echoes what I said at the beginning of my speech about how the benefits system relates to specialised individual needs. I hope that the Minister will give us some comfort on that matter.

I suppose that my direct question to the Minister is whether those in receipt of local housing allowance who go into women’s hostels will receive just the basic housing allowance; or will the hostels be able to charge an additional amount, to be covered by the local housing allowance? My right hon. Friend the Member for Coatbridge, Chryston and Bellshill made that point starkly when he talked about the pressure on Monklands Women’s Aid. There may be a misunderstanding, and if so I am sure that we would love to receive clarification.

The Minister appreciates that some women and, as I have said, some men are forced to leave their homes as a result of domestic violence and need not just a roof over their head but significant support. The hon. Member for Brentford and Isleworth highlighted that.Like other hon. Members, I hope that the Minister will consider how to finesse the new system of local housing allowance to take account of those additional services. Otherwise, I fear for the long-term viability of women’s aid organisations that provide hostel accommodation.

I am echoing comments that other hon. Members have made when I say that some women who have left home may have little or no experience of budgeting, or may be in such a state that budgeting is the last thing on their minds. The direct payment of rent in those circumstances would benefit some people. I agree with the hon. Member for Hastings and Rye that, in principle, giving people the independence to pay their own rent is good practice. Indeed, we introduced that when in government, because it lessened some of the stigma effects—the “No DHSS here” signs and other such things—but we must be realistic and say that in some specific circumstances people would benefit from having their rent paid directly. I hope that the Minister will consider a range of exemptions, to allow those who want it and who feel that they need it at the time in question to access direct payment. I may be wrong, but I understand that the Minister, or the Department, is currently considering such exemptions. Perhaps she will be able to give us interesting news.

The Minister will be aware that on Monday a Delegated Legislation Committee debated the Jobseeker’s Allowance (Domestic Violence) (Amendment) Regulations 2012. The Government’s proposal to ease some of the JSA conditionality on those coping with domestic violence was unanimously accepted. We certainly welcome that decision, which implemented elements of the Welfare Reform Act 2009. Although there have been, as I said earlier, some robust Divisions on welfare reform provisions, the regulations in question were welcomed by my right hon. Friend the Member for East Ham (Stephen Timms).

However, I want to ask for the Minister’s view on an issue on which the views were not unanimous: how welfare reform will affect the capacity of women’s aid organisations to seek housing for women. There are serious concerns about the effect of the change to the shared-room rate of local housing allowance under the Welfare Reform Act 2012 on victims of domestic abuse and the possibility that it will make it difficult for some women to move easily from hostels to independent accommodation. The fact that the age limit is being extended from 25 to 35 makes it difficult, particularly for women who have been used to an element of independence. Is the age of 33, given all the other things happening in the life of such a person, really the time—I should not say “you”, Dr McCrea, but in Scotland “you” is the vernacular for “one”—when you should think about going into shared accommodation, perhaps with strangers? There is concern about that; I have certainly picked it up from women’s aid organisations.

[Kate Green]

I agree that that is a concern, particularly for women who have had traumatic experiences of violence. They will be reluctant to move into shared accommodation with people—potentially men—they do not know. Is not the likely result therefore that some of them remain in the refuge, reluctant to leave, so that there will be a sort of bed-blocking situation? Then other women who need to flee to the refuge will not be able to do so.

[Mrs McGuire]

That is the general feedback that many hon. Members are getting from women’s aid organisations. The age of 35, for women in that situation, is perhaps inappropriate.

[Amber Rudd]

It would be interesting to see the evidence for that. I say that in all honesty, because the right hon. Lady’s argument is interesting, but for some women being in shared accommodation with other women in a refuge might be helpful. Shared support is important.

[Mrs McGuire]

That is a fair point, and it was the argument prosecuted by the Minister on Monday. However, it is one thing to offer women the choice to stay in accommodation with other people; for many women that would not be their choice. Although it is anecdotally-based, the view that that requirement might be an impediment to moving women into their own accommodation has a strong resonance in women’s aid organisations.

The regulations passed on Monday proved that the general can be finessed to the specific, and I hope that the Minister will discuss with her departmental colleagues whether some easement of the relevant aspect is possible, so that women, many of whom have been their own person for a long time, will not be forced into a particular choice, but offered a range of choices. Are we really going to say to those women that the only option for them at 33 or 34 is to share a flat with someone else—and not necessarily, as my hon. Friend the Member for Stretford and Urmston (Kate Green)pointed out—people they know?

Another element on which I wish to question the Minister is the way that the new universal credit regulations will work for those who have had to leave home because of domestic abuse. Universal credit is a household benefit, and a test of its responsiveness to individual circumstances will be how flexibly it enables one allocation to a household to be deconstructed when one partner leaves the household, often in traumatic circumstances. That is a question not just of the speed of response, but of how that will give the confidence that was spoken of earlier. I appreciate that the decision makers dealing with these issues might not deal with them daily, but we need some confidence that they will be able to respond quickly to those who need to establish a second claim for universal credit under the new regulations.

[Kate Green]

I want to ask about women who flee violence and do not go to a refuge, or who leave a refuge to set up their own home. Does my right hon. Friend agree that another concern about the welfare reforms is the uncertainty about the localising of the social fund? Many women fleeing domestic violence depend entirely on the social fund to set up their new homes. Does she agree that it would be useful if the Minister indicated what guidance will be issued to local authorities under the Welfare Reform Act 2012?

[Mrs McGuire]

That is a good point, and I am glad that my hon. Friend has slotted it in.

There is a question about how the social fund will be delivered to the devolved Administrations. Will it go directly to them or to local authorities? Will the devolved Administrations be the intermediaries? The reason why I highlight that in the presence of my right hon. Friend the Member for Coatbridge, Chryston and Bellshill is that he has had bitter experience with an allocation of funding at a UK level for respite care for disabled children. As a proportion under the Barnett formula, it went to the Scottish Government, but then—I shall be generous—we could not quickly identify where the money went. It appeared to be wrapped up in other funding packages; it certainly did not appear to be delivered as my right hon. Friend’s Committee intended.

I will wind up with one or two general points. We have focused to a certain extent on the benefits side, but there are wider issues. Although I appreciate that the Minister does not have direct responsibility for those wider issues, I hope that she will take them on board in her discussions with her colleagues. It is fair to say that women’s support services feel that they are facing a precarious future out there, owing to the uncertainty of funding. It is widely recognised that domestic abuse accounts for between 16% and 25% of violent crime in this country. It is not disappearing. It is there, and our police forces are aware of it.

Cuts are being made to policing. We can debate how many and how much. Street lighting is under pressure, as are women’s support services, including refuges. All those factors affect the wider issue of women’s safety in this country. I hope that the Minister will allay some of our fears and give my right hon. Friend and me confidence that she understands the issues and is prepared to see how the Government, particularly the Department for Work and Pensions, can respond.

[Dr William McCrea (in the Chair)]

I am sure that we would all agree that the right hon. Member for Coatbridge, Chryston and Bellshill (Mr Clarke)had a distinguished career before first coming to the House. He will be happy to know that we do not need birth certificates to be produced to agree with those comments by the right hon. Member for Stirling (Mrs McGuire).

15:33

[The Parliamentary Under-Secretary of State for Work and Pensions (Maria Miller)]

It is a pleasure to serve under your chairmanship, Dr McCrea. I congratulate the right hon. Member for Coatbridge, Chryston and Bellshill (Mr Clarke) on securing this debate. We have worked together on numerous issues in recent years, and I know that his tenacity and commitment are second to none. I underline how important it is that we debate this issue. My hon. Friend the Member for Hastings and Rye (Amber Rudd) said that it is an issue for both men and women, and the fact that the right hon. Member for Coatbridge, Chryston and Bellshill secured this debate underlines that.

On behalf of everybody who has contributed to this debate, I pay tribute to all the organisations involved in supporting women, men and children facing the ordeal of domestic violence. I marvel at the work of the Basingstoke Rape and Sexual Abuse Crisis Centre in my constituency, which employs a dedicated group of people who bring a much-needed service to an important part of my constituency. I am sure that all hon. Members can look to similar organisations in their constituencies.

I am grateful for this timely opportunity to discuss how the welfare system supports and will support those affected by domestic violence. As hon. Members have mentioned, significant changes will take place as a result of the Welfare Reform Act 2012, particularly the introduction of universal credit. Domestic violence is a dreadful act of abuse, and the Government are absolutely determined to tackle it. There are many matters that I would like to discuss in response to the issues raised by hon. Members. I will try to address each in turn.

It is unacceptable that 7% of women and 5% of men reported having experienced domestic abuse in the past year. That is equivalent to around 1.2 million women and 800,000 men. The violence against women and girls action plan, launched in March 2011, was refreshed earlier this month and sets out numerous commitments that the Government have made across the board: to improve prevention, which my hon. Friends discussed in interventions; to challenge attitudes and behaviours by taking action early to ensure that the perpetrators of violence are brought to justice; to support victims of abuse in all its forms better by working with partners to reach out across communities; and to ensure that Government support is appropriately tailored to victims’ individual needs.

To pick up on the points made by my hon. Friends the Member for Wirral West (Esther McVey) and for Brentford and Isleworth (Mary Macleod), it is absolutely right that prevention must be at the heart of our approach, as well as breaking the cycle that we as constituency MPs all too often see in action. We can do so by working with children, as my hon. Friend the Member for Wirral West highlighted in her contribution.

I am mindful of hon. Members’ concerns about future funding for services that support victims of domestic violence. I hope that hon. Members will be content to hear that the Government constantly consider ways to strengthen protection for victims and that we have taken a different approach by ring-fencing nearly £40 million of stable funding up to 2015 for specialist local domestic and sexual violence support services and rape crisis centres in England, as well as funding the national domestic violence and stalking helplines. It is the first time that funding has been ring-fenced on a stable basis for domestic and sexual violence victims, and I am clear that local authorities should view funding for services to support victims of domestic violence as essential.

The right hon. Member for Coatbridge, Chryston and Bellshill will also be aware that in Scotland, decisions on funding applications for projects that focus on tackling violence against women will be announced shortly by the Scottish Government. I am pleased, as are key partners such as Scottish Women’s Aid, that funding for violence against women, including victims of domestic abuse, will be maintained throughout the spending review period. I hope that he will welcome that as a concrete commitment.

The right hon. Gentleman’s main point involved housing benefit, but other Members discussed the broader issue of the benefits system, so I will address that first, hopefully providing some of the reassurance that hon. Members seek in these times of change. We heard from the right hon. Member for Stirling (Mrs McGuire), who spoke for the Opposition, about this week’s approval for proposed changes to jobseeker’s allowance regulations. That legislative change will now come into force on 23 April and allow victims of actual or threatened domestic violence who are in receipt of jobseeker’s allowance to be exempted from job-seeking conditions for a period of up to 13 weeks, provided that evidence from an appropriate representative can be produced and that other conditions are met. That will continue with the introduction of universal credit.

It is right that victims of domestic violence who claim JSA or are new to claiming it can spend some time focusing on stabilising their lives. As we have heard from hon. Members today, that is a challenging time for the individuals concerned, and they need time to get their lives and, where applicable, their children’s lives straight. It is also right that they can do so without having to demonstrate that they are actively seeking or available for employment, or face the threat of sanction. I hope that hon. Members will feel that that is a clear sign of the Government’s commitment.

A further sign of how seriously we take the issue is that alternative support remains available via the existing JSA domestic emergency exemption for victims who are either unable or perhaps unwilling to produce evidence. We have a twin-track approach, which is important to note.

While the easements that operate under JSA are, as I have explained, commendable, they are somewhat complex. That is why the Government are already taking steps to clarify them as we move forward with universal credit. That shows our clear commitment in the area, and I hope hon. Members will welcome that.

On the subject of today’s debate, housing benefit, some victims of domestic violence live in a hostel or a refuge. Currently, many, if not all, refuges have their rents met in full through housing benefit, which is usually paid directly to the hostel. Refuges are exempt from the local housing allowance, and residents have their housing benefit worked out using rules that recognise the additional costs that the hon. Member for Stretford and Urmston (Kate Green) talked about in her intervention.

The Government consulted last year on changes to the way in which housing benefit meets the costs of people living in supported housing, such as refuges. Our consultation paper, “Housing benefit reform—Supported housing”, was published on 19 July 2011, and the consultation period ended on 9 October 2011. We are considering the responses to the consultation and intend to bring forward proposals as soon as possible for implementation in 2013. Let me clarify that we do not intend to change the way in which payments of housing benefit are made to people living in hostels or refuges. All tenants who live in the social rented sector, as well as those living in supported housing, normally have housing benefit paid directly to their landlords. That will continue until housing benefit no longer exists and is replaced by universal credit between 2013 and 2017.

[Mrs McGuire]

As well as the process of payment, will the calculations allow hostels to have a higher charge than that which would be commensurate with social housing in the area?

[Maria Miller]

There are a number of specific points, such as the one just made by the right hon. Lady, that I want to go into. I will deal with her point first.

We currently support around 170,000 claimants living in supported accommodation through housing benefit. They receive on average an extra £40 a week in housing benefit in recognition of extra costs. We expect higher payments for that sector to continue. I hope that the right hon. Lady feels that that starts to answer some of her points.

The right hon. Lady also asked several questions about how hostels will be treated under universal credit. Currently, we are considering how we will support housing costs for people in hostels under universal credit. Our consultation is helping to inform that, and we will involve stakeholders in the process before we issue regulations.

The right hon. Lady asked some important questions about people who are subject to the shared accommodation rate. I reassure her that the situation applies to a distinct group of individuals: those who are under 35, on their own, with no children, and moving into private sector accommodation. She is probably already aware that many exemptions are in place for vulnerable groups—for instance, those who receive the severe disability premium.

We have also introduced several further exemptions from this January—for example, for ex-residents of homeless hostels who have received help to resettle in the community. I reassure the right hon. Lady that if there are still individuals who, local authorities feel, require their own space, discretionary housing payments are also available, and they have been increased by some £130 million. That will allow local flexibility and discretion, which can make all the difference in such cases.

[Kate Green]

I appreciate the exemptions that have been made. However, housing organisations such as Crisis and Shelter have pointed out that if an exemption for people leaving homeless hostels is enshrined in legislation, there seems to be no objection to having the same exemption for women leaving refuges.

[Maria Miller]

Our approach is to empower local authorities to have the sort of discretion that can make all the difference in such cases. Each individual case is different, which is why the discretionary housing payments are important and why we are putting so much more taxpayers’ money into that—to give local authorities the flexibility that can make all the difference.

The right hon. Member for Coatbridge, Chryston and Bellshill said that he felt that there may have been some indication of a reduction in the amount available to pay for refuges. I make this clear to reassure him: the consultation on refuges that we have been through is not intended to be a cost-cutting exercise. We want to make the rules fairer and ensure that help is better targeted on those who need it. It is about ensuring that the money that we have reaches those who need it most. I hope that that reassures the right hon. Gentleman about housing benefit. His debate is timely because we are moving forward at the moment to talk to stakeholders on that issue before we formulate regulations and before they are looked at through the positive procedures of the House.

Hon. Members also talked about universal credit and how that will affect people who are at risk of or have experienced domestic violence. I believe that the system will hold a great deal of good for individuals who find themselves in such a situation. One of the important contributions—as a constituency MP, I can empathise with this—stressed that sometimes the issue is about the timeliness, or the lack of it, of support in place for women who find themselves in a refuge. A delay in receiving financial support at that point can be extremely distressing. The current complexities of the benefits system can do little to help speed that process up. That is why I feel strongly that universal credit will greatly benefit some of the most vulnerable groups in our communities.

[Amber Rudd]

Sometimes, it is important to pay housing benefit directly to refuges to secure their financial future. Private landlords may get into trouble or have difficulty, but they are supported by the law and can enter into negotiations with their tenants. For refuges, having a secure financial commitment is important to their survival.

[Maria Miller]

My hon. Friend speaks with great passion on the subject, and I thank her for her intervention. She is pushing me a little further than I am able to go at the moment, but I hear loud and clear what she is saying about the importance of ensuring that there is some certainty there. I would like to make it clear to her and other hon. Members that the work that we are doing is not intended to unsettle or jeopardise the financial futures of the refuges. That is not something we intend to do. We do not want to do anything to damage the sector.

Universal credit will be a simpler way of people applying for benefits, and will significantly benefit this group of women particularly. We will introduce a system of payments on account, so that some individuals can get payments made, even if not all the details of their claim can be sorted out straight away. Again, simplification and a fleetness of foot will assist people in these very difficult situations.

Throughout the development of the reform—universal credit—we have worked very hard to ensure that safeguards are put in place to protect vulnerable people, including victims of domestic abuse. That includes those still residing within the household and those who have been forced into a refuge. The right hon. Member for Stirling, who speaks for the Opposition, highlighted the single monthly payment made to households. We have put that in place because we feel that it is important and integral that it is the family’s responsibility to decide how a payment is made and to manage their own finances.

However, as the right hon. Lady said, of course, there will be exceptional cases. It is important that any system can deal with and support those exceptional cases, where a single payment into one account may compromise the safety of household members. We have therefore ensured in the Welfare Reform Act 2012 that there is a power to split payments between members of a couple in the case of a joint claim. The hon. Member for Stretford and Urmston also raised that.

[Kate Green]

The Minister is right that there is the option for universal credit to be split between members of the household. However, does she not agree that it will be difficult for a woman to seek that in a situation where there is financial abuse, as was mentioned by the hon. Member for Brentford and Isleworth (Mary Macleod)? I realise that it is well beyond the opportunity to get the legislation changed, but will the Minister at least assure me that the Government will keep a careful eye on the impact on those women of a single payment to one member of the household in relation to the financial abuse that the hon. Member for Brentford and Isleworth rightly raised?

[Maria Miller]

I absolutely assure the hon. Lady that, in all aspects of the reform that we are undertaking—whether it is this or another aspect of the Welfare Reform Act—we will keep a very close eye on how things are working in practice. She is absolutely right: we have to do that to ensure that those who are particularly vulnerable and in difficult situations are getting the support that they need.

Under universal credit, there will continue to be a 13-week exemption to conditionality where there is evidence of threatened or actual domestic violence. In addition, the application of conditionality overall will be more responsive to the needs and circumstances of individuals. Importantly, advisers will be able to have crucial discretion to vary or temporarily lift requirements where a claimant is subject to a change in circumstances such that they cannot reasonably be expected to take even limited steps into work. That discretion can help individualise the support that we give people in those difficult circumstances.

The situations faced by victims of domestic violence are very varied and therefore, beyond a three-month exemption, we believe that it is right to take a case-by-case approach and give advisers such discretion. As part of the move towards self-sufficiency, in the cases we have talked about, universal credit will be paid directly to tenants rather than to landlords. There are elements around direct payments that are still being considered, and the role of hostels and refuges are part of that. However, let me assure hon. Members that we will do that in a way that protects the income of social landlords. The Government have absolutely no intention of doing anything that will damage the sector. I hope that the right hon. Member for Coatbridge, Chryston and Bellshill will find that commitment a reassurance at this time.

The debate is extremely timely. My colleagues in the Department and I will consider very carefully all the comments made by hon. Members from both sides of the House. We need to examine carefully the circumstances in which alternative arrangements for payment of universal credit will need to be made. We will start a process of working with key stakeholders over the next few months on what should be included in regulations, with a view to publishing a draft set of regulations in due course. I assure hon. Members that I am committed to ensuring that the right safeguards are in place, particularly in the case of victims of domestic violence. Again, I underline my thanks to hon. Members for sharing their thoughts on this matter. I assure them that they will help inform our discussions as we move forward.

Freedom of Information Act

Wednesday 14th March 2012 Westminster Hall

15:56

[Lisa Nandy (Wigan) (Lab)]

I requested this debate to seek clarification about a specific piece of Cabinet Office guidance that was apparently issued to the Department for Education last year to clarify its responsibilities under the Freedom of Information Act.

Ministers from both Departments—the Cabinet Office and the Department for Education—have refused to answer any of my parliamentary questions about the guidance, except to confirm that it was issued. However, this is a matter of pressing public importance about which I have sought answers for nearly eight months. There is evidence now in the public domain that the Secretary of State for Education and his advisers used personal e-mail accounts to discuss matters relating to the award of public money and the Building Schools for the Future programme.

Disclosure of those e-mails was refused because Ministers wrongly appeared to believe that the e-mails were not covered by the Freedom of Information Act. The Secretary of State has since told me, at a recent hearing of the Education Committee, that he believed that to be the case because of the specific Cabinet Office guidance that is the subject of today’s debate.

I will briefly summarise the background and say why the matter is of such pressing public importance that the guidance should be published without delay. In August and September last year, in the leaked e-mail obtained by The Guardian, the Secretary of State’s adviser told officials that he would no longer respond to inquiries on his official departmental e-mail address and urged them to do the same. At the time, Ministers in the Department appeared to believe that private e-mail addresses were not covered by the Freedom of Information Act.

Further e-mails were then revealed by the Financial Times that had been leaked to them by officials in the Department for Education. Those e-mails revealed that personal e-mail accounts had been used by the Secretary of State and by his advisers in relation to Government business. Requests were made for some of the leaked e-mails in question but those requests were refused. The Secretary of State told me in January at the Education Committee hearing that the decisions were taken clearly on the basis of guidance issued by the Cabinet Office. That guidance remains unpublished, may or may not have been written down and has since been discredited, hence my keenness to shine a spotlight on that mysterious guidance today. It apparently contradicts earlier guidance given to the Secretary of State for Education by his Department’s chief freedom of information officer, stating that personal e-mails were covered by the Act. The Information Commissioner also clarified that in December last year, but the Secretary of State confirmed to me that he had ignored both those pieces of guidance and preferred instead to rely on the mysterious piece of guidance apparently issued by the Cabinet Office.

I would like to know why the Cabinet Office is still refusing to publish the guidance given the Secretary of State’s constant references to it, its apparent centrality to decisions taken and the seriousness of the allegations that have arisen against the Department for Education. Will the Minister publish the guidance now, so that we can assess whether any attempt was made to evade the requirements of the Freedom of Information Act? The Minister for the Cabinet Office told me that he would not publish it due to a long-standing convention, but can the Minister tell me why he and his colleagues cannot even tell me in what form it was communicated? Surely there is no convention around that? Freedom of information requests suggest that the DFE holds a copy of the advice, but according to press and FOI queries to the Cabinet Office, it says that its guidance was, variously, not written down, or not held. Can the Minister explain this contradiction for me today?

[David Simpson (Upper Bann) (DUP)]

I congratulate the hon. Lady on securing the debate. She will be aware of the controversy about the whole aspect of freedom of information requests in recent months. Does she agree that the matter is not only about the case she is outlining, which is very interesting, but the whole aspect of the abuse of freedom of information, and its cost?

[Lisa Nandy]

I very much echo the hon. Gentleman’s comments; this kind of affair damages us all, which is why I am seeking answers today.

I would also like to understand how the situation could arise. That understanding is important if the commitment to transparency, which was made very clearly in the coalition agreement, is to have any meaning. Why was the guidance written by the Cabinet Office in the first place, given that the Department for Education’s chief freedom of information officer had already clearly communicated his view? Who requested the guidance? When was it communicated by the Cabinet Office? Was it sent only to the Department for Education? If not, has it now been revoked for every Department, given the extreme criticism of it by the Information Commissioner? In his recent ruling, he said:

“The DfE contends that the information is not held because the email in question is ‘political’. However, almost all the work of a special adviser, by definition, has a political dimension to one extent or another. Equally, the Secretary of State is a political figure…There is therefore an inevitable overlap between matters of party policy and government policy. To accept the DfE’s interpretation would be to, in effect, create a blanket exemption for communications between ministers and special advisers. In the Commissioner’s view the DfE has created an artificial distinction between ‘official’ information which is subject to the Act and ‘political’ information which is not.”

Did this interpretation, or description, of a blanket exemption from the Act arise directly from the guidance issued by the Cabinet Office? If so, can the Minister tell me how he, or officials in his Department, came to interpret the guidance in that way? Will he tell me who wrote it? Was that person aware that the DFE’s chief FOI officer had already issued contradictory advice? Did the person who wrote it have any discussions with the Information Commissioner, or indeed the Ministry of Justice, which holds overall responsibility for the Freedom of Information Act, before issuing it? Who was it sent to in the DFE? Did the Minister personally sign it off? If not, will he tell me who did?

I am seeking to understand how a situation can arise where the Cabinet Office’s guidance explicitly contradicts that of the DFE’s own chief FOI officer and the Information Commissioner, yet the Department is able to choose which guidance it wishes to follow. Does that not cause the Minister concern? Is it how the Government operate? Can Departments pick and choose different policy advice and guidance depending on which they prefer to follow? Does the Minister think it is acceptable that the Government are in the farcical situation where the DFE is apparently relying on guidance that the Information Commissioner has discredited, which is contradictory to the guidance issued by the Department itself, and which the Government still refuse to publish?

Less than two weeks ago, the Information Commissioner issued a ruling that the information withheld by the DFE amounted to departmental business and must be disclosed. The Secretary of State is currently considering whether to exercise his right to issue a refusal notice giving valid reasons for withholding it, as I understand. In the meantime, he still does not appear to have accepted the guidance of the Information Commissioner and his own Department that states clearly that those e-mails are covered by the FOI Act.

In January, I asked the Secretary of State a series of questions at a hearing of the Education Committee to clarify whether he or his advisers had ever used private e-mail accounts to conceal information from civil servants or the public that related to departmental business; whether he had ever directed civil servants not to answer FOI requests on specific issues; and what steps he was taking to prevent the deletion of private e-mails relating to Government business and deemed by the Information Commissioner to be covered by the FOI Act. It has since transpired that officials in the DFE repeatedly destroyed official Government records—130 e-mails, according to reports by the Financial Times. I have the transcript of the Secretary of State’s appearance before the Education Committee. I repeat that it is not clear, from his answers, whether he or his advisers sought to use, conceal, or delete those personal e-mails to evade the Act. What is clear is that the Secretary of State says that he was following Cabinet Office guidance in his actions.

There is an urgency to this matter, as it is unclear whether private e-mails relating to Government business are still being deleted. I asked the Secretary of State about that at the end of January at the Select Committee hearing, and he would not confirm whether that was or was not the case. Will the Minister please clarify whether that revised, updated guidance has been issued, and that, in light of the Information Commissioner’s ruling, the guidance has changed? Has revised guidance gone to every Department? If not, what is the delay? Given the clarity of the Information Commissioner’s statement, it seems extraordinary that that would not have happened. If it has not happened, does it mean that the Government are currently without guidance on the use of private e-mails and the FOI Act?

Does the Minister know whether the DFE has decided to fight the decision notice, and if so, on what grounds? Perhaps the Minister cannot answer that, but can he answer this: if the Secretary of State for Education decides to fight the decision notice from the Information Commissioner, will the Cabinet Office defer publishing new advice until the case is finalised? If so, that could mean that the FOI Act is effectively inactive and subject to a blanket exemption for a year. That is surely a broken commitment, given the prominent commitment to transparency in the coalition agreement. What is being done to ensure that this situation cannot happen again?

[Kevin Brennan (Cardiff West) (Lab)]

I apologise to my hon. Friend for missing the beginning of her remarks—the debate started earlier than expected. Would it not be a ludicrous situation if the Government tried to uphold the position that private e-mails are not covered by the Freedom of Information Act, since that would, in effect, allow the Government to create a government in parallel using private e-mail accounts to evade their responsibilities under the Act?

[Lisa Nandy]

Absolutely. Evidence has emerged in the press that that is exactly what has happened in this instance, which is why I am seeking to clear up the matter today.

There is another thing that does not, so far, stand up to scrutiny. The Department for Education’s initial response to the press reports was to say that only political e-mails were sent through private accounts. The Secretary of State subsequently repeated that claim to the Education Committee. If the Department genuinely believed the e-mails were not governmental, why did it ever seek advice on the applicability of the law to private e-mail accounts? Can the Minister shed any light on that? Did he or his officials have any conversations with the Department, the Secretary of State or his advisers about it? That is why it matters so much to so many of us in the Opposition. Not only do the e-mails relate to decisions of crucial public importance to young people and their families—not least about Building Schools for the Future—but they have created a situation that looks distinctly murky. That affects and discredits us all, and must be clarified urgently.

[Ian Mearns (Gateshead) (Lab)]

As a member of the Education Committee, I attended the hearing. Has my hon. Friend reflected on the fact that in attempting to answer, or not answer, her questions at that Committee hearing, and by evading a real answer to her questions, the Secretary of State, I am sorry to say, seemed to find some amusement in the whole matter? That is a very sad thing, given the time and effort that my hon. Friend has put just into trying to uncover the truth.

[Lisa Nandy]

Indeed; and also because of the significance to the people that we represent throughout the country of decisions that were made and discussed using private e-mail accounts.

I have been seeking answers for seven months and have not been able to get any. In that time, it has been alleged that Ministers repeatedly destroyed official Government correspondence and deliberately used private e-mail accounts to avoid the requirements of the Freedom of Information Act. They may still be doing so. The failure to answer questions about this matter makes a mockery of Parliament, the Freedom of Information Act and the commitment to open government.

I realise that Governments are reluctant to share information, sometimes for understandable reasons, but I share the Government’s view that transparency is crucial. In the words of the coalition agreement, they should

“throw open the doors of public bodies, to enable the public to hold politicians and public bodies to account. We also recognise that this will help to deliver better value for money in public spending.”

If that commitment is to have any meaning, frankly, Ministers must up their game. I should be grateful if the Minister would give a commitment today that the original guidance will be published, that in light of the Information Commissioner’s ruling, clear renewed guidance will be issued urgently across the Government regarding the application of the FOI Act to private e-mails, and that if he cannot answer all my questions, he makes a decent attempt to answer those he can, writes to me about the rest and no longer seeks to hide behind the much overused phrase, “long-standing convention.”

16:09

[The Parliamentary Secretary, Cabinet Office (Mr Nick Hurd)]

It is a pleasure to serve under your chairmanship for the first time, Dr McCrea.

I follow convention in congratulating the hon. Member for Wigan (Lisa Nandy) not just on securing the debate, but for the way that she presented her case. We served together quite happily, I think, when considering the Public Bodies Bill. I am not surprised that she has been pursuing this matter forensically for many months, through the Education Committee and this debate.

I will do my best to answer the questions that I can. The hon. Lady will know that I cannot answer them all; in fact, I cannot answer the majority and I cannot speak for the Secretary of State for Education. I am certainly not going to respond to allegations about any destruction of information or materials, because they remain just that.

[Lisa Nandy]

I am sorry to ask the Minister to give way so quickly. I have just handed him a list of questions for the Cabinet Office, to which I should be grateful for answers. If he cannot answer them today, I should be grateful if he looked into them and got back to me.

[Mr Hurd]

I am grateful for the hon. Lady’s clarification. I was wondering what the piece of paper that was thrust into my hand was. It is a long list of questions and we will do our best.

In some ways, the hon. Lady was challenging the Government on their important commitment to transparency and, because I feel proud of the Government’s direction of travel, it is important to put this debate in context by mentioning some things that we are doing to improve transparency, including in the Department for Education. The Secretary of State mentioned, in evidence to the Select Committee, increased transparency about schools performance.

Information is power and we are giving people more power. For example, the Government are now publishing details of ministerial, special adviser and permanent secretary meetings with external organisations; details of hospitality and gifts received by Ministers and special advisers; senior officials’ salaries; and detail on Government procurement card spend. We are also publishing information on many other items of public interest, such as hospital infection rates, crime maps—which have been an enormous success with the public, with more than 430 million hits since their launch—and data on general practitioners’ performance. More than 7,500 data sets have so far been published through the combined online information system on data.gov.uk, more than any other comparable transparency service in the world.

The information published enables people to see all Government expenditure, browsing by date, spender, recipient and amount. All Government contracts over £10,000 are to be published to ensure openness and fairness.

The whole Government accounts were published in November 2011 and each Department has published a business plan, setting out how it will achieve its reforms, how much money is being spent and what it is being spent on. Reports against these deliverables are published monthly on the No. 10 website.

Transparency does not just extend to central Government. For local authorities, there is increased local accountability and transparency of councils. We can see, down to the last £500, what is being spent in our name by our local authorities, including salaries, names, budgets and responsibilities of staff paid more than £58,200. There is detail on councillor allowances and expenses and we can see organisational charts, pay multiples, copies of contracts and tenders to businesses, which are important to the voluntary and community sector.

[Lisa Nandy]

Will the Minister give way?

[Mr Hurd]

The point that I am trying to make—I will give way after doing so—is that this level of transparency is unprecedented and today’s debate, which challenges the Government and questions our commitment to transparency in some ways, needs to be seen against this background. So much of the long list that I read is self-evidently good and in the public interest. Why did it not happen before? The hon. Lady and other Opposition Members may have an answer, since they were in power for 13 years.

[Lisa Nandy]

The Minister has read a long, impressive list of things that have been published under the Freedom of Information Act. Does he agree that it is extraordinary that guidance of such central importance to decisions made across the Government is not on that list? Will he commit to publishing it immediately?

[Mr Hurd]

I am getting to the meat of the debate, which raises important issues about freedom of information requests and private e-mails. That is a complex new matter.

[Ian Mearns]

Waffle.

[Mr Hurd]

The hon. Gentleman says it is waffle, but I am proud, because in less than two years we have achieved all that I mentioned—which is more than his party did in 13 years in power—in giving people information about what the state is doing in their name. I do not describe it as waffle; it is hard information that is in the public domain now.

This debate is about the use of private e-mails and their relation to the Freedom of Information Act. We have to recognise that this complex issue has been the subject, as the hon. Lady says, of a recent decision by the Information Commissioner, published on 2 March. In his decision notice, the Information Commissioner makes it clear that at the time the Department for Education received the FOI request, there was no guidance in existence. This was a new area that had, perhaps, not been anticipated. The commissioner acknowledges that the full implications of the FOI Act in relation to this issue may not have been well understood at the time. He states in his decision notice that he

“would say first of all that he acknowledges that this is a novel issue and one which may not have been anticipated when the Freedom of information Act was passed…Given the unique role played by special advisers it is not always easy to draw a clear line between official information held by a public authority and party political information.”

It is clear that the Information Commissioner’s decision notice raises important issues that the Government are taking seriously and considering.

For reasons that I am sure hon. Members will appreciate, a time period is set out in the FOI legislation within which the Government will consider whether to appeal or release the information. I cannot answer the hon. Lady’s question about whether any decision has been taken. The Government have 28 days from the date of the decision notice to decide whether to appeal. If there is no appeal, the Government have a further seven days to release the information or assert a relevant exemption. Therefore, I am sure that hon. Members will understand that it is not appropriate for me to comment on the decision while such consideration is under way.

The hon. Lady has asked me to make public the advice given by the Cabinet Office to the Department for Education on FOI and private e-mails. She asserted at the start of her speech that she had not received any answers on this, but in fact she has, although it is not necessarily the answer that she wants. In a written answer from the Minister for the Cabinet Office, she was informed that the Department will not publish any guidance on private e-mails and the Freedom of Information Act given to the Department for Education, because

“Information relating to internal discussion and advice is not normally disclosed.”—[Official Report, 6 February 2012; Vol. 540, c. 63W.]

That has been so for a long time and we will stick to that line, because the Government do not disclose what is effectively internal advice. Doing so would prejudice the conditions under which such advice was given. That is a long-standing convention, and it is entirely respectable for the Government to stand by it. Today’s debate has not changed my view and, I am sure, will not change the view of the Minister for the Cabinet Office and Paymaster General. We both believe, as Ministers before us have believed, that advice between officials and Ministers should remain confidential.

[Lisa Nandy]

Can the Minister tell us whether that is written down?

[Mr Hurd]

The hon. Lady intervenes from a sedentary position. The answer to that question is that we will not disclose the advice or the manner in which it was communicated—we would not normally disclose that, and we will not do so now.

The more substantive issue is what happens now, in that the Information Commissioner has given a view and the Government must respond. The hon. Lady asked when the Cabinet Office will publish its guidance. I have made it clear that the Government are considering the Information Commissioner’s recent decision notice and his guidance, published in December, and will publish their guidance as soon as it is ready, but the issues are complex and require detailed consideration. [Interruption.] The hon. Lady laughs, but we must get it right: the question is new, it is complex and it was not anticipated at the start—it needs to be got right. The Cabinet Office is doing that work, which is well under way. When our guidance is ready, it will be issued.

The debate is valid and raises important issues that the Government are considering and taking extremely seriously. I do not recognise what the hon. Member for Gateshead (Ian Mearns) said about the Secretary of State’s apparent flippancy in Committee—I read the transcript; I was not there—but, given that in that part of the inquiry he was being interviewed under Paxman-like conditions by the hon. Member for Wigan, his replies were serious and to the point. However, important issues, which we are taking seriously, have been raised and I ask hon. Members to allow consideration to take place in the appropriate way. Within the time frame set in tribunal rules, the Government will decide whether to appeal or to release the information originally requested, in response to the Information Commissioner’s decision notice of 2 March. The Government are also considering the guidance issued by the Information Commissioner in December on freedom of information and private e-mails, and the Cabinet Office will issue further guidance to Departments in due course.

16:22

Sitting suspended for a Division in the House.

Local Media

Wednesday 14th March 2012 Westminster Hall

16:33

[Stephen McPartland (Stevenage) (Con)]

It is a pleasure to serve under your chairmanship, Dr McCrea. I am grateful that the Minister is here to respond to the debate. He and I usually discuss high-technology issues, but today we will talk about low technology and local newspapers in print form. I am pleased to be able to talk about the importance of local media to small towns and cities.

Stevenage has a number of media outlets, including The Comet, the Stevenage Advertiser and Jack FM—a good local radio station on which I will be holding a phone-in surgery on Saturday, because it has a wide impact in the local community and reaches many people. The importance of local newspapers to small towns and cities lies in community cohesion. They are valuable assets to local communities. In my area, they report everything from Stevenage football club’s meteoric rise from non-league football two seasons ago to league one and its furthest ever placement last week against Tottenham in the fifth round of the FA cup at White Hart Lane, where it unfortunately lost, to stories about the Rainbows, the Guides, grass-roots football and other small local charitable organisations that have no opportunity to put forward their message elsewhere. I am pleased to be able to support local newspapers and media outlets.

I want to talk about some facts. We know that 33 million people in this country read a local newspaper every year. We also know that there are thousands of titles—well over 6,000—that 71% of adults read a local newspaper and that 14 million more people read a local newspaper than read a national newspaper. Local newspapers have a huge spread in local communities.

[Karen Lumley (Redditch) (Con)]

It is a pleasure to serve under your chairmanship, Dr McCrea. I thank my hon. Friend on obtaining this important debate. Does he agree that papers such as the Redditch Advertiser and the Redditch Standard, which are local free sheets and the only newspapers that we have in Redditch, are vital to local people, especially the elderly who would otherwise be cut off from local news?

[Stephen McPartland]

My hon. Friend makes an important point about the valuable titles in Redditch. Local newspapers reach some of the most vulnerable people in our communities and push forward a positive message on everything: Government news, local authority news, planning permissions, charitable events and what is going on in the local community. The Prime Minister said that

“local papers are hugely important in helping to build a bigger, stronger society. There is a massive gap between the state on the one hand, and the individual on the other, and local papers help fill the space in between, galvanising readers into action.”

[Gareth Johnson (Dartford) (Con)]

Does my hon. Friend agree that local media are vital to small towns such as Dartford and Stevenage, because they are often too large to have parish magazines dedicated to their area, but too small to have, for example, regional television covering just their area?

[Stephen McPartland]

My hon. Friend makes an important point about local newspapers in Dartford.

16:37

Sitting suspended for a Division in the House.

16:46

On resuming—

[Stephen McPartland]

Before the Division, we were discussing what the Prime Minister said about local newspapers being a great vehicle for social change, and I want to refer to a couple of campaigns that I have run with local newspapers in my area. One campaign sought to bring the carnival back to Stevenage, and that had great success last year. We are currently running a campaign with a different newspaper to have a satellite radiotherapy unit based at the Lister hospital in Stevenage. Patients from Stevenage who undergo radiotherapy currently have to travel nearly 4,000 miles during the course of their treatment. We think that that is a little too far, and that treatment should be available somewhere closer.

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

That issue also affects my constituents in the neighbouring constituency of North East Hertfordshire. Does my hon. Friend agree that the local media have been extremely helpful in supporting that campaign and fighting to help cancer sufferers, who currently have a difficult journey, to receive treatment?

[Stephen McPartland]

My hon. Friend makes a good point; he has been a great advocate and supporter of the campaign and has led the way in North East Hertfordshire. As he rightly says, without the support of local newspapers, the campaign would not have achieved such massive community penetration or have been mobilised into a big, cross-party issue locally. The campaign is going well.

We are also running a campaign to stop the expansion of Luton airport because, although Luton would get all the jobs, Stevenage and particularly North East Hertfordshire would get all the aircraft noise. If there are to be quieter aircraft, we are keen for them to turn up, and we would be interested in getting the truth about those figures. Local newspapers are a great vehicle for change and something that I support.

Local newspapers face great competition from new media, although many of them are embracing that competition and in many ways turning themselves into embryonic versions of the local multi-media companies that the Minister and I support so well. Local newspapers are trying hard to move forward by doing a lot of work on the internet, accessing a variety of other platforms and starting to move into radio and so on. However, they face a great deal of competition, and although they are tackling that head-on, there is concern over the behaviour of some local authorities.

I would be interested to hear the Minister’s views on whether local authorities should spend taxpayers’ money on advertising in local newspapers, as opposed to producing propaganda that a large number of local residents are not particularly interested in reading, so it quickly ends up in the bin. For example, the Stevenage Chronicle is not particularly well supported. The problem with such propaganda is that taxpayers have no interest in it, and given the choice they would scrap it right away rather than see other services reduced. The local media market is distorted because local newspapers come under severe financial pressure when local authorities—whether county or district authorities—produce their own material.

What are the Minister’s thoughts about the current Department for Transport consultation on removing the mandatory advertisement of things such as road closures and planning applications in local newspapers? It is very important that that is reviewed. I am interested in his views, simply because I think that such a move will undermine further the financial viability of local newspapers.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

My hon. Friend raises an extremely important point. Just this morning, the editor of the Ipswich Star, Nigel Pickover—there is also the Felixstowe Star—raised that point with me. I am sure that my hon. Friend agrees with me that local papers are very important for democracy and holding representatives to account and for conducting campaigns, which he has mentioned. Taking away some of their regular revenue puts more papers at risk.

[Stephen McPartland]

My hon. Friend makes a very important point much more eloquently than I managed to. She got to the heart of the issue, which is that that revenue will be taken away from local newspapers and instead of our having the disinfectant of transparency and local communities being able to understand what is going on, much of that information will be hidden away on local authority websites and will not get the attention that it so richly deserves.

This is very important. It comes down to a simple point. I accept that we are not in the business of subsidising local newspapers and that taxpayers should not pay for advertising in that sense. However, we should not be in the business of encouraging local authorities to compete against newspapers by taking that advertising revenue away from those newspapers and putting things on their own websites, because as hon. Members know, very little of those savings will go to front-line services. Local authorities will probably spend the money on developing a newer and better local authority website or newer and better local authority propaganda. The local community does not want that. It wants access to transparent information. The key message is that if public funds are used, the money should be spent on advertising in local newspapers, not on simply producing propaganda.

I would be interested in the Minister’s views on the consultation that I referred to and the impact that the proposal would have.

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

Would it not be necessary to prove that the advertising that the taxpayer was paying for was actually being read by the taxpayer and was valued by the taxpayer?

[Stephen McPartland]

That is a very good point. Many people will wonder how many residents read the traffic planning information on road closures in the back of a local newspaper. That is a key issue and no doubt the reason why the consultation is taking place, but I am concerned about the consultation’s adverse effects. I believe that most laws are made with the best of intentions across all parties and all Governments, but there is always the law of unintended consequences. My concern today is that the unintended consequences will simply be that more and more local newspapers end up going out of business. That will continue the removal of a vital community resource from our local communities.

I have tried to show, in the few minutes of my speech, how effective those local newspapers have been as a vehicle for change. As I mentioned, the Prime Minster supports local newspapers. We have to put our money where our mouth is on some occasions and actually invest in local newspapers.

[Andrew Bingham (High Peak) (Con)]

My hon. Friend is making a superb point regarding local newspapers. In my constituency, we have the Buxton Advertiser and the Glossop Chronicle. People always read the notices in the back. There is also local radio. My local station, High Peak Radio, is widely listened to and, as my hon. Friend says, gets the message out better than many of the free sheets produced by local authorities.

[Stephen McPartland]

I agree that radio is a very effective medium. As I mentioned, I will be doing a radio phone-in surgery on Saturday morning with my local radio station, Jack FM, to get that great penetration into my local community.

[Andrew Bingham]

I thank my hon. Friend for giving way again; he is being very generous. Not long after I was elected to the House, my local radio station, High Peak Radio, came down and broadcast from the Lobby of the House for a morning. That went down extremely well and increased the perception and knowledge of Parliament throughout the constituency. I would recommend that to any colleague.

[Stephen McPartland]

I thank my hon. Friend for making an excellent point, which I will make to the producer of Jack FM on Saturday morning before we go on air.

The key points for me are clear. We do not want to distort the media market. The number of hon. Members who have intervened on me and are present for the debate shows the interest in it. My hon. Friend the Member for Carlisle (John Stevenson) is keen to speak, so I will finish my speech shortly. The reason why I wanted the debate was simply that we have to understand the law of unintended consequences. I am very concerned that local authorities are using taxpayer funds—

[Jason McCartney (Colne Valley) (Con)]

I am very lucky in my part of the world—Colne Valley. The Huddersfield Daily Examiner is a fantastic daily newspaper six days a week, running community and business awards, which are very well followed. I have to mention Barry Gibson’s coverage of the local development framework controversy on our patch. He was in the council chamber for 10 hours and was tweeting. The newspaper also led an important community campaign to get people signed up to the Anthony Nolan Trust bone marrow register after one of its journalists died of leukaemia. I agree with my hon. Friend about the importance of councils using their local newspapers for advertising. Does he agree that at a time when money is tight, that can also be very cost-effective?

[Stephen McPartland]

My hon. Friend makes an excellent point. I have experience of The Huddersfield Daily Examiner, as my wife went to university in Huddersfield and I have read the newspaper on one or two occasions. I do not know whether my hon. Friend has contributed many articles to it in the past, but it is an excellent newspaper. We come back to the point that local newspapers are fantastic vehicles for social change, and we need to be very careful about ensuring that they have the ability to campaign. On that point, I shall finish my speech, so that other hon. Members have a chance to speak.

16:55

[John Stevenson (Carlisle) (Con)]

I am delighted to have the opportunity to speak under your chairmanship, Dr McCrea. First, I congratulate my hon. Friend the Member for Stevenage (Stephen McPartland) on initiating the debate. Its importance is shown by the number of hon. Members present. It could have been a longer debate had we had more time. It raises an issue that is extremely relevant to such localities as Stevenage, Carlisle and many other parts of the country—towns and small cities up and down the United Kingdom.

The national media are clearly vibrant and diverse. There are national newspapers, appealing to different sections of society; there is a plethora of TV channels and a large number of radio stations, both independent and through the BBC; and now we have the wonderful world of the blogosphere.

On the face of it, local media are also still quite vibrant. There are 1,200 regional and local newspapers. That is the most popular print medium; 33 million people read a local newspaper every week. Local media employ about 30,000 people and about 10,000 journalists. Local radio is also quite vibrant. Between independent radio and the BBC, it covers most parts of the country. In some cases, there is also local television.

However, there are clearly increasing financial difficulties for local media, particularly for local newspapers, which have experienced a triple whammy. They have lost revenue from adverts relating to housing, car sales and, probably most importantly, job vacancies. They also now have competition from the internet, which makes it far more difficult for them to be financially viable. Even radio is experiencing difficulties. It has less advertising revenue, and the BBC, as we know, has made severe cuts in local radio output in recent times.

I want to highlight what I see as the two most important aspects of local media. My hon. Friend the Member for Stevenage touched on the first one—the basic local news that is provided, information on events, simple local adverts, information on births, marriages and deaths—everything to do with normal everyday life. Quite often, they also cover the bigger stories, such as the success or otherwise of football clubs—I just note that Carlisle is above Stevenage at present in division 1.

Most importantly, local media hold institutions and individuals to account. I can give the best example of all. When I was a councillor, there were 52 of us, but probably the most important person in the council chamber of a night was the local journalist who reported the council’s proceedings to the wider public. Had he not been there, who would have known what was decided on that evening?

[Mr Nigel Dodds (Belfast North) (DUP)]

The hon. Gentleman rightly emphasises the importance of local media. In my city, the Belfast Telegraph plays a very important role in the way that he has outlined. Does he accept that one of the challenges in terms of costs is that many local newspapers are moving their printing works out of local towns and cities to somewhere else, so that they can do it more cheaply? That is happening with the Belfast Telegraph now. It is obviously a concern that these local institutions, which have been going for 100 years and more, are now moving their work forces out of the cities that they serve.

[John Stevenson]

I completely concur.

We must remember that it is not just politicians whom local media hold to account. It is local business men, the police, the NHS and other organisations, including schools and colleges.

[Mr Andrew Smith (Oxford East) (Lab)]

I commend those who arranged the debate, which is on a subject of cross-party concern. The hon. Gentleman is making a very important point about investigative journalism. Does he agree that under the pressures that local media—local papers in particular—face, especially the pressure of profitability or its loss, it is often the important investigative journalism that is hollowed out and lost? That is a real loss to local democracy. Happily, that is not yet the case for the Oxford Mail and the Oxford Times and the family of papers that serves my constituency and that of the Minister to an excellent standard, but it is a worry. Does he agree?

[John Stevenson]

I could not agree more. The danger is that local papers just start to reproduce the press releases that everyone sends out rather than challenging what has been said. What can the Government do? Obviously, they should encourage and support a diverse local media industry, and I am sure that they will. We should restrict councils’ ability to issue free newspapers, which is often just political opportunism. We also need to ensure that statutory notices remain compulsory, and that it remains compulsory for them to be produced in the local media. Undoubtedly, that helps local newspapers financially and ensures that local people know where to go if they want to see notices about certain things, such as planning applications.

We must ensure that the BBC is also properly financed, so that we have high-quality local media. Where possible, I should like to see local TV stations reporting local news rather than national and regional news. If we can ensure that we have a vibrant local media, it will enhance our democracy.

17:01

[The Parliamentary Under-Secretary of State for Culture, Olympics, Media and Sport (Mr Edward Vaizey)]

It is a pleasure to serve under your chairmanship, Dr McCrea. I congratulate my hon. Friend the Member for Stevenage (Stephen McPartland) on securing this important debate. The subject of local media is one that is dear to all hon. Members’ hearts. My hon. Friend the Member for Carlisle (John Stevenson) mentioned the cuts to BBC local radio, as part of the BBC’s plan to deliver quality first. A debate on that subject in Westminster Hall attracted some 50 hon. Members. We also had a debate in the main Chamber. I was pleased that the BBC Trust asked the BBC to think again about the proposals for local radio. We will all have experienced the ways in which it plays an important role in our communities.

Local newspapers play a vital role in supporting local democracy. All of us know and love our local newspapers, no matter how badly they behave towards us, because we recognise their constitutional importance. I was hoping to make the point that only Conservative Members had turned up to the debate today and to send a signal to all local newspapers that they should therefore skew their editorial policies in that fashion. It grieves me, therefore, to have to acknowledge the presence of the right hon. Member for Oxford East (Mr Smith), who is displaying the customary diligence for which he is well known, thus skewering my opportunity to make that particular point.

We take local newspapers seriously. One of the first things that the Government did after the election was to deregulate cross-media ownership rules at the local level to give individual local newspapers and local newspaper groups the opportunity to own radio stations and vice versa. It was recognised by the Government that consumers use a variety of platforms, whether the local newspaper, the radio or the internet. By allowing these different platforms to unite, there is more opportunity to create a critical mass to ensure that newspapers can be well financed in the future.

There is no doubt that newspapers will have to adapt to a changing world of technology. As my hon. Friend the Member for Carlisle pointed out, it has been a triple whammy; I sometimes refer to it as a perfect storm. What has hit newspapers the hardest is the move of classified advertising to the internet. Such advertising was a source of guaranteed revenue for them. That was the most important first move that we made.

I am also pleased to say that a second move, which was made by the Department for Communities and Local Government, was to consult urgently on council news sheets. That consultation took place in 2010, and a new publicity code was issued on 31 March 2011, which makes it clear that councils have to think very carefully about how they use council tax payers’ money to fund what is known colloquially as propaganda on the rates. Those council free sheets should now be published quarterly and be accountable to local council tax payers. I am pleased to say that many local councils have now taken the view that they should publish their free sheets within their local newspapers. Therefore, as well as limiting the amount of money that they spend on those information documents, they are also ensuring that the money effectively gets channelled through the local newspaper by being part of the local newspaper. In the House, we have the opportunity to publish information about our activities. I hope that all hon. Members will think carefully about using their local newspapers to that end.

The second issue raised by my hon. Friend the Member for Stevenage was the current consultation on traffic regulation. Having already spoken on behalf of the Department for Communities and Local Government, let me now speak on behalf of the Department for Transport. Local councils spend around £20 million a year on advertising traffic regulation orders in local newspapers. I should add the caveat that local newspaper groups, such as the Newspaper Society, do not necessarily agree that that is the sum that is spent. I am sure that everyone in the House agrees with the efficient use of council tax payers’ money. Saving money by reducing advertising costs would be a good thing. My hon. Friend the Member for Suffolk Coastal (Dr Coffey), who is a member of the Culture, Media and Sport Committee, might say that the money would be better spent on libraries—I was giving evidence to her on libraries yesterday. Incidentally, I was pleased that Desmond Clarke, to whom I referred yesterday, is now sending my hon. Friend regular e-mails, updating her on library policy, but I digress.

A consultation was issued at the end of January 2012 by the Under-Secretary of State for Transport, my hon. Friend the Member for Lewes (Norman Baker). It has already generated 100 letters from Members. I am pleased that those letters went to the Department for Transport and not to the Department for Culture, Media and Sport. I am also pleased to say that my hon. Friend will be meeting the Newspaper Society next week to discuss the issues. Clearly, there is a balance to be struck in achieving value for money for the council tax payer, but I am pleased that the Department for Transport has recognised, through the consultation process, the importance of statutory notices to a free and thriving local newspaper press. Obviously, I cannot prejudge the outcome of that consultation, but I know that hon. Members will be pleased that many of their colleagues have made representations on behalf of their local newspapers to the Department for Transport and that the Department is actively engaged in consultation.

I have covered both the Government’s action on the deregulation of cross-media ownership and our action to reduce the impact of council newspapers on local newspapers, and I have acknowledged the importance of statutory notices to local newspapers. Let me turn to a number of other issues that will provide opportunities for local media.

My hon. Friend the Member for Carlisle referred to local television; he hoped that it would start to cover genuinely local news rather than regional and national news. The Secretary of State for Culture, Olympics, Media and Sport shares that view; he has a vision to implement local television, which he feels is a media platform that has been neglected in this country. We often cite America as a country with a plethora of local television news stations, but many of our European counterparts also have very local television stations, so there is no reason why we cannot have a thriving and effective local television sector, despite the small size of this island compared with, say, the US.

To the end of promoting local television, Ofcom has conducted extensive consultation. Spectrum has been identified that will allow local television to broadcast. The most effective sites for a local television station to get up and running in the short to medium term have been identified. A licensing process is under way, and money has been secured through a partnership with the BBC to secure the establishment of local television stations and to guarantee the purchase of BBC content.

[Mr Andrew Smith]

As there is only so much advertising revenue out there, how far does the Minister see that there is a danger that the growth of local TV will put more pressure on the resources, income and profitability of local newspapers and therefore put more of them at risk?

[Mr Vaizey]

One of the reasons why we wanted to take forward local television in partnership with the BBC is that we recognise that it could potentially take a while for some local stations to attract the element of advertising that they need. It is important to stress that although we would not refer to local television stations as a shoe-string operation, it will be a pared-down operation; local television stations will not have the kind of bells and whistles that right hon. and hon. Members may be used to when they go into a television studio in Millbank. We estimate that the cost of running a local television station will be about £600,000 a year, so we are confident that advertising can support local television in the short to medium term.

It is important to stress that many local newspaper groups are looking at partnering with local television groups to create a local multi-media network. We hope that those partnerships will emerge. However, it is also possible that some quasi-national advertising will support local television; for example, a large supermarket group could still push out a national advertising campaign with a local flavour through local television. We do not anticipate that there will be an impact on local newspapers from local television, and indeed we hope that local television will support not only local news in general but local newspapers specifically.

Community radio continues to thrive in the UK; I always credit the last Government with supporting it. Despite the tough spending round, we secured continued financial support for community radio.

I thank my hon. Friend the Member for Stevenage for securing the debate. He opened it by referring to Stevenage’s successful run in the cup and their sad defeat at White Hart Lane. When I became a Member of Parliament, my local football team—Didcot Town FC —actually won at White Hart Lane, although they were not actually playing Spurs at the time. They won the FA Vase, were promoted and then relegated. However, my hon. Friend is quite right to draw attention to the importance of local newspapers, and I hope that I have reassured him that the Government are not only listening when there is a perceived threat to local newspapers, but providing important opportunities for local newspapers to thrive and grow in a complicated 21st-century technology landscape.

Question put and agreed to.

17:00

Sitting adjourned.

Written Ministerial Statements

Wednesday 14th March 2012 Written Statements

Wednesday 14 March 2012

Executive Pay (Consultation on Enhanced Shareholder Voting Rights)

Wednesday 14th March 2012 Written Statements

[The Secretary of State for Business, Innovation and Skills (Vince Cable)]

On 23 January, I announced a package of measures to address failings in the corporate governance framework for executive remuneration. This includes:

Greater transparency in directors’ remuneration reports;

Empowering shareholders and promoting shareholder engagement through enhanced voting rights;

Increasing the diversity of boards and remuneration committees;

Encouraging employees to be more engaged by exercising their right to information and consultation arrangements;

Working with investors and business to promote best practice on pay-setting.

These measures will be taken forward through a combination of primary and secondary legislation, and business-led good practice. My objective is to enable shareholders to promote a stronger, clearer link between pay and performance in order to prevent rewards for mediocrity or failure, while still allowing for exceptional performance to be rewarded.

Enhanced voting rights for shareholders will require primary legislation and, subject to parliamentary time, we aim to include this in the next legislative Session. Today I am publishing a consultation document that provides more detail on a model which will give shareholders greater influence on the issue of executive remuneration. The main components of this are:

An annual binding vote on future remuneration policy;

Increasing the level of support required on votes on future remuneration policy;

An annual advisory vote on how remuneration policy has been implemented in the previous year;

A binding vote on exit payments over one year’s salary.

The purpose of the consultation is to seek evidence on the impact, costs, benefits and likely behavioural effects of the proposals. I want to ensure that these measures promote effective dialogue between companies and their shareholders.

In developing this consultation document, we have engaged with investors, non-executive directors, company secretaries, HR directors, lawyers and other experts. We will continue to do this during the consultation period and to build our evidence base. Today I have also published the Regulatory Policy Committee’s verdict on our consultation stage impact assessment.

Following this consultation I hope to confirm the precise measures we will take forward in primary legislation early this summer. At the same time, I plan to publish draft regulations which will determine the content of directors’ remuneration reports so that the proposals can be scrutinised as a whole. Together, these measures will create a more robust framework within which executive pay is set, agreed and reported on.

I am placing a copy of the consultation document in the Libraries of both Houses.

Tax and Customs Co-operation Programme

Wednesday 14th March 2012 Written Statements

[The Economic Secretary to the Treasury (Miss Chloe Smith)]

I wish to inform the House that the Government have opted in to the proposal for a regulation of the European Parliament and of the Council establishing an action programme for customs and taxation in the European Union for the period 2014-2020 (known as FISCUS).

This proposal establishes a tax and customs co-operation programme to support the effective functioning of the internal market and operation of customs procedures, and to improve the functioning of taxation systems within the EU by increasing co-operation between member states. The programme aims to contribute to the Europe 2020 strategy for smart, sustainable and inclusive growth, by strengthening the functioning of the single market and EU customs union. It also has the objective of driving technical progress and innovation in national tax administrations with the aim of developing e-tax administrations and contributing to the establishment of a digital single market.

The UK has benefited from participation in predecessor programmes, in particular, through involvement in multilateral controls which can assist with the detection of tax fraud and through using customs 2013 activities to reduce administrative burdens for compliant businesses. The programmes also fund the maintenance and development of EU communication and information exchange systems. This is an area where spend on research and development can represent good EU added-value by providing economies of scale in the development of cross-EU networks.

Diamond Jubilee Civic Honours Competition

Wednesday 14th March 2012 Written Statements

[The Deputy Prime Minister (Mr Nick Clegg)]

I am pleased to announce that Her Majesty the Queen has commanded that city status be granted to Chelmsford, Perth and St Asaph; and lord mayoralty to Armagh to mark her diamond jubilee.

Although the granting of these honours remains a rare mark of distinction, the Queen accepted the Government’s recommendation to grant these honours to more than one place to commemorate her diamond jubilee and in recognition of the high quality of applications received. City status and lord mayoralty, which confer no additional powers or functions on the successful applicants, will be granted by Letters Patent, which will now be prepared for presentation to Armagh, Chelmsford, Perth and St Asaph in due course.

The unsuccessful applicants will, of course, be disappointed not to have been honoured on this occasion. The standard of application was very high, and those who missed out should not be downhearted. I hope the competition has given the residents of all of the places which applied a sense of civic pride, of collective ownership and of community spirit. Across the United Kingdom, I have been impressed by the pride and passion which people have shown in putting their nominations forward.

I offer my congratulations to Armagh, Chelmsford, Perth and St Asaph, who have been granted these rare honours from a field of exceptional entrants.

Adoption Action Plan

Wednesday 14th March 2012 Written Statements

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

I am publishing today “An Action Plan for Adoption: Tackling Delay”. It explains the changes the Government will be making to speed up the adoption system in England. This is the first part of a radical wider programme of reform to improve the lives of all children who enter local authority care.

Adoption gives vulnerable children the greatest possible stability and security, in a permanent loving family and it can bring great joy and reward to adoptive parents. But the number of children adopted from care has been decreasing in recent years. Just 3,050 children found new homes through adoption last year, the lowest number since 2001. Many of the children who are adopted are forced to wait far too long. The average time between a child entering care and moving in with their adoptive family is one year and nine months. If a child enters care at the age of two and a half, on average they will be nearly five by the time they move in with their family.

Delay can cause lasting harm to the ability of babies and children to make secure attachments to their caregivers and increases the likelihood that they will develop emotional and behavioural difficulties. And as children grow older in care, waiting for an adoptive family, it is less likely they will be adopted at all.

The action plan sets out a range of proposals to speed up the process for children; to overhaul the service for prospective adopters; and to strengthen local accountability for the timeliness of adoption services. Last week the Prime Minister announced measures to speed up the process for children. We will seek an early opportunity to introduce new legislation that will prevent local authorities from delaying an adoption by searching for a perfect match for a child, particularly one based on the child’s ethnicity. We will also change the regulatory framework to make it easier for children to be fostered by approved prospective adopters, while courts consider the case for adoption. Finally, if a match has not been found locally within three months of a child being recommended for adoption, local authorities will have to refer them to the national adoption register.

One of the reasons for delay in the adoption system is a mismatch between children in need of adoption and the families approved to adopt them. We need to recruit a greater number and wider range of prospective adopters, for the children who are waiting, many of whom have high levels of complex needs because of their earlier experiences of abuse and neglect. We believe that there are many more people willing to give a child a stable, loving home through adoption than those who complete the assessment journey at present. So we want to reform an assessment process which many prospective adopters find unresponsive, intrusive and lengthy—it can take as long as two years to complete.

With the help of an expert working group of local authorities, voluntary adoption agencies and adoptive parents we have developed a set of proposals for the reform of the recruitment, training and assessment process. The action plan gives strong support to a new six-month approval process and assessment agreement and sets out our intention to consult on the necessary regulatory changes. And it welcomes the concept of a national gateway to adoption—a national first point of contact for the adoption system.

We will hold local authorities more sharply to account for the speed of their adoption processes through an adoption scorecard linked to a performance threshold and statutory intervention regime. Delay in the adoption system is not universal. Some local authorities already ensure that all their children who need adoption are placed with families in a timely fashion. Some adopters speak of receiving an efficient, professional and supportive service. Building on the other changes we are making to the system, the new scorecard and intervention regime will make good practice more widespread.

The action plan contains the most urgent changes we need to make to the adoption system, as part of our broader work to transform outcomes for children in care. My Department will bring forward a further set of proposals on other changes to the adoption system and wider reform to services for children in care in the summer.

Copies of “An Action Plan for Adoption: Tacking Delay” have been placed in the Libraries of both Houses.

Westminster Foundation for Democracy

Wednesday 14th March 2012 Written Statements

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

I wish to inform the House of the Foreign and Commonwealth Office’s plans for continuing support to the Westminster Foundation for Democracy (WFD). I am also able to inform the House that my right hon. Friend the Secretary of State for International Development has also agreed to provide additional funding to WFD.

The FCO will provide WFD with funding of £3.5 million for 2012-13 and plans to provide them with similar sums for 2013-14 and 2014-15, dependent on future performance across all aspects of their work. The Department for International Development (DFID) will provide WFD with an accountable grant of £6 million over the next three years (2012-13 and 2014-15), which is the first time DFID has provided funding to WFD in this way.

WFD delivers an important service in its work to strengthen Parliaments and provide assistance to political parties to support democracy across, the world. The promotion of multi-party democracy, good governance, transparency and accountability helps to support the UK Government’s priorities and the UK national interest.

The joint support of our two Departments will help WFD to become a more efficient, effective, and evidence-based organisation and to achieve greater impact with its important work.

European Union Justice and Home Affairs Measures

Wednesday 14th March 2012 Written Statements

[The Parliamentary Under-Secretary of State for the Home Department (James Brokenshire)]

We believe that European Union measures that impose justice and home affairs (JHA) obligations only apply to the UK if we choose to opt in to them. Since the entry into force of the Lisbon treaty, there have been a number of JHA proposals that repeal measures that we are currently bound by, and replace them with new ones. We have not opted in to all of the replacement proposals and there has been a question as to whether the measures that we currently do take part in (the “underlying measures”) would still bind us once the replacement has entered into force.

The policy we inherited from the previous Government was that the UK was not bound by an underlying measure when we did not opt in to a measure repealing and replacing that underlying measure. Following a review of this policy, the position of the Government is that:

the UK considers itself bound by an underlying measure when we do not opt in to a

new measure that repeals and replaces it; and

article 4a of the title V opt-in protocol (protocol 21 of the treaty on the functioning of the European Union) should be interpreted as applying not only to amending measures but also to repeal and replace measures.

Our position has been reinforced by the fact that the Commission has started to introduce express wording in repeal and replace measures which makes it clear that the underlying measures will continue to bind us if we do not opt in. It is highly likely that the Commission will in future routinely insert such language into new measures.

We acknowledge that this new policy carries a small risk of the UK being bound by arrangements which no longer operate in relation to the EU as a whole but continue to apply as between the UK and Denmark (and sometimes Ireland). This would happen when only the UK and Denmark (and sometimes Ireland) remain bound by an underlying measure following a “repeal and replace” proposal. However, we already accept this position in relation to amending measures as a consequence of article 4a of the title V opt-in protocol. Article 4a of the title V opt-in protocol provides that the UK remains bound by an underlying measure where a new measure amends it unless

“the non participation of the UK and Ireland in the amended version of an existing measure makes the application of that measure inoperable for other Member States of the Union...”

In such cases, the measure would cease to apply to the UK.

Our decision to accept that we continue to be bound by an underlying measure where it has been repealed and replaced has a direct read across to the interpretation of article 4a of the title V opt-in protocol. Our view is that a broad interpretation of article 4a is the correct one and that repeal and replace measures should be considered to be a type of amending measure for the purposes of article 4a. In practical terms, if we accept that the UK continues to be bound by the underlying measure where we do not participate in the new ‘repeal and replace’ measure, we believe that we must also accept that, in such cases, the UK would cease to be bound by the underlying measure where it was deemed to be ‘inoperable’.

Hate Crime (Government Action Plan)

Wednesday 14th March 2012 Written Statements

[The Minister for Equalities (Lynne Featherstone)]

Today, we are publishing “Challenge it, Report it, Stop it”—the Government’s plan for tackling hate crime.

Hate crime—crime which is motivated by hostility to the victim’s personal characteristics, such as disability, gender-identity, race, religion or sexual orientation—can have devastating consequences for victims, their families and communities. It is hugely under-reported, as many victims are reluctant to come forward for fear of attracting further abuse or because they do not believe that the authorities will take them seriously.

This is an issue the Government take very seriously, as demonstrated by our coalition commitment to improve the recording of such crimes.

We have a responsibility to reduce the incidence of hate crime and to protect victims. However, getting the response to hate crime right depends on deep local knowledge of victims, offenders and communities, so the lead must come from professionals at the front line, working with the voluntary sector and communities to respond to local issues and priorities.

The Government have a vital role to play in setting the direction at national level, and supporting those locally led efforts, with a clear, consistent message on the importance of tackling hate crime and protecting victims and communities. That role includes making more and better national-level data available, so that we have a better understanding of where hate crime is happening and why; encouraging new ideas and highlighting examples of good practice, so that local professionals can see what has worked in other areas; and, where necessary, giving victims of hate crime more protection under the law.

“Challenge it, Report it, Stop it” is our blueprint for the remainder of this Parliament. It brings together activity by a wide range of Government Departments—working with local agencies and voluntary sector organisations, as well as with our independent advisory group on hate crime—to meet three key objectives:

To prevent hate crime—by challenging the attitudes that underpin it, and intervening early to prevent it escalating;

To increase reporting and access to support—by building victim confidence and supporting local partnerships; and

To improve the operational response to hate crimes—by better identifying and managing cases, and dealing effectively with offenders.

Hate crime is also a global issue and our responsibility to share our experience, ideas and good practice should also extend to partners overseas. We will therefore continue to push for action on hate crime at international level, through a range of organisations, including the United Nations, the European Union and the Organisation for Security and Co-operation in Europe.

A copy of the action plan will be placed in the Library of the House

Grand Committee

Wednesday 14th March 2012 Grand Committee

Wednesday, 14 March 2012.

15:45

Arrangement of Business

Wednesday 14th March 2012 Grand Committee

[The Deputy Chairman of Committees (Lord Colwyn)]

My Lords, welcome to the Grand Committee. If there is a Division in the House the Committee will, as is customary, adjourn for 10 minutes.

Auditors: EAC Report

Wednesday 14th March 2012 Grand Committee

Considered in Grand Committee

15:45

Moved By

[Lord MacGregor of Pulham Market]

That the Grand Committee takes note of the Report of the Economic Affairs Committee on Auditors: Market concentration and their role (2nd Report, HL Paper 119).

[Lord MacGregor of Pulham Market]

My Lords, pressures on the parliamentary timetable and the queue of Lords Select Committee reports awaiting debate have meant that it is almost a year since our report was published. There have been some important developments since then, progress on which it will be interesting to discuss today, but many of the issues are still alive and highly topical. As chairman of the committee I am therefore pleased to introduce the report.

When we first decided to look into the oligopoly of the audit profession, some, I think, thought it a somewhat dry and limited if not esoteric topic mainly of interest to the accounting profession. It became rapidly clear to us that this was not so. It was a fascinating inquiry, sometimes taking us in unexpected directions. The serious issues surrounding the current oligopoly I will touch on in a moment. However, as our inquiry progressed, two other important themes emerged on which we have made recommendations: namely the inadequacies of the roles played by auditors and of the dialogue between auditors and regulators leading up to and during the financial and banking crisis—and this became an important issue for us as a result of our probings at the hearing we had with senior partners of the big four auditors themselves—and, secondly, concerns about the effect on audit of the adoption of international financial reporting standards. I shall touch on all three. This widened our inquiry considerably. Our report contains 204 conclusions and recommendations. I hope to cover the main themes but inevitably I shall have to leave a number of issues to others.

Before I do so, I should like to thank most warmly our committee clerk, Bill Sinton, and his staff, Stephen Seawright and Karen Sumner, the committee assistant, for all their invaluable help and hard work. In particular, I thank our special adviser for this report, Professor Andrew Chambers, professor of corporate governance at London South Bank University, whose expertise and advice was invaluable.

First, I turn to the market concentration of auditors. The need for a reliable audit was recognised by this House as early as 1849, when a Select Committee looking into financial scandals in the railway boom was credited with helping to establish the accountancy profession. Certainly by 1872 the Great Western Railway had an audit committee and an external auditor, who was called Mr Deloitte.

Rigorous and trustworthy audit has long been recognised as vital to the proper running of capital markets. Without a clear and reliable system of assurance that accounts show a true and fair picture of a company’s financial state, there is no basis for investment decisions. It has long been a statutory requirement for large firms to be audited every year. The annual audit has become an essential underpinning of financial markets, especially since they have gone global. While offering a statutory service, audit has become a large and prosperous profession. Auditors have built on large firms’ legal obligations to buy their services by selling a range of other financial consultancy services to their semi-captive audit clients.

In recent decades, as financial markets became global, the main audit firms have become very much larger and more dominant as they spread beyond national borders and as they consolidated and concentrated among themselves. By the 1980s we had the big eight international audit firms, mostly international federations of national partnerships. By 2002 mergers and the disappearance of Arthur Andersen had brought the big eight down to the big four: Deloitte, PwC, KPMG and Ernst & Young. No regulatory barriers prevented this concentration in this country or elsewhere. The big four greatly outweighed second-tier audit firms in both size and global reach; and there is always the risk that withdrawal or disappearance of one of the big four could leave us with an even more dominant big three—a point to which I shall return.

So the problem is easy to identify: the big four firms’ oligopoly, especially in the United Kingdom. In the UK, the big four audit 99 of the largest firms listed in the FTSE 100 index. In certain markets, such as banking, there is not even a big four but effectively a big three, since Ernst & Young does not audit banks in the UK. It is questionable whether large banks in the UK have any real choice of auditor, and that may well apply to some other financial institutions as well.

An auditor to a FTSE 100 client remains in place for 48 years on average. Barclays has had the same auditor, PwC or its predecessors, since 1896. The picture is similar in the next ranking FTSE 250 large companies, almost all of which are audited by the big four. A FTSE 250 auditor remains in place for 36 years on average. This does not look like a competitive market.

Witnesses from the big four assured us that the large-firm audit market in the UK is fiercely competitive, but we were not convinced. The market is clearly an oligopoly, with all the attendant concerns about competition, choice, quality and conflict of interest. I must say that I was much struck during our hearings by the fact that almost all of our witnesses without exception agreed that there was a risk that the big four might become a big three, and then there would be a major problem. That included the representatives of the big four. However, finding solutions was not so easy.

The Financial Reporting Council—and I am delighted to see its current chairman, the noble Baroness, Lady Hogg, here today—produced a set of recommendations from its market participants group in 2007. However, in our view—and I think there is general agreement on this—this had little or no effect in lessening the dominance of the big four. The then Minister at the Department of Business, Innovation and Skills, Mr Edward Davey, outlined a number of measures that echoed the approach of the FRC, an approach that we described as having palpably failed. We would expect exactly the same results for the measures which he advocated to our committee as the FRC’s measures have had. As we have said in our report:

“It may be sensible to introduce these measures on their own merits. But they do not add up to a policy of creating greater competition and choice, of altering the current oligopolistic situation, or of addressing the risks of the Big Four coming down to a Big Three”.

We outlined in Appendix 3 of our report 34 individual measures which had been put to our committee in one form or another for dealing with this situation. In our analysis we read carefully through all of them and rejected a considerable number, including the proposal for joint audit committees which the European Commission has now advocated. At a seminar which I addressed in the City attended by senior accountants and regulators, one leading key participant described our report as a,

“road map for future action”.

I turn now to a few of the key recommendations. Although our committee contains members with much experience and expertise, our part-time committee simply did not have the time or the resources, including substantial dedicated staff, to address all the highly complex issues stemming from market concentration. By far our most important recommendation was therefore that the OFT should conduct an investigation into the audit market in the UK, with a view to a possible referral to the Competition Commission to analyse all the issues in depth. Frankly, this has been fudged for some years. We felt that such an investigation was overdue, and I have been delighted to see that the OFT, at our prompting, swiftly took up the matter and the Competition Commission is now carrying out that review.

We recognised the international dimension to the issues, but felt that the UK could give a lead internationally by undertaking such a review. Concurrently we have the European Commission’s inquiry, and our committee was able to have a hearing last month with Jonathan Faull, the Director-General of the Internal Market and Services Department of the European Commission. Like us, the Commission is concerned about competition and choice. It points out that in most member states the big four audit more than 85 per cent of large listed companies. The Commission’s proposals are now before the European Parliament. Some of them are in similar directions to our own recommendations, but the Commission’s remit does not cover pure competition issues, which are the preserve of national authorities such as the Competition Commission.

We had a range of other recommendations, which I have no doubt the Competition Commission will look at more fully, and I touch on them only briefly. We recommended that FTSE 350 companies should carry out a mandatory tender of their audit contract every five years, and that audit committees should be required to include detailed reasons for their choice of auditors in their report to shareholders. We recommended greater involvement of institutional investors in audit matters, although I have to say that I do not overestimate the likely impact of this. We took up the suggestion of the noble Baroness, Lady Hogg, that the abolition of the Audit Commission would provide an opportunity to increase competition and choice in the audit market if it formed the basis of a substantial new competitor to the big four. There have been developments on this, which the noble Baroness will no doubt comment on.

We put particular stress on the need for separate risk committees in banks and major financial institutions, and other large companies where appropriate. We believe that every bank should have a properly constituted and effective risk committee at board level. It should be one of the duties of the external auditors to ensure that this is done. This is relevant to the accountancy marketplace in the sense that such committees will increasingly require specialist skills and external advice. We saw scope for this advice being provided by a firm that is not the company’s auditor, which could open up opportunities for the second-tier accountancy firms.

Next, we were struck during our inquiry by the fragmented and unwieldy regulatory structure that governs accountancy and audit in the United Kingdom, with overlapping organisations and functions. This seemed to us inefficient and unnecessary. It also seems to offer too much scope for regulatory capture, especially since present or former big four partners hold so many positions on the various bodies and committees. Other professions have only one regulator—for example, the General Medical Council. We noted that the Financial Reporting Council has been seeking wider powers that would help promote some rationalisation of the regulatory maze. I look forward to hearing what the noble Baroness, Lady Hogg, has to say about progress on these matters, which our committee strongly supported. If it does not achieve real impetus towards rationalisation, we recommended that the Government should stand ready to impose a remedy. Perhaps the Minister will comment on that.

Finally, because of the concerns about the big four moving to a big three, we recommended that the Government and regulators should promote the introduction of living wills for big four auditors. There are many other recommendations that I have not had time to deal with and which others may wish to mention. As I said earlier, I hope that all of them will be considered by the Competition Commission in its inquiry.

I now turn to the other two areas. First, as our proceedings continued, it became clear that there were shortcomings of auditing during the financial crisis. Banks were audited and certified as going concerns just before they had to be rescued by taxpayers to avoid collapse. We were not particularly impressed by the defences produced by the auditing firms themselves, and there have of course since been highly critical reports on Northern Rock, RBS and HBOS. The value of audit here was at best questionable, even allowing for the issue—which we acknowledged—that panic might have followed if auditors had publicly questioned the accounts of banks. However, confidential dialogue between auditors and bank regulators does not run these risks, and it was on this that we focused. We were shocked to discover that the dialogue on these lines—which was required by statute under the Banking Act 1987, and which I am sure my noble friend Lord Lawson will wish to refer to—was virtually non-existent in the run-up to the crisis. We described the lack of meetings between bank auditors and regulators during that period as a dereliction of duty.

Part of the problem was the separation of powers and duties between the FSA and the Bank of England, which this Government have now rectified. However, we also recommended a statutory change to ensure that confidential dialogue between bank auditors and financial regulators takes place regularly. We welcome the introduction by the FSA and the Bank of England of a code of practice to encourage dialogue. I also note that the Institute of Chartered Accountants in England and Wales has just produced its good practice for bank auditors, audit committees and executive management in this regard. However, in its briefing for this debate, the ICAEW says that it does not see a need to prescribe this dialogue in law. That was not the view of our committee at the time that we did our report, and I for one still do not agree. If we are to avoid the bad habits and mistakes that emerged during the financial crisis, I continue to believe that the statutory requirement for dialogue between auditors and regulators is necessary. I will be interested to hear the Minister’s response.

Finally—and now I get on to the matters that are rather abstruse for many of us—on accounting standards, we heard considerable evidence that the introduction in 2005 of international financial reporting standards, the IFRS, in place of the old British generally accepted accounting principles, GAAP, had led to sharp reductions in the quality and reliability of large-firm audit, especially of banks.

Witnesses told us that under IFRS rules auditors cared more about compliance with rules than with exercising professional scepticism and careful judgment to reach a true and fair view of clients’ accounts as required by company law. In short, so it is said, the auditor’s abiding principle is now box-ticking instead of prudence. The argument runs that superficial conformity with the rules can disguise underlying faults that it was the auditor’s skill and duty to detect under the old system. Banks in the crisis were a case in point. Unlike GAAP, IFRS takes account only of losses already incurred, not of expected losses. In these litigious times it is perhaps understandable if auditors feel safer monitoring compliance with a set of rules and exercising judgment. However, the public interest is not served if, as critics allege, IFRS audits are failing to give a true and fair picture. I note that the new chief executive of the Royal Bank of Scotland has recently referred to the Alice in Wonderland nature of some aspects of the bank’s results.

This is a complex area, and I do not pretend that we will get to the bottom of it all—although there are members of my committee who are better equipped to do so than I am. The Government gave a lengthy but somewhat holding reply in their official response to our report on this, and we have since had correspondence with Norman Lamb, the new Minister for Employment Relations, Consumer and Postal Affairs in BIS, in which he states:

“I consider that the changes in IFRS introduced since the financial crisis and the further changes proposed to be implemented should help to achieve accounting rules for banks which are crisis-neutral, provided they are endorsed by the EU, and provided they are properly applied the next time that valuations come under pressure”.

That is pretty guarded. On the issue raised by Mr Andrew Haldane of the Bank of England that new standards are needed for bank audits, he referred to the preliminary report of the Sharman committee—under one of our colleagues, the noble Lord, Lord Sharman—and said:

“The Sharman panel are considering the responses to this Report at present. We await their conclusions with interest”.

It would be helpful to hear from the Minister when we can expect definitive government decisions on this matter.

To conclude, it has been a fascinating and rewarding inquiry that has led to action. I am most grateful to all my colleagues for their substantial contributions to it.

16:03

[Lord Hollick]

My Lords, I thank the noble Lord, Lord MacGregor, for his excellent chairmanship of our committee and for the very clear review of our report that he has just given. I apologise to the Minister and noble Lords for my early departure from today’s debate to catch a flight to Berlin this evening.

I shall focus my remarks on the committee’s work on how banks were audited before and during the financial crisis and on the impact of IFRS rules on the audit. Banks rely on the confidence of depositors, bond holders and investors to survive. That confidence is founded on the belief that the bank is a going concern. In his report Going Concern and Liquidity Risks, to which the noble Lord, Lord MacGregor, referred, the noble Lord, Lord Sharman, and his colleagues identify two elements to the going-concern test: solvency, which is the ability to meet liabilities in full; and liquidity, which is the ability to liquidate assets at the velocity needed to meet liabilities as they fall due.

If confidence is shaken, the flow of funds to the banks dries up and the fragile business model, which in essence is to borrow short and to lend long, is imperilled and a funding crisis ensues. That is what happened in 2007-08 and, to a considerable degree, the problem persists to this day. Indeed, eurozone banks, in particular, are wary of lending to one another and therefore place their funds with the ECB, which recycles the funds to other banks. That recycling was augmented at the end of 2011 by the ECB’s three-year LTRO—long-term refinancing operation—which is a programme to ease liquidity and introduce quantitative easing into the eurozone. However, that programme does not address solvency. Indeed, it could exacerbate solvency if the banks use the LTRO funds to add to their holdings of risky sovereign debt.

The annual audit, particularly the going-concern test, is crucial to building and maintaining confidence in banks. Without it, banks become uninvestable and unable to fund their day-to-day activities. Our report highlighted several areas of concern. We noted that, in recent years, as the noble Lord, Lord MacGregor, has said, the traditional principles-based approach of auditors has been replaced by a more rules-based approach. “Prudence”, “true and fair view” and “going concern”, all viewed through a sceptical set of spectacles, have given way to a close adherence to rules, which to some observers looks, as the noble Lord, Lord MacGregor, has said, like box-ticking supplanting mature judgment.

For the auditors, this approach makes life a little easier. There is less likelihood of litigation, which of course is a major issue in the United States, whose voice is probably the loudest at the global debate on audit rules, and there is less pressure to use judgment. Yet informed, experienced judgment by a professional sceptic is precisely what is needed. The recognition of losses on loans and other assets held by the banks is just such an issue, where judgment really matters. Instead, IFRS rules are now paramount and IAS 39 requires that provisions against these assets can be made only for incurred, and not expected, losses. This led to a procyclical reporting of bank profits, which Mr Timothy Bush of the Investment Management Association said was in conflict with the Companies Act 2006 requirement to prepare accounts prudently without crediting any unrealised profits. Professor Fearnley saw IAS 39 as far less prudent than its equivalent under UK GAAP because it substituted neutrality for prudence. As a result, the profits of banks were artificially boosted during the period leading up to the banking crisis—including, in some cases, unrealised profits, leading to unjustifiably higher bonuses and dividend payments, a practice colourfully named in the City as “skimming”. That “skimming” led, when the true state of affairs became apparent, to an even larger hole in the balance sheets of our banks, which of course had to be filled with taxpayers’ money.

IFRS rules require assets to be mark to market, which is fine if there is a liquid market, but all too often the assets held by banks—some devilishly complex and frankly beyond the ken of most bank directors—are either not traded or so infrequently traded that a market valuation is meaningless. Quite perversely, such practices could actually lead the banks to write up the value of certain assets, thereby recording unrealised profits which were deemed available for distribution but which turned out to be wholly fictitious when the asset matured or came to be realised.

Before the advent of IAS 39, banks and their auditors were able to apply prudence to loan asset provision and to provide against anticipated but not incurred losses. IAS 39 forbids that. It even has the absurd example in its practice note that a loan to a dead person who died before the accounting date can be provided against, but no such provision can be made if the death occurred after the accounting date. In the world of absurd things, this probably trumps Donald Rumsfeld’s “known unknowns”.

A judgment about the liquidity of the bank is critical to its going-concern status. In retrospect, it is clear that many of our banks were dangerously reliant on short-term money market funds. This risk of illiquidity was not spelt out by the directors or auditors in their report, yet it goes to the heart of the viability of the bank’s business model and its going-concern status, so essential to creditor and depositor confidence. The senior partner of PwC told us:

“It’s not the job of the auditor … to look at the business model of a business”.

This, as we conclude in our report, appears disconcertingly complacent. The noble Lord, Lord Sharman, in his report, says:

“The going concern assessment should focus on the risks the entity takes and faces that are critical to its success or which could cause its business model to fail”.

It is simply not good enough for the auditors to stand aside. It is their job to look at and analyse the business model, and to satisfy themselves that the bank is indeed a going concern. They cannot hide behind the director’s judgment. Indeed, they should recall that when, in 1879, banks were allowed to become limited liability companies, Parliament made it abundantly clear that it intended the auditor to be the last honest man standing, to protect the interests of depositors and investors.

Reliable and transparent bank accounts are essential to rebuilding confidence in our banks. Andy Haldane, the executive director for financial stability at the Bank of England, has called for a different accounting regime, which allows for judgment and prudence to be exercised. His colleague Andrew Bailey, the chief cashier, wrote:

“Current financial statement disclosures … despite being compliant with accounting standards are … not sufficiently granular or transparent … to support users’ understanding”.

The credit rating agencies offer no help. Leaving aside their calamitous record over the past few years, they too have to rely largely on published accounts.

What is the Government’s response to this urgent problem? They agree with the committee’s conclusion that financial institutions should build appropriate capital buffers to provide against downturn. They welcome signs that accounting standards boards are proposing to move to an expected-loss model that provides for a more forward-looking approach to how credit losses are accounted for. Then timidity creeps in. They say:

“Financial reporting however, is designed to convey a true and fair view at a point in time”.

That lets the auditors off the hook on the going-concern test and puts the auditors’ interests ahead of the users’ interests. I would like the Minister to tell us when the Government expect the new forward-looking approach to accounting for credit losses to be introduced. In their response they mention that it would be June 2011. It clearly has not been. As I understand it, there is a three-year backlog among the accounting standards setters, so the earliest that one could expect this would be the middle of this decade, by which time we will probably have another financial crisis.

I ask the Government how they respond to the Sharman report’s call for the going-concern test to be more qualitative and longer-term in outlook rather than, as they say in their response to our report,

“at a point in time”.

Also, what steps do they plan to take to put prudence and judgment back at the heart of accounting, as called for by the Bank of England, which echoes the principles in the Companies Act 2006 setting the requirements for audited accounts to give a true and fair view above all other standards?

16:12

[Lord Shipley]

My Lords, I, too, thank my noble friend Lord MacGregor of Pulham Market for chairing such a detailed and important inquiry, and for leading the committee to a set of very powerful recommendations.

When I draw back the curtains at home in Newcastle, I can see over the rooftops the new HQ building of Northern Rock that was under construction in 2007 when the bank failed and had to be nationalised. It is now owned by the city council, purchased under prudential borrowing powers, and earning a rental stream for the council. Here I should declare my interest as a member of Newcastle City Council still, and also as an account holder at Northern Rock in 2007 and now.

That view of that building each morning serves as a salutary reminder to me of what can go wrong; how trust in large, familiar institutions can be lost overnight; and how vital and essential it is that effective checks and balances are delivered through high-quality audit and risk management processes. We should never forget that a lot of people lost their shares in Northern Rock in 2007, nor that many employees lost their jobs.

Shareholders had a right to expect better than they got. They received annual reports and were entitled to think that the report was an accurate reflection of the health of the bank as a going concern. They still ask what went wrong. Was it a culture of box-ticking and telephone audit interviews rather than a detailed examination by the auditors of the Northern Rock business model? Did the auditors know or suspect? Was everyone too complacent? Had corporate memory of previous banking failures simply faded away?

We know now that, for many months before its collapse, Northern Rock was following a risky business model in its reliance on wholesale markets to sustain its very high lending levels. Yet auditors appear not to have been aware of, nor to have understood, the dangers—or, if they were, to have acted upon them. Today I still find myself astonished that, in 2006, not a single meeting between the FSA and the external auditors of Northern Rock or HBOS took place, and that only one meeting between the auditors of RBS and the FSA took place. In 2007, only one FSA/auditors meeting took place with each bank auditor.

In their response to the committee’s findings, the Government said that they had three clear policy objectives: high-quality audits which are independent of the body being audited; a competitive market in the supply of audits; and an audit market that is resilient and could withstand the withdrawal of one of the major firms. We can agree on that. However, there is a specific problem in the banking sector, because only three of the big four are active in it. In addition, choice of auditor can be limited by the need to avoid using a firm engaged by another bank. There is also a risk that, with only three audit firms active, the essential challenge theoretically provided by the audit system can end up being blunted. Familiarity, complacency and a lack of an alternative can dominate thinking. That is why the recommendations of the committee on the issue of risk are so very important, because we must separate risk from audit.

Risk and audit, however closely related, are actually about different things. Combining the two can lead to risk being seen as secondary to audit, and when an audit report gives no indication that a company is in trouble when it is, it suggests that the risk function has not been properly carried out. So, separation is vital.

There was, I think, a misunderstanding in the Government’s response to the committee’s report, regarding which audit company could give specialist advice to a risk committee. It is obviously important that the main auditor should explain any concerns it has directly to the committee. However, it would be inappropriate for a risk committee to be given continuing specialist advice on its work by the main auditor. I think that that was the committee’s overall intention. There is a related issue here in that there is a clear conflict of interest if an audit company provides other services to the company it audits. It surely must be better for other firms to provide such advice, and it would, of course, give companies not in the big four an opportunity to undertake such work.

I welcome the Government’s response that audit committees should meet formally with principal shareholders regularly, and I agree with the committee’s recommendation that published reports of audit committees should explain significant reporting issues raised during the course of an audit.

Shareholders bear responsibility too. It became all too obvious in our inquiry that shareholders did not question the choice of auditor as much as they should and that they tended, to their own potential detriment, to be insufficiently assertive in a company’s business.

We have at least learnt that, when concerns become apparent, there has to be a clear framework for bank auditors to talk directly and privately with the Bank of England. Too many people took their eye off the ball, forgot the examples of the past and made assumptions about viability that were deeply damaging to the reputations of many people. Supervisors, shareholders, board members, audit committees, risk committees—all need clarity about what is expected of them and a constant restatement of their role so that audit is not just left to somebody else.

Crucially, we have learnt that auditors have the clearest responsibility to advise on a company’s state of health. It is not enough to see annual audits as a snapshot in time. Auditors have a wider set of responsibilities, to shareholders, supervisors, customers and the taxpayer, to ensure that they fulfil the responsibilities placed upon them by others.

In conclusion, the committee’s report has been a major help in identifying how communication and the regulatory framework can be improved, and how we should learn from the lessons of the banking crisis. However, it requires continued vigilance, particularly in the years ahead, as corporate memory starts to fade yet again.

16:19

[Lord Lawson of Blaby]

My Lords, like my fellow members of the committee I should like to start by paying tribute to the outstanding chairmanship of my noble friend Lord MacGregor. I should also like to associate myself with his thanks to our small but hardworking corps of staff and advisers during this inquiry.

One thing came out loud and clear in the evidence we had: the change from GAAP to IFRS was a change from prudence to box-ticking. That is disastrous and it has to be changed—it has to be reversed. However, like my colleagues, I shall devote my remarks overwhelmingly to the issue of the banks. Not only are the banks of overwhelming importance to the health of our economy—we have seen what has happened as a result of the banking meltdown of 2007-08—but a move away from prudence in accounting is far more serious in banking than in other areas of business and industry. I shall make a number of points; it is a complicated subject. I do not expect my noble friend the Minister to reply to my points. I hope, however, that she will take them back to her department, that they will be properly considered there and that she will write to me in answer to the various points that I shall make.

Banks are particularly important, as I said, because prudence is more important in the case of banking than it is anywhere else—it is absolutely essential in the case of banking. However, there is another reason why banks are particularly important. In the normal course of events there is a sanction which auditors can impose in relation to a company’s accounts—they can qualify the accounts if they have concerns. However, no auditor will ever qualify a bank’s accounts when the bank is likely to be in difficulty, when the qualification is required, because it would lead to a run on the bank, which would be absolutely disastrous and clearly not in the public interest. Something needs to be done to rectify this, and I shall come on to that.

At the heart of it all, however, there is a cultural problem and a moral decline, both of which are very difficult to address by legislation. Some noble Lords here today may have read today’s New York Times, which contains a devastating article headed “Why I am leaving Goldman Sachs”, in which a senior Goldman Sachs executive who has decided to leave itemises in detail what he describes as the moral bankruptcy of Goldman Sachs. We should not be complacent and think that that moral decline was only in Goldman Sachs, or indeed only in the United States. Last week the FSA produced a report on HBOS—Halifax Bank of Scotland—which did not receive the attention that it merited. The report states that this bank was “guilty of serious misconduct” and ascribes this to a culture,

“of optimism at the expense of prudence”.

“Culture of optimism” is quite a nice euphemism—we all know what was going on. This included, incidentally, and I will come on to it, grossly inadequate provisioning, which is highly culpable in the case of a bank. What were the auditors—in this case KPMG, but I do not think that KPMG was any worse than any of the others—doing? To all intents and purposes it was doing nothing.

It is more than 50 years since I was the senior writer of the Lex column in the Financial Times, and I have watched with concern the decline in moral standards in the City of London and in finance. It might be part of a decline in the whole community, which we are not here to discuss now. However, the matter is particularly serious in the case of banking.

[The Deputy Chairman of Committees]

My Lords, I am sorry to cut the noble Lord off midflight but there is a Division in the Chamber. I suggest that we adjourn for 10 minutes, until 4.35 pm.

16:25

Sitting suspended for a Division in the House.

16:35

[The Deputy Chairman of Committees]

My Lords, I think everyone has returned. If that is the case—nobody is obviously missing—I invite the noble Lord to continue his remarks.

[Lord Lawson of Blaby]

As I was saying when I was so politely interrupted, we have a problem. Now I turn to what we are going to do about it. Andy Haldane, the executive director for financial stability at the Bank of England, has been mentioned once or twice already, and I have had the benefit not merely of reading what he has to say but of a number of private discussions with him over the months and, indeed, years. That has been a great assistance to me in clearing my own mind, but he is not necessarily responsible for any of the points that I am going to make. He may agree with some but not others.

I have seven practical proposals to make. First, however, I shall give a bit of background. My noble friend Lord MacGregor, our chairman, mentioned the Banking Act 1987, which I introduced with the enormous assistance of the Economic Secretary to the Treasury at the time, my noble friend Lord Stewartby. I could not have done it without him, and I am delighted that he is taking part in this debate. We produced an Act which was partly intended to deal with the problems of the banking sector, both the supervision and the auditing dimensions. Perhaps I may add in parenthesis that I had authorised the Bank of England, as the owner of Johnson Matthey Bankers—when Johnson Matthey Bankers went belly up it had to be rescued by the authorities, and I did that through the Bank of England—to sue the auditors, Arthur Young. The Bank sued Arthur Young and received a very substantial out-of-court settlement. This time, when the situation has been far worse, not a single firm of auditors has been sued. I find that baffling.

My first specific proposal is to recreate the Board of Banking Supervision, which was an important innovation in the Banking Act 1987. It was swept away by Mr Gordon Brown when he very mistakenly tore up the improved system of banking supervision and regulation that I had put in place and replaced it with his dysfunctional system involving the FSA. The present Government are doing something a bit like recreating the Board of Banking Supervision, but in not nearly as effective a way. I would like to see it recreated in the way in which my noble friend Lord Stewartby and I put it into the 1987 Act.

Secondly, before that Act it was illegal for there to be a dialogue between the auditors and the supervisors because the auditors would be breaking their confidentiality towards their client. The Act not only made that legal but stated that there must be that dialogue. It was there for a few years but with the Brown changes in the regulatory system it fell into desuetude. The Bank of England and, I think, the coalition Government are now proposing that there should be a code of practice in order to reinstate the idea of dialogue. As auditors are unable to qualify accounts in particular, it is particularly important that if they discover anything amiss with a bank’s account, they can tip off the supervisory authority, which is now the Bank of England.

Equally, if the Bank of England has some concerns, it can say privately to the auditors, “We would like you to look at this particular bank and see what it is up to in this regard”. The dialogue is crucial, and I do not believe—nor did our committee believe—that a code of practice is enough. Our committee concluded that this should be mandatory: there should be a legal requirement for the dialogue to take place, which is absolutely right. So, that is my second proposal.

The third proposal comes back to the problem of the qualification of accounts. As I indicated, in practice it is impossible—it does not happen, and it did not happen before the banking meltdown of 2008—for an auditing company to qualify a bank’s accounts. Under the present system the accounts are either qualified or they are not. Qualifying them is almost like using a nuclear weapon. It may well be worth considering using a gradation, rather in the way that the rating agencies grade financial instruments, starting with AAA and going down to wherever they eventually go. It would be possible for the auditors to grade the accounts, and there could be a requirement for them to do so. It is quite possible that the auditors would be less corrupt and more reliable than the rating agencies are. That is my third proposal.

The fourth proposal is that in order to recreate the culture of prudence in core banking, there should be a complete separation between retail banking and investment banking. I am delighted that, thanks to the Vickers commission, the Government are going half way towards that by creating the ring-fence. However, I do not believe that a ring-fence will be impermeable or wholly effective. Bankers are very clever, or most of them are, and they will find ways round it. We are also talking about culture, and the prudent culture of retail banking and the adventurous culture of investment banking are two diametrically opposed cultures. With the best will in the world it is difficult to see how we can have two quite different and opposed cultures within the same corporate entity. There should be a complete separation, not just the ring-fence.

My fifth proposal concerns the issue raised particularly by the noble Lord, Lord Hollick, about the problems of mark-to-market accounting and valuations of assets. Mark to market, as he indicated, can be pretty fictitious when the market is so thin. Of course, there is often no market at all, so they mark to model, which is a complete fiction. Is that a reliable form of valuation for establishing the profits of the bank and also its capital? At present, these paper profits add to the bank’s capital. If we are concerned that banks should have adequate capital, the idea that we are satisfied with paper capital—which of course disappears just when you really need it—is both absurd and deeply worrying. The paper profits are also used to pay out bonuses that are anything but paper; they are real. That has to be stopped. Unrealised gains should neither count as capital nor be payable as bonuses. There is an analogy with dividends in the latter point. It is not permitted to pay dividends out of purely paper gains, but it is permitted to pay bonuses out of them.

My sixth proposal concerns the question of provisioning. One of the many defects of IFRS is the way that the old idea of general provisions—which was certainly very important when I was a non-executive director of Barclays Bank, some 20 years ago—is no longer permitted; you can only have specific provisions. A moment of reflection makes quite clear that this is unacceptable, because specific provisions come about only when it seems as if the loan, or whatever it is, has been impaired. You need provisions when times are good. You do not need them when you are already in great difficulty because you have all these impaired loans on your book. You need to be able to make a general provision because you know as a prudent banker that although there are things that you do not know about specifically, you do know, because of the nature of things and the way that the world works, that something like it will happen. We have to get back to the general provisions that IFRS prohibits.

My seventh and last proposal concerns taxation. That may not be a matter for your Lordships’ House, but we can talk about it. It is particularly timely now, with a Budget coming up very shortly. The proposal addresses the problem of the treatment of loan capital compared with equity capital. If we are going to have a strong and stable banking system, it is essential that it has adequate equity capital. That is what makes it secure. However, we have a tax system in which the interest payable on loans is tax deductible but the dividends paid on equity capital are not. So there is always a perverse incentive for the banks to capitalise themselves as much as possible on a tiny little sliver of equity. The tax system tells them that that is what they should be doing. It should not do so, and the tax system in this regard has to be changed.

I commend these seven modest proposals to my noble friend. As I say, I am not expecting her to reply to them this afternoon.

16:47

[Lord Currie of Marylebone]

My Lords, in rising to speak in this debate on the Economic Affairs Committee’s report on concentration in the auditing market, I should start by declaring an interest as one of two non-executive directors at BDO. I will touch on that role and the experience that it has given me in some of my remarks. Because of that interest, although I am a member of the Economic Affairs Committee, I had to recuse myself from this inquiry. The loss was very much mine—my colleagues have clearly enjoyed a most interesting, wide-ranging and very rich inquiry and have produced an excellent report. I congratulate them, particularly our chairman, the noble Lord, Lord MacGregor. The report has been deservedly influential, with the very rapid adoption of its first key recommendation, of an OFT investigation of the auditing market, leading to a Competition Commission inquiry. We await the results of that inquiry later this year.

The appointment of independent non-executives to audit firms became mandatory in 2010 under the FRC governance code for audit firms. Under the code, the non-execs have a rather broad remit to look after the public interest in the activities of audit firms. Some of the points that have been made about the audit of banks bears very strongly on that role. Different firms have chosen different ways to incorporate their non-execs into the decision-making of their partnership governance arrangements. BDO saw advantage in non-execs rather earlier than its rivals. In 2008, it appointed me and my colleague Lesley MacDonagh, the former managing partner of the law firm Lovells. In contrast to the non-execs at other firms, we have been placed at the heart of BDO’s decision-making, sitting as part of the leadership team meetings. Lesley chairs those meetings, while I chair the firm’s risk committee. As such, we are involved in all the key strategic and operational decisions that drive the business forward. One could question whether such a central role in decision-making is not in conflict with the public interest remit given to us under the FRC code. I would strongly argue that that is not the case: public reputation is key to the success or otherwise of audit firms, as the unfortunate demise of Arthur Andersen demonstrated, so I see no conflict between the public interest and the successful development of the business.

In December, the FRC called a meeting of the independent non-execs across all the audit firms to monitor how the new arrangements code was working. It was welcome to hear that the non-execs of the big four saw as possibly the key public interest ensuring that four do not become three. As the report makes clear, the collapse, like Arthur Andersen, of one of the big four would turn an undesirably concentrated audit market into one where major companies faced no effective choice. It is therefore vital that none of the big four gets into difficulties that threaten its reputation and market standing. Were the worst to happen, regulatory intervention to prevent further market consolidation in those circumstances would be essential, however difficult.

My role as a non-exec of one of the leading mid-tier audit firms is rather different. The public interest imperative on us is to turn the four into five by enhancing the capacity and range of BDO, whether through organic growth or by mergers. BDO itself has grown to the size it has largely as a result of organic growth but also as a result of mergers, some large and many small. Small-scale mergers continue as small audit partnerships decide to join a stronger brand, and they are regular features of our leadership team meetings. They will undoubtedly continue as the flat-lining of the audit market induces further rationalisation.

My experience is that the directors of most FTSE 100 companies, and indeed many of those of FTSE 250 companies, underestimate the capacity and quality of what the leading mid-tier firms, such as BDO and Grant Thornton, can and do offer. It is a little-known fact that BDO is a $5 billion dollar business worldwide, operating in more than 120 countries but, as the report states, too few of the top companies look beyond the big four for audit services. The big four often claim to be the guardians of audit quality and to be the only ones who can undertake the audit of sophisticated businesses. Yet the AIU assessments of audit quality do not highlight any bright line between the quality of the big four and that of the larger mid-tier firms. What they show is that all audit firms experience occasional lapses of quality, but that quality is generally high and that there is little difference in standard between the big four and the mid-tier.

The large mid-tier firms would probably acknowledge that they do not have the capacity to audit all of the biggest, very complex and highly internationally diversified businesses—the global banks and the oil majors come to mind. That may be true, but I would make two points about it. First, as the report demonstrates very clearly—others have already alluded to this, particularly the noble Lord, Lord Lawson—the big four did not cover themselves with glory in their audits of the major banks. The FSA report of only last week pointed out that HBOS was able to conceal problem loans from its auditors, KPMG, in the run-up to its financial collapse, and KPMG raised no red flag over HBOS’s excessive risk taking. Secondly, if the major banks are exceedingly complex to audit, it is almost certainly the case that they are exceedingly complex to manage. Too big to fail goes hand in hand with too big to audit. The source of the problem is less the incapacity of auditors, big four or others, effectively to audit these complex businesses, but rather the incapacity of the human mind to grasp the complex interrelationships between these businesses. The answer is not bigger, more concentrated auditors, but rather less complex businesses that the human mind can understand and manage rather than delegating that to mathematical computer-based algorithms.

I would argue that the capacity and quality of the leading mid-tier audit firms, such as BDO and Grant Thornton, are not limiting their ability to acquire FTSE 100 and FTSE 250 companies, but rather it is market perceptions about them that constrain things. These perceptions should shift over time, were it not for the undoubted barriers to effective competition that the OFT investigation has highlighted and the Competition Commission is investigating, but there is no doubt that the quickest way to resolve such barriers is likely to be consolidation in the mid-tier part of the market. As I have already noted, the flat-lining of the audit market is providing a strong impetus to consolidation. I hope very much that the competition and regulatory authorities would not allow one of the big four to take over one of the mid-tier firms, since that would mean still more entrenched concentration. What could and should be allowed are mergers among the mid-tier businesses. That would help to create a still more viable alternative to the big four and should also help to overcome the perception that the mid-tier lacks capacity and capability.

However, we should not underestimate the difficulties that need to be overcome for such mid-tier consolidation to happen and to be effective. First, combining mid-tier firms will not automatically lead to a change in market perceptions. Secondly, most audit companies are partnerships, and there is no effective take-over mechanism for partnerships. Rather like universities, mergers happen only with the consent of both sides and, as for universities, this happy constellation does not often come around. Matters are made still more complex and difficult because we are talking about the merger not just of partnerships, but also, at some levels, of complex international networks of partnerships. Winning agreement for any merger of this kind is far from straightforward, even if the commercial logic is compelling. That is not to say that consolidation of the kind that I have been discussing will not happen, but it is to say that it is not assured. Without it, we are left with the current market position in which choice and competition are insufficient for FTSE 100 and FTSE 250 companies. Over time, continued investment and organic growth by the mid-tier companies could change the market structure, but that is a long-term outcome while market sentiments require something more urgent.

That leads me to the one area of this admirable report with which I take issue: its analysis of the case for changing the ownership rules for audit companies. Currently non-auditors are precluded from owning more than 49 per cent of the voting rights in an audit firm, as was the case for law firms until last autumn when the provisions of the Legal Services Act 2007, allowing alternative ownership structures—the so-called Tesco clause—came into effect. The Economic Affairs Committee did not see any immediate grounds for changing the law in respect of ownership, despite the strong advocacy of the FRC. It took this position in the light of evidence from BDO and Grant Thornton that they do not feel the need for greater access to capital to expand. I think the committee’s position on this is mistaken.

I would interpret the evidence from BDO and Grant Thornton somewhat differently. Within their preferred partnership model, they do not feel constrained by the availability of capital, but the partnership model undoubtedly places constraints on the strategic moves that these businesses can contemplate, as I can attest having sat through many strategic discussions. This is not in any way a criticism of their way of doing business, but it is to recognise that partnerships are only one way of organising audit business, or indeed any business. Given that, I think that there is considerable merit in allowing greater variety in governance: this would allow new entrants to come into the market with a corporate genetic structure different from the partnership model. That can only be good for greater choice and competition in this market. Indeed, not to do so could be seen as a form of professional restrictive practice, and that has fallen out of favour in almost every other area of business life. After all, we do not expect airlines to be owned by pilots or technology companies to be owned by nerds, although in the latter case some of them are, with great success. So I would argue strongly for the change in ownership rules that the committee turned its back on, but which are part of the European reform package proposed by Monsieur Barnier, and I would also note that BDO favours this change.

There is much else in this rich report that I have not commented on, and there is insufficient time for me to do so. They include: the very important weaknesses in IFRS; marking to market and marking to model which contributed to the financial boom and subsequent crisis; the need for risk committees; the much needed simplification of the regulatory landscape, which the noble Lord, Lord MacGregor, referred to; and the necessary enhancement of the powers and authority of the FRC that would come with that; the relationship between auditors and regulators; and much besides, but I have spoken long enough. I conclude by congratulating the noble Lord, Lord MacGregor, and my colleagues on the Economic Affairs Committee on producing such an excellent report. It has already achieved its key objective the form of the Competition Commission inquiry. This debate is merely a staging post. We must await what the competition gurus come up with. Let no one underestimate what is at stake. We cannot allow this critical market for corporate information to lack the choice and competition that we take for granted in all other walks of business life.

17:01

[Lord Stewartby]

My Lords, retrospectively, I declare some interest in this field, having been chairman of the audit committees of banks and building societies and having been involved in or with banks in some form or other during most of my working life. I would like to offer a few comments in light of that.

We have an admirable report here, but I kept asking myself, “Well, what would we do about that?”, and “Would this be an effective answer to the problem that we are looking at?”. It is very difficult to match it up. I am not in any sense criticising the committee for not having found some punchy answers to some of these difficult questions, but there are still a lot of unresolved issues that are going to need continuous attention.

It was helpful of my noble friend Lord Lawson to give us his seven recommendations and I thank him for his kind words about me. It was an interesting task, constructing the Banking Act in the 1980s. I was glad that my noble friend drew attention to the BoBS—Board of Banking Supervision—because we came to the conclusion that the best judges of whether things were all right or not would be those who had practical experience, rather than our relying on the detached co-operation that we would otherwise get. I am sure, as sure as my noble friend, that doing away with the BoBS represented a practical weakening of the system because, thereafter, it lacked this accumulated experience of practitioners in the area, and that had been extremely valuable.

This leads on to a question that I ask myself frequently: “Is there any obvious way around the dominance of the big four, and how on earth can competition operate effectively when you have so few players and the things they are competing in are not measurable by ordinary standards?”. If you are a big international company looking to change your auditors, what will you be looking for? The answer is reputation, high-calibre staff and probably, among the many other considerations, the right geographical coverage. It seems to me that that is what has driven the consolidation of the big auditors. After all, their major clients need a thorough service from experts.

For that reason, I think that it is likely that there is a limit to the number of well qualified big audit firms that there can possibly be. There is just no impetus to create another one. I have seen people suggesting that we should encourage the setting up of new firms, but I do not think that is realistic. I am much more interested in what the noble Lord, Lord Currie, said about whether there is an opportunity for upping the game for the medium players. It is not satisfactory that, when an audit company is looking for business, it cannot sell itself very easily on price or service because they are so difficult to compare, and that is an argument against moving too often. The most astonishing figure in this document is that to which my noble friend drew attention: on average, major companies change their auditors every 48 years. That is generations. It has come about because of a historical process that got huge stimulus from globalisation. Service companies had to adapt to dealing with much larger and more complex businesses than they had been used to. Although I very much welcome the discussion and thinking of ways of dealing with this, we are not all that far away from a situation where there are only three, or possibly fewer, companies that can do something on that scale.

That leads me on to the question of how much the competition among them does for the good of the business. If competition was operating effectively, you would expect it to have a significant impact on how audit firms, among many others, go about their business. Everything we have seen in the past few years makes us ask another question: why did auditors not recognise the risks? Of course, the setting up of risk committees is a useful development. Two of the committees that I was on had to make a change because of extraneous factors and other changes have been out of their desire to rotate activities, but on risks and losses they all seemed set in the same mould. There was not a readily identifiable characteristic of one type of audit work or another. I keep remembering the remark made by the Queen when she visited the Stock Exchange. She asked how come no one saw this coming if it was all so big. You could say that of the business community. If you had six firms instead of three that could do international banks, would you really get much alternative or would they all have made the same mistakes?

The thing that I find most extraordinary is that, across the board, there was a unification of attitude and outlook. I do not know how you could define that, but certainly the end product with the massive extra provisioning and losses that have come through in the past three years shows that something was seriously wrong with the process that was meant to identify risks and what they would do. You do not get the impression that this is how it was looked at. You could almost say that there was a suspension of critical faculties across the whole area. You have the managers and executives in the businesses, the internal audit departments, the audit committees and external auditors, so it is not all the fault of any one of those. Curiously enough, however, they are all involved in relatively the same process.

When I was dealing with investment managements a few years back, the absurd phrase “slicing and dicing” was often used. The idea was that you had a whole lot of loans and you put a little bit of each one in a package and walked around the corner to see the rating agencies. As it happens, they seem to have fallen over very badly on this. The point is that there were several different layers, so if you deconstructed the slicing and dicing you would find small parts of some very unsatisfactory businesses. Yet nobody in these operating roles managed to permeate this wall of almost wilful ignorance about what was going on in those sorts of businesses. It was not just the auditors or the banks, but a collective failing. It is appalling that we have not had any explanation as to how auditors, or anybody else, failed to test out on a sampling basis the decisions before them.

In particular, I welcome the recommendation about the Office of Fair Trading investigation. That is absolutely essential. I strongly support the elevation of prudence to a more prominent role, which was the second of the committee’s main recommendations, particularly because I thought that the introduction of Basel II and the IFRS was bound to lead to trouble as it would exaggerate rather than offset economic swings, and that is exactly what happened. The trouble is—and I must apologise if it seems like I am being overly critical here—the accounting profession is not always best placed to provide the sort of rules that we are all going to have to live by. Undoubtedly, the IFRS and Basel II made life more difficult and meant that a lot of provisioning was not as strong as it should have been.

Finally, I come to the point that my noble friend Lord Lawson spoke of: the dialogue between auditors and supervisors. A small point of definition is important here, because at the bottom of the first page of the abstract it says,

“the fact that, as our evidence revealed, confidential dialogue between auditors and bank regulators had fallen away before the financial crisis”.

That dialogue is immensely important. However, while on that page it talks about dialogue between auditors and regulators, at the end of the next page it says,

“dialogue between auditors and supervisors”.

It may seem to be a small point, but I draw attention to this because it is very important to remember that the functions of regulators are different from the functions of supervisors. They overlap, but the regulator makes the rules and sets the framework in which the whole business has to operate. The supervisors are meant to go institution by institution and satisfy themselves as to the soundness of individual businesses. Because these two words are often used interchangeably, I suspect that sometimes people have been doing what they thought was regulating but in fact should have been supervising, and vice versa. I do not want to overstate it because I do not think that it is the cause of too much mischief, but it is thrown up by the fact that, until the legislation, there was no statutory provision for auditors to talk to supervisors or regulators. The need for that has been revealed enormously by what has actually happened.

Finally, the move to a more judgmental approach rather than too many rules is essential, but you also need people who have the background and experience to cope with these things. It will be very important that audit committees have among their members people who have come across some of the real business questions of recent time and will more than take into account the fact there has been a lot of discussion on these things but there are still very many unanswered questions.

17:16

[Lord Hodgson of Astley Abbotts]

My Lords, I was not a member of my noble friend’s committee, but I add my congratulations to him and his fellow committee members on a really interesting—indeed, fascinating—report that raises many important issues, both within and without the banking system. I have a number of relevant interests declared on the register of your Lordships’ House, but I draw the committee’s specific attention to the fact that I am the senior independent director—the SID, as it is known in the trade—of one of the FTSE 250 companies. I am a member of its audit committee and chair of its remuneration committee.

I will focus my remarks not on the banking issues, which have been ably and decisively covered by my noble friends Lord Stewartby and Lord Lawson. I will focus my remarks on the first two issues that the committee looked at: the dominance of the big four and its effect on competition and choice and whether the traditional audit still meets today’s needs.

The committee hit the nail on the head when it mentioned in paragraphs 18.vi and 18.vii,

“the perception that big is best”,

and,

“the reputational assurance of using Big Four auditors”.

These things are at the heart of the difficulty that we face. I do not wish to press the noble Lord, Lord Currie of Marylebone, but I think it unlikely that my co-directors would be prepared to take on a firm outside the big four, even if it were demonstrably cheaper and probably even if the service was the same. We are reaching the tipping point, but we are not there yet. There is more to be done along the lines that I shall refer to in a minute and which he was hinting at in his remarks. The noble Lord, Lord Shipley, asked how we deal with conflicts of interest. Well, we have a fairly clear way of doing that, in the sense that we make sure that we measure the amount of non-audit work that we are giving to the firm, we measure the amount that we give to the firm in relation to the total in the office—in other words, how big we are in relation to that particular firm’s regional office—and we disclose in the annual report. Where we have areas where conflicts of interest are clearly irreconcilable, such as international law, we use another firm. We go outside for things where we cannot satisfy ourselves that we can have a proper divide-and-rule situation.

I was not at all surprised that the committee reached the conclusion that the Financial Reporting Council’s market participants group had not really achieved very much. The suggestion in paragraph 49 that the way in which to encourage more participation by firms outside the big four is by involving institutional shareholders is, I fear, doomed, as my noble friend Lord MacGregor said in his opening remarks. I am not hopeful because it is pretty difficult to get institutions or shareholders to engage at any level. It is very depressing, with a few honourable exceptions. Apathy and worse is the only description of their interest.

Why is that? In the company I am talking about, three of our top 10 shareholders are tracker funds, so they have no particular interest in what we are doing. In fact, they would rather not see us as it might bias them in a sense. They want us to follow the index exactly or they do not want to see us at all. For others, best governance practice suggests that the SID—senior independent director—should meet the major institutional shareholders once a year. Trying to get a meeting is extremely difficult. Most of the time they say that they are perfectly happy and do not want to meet you. Meetings are cancelled at the last moment. You turn up and find that the man with whom you had a relationship is too busy and you end up with a junior person who may have been in the investment business for only two or three years. There is nothing wrong with that; I am not trying to sound pompous and say that I will not talk to him. The nature of the relationship that you have with your institutional shareholders is transitory in that sense. We are talking here about the operations of a company itself, not the appointment of auditors, which by its nature is of another degree of importance.

A counsel of despair surrounds one, but things can be done. First, I share the committee’s conclusion that examination by the Competition Commission is a worthwhile exercise, so that we get examination in detail of the warp and weft of this difficult issue. As to the advantage of a big bang conclusion with the recommended break-up of one or more of the big four, I am more doubtful about that. I am far from convinced. To use the famous phrase, “You don’t strengthen the weak by weakening the strong”. The halo effect will continue and may well survive and you may have damaged the firm’s international reach in the mean time.

Clearly the Government have the reach and the scale to offset some of this halo effect, so I very much support the committee’s proposal about work previously undertaken by the Audit Commission being a possible way to build a new firm. The Government should go further than the committee suggests. There are a number of areas where the Government could help to create a situation where the smaller firms reach a tipping point. For example, within the Financial Services Authority— I know that it is unfashionable to say anything good about the FSA—a Section 166 report, or expert person’s report, is increasingly being used. There is a tendency to go for the big four firms there, but reports could easily be carried out by other firms. These and other reports carried out by the FSA, and no doubt by other government bodies that I do not know about, could usefully suggest that a wider range of firms should get involved with this. There are things such as encouraging banks and private equity houses to use firms outside the big four for due diligence purposes, and there are the trade bodies—the Investment Management Association and the British Insurance Association—that could also lend their weight to ensure that over time this situation could be improved. There is no silver bullet, but with a concentrated effort from within the profession, in whose interests this sort of development must be, something will be achieved.

In my remaining remarks, I will deal with whether the traditional statutory audit still meets today’s needs. Clearly many people feel that it does not. Many people feel that it lacks focus and priorities and emphasises process at the expense of judgment. At our annual general meeting, one of our more experienced private investors said that reading the annual report was like having a bucket of warm blancmange poured over your head. Perhaps I can illustrate that in a very simple way. The company of which I am the senior independent director is a simple company. We are entirely in the UK; we have no overseas operations. Our final salary pension scheme is closed. The only complication in our business is that we have some hedging and some derivatives for our longer-term borrowings. In 1995, our annual report was 25 pages long; in 2000, it was 41 pages; in 2005, it was 76 pages; in 2010, it was 104 pages; and it will be a bigger number in 2011. I cannot see that this—

17:25

Sitting suspended for a Division in the House.

17:35

[The Deputy Chairman of Committees (Lord Geddes)]

It is now 5.35 pm. The noble Lord, Lord Hodgson of Astley Abbotts, who was so abruptly cut off in mid-flow, may resume his speech.

[Lord Hodgson of Astley Abbotts]

I was winding up, talking about the value of the traditional statutory audit and whether it now needs some serious revision. I said that my company is a simple company, with market capitalisation of £660 million, all in the UK, no foreign exchange, none of those complications, no open final salary pension scheme and, apart from some hedging for our long-term debt, not a great deal of complexity. I pointed out that in 15 years our annual report has gone from 35 pages to 104 pages. I questioned whether that is a useful exercise and how many people read it. In the Companies Act 2006, we thought we were being extremely clever in introducing the e-mail opportunity for companies. In a strange way, that has taken the pressure off auditors to think about the thing because they can e-mail people. Many fewer copies of the report can be printed. Increasingly the default option is to send it by e-mail anyway, so some of the self-restraint has been removed.

I think the auditing profession needs to follow this report with some serious intellectual heavy lifting to provide a greater degree of focus going forward. I turn to another context: the City at the moment. Noble Lords will have received papers from banks recommending shares. On the back page there is half a page of tiny type containing disclaimers. An investment bank put halfway down that, “If you have read this far, call this number and we will send you a bottle of champagne”. In three months, it never had a call. That is how much all this stuff is being read. It has become boiler plate. Similarly, too much of annual reports has become box-ticking and verbiage read by almost nobody. I think the profession could do a really valuable service by introducing a degree of rigour and focus. I hope that above the desk of each of the members of that working party, there will be a banner reading: “Less is More”.

17:38

[Baroness Hogg]

My Lords, I, too, should like warmly to congratulate the noble Lord, Lord MacGregor, and his committee. First, however, I must declare my interests—which are in the register—principally, today, as chairman of the Financial Reporting Council.

The report was, as one would expect from this distinguished committee, rigorous in its analysis, but equally important, and much more unusual, have been the results. As a former member of this committee, I cannot think of another inquiry conducted by it in recent years that has had such a powerful effect. I am sure that the Minister will provide an excellent summary of the actions taken by government and regulators following this report, so I shall concentrate on those taken by the FRC.

As many noble Lords have said in this debate, these issues go to the heart of the effective functioning of capital markets. The FRC’s mission is to,

“promote high-quality corporate governance and reporting to foster investment”.

This reflects our recognition that the willingness of investors to provide risk capital—a vital link in the chain of economic growth—depends on their confidence in how companies are run and how their accounts are prepared and audited. So, after the financial crisis, this report was timely and influential.

I would diffidently say to the noble Lord, Lord MacGregor, that the committee did not have to tell us at the FRC that the efforts we were making within our remit to reduce concentration in the market had made very little difference. We have been shouting that loudly, hoping someone would take notice. We are delighted that the committee did and that the alarm it sounded penetrated more ears and led to the Office of Fair Trading asking the Competition Commission to take another look. This is a very important step which we hope will also lead to thinking, at national and international level, about what the government response would be if there were to be another crisis and a threat that the big four would come down to three.

We are also very pleased that a new point of alarm on domestic concentration that we raised with the committee has been taken up by it and then picked up by the Government. Like the noble Lord, Lord Hodgson, we welcome the action that the Government have taken to ensure that work flowing from the abolition of the Audit Commission is well spread among firms of a certain size and not concentrated among the big four.

The European Commission is right to see concentration as an international issue. However, the reason why we want a competitive audit market is to safeguard audit quality, not to endanger it. We have therefore made clear that we are opposed to certain EC proposals, such as the break-up of the audit firms, which we think would damage quality.

Equally, we want to encourage competition in order to empower choice of auditors, not simply to disrupt it. We believe that clearer guidance on non-audit services will both deal with conflicts of interest and stimulate market development. We will also shortly be publishing proposals that do not enforce a merry-go-round of compulsory auditor rotation but request companies to retender their audits after eight to 10 years. This should be introduced on a “comply or explain” basis and with transition arrangements to prevent market turmoil. We must not disempower the audit committee from choosing the best firm for the job.

Whatever improvements are needed, we must not shoot ourselves in the foot. Despite all its strictures, the committee noted much evidence to support the view that British auditing is among the strongest in Europe and indeed is arguably the world leader. Moreover, our approach to corporate governance, of which audit is a key component, has helped give us the deepest capital market in Europe. We must continue to strive for improvement. The audit inspection unit continues to highlight weaknesses—as the profession will tell you, sometimes through gritted teeth. However, in considering EU reforms, we must avoid a surfeit of prescription designed to raise standards elsewhere. Rules that are too detailed damage the willingness to exercise judgment; and judgment is what we most need in times of crisis, as the committee has rightly said.

Many of the key recommendations of this report chime with the proposals that we at the FRC have set out in our paper on effective company stewardship. I hope that all Members of the Committee have had the opportunity to read this report. I would be happy to send copies to those who would like it. They may have noted particularly the points on auditor scepticism in this report.

We are very mindful of the questions that members of the committee raised about the role of accounting standard-setters, preparers of accounts and auditors in the financial crisis. Put simply, the challenges were: did they do their job; if they did not, what is being done about them; and if they did, what does that say about the value of accounting, reporting and auditing?

The most far-sighted members of the accounting profession do not seek to answer these challenges simply by reminding us of the limitations of accounting and audit or by asserting that these are mysteries others cannot challenge. They are willing to engage in a more ambitious debate on how the value of audit can be enhanced and how accounting standards can be improved. The committee has challenged the monopoly of wisdom of the technical standard-setters. Our reforms at the FRC are designed to help us engage with the wider debate. Many of the weaknesses in IAS 39 that have been referred to have been addressed, in fairness to the technicians, but we are still concerned about the speed of implementation. Brussels seems to take the view that all changes should be saved up to do together. We believe this to be unnecessary delay.

Meanwhile, as the Minister will no doubt confirm, at the FRC we have taken the lead on a key issue by asking the noble Lord, Lord Sharman, to head an inquiry into the role and value of going-concern statements. His draft report has been published and we expect the final report shortly.

For this report raised a deeper challenge for the FRC. The committee criticised our structure, finding it confusing and overcomplicated. Indeed, we have at present some seven operating bodies to fulfil one objective. The result is that too much of our work is done in silos, and there are overlaps and underlaps between them. This is no criticism of the excellent people involved. Some of these barriers are statutory, others derived from the way in which the FRC was cobbled together. However, the committee was right to call for change, and we are glad that the Government have responded.

We need to share knowledge across the organisation in order to operate more effectively, both in our conduct role in the UK and in the international debate on codes and standards. Our international task has become a much more complex exercise, requiring us to mobilise all the expertise in different operating bodies for maximum effect, and for cross-silo challenge within the organisation.

We also need to ensure that the work of the audit inspection unit is useful to chairmen of audit committees and maximise the combined value of the work of the audit inspection unit and the financial reporting review panel. We also need to clarify the dividing lines between ourselves and the professions so that we can truly claim to be an independent regulator. Clarifying that status will also help us to work more effectively with other regulators. The noble Lord, Lord Lawson, rightly highlighted the breakdown in the arrangements that he put in place to ensure the Bank of England's assessment of macroprudential risk was informed by what the major audit firms were seeing. He also used this inquiry to probe at the gaps and overlaps between regulators.

Legislation is not for us, but with these challenges in mind we have with the Bank's help put in place a forum for information flow and discussion of risks and appropriate responses between ourselves at the FRC, the Prudential Regulation Authority, the Financial Conduct Authority and the Financial Policy Committee. The reform proposals that we put forward jointly with government would streamline our work on codes and standards on the one hand, and conduct—review, inspection and disciplinary action—on the other.

I welcome the prompt that the committee's report gave to fresh thinking about this in government and at the FRC. We have had a lively consultation on our proposals and done our best to respond to the points made without compromising our independence or losing the opportunity to match our organisation to today's challenges. I hope that we will receive a statement from the department on this soon, and look forward to hearing what the Minister has to say. I hope that the resulting reforms will lead the committee to conclude that we have responded to its challenge.

17:47

[Lord Northbrook]

My Lords, we are all grateful to the noble Lord, Lord MacGregor, and his committee for a thorough, detailed and important report. Like him, I am very sorry for the delay of nearly a year before we have come to discuss it.

As other speakers have said, the report covers four major issues: the dominance of the big four accountancy firms; whether the traditional audit still meets today’s needs; the effect on audit of the adoption of international reporting requirements; and how banks were audited before and during the banking crisis and what changes there should be. Having carefully read the report, I find that the second and third issues are well covered but, though very reluctant to disagree with such an eminent team on the committee, I find the conclusions on the first and fourth issues slightly unsatisfactory. I will go on to cover each issue in more detail.

There is no doubt about the dominance of the big four accountancy firms in auditing large quoted companies. As the noble Lord, Lord MacGregor, has already said, in 2010 the big four audited 99 out of the FTSE 100 leading firms, and around 240 of the next biggest FTSE 250 firms. They also had about 80 per cent of the FTSE smaller capitalisation firm audits.

I first make one comment based on my experience as an investment manager. I always had a comfort factor in seeing the name of a big four auditor, particularly when looking at a small and growing company's accounts. Several companies with smaller-sized auditors came to grief through, as it subsequently proved, being allowed to adopt overoptimistic accounting policies, which I am sure would not have been tolerated by the big four auditors. I am not sure that that is fully appreciated by the committee’s report.

The report also states that the chairman of the Hundred Group of finance directors of FTSE 100 companies said they were, in general, content with the service provided and the competition they noticed in the market today. I know it may be heresy to say so, but I do not know what is going to be usefully achieved by a Competition Commission investigation, even though the noble Lord, Lord Currie, has made an interesting argument for the merits of BDO and Grant Thornton, and I know it is supported by the Economic Affairs Committee and the noble Baroness, Lady Hogg, of the Financial Reporting Council.

What will it conclude? Are major companies going to be forced to change auditors? I cannot see the advantage of mandatory joint audits either, and nor can the Government in their response to the committee’s report. I also cannot really agree with the idea of compulsory tender for audits every five years. The reply from the Government—and that of the noble Baroness, Lady Hogg—suggesting a more flexible approach is better. I agree with paragraph 53, which refers to the noble Baroness’s view that,

“the expected abolition of the Audit Commission would provide an opportunity to increase competition and choice in the audit market if it formed the basis of a substantial new competitor to the Big Four”.

Paragraph 60 of the report also raises an important question about whether the limited liability partnership status of the medium and smaller-sized audit companies will be sufficient to protect them from unlimited liability. According to the noble Baroness, Lady Hogg, the situation is not entirely clear on this matter.

The third issue is the major impact of international financial reporting standards. Although I am far from being an expert on these matters, I note—as have many other speakers—with interest the sentence in paragraph 113 that states:

“In short, a box-ticking approach is replacing the exercise of professional judgment which allowed the auditor’s view of what was true and fair to override form”.

The report then moves on to the application of IFRS standards to UK banks. The letter by the noble Lord, Lord Flight, in Appendix 7 of the report is very interesting on this subject. He makes three interesting, if rather technical, points: first, that the accounting treatment of the granting of options to be booked through the profit and loss account both obscures the real trading position of the business and fails to advise shareholders of actual or potential dilution. It is significant that Adam Applegarth, then CEO of Northern Rock, told the Daily Telegraph in 2005 that moving to IFRS had introduced more volatility and led to “faintly insane” profits growth.

Secondly, as the noble Lord, Lord Hollick, discussed earlier, the IFRS mark-to-market standards served to overstate capital resources in buoyant times; subsequently they served to understate them in difficult times. Thirdly, he considered that the requirement to discount pension fund liabilities at a rate of interest measured by prime bond yields overstates effective liabilities and has been a major contributor to the demise of final salary pension schemes.

The committee overall concludes that IFRS standards are not fit for purpose. However, in their response, the Government disagree and do not accept that they have led to this loss of prudence. The results of the panel convened by the FRC and chaired by the noble Lord, Lord Sharman, which were published in November, identified lessons on going-concern and liquidity risk for companies and auditors. Again, as the noble Lord, Lord Hollick, reiterated earlier, the key sentence of its preliminary report, as far as I am concerned, is:

“Require the going concern assessment process to focus on solvency risks”—

to the entity’s business—

“as well as liquidity risk”.

The final major issue of the report is how banks were audited before and during the financial crisis and what changes there should be, including to auditors’ relationships with financial regulators. I think overall the committee is unfair in criticising the auditors so strongly in paragraph 142. I support the comments of the heads of KPMG, Deloitte and PwC: the role of auditors, in my view, is to count the score at the end of an accounting period. They are not trying to forecast next year’s profits. It is not the job of the auditor to look at the business model of a business; that is the job of management. Surely the job of monitoring the day-to-day activities of the banks should be for the regulators. Auditors look at the company at a set time, not throughout the year, as regulators should be doing. Otherwise, what can be the limits of the auditor’s responsibilities?

For instance, the FSA, in its report on Northern Rock, tells us that its insurance team was in charge of regulating the company. No wonder it totally failed to understand the dangers of the company’s business model. How could auditors influence the disastrous tie-up between HBOS and Lloyds TSB which was personally engineered by the Prime Minister? How could they have influenced the RBS takeover of ABN AMRO which Barclays was also interested in? It was a management decision and seemed justifiable at the time. Let us remember that neither the regulators nor the rating agencies foresaw the major problems which began in the USA with the abandonment of the Glass-Steagall Act and the US Government’s decision to allow cheap loans to NINJAs—those with no income, job or assets.

Finally, I would just like to requote paragraph 151 of the Economic Affairs Committee report which states that,

“very few in senior management positions in the major banks had more than a ‘cloudy’ grasp themselves of the mathematical models used to value the banks’ complex financial instruments”.

From my knowledge, I fear that that is true. Universities, such as Reading, offer highly detailed courses in financial instruments. This is a relatively recent development, so I am not surprised that senior management is not up to date. Surely they should do courses as well. Auditors should also go on courses to familiarise themselves more with these products. Overall I welcome this most interesting report despite my disagreement with parts of it. It has been an excellent undertaking, but the important dialogue in my view is not between auditors and regulators; it should be between regulators and companies.

17:57

[Lord McFall of Alcluith]

My Lords, I am delighted to contribute to this debate and congratulate the noble Lord, Lord MacGregor, and his colleagues on a very cogent report. When the auditors came before the Treasury Committee after the financial crisis in 2007 we concluded that they had done their job adequately in auditing, but that if these are the limits, what is the point of an audit? That question still haunts the audit profession to this day.

Progress has been made with accounting standards setters by the noble Baroness, Lady Hogg, and her colleagues and with the Sharman committee. However, the factors that led to the demise of RBS, HBOS and Northern Rock, such as the dependency on home sale markets funding in the case of Northern Rock, the high exposure to property in the case of HBOS and the very significant exposure to markets and businesses in the case of RBS, were all clear to accountants and auditors two or three years before the collapse. The problem was that no one paid any attention. The Bank of England and the FSA came before the Treasury Committee and said that they sent out warnings but nobody listened. There was no influence there and people were not talking to one another. That is the biggest issue in this financial crisis. The regulators were not talking to one another and there were black holes in between—that is the issue.

For the future, the question posed by McChesney Martin, the chairman of the Federal Reserve, is relevant: who will take the punch bowl away? We have to support the regulators and others to ensure that that is taken away. RBS was mentioned, where there was a 95 per cent shareholder endorsement. Where were the auditors? Where were the non-executives? How was corporate governance and risk organised? Abysmally—that is how. Auditors need to engage on a statutory basis with the FSA. It told us that it had six engagements with Northern Rock in the previous two years—four by telephone and two meetings with no minutes. If you had been secretary of your local community club or golf club, you would be thrown out at the AGM as a result of that.

That is the state we are in. We have to ensure an early warning system for the banks involved, which should involve a very measured risk profile. The problems were seen late. The issue with accounting is that it looks backwards and largely aims to reflect the transactions that have been committed to and not to affect future events. An audit will be effective only if it is underpinned by a thorough understanding of the business model. Auditors are close to the management, and they, above all, should have that understanding of the business model. That is why engagement is very important.

Simplicity of language is very important. One of the things that I regret not doing when I was in the other place was putting forward a 10-minute rule Bill to say that annual reports should be a maximum of 80 pages in length. When I was on the Treasury Committee, the HSBC report came to 500 pages. I challenged the main auditor to sit by a fire on a winter night with a nice good malt whisky and look at that report. I guaranteed that he would be asleep before he read it. Simplicity of language is hugely important. Given that we now have the Financial Policy Committee, that wider constituency should be used by auditors to report. I suggest an annual report from the FPC to Parliament to take these concerns into consideration.

I suggest the curriculum for auditors and accountants should be looked at. A result of the financial crisis was that the economics profession’s efficient-markets model was thrown out of the window. They have to look at that again. I think a wider constituency is important. I shall give my experience as an educationalist. I undertook a MBA part-time—three nights a week—at Strathclyde University. It was the best degree I undertook. Why? It was because everything was black and white and then went to grey as a result.

I shall give a six-point plan. Unlike the noble Lord, Lord Lawson, I know my place in this House. My six-point plan is: early warning; business model; wider engagement; education; corporate governance and risk; and culture and ethics.

18:02

[Lord Young of Norwood Green]

My Lords, I enter this debate with great trepidation, not being a financial expert by any means. I do not envy the Minister her task in trying to sum up. I am only going to touch on a few points. I did not read all of the report and did not have a single malt, but I certainly had a good look at it and at the government response. I think we should congratulate the committee on doing a good job. I am indebted to the noble Lord, Lord MacGregor, for the history. I was fascinated by Deloitte’s involvement as the first auditor of the Great Western Railway. Knowing Brunel’s propensity for raising cash from investors and very rarely giving them any return, I can see that it is a historic problem.

Some key points have arisen during this debate, which focused on the banking crisis. Time and time again, although not everybody seems to agree, the question of whether there should be a dialogue between auditors and regulators was raised. The noble Lord, Lord Stewartby, drew to our attention the subtle distinction between regulators and supervisors. I am sure the Minister will deal with that. It seems to me that that is part of solving this difficult problem.

Then we got to the nature of the audit and the IFRS and GAAP approaches. We had a debate between box ticking and prudence, and it seemed that most noble Lords erred on the side of prudence. I think it was the noble Lord, Lord MacGregor, who talked about professional scepticism and the feeling that it is important that auditors exercise their judgment.

I was also interested in what the noble Lord, Lord Lawson, said when he asserted that there has been a decline in moral standards in the City of London. In fact, he talked about moral bankruptcy. What we saw in 2007 and 2008 was quite clearly the product of a catastrophic failure of governance and the failure of regulators to understand the nature of the systemic risk in the financial system. It may be that we should be taking the opportunity to reassert the existence of the fiduciary duty on those who are responsible for managing the assets of savers and investors to act in their interests, exercise good judgment and be accountable for that judgment.

There has been a lot of discussion about the dominance of the big four, but no one has come up with a solution to that particular problem yet. I was exercised again by the noble Lord, Lord Stewartby, reminding us first of all of this 48-year relationship in what I would describe, in a variation on the word oligopoly, as a “quadropoly” and secondly that there seemed to be a “unification of outlook”—I hope I have not paraphrased him—and a “suspension of critical faculties”. None of the people involved seemed to have recognised the risk. He talked about the Queen’s comment that no one saw this train crash coming. Then he referred to the slicing and dicing of products, these financial derivatives that were so complicated yet nevertheless managed to achieve an AAA rating when we knew they were rotten at their core.

Clearly there is a need, as I think both the noble Lord, Lord Northbrook, and my noble friend Lord McFall of Alcluith said, for auditors and indeed management to be trained to recognise risk. That is something else I hope the Minister will address. On the question of risk and risk committees, that seemed to be one of the important recommendations, although the report seemed to refer just to banking and finance companies. I was thinking about that and reflecting that there were other companies that took substantial risks, which resulted in the Government footing some of the bill. The one that came to mind was Southern Cross, which became so leveraged that it could not sustain itself, and I recalled the impact the foundering of those care homes had on society as a whole. When it comes to big companies and risk committees, it seems to me that it is not just the banking and finance sectors that should be required to submit to them.

I am also indebted to, I think, the noble Lord, Lord Shipley, for reminding us of the human consequences of the Northern Rock crisis, which he saw every time he looked out of his window in Newcastle; and not just for shareholders, but for the employees who suffered as a result. It seems to me that a risk committee and auditors being involved in that is fundamental.

I am not sure how we are to resolve the dominance of the big four. I hope that the noble Lord, Lord Northbrook, is wrong that the Competition Commission will not be able to shed any light on that. We had the noble Baroness, Lady Hogg, suggesting—and she was not the only one—that now the Audit Commission is going this should present an opportunity for other auditing companies to emerge. Somebody else suggested that the FSA reports would be a good vehicle to assist in this process. I do not feel competent to comment on that but no doubt the Minister will, although she was given a get-out clause there when the noble Lord, Lord Lawson, said that she could deal with his seven recommendations by letter. I felt the Minister should be eternally grateful for that because they got more and more complex towards the end.

I think it was the noble Lord, Lord Lawson, who made the point that no auditors have been sued as a result of the banking crisis. Amazingly, nobody seemed to take any responsibility. There must be something wrong if everybody apparently was exercising their responsibilities and yet we had this financial crisis. As the noble Lord said, nobody at this point in time is willing to accept responsibility. We know that there is plenty of work to be done. When I look through the government response, I do not think that they have got it right in all cases. I gave the example of the question of risk. It is important that all companies should have that. The relationship between the auditors and the risk committee will be important. I look forward to the Minister’s response and once again thank the committee for its work.

18:10

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, I thank my noble friend Lord MacGregor of Pulham Market for calling this debate. We have heard some well informed and constructive contributions from the House. It has been a particular master class for me, and certainly for my civil servants behind us because they have had evidence today of what a Lords Select Committee can do with a subject all by itself. At the moment, every time we can show how well a Lords committee does, we should do so.

Of course, I will not be responding to the noble Lord, Lord Hollick, who asked my permission to be able to speak and to leave. He therefore knows that I will be writing to him rather than answering his questions while I am on my feet. As we have already heard, my noble friend Lord Lawson decided to let me off the hook today and gave us those seven biblical recommendations that he left us to reflect upon. We will, of course, write to him. As for the rest of the questions from your Lordships, I hope that I will be able to answer a goodly few of them along the way. Of course, I will write to anybody to whom I have not been able to immediately respond.

I start by paying tribute to the Economic Affairs Committee’s chairman, and to the report and recommendations, some of which have already resulted in action. One of the recommendations in the report was that the audit market should be investigated by the competition authorities. As my noble friends Lord MacGregor and Lord Stewartby, and the noble Lord, Lord Currie, noted, within two months the Office of Fair Trading had announced its provisional decision to refer the market for the audit of large companies to the Competition Commission, which plans to publish its provisional findings by the end of November. I emphasise what an important development the Government consider this investigation by the competition authorities to be.

The Select Committee report made several other recommendations. I recognise that the committee expressed disappointment with some of the elements of the Government’s response to its report. It might help if I start by covering two issues where I know that the committee continues to have concerns. The first is the issue of international financial reporting standards—IFRS. Under EU law, listed companies in the European Union are obliged to prepare their consolidated accounts in accordance with IFRS. My ministerial colleague, Norman Lamb, replied to a letter from my noble friend Lord MacGregor on this issue last week; I think that he is coming out with a Statement fairly soon. In line with the conclusions of the G20 last November, we continue to support the aim of a single international system of standards. These will develop with time and aim to address issues, on an international basis, as they arise. The Financial Reporting Council—FRC—is engaged in that process, as are the Government when revised standards come to be adopted in the European Union.

The other area where the committee expressed concern was the need for discussions between auditors of financial institutions and the prudential regulator. The Government continue to support the code of practice that now requires discussions twice a year, with one discussion including the relevant bank. The code of practice appears to be working. For this reason, and in accordance with better regulation, we will not be introducing a statutory requirement. The Government, the Bank of England, the FSA and the FRC all support this. However, we will be watching the issue closely.

My noble friend Lord MacGregor asked what the FSA code of practice requires. The code of practice now requires discussion about each of the banks between the relevant auditor and the prudential regulator twice a year, with one of those meetings including the bank itself. These discussions are happening and the code, as I say, appears to be working. My noble friend Lord Stewartby asked why auditors did not recognise the risks. The banking crisis had a range of causes. More or better assurance alone would not have stopped it, but we have certainly learnt lessons.

The systemic problems that caused the banking crisis have been well rehearsed and include a failure of credit judgment, a failure on the part of central banks to recognise asset bubbles, weaknesses in regulation and deficiencies on the part of credit rating agencies. Audit has never had a financial stability role, and is only one element of the regulatory framework that ensures that we have working capital markets. The issue of systemic risk falls to the regulator, as well as to the boards of companies, rather than to the auditors. In terms of the audit of banks, the Government are committed to the objective of improving bank corporate governance, and will continue to work closely with the European Union and internationally to increase transparency and accountability in a proportionate manner.

I now turn to some other recommendations of the committee, where the Government and the FRC have taken action. On the long tenures of some auditors of large companies, BIS and the FRC consulted separately last year as to how discussions between auditors and audit committees about the appointment of auditors might be improved. Amendments to the FRC’s corporate governance code and audit committee guidance will follow this year. This will include a new requirement for auditor retendering by FTSE 350 companies, on a “comply or explain” basis, every 10 years. My department will publish a summary of responses to the consultation on narrative reporting shortly and we will set out the Government’s position as regards wider assurances of corporate reporting beyond the audit of accounts.

My noble friend Lord MacGregor asked whether the Government are proposing to encourage company boards to form risk committees. Well, the Government are reviewing the structure of the corporate reporting framework. We propose splitting the current single corporate report into two documents: a strategic report and the annual directors’ statement. The strategic report, as its name implies, is strategic. It will allow companies to tell their story, describing their business model, the strategy to deliver this and the risks to this strategy through the directors’ remuneration. It is not the Government’s intention to create legislation to mandate that companies have specific risk commitments.

My noble friend Lord Hodgson asked why we need to change the current narrative framework. The results from the August 2010 BIS consultations, “The future of narrative reporting” and “A long-term focus for corporate Britain”, demonstrated a consensus among respondents that change to the current narrative reporting framework was required. They struggled to glean the key messages from the mass of data presented. We propose to divide the current annual report into two documents. The first is called strategic, as I have already mentioned, and the second—the annual directors’ statement—will contain information that is used by some, but not everyone. Our proposals will, I hope, help companies and investors concentrate on strategic issues for the business, and encourage more integrated reporting, giving a clear line of sight from the company’s results through to its business model, strategies and risks.

On the abolition of the Audit Commission, the Audit Commission announced the award of contracts to outsource its audit work to private-sector providers last week. This was very good news in terms of concentration in the audit market. Grant Thornton, from outside the big four, has been awarded the largest share of new work of any of the recipients. These contracts were awarded on the basis of cost and quality criteria, and demonstrate the confidence we can have in auditors outside the big four.

The noble Lord, Lord Currie, spoke of the need to promote the use of middle-tier audit firms by large companies. At present, under the EU directive, statutory auditors have to be majority-owned by qualified auditors. We are continuing to support an exploration of the likely demand for and consequences of alternative structures, and this might help smaller firms grow. It might also help recapitalise an audit firm in the event of its failure. We recognise that other member states have differing views on this and are continuing to discuss this issue with the presidency and the Commission.

My noble friend Lord Hodgson asked whether the Government are enabling non-big four firms to win public sector work. The answer is yes. The Government are committed to improving value for money from public procurement. We are centralising within Whitehall the procurement of common goods and services, including for audit and assurance. Central government purchases from small and medium-sized companies doubled to £6 billion in the past year as the coalition has pursued its pledge to realign its spending away from multinationals. The shift will see almost 14 per cent of Whitehall’s £44 billion budget secured by SMEs this year, up from 6.5 per cent in 2010.

The noble Lord, Lord Northbrook, asked whether proportionate liability or a statutory cap on auditor liability could serve to encourage more audit firms to bid for large company audits. The Government have no plans to do that. The Companies Act 2006 already allows for contractual limitation of liability, and some auditors’ liability agreements have been signed. The committee supported the exemption of more SMEs from audit. My department’s consultation closed in December, and we will be setting out our response to the findings in the spring. In Europe, we are making the case for raising the exemption thresholds. The committee expressed concern about fragmentation between regulators of audit, accounting and corporate reporting. In October, BIS and the FRC consulted on changes to streamline the internal structure of the FRC and improve its regulatory efficiency and effectiveness. My colleague Norman Lamb intends to make a Statement on this in the other place shortly. On non-audit services, my department has now amended regulations on disclosure of auditor remuneration to bring them into line with the revised ethical standards.

The noble Lord, Lord Shipley, talked of the conflict of interest if one company provides audit and other services and my noble friend Lord Hodgson said that he did not see a problem with it—I thought I would put both those pieces in. In answer to the noble Lord, Lord Shipley, as the committee heard during its inquiry, the standards were revised following the financial crisis. The disclosure framework is now in line with the categorisation of non-audit services in the standards. It also reflects the concerns the committee raised about internal audit services and tax advisory services, in particular, where the regulations ensure separate disclosure will be made. Shareholders can then question the audit committee on the discussions it had with the auditor on those services and the safeguards to the auditor’s independence.

On accounting standards for SMEs, the FRC is continuing to consult on how UK GAAP should be developed, including how it should apply to medium-sized companies. I recognise that I have not covered all of the committee’s recommendations. There were a number of others which the committee suggested should be taken forward as part of the Competition Commission’s investigation and there are others that the commission has voluntarily included within the scope of its investigation.

My noble friend Lord MacGregor spoke about living wills. The FRC has begun work with the six largest audit firms to develop a framework. It will be a sort of “how to” guide by a firm for regulators who might have to dismantle or separate various parts in an orderly fashion.

I would like to answer one of the questions from the noble Lord, Lord Young, because questions from the speaker for the Opposition always come at the very end and rarely get answers. The noble Lord asked about conversations between auditors, banks and regulators. That has been well received in the UK and by banking regulators overseas, which are looking at—or already are—implementing similar approaches in their jurisdiction. I will write answers to the rest of the questions that he asked.

The committee made some proposals that are now reflected in the European Commission’s proposals and which we welcome. These include removing the audit firm ownership rules from the directive, making big four-only clauses ineffective and making audit reports more informative.

As far as the Government are concerned, this has been a very useful debate and I am sure everyone else in this Room has enjoyed every single moment of the two and a half or three hours that we have been doing this. It has been a useful debate on an important subject and I thank noble Lords very much.

[Lord Young of Norwood Green]

Before the noble Baroness sits down, there was just one area I wanted her to elaborate on. Paragraph 184 is very emphatic. It says:

“We believe that every bank should have a properly constituted and effective Risk Committee of the Board”.

I do not want to go on to quote the rest of the paragraph but that is very firm. Despite the banking crisis and the concern expressed—almost unanimously, or at least by almost every contributor—the Government’s response was that it is “desirable” for banks and other institutions but not absolutely mandatory. It then goes on to say:

“There is a strong presumption that banks and insurers that are included in the FTSE 100 are examples of types of firm that should have separate risk committees”.

In the light of what has happened and the strength of that recommendation, I would like to understand exactly why the Government felt they should not go further than they have done in their response.

[Baroness Wilcox]

The answer to that is that we are still considering it.

18:28

[Lord MacGregor of Pulham Market]

My Lords, I thank my noble friend Lady Wilcox for that very helpful and comprehensive reply. We have had a high-quality debate, rich in contributions, and I am particularly grateful to the noble Baroness, Lady Hogg, for her kind words about our committee’s report. I cannot begin to sum up the debate properly as it would take much longer than this reply is conventionally allowed. However, I will quickly make five points.

First, it is unfortunate that such a high-quality debate has taken place in the Moses Room because of the pressure of legislation in the main Chamber. However, I hope that this report will be widely read and followed up. Secondly, we are probably going to face a House of Lords reform Bill, but if anyone had followed this debate they would have seen the high quality of debates that take place in this House and would not always necessarily occur in the other place. I say that fully aware that at least half of the colleagues who have taken part in this debate have, for a long time, been in the other place. I am not criticising the other place, but the contribution from those who would probably not have stood for election to Parliament has been very valuable in this debate and it shows the quality of the House of Lords on topics such as this.

Thirdly, I say to my noble friend Lord Stewartby, who was sceptical about whether we had found answers on the first part of our report, where the main thrust is about the oligopoly of our auditors, that we never expected to have a magic wand and find a magic solution. As I said at the beginning, finding solutions is not so easy. I hope that a number of issues that we have put forward and that have been pursued further will help to deal with a number of aspects of this. However, of course, the problem we face of finding a way of extending the major auditing firms beyond the big four is a very difficult one.

Fourthly, as I said at the beginning, some thought that this study would be rather dry and esoteric. I think that is largely because of the title we gave it, which probably put a lot of people off. However, it has been clear from this debate that the issues we have raised go to the heart of many aspects of our financial, economic and business life; not to mention, as my noble friend Lord Lawson pointed out, behavioural and cultural attitudes. It is a much more widely based debate than one just dealing with audit matters.

That leads me to my final point. The noble Lord, Lord Currie, very kindly said that this debate was merely a staging post, and I entirely agree with him. Clearly, this issue will be debated further and I hope that at some stage our committee will be able to come back to it again. This will not be immediate, because we have just agreed that our next topic will be the economic implications for the United Kingdom of Scottish independence, so that will obviously take up much of the next year. However, I hope that we can come back to address these issues in one way or another because there is clearly still so much to be followed through.

I thank all those who have contributed and particularly all my colleagues on the committee for all that they have done and all the hard work that they have put into it. I think it has been well worth it.

Motion agreed.

Committee adjourned at 6.30 pm.

House of Lords

Wednesday 14th March 2012 Lords Chamber

Wednesday, 14 March 2012.

15:00

Prayers—read by the Lord Bishop of Newcastle.

Leave of Absence

Wednesday 14th March 2012 Lords Chamber

15:06

[The Lord Speaker (Baroness D'Souza)]

My Lords, the Association of European Senates is meeting this week in Paris. Accordingly I seek leave of absence from your Lordships’ House on Friday 16 March.

Finance: Credit Rating Agencies

Wednesday 14th March 2012 Lords Chamber

Question

15:07

Asked by

[Lord Giddens]

To ask Her Majesty’s Government what is their assessment of the influence exercised by the credit rating agencies in the world ewDebaeconomy.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, investors value the role of credit rating agencies to provide market participants with a neutral opinion of credit quality. However, to reduce the procyclical effects of ratings changes, it is important that market participants do not rely mechanistically on credit rating agency opinions and that those ratings are not hardwired into legislation. Therefore, the Government strongly support G20 efforts to reduce the overreliance on credit rating agency ratings, and fostering competition through reducing barriers to entry.

[Lord Giddens]

I thank the Minister for that Answer. In the excellent report that was produced in this House, a whole range of proposals were made for the reform of the credit rating agencies, which I see as urgent and important for the world economy. One of those proposals was that the cartel of the big three agencies should be opened up to greater competition. How in practice does the Minister think this will be achieved? Has any progress been made to that end? Does he by any chance support the idea of compulsory rotation with some of the smaller agencies, a proposal that has been endorsed by a Treasury Select Committee inquiry that is going on at the moment?

[Lord Sassoon]

The noble Lord, Lord Giddens, has gone absolutely to the heart of the matter. Certainly your Lordships’ Committee, the Government and most commentators would like to see competition introduced, but that is extremely difficult, as the noble Lord knows. It is a highly concentrated industry and entry is difficult because it takes time to build up a track record. A number of steps need to be taken. As I have already said, the hardwiring of credit ratings needs to be taken out wherever possible from investor mandates and from legislation and regulation in many countries.

We need to improve the transparency and comparability of the ratings of the agencies and generally lower the regulatory barriers to entry. I believe that Europe has taken some steps, but it needs to take more. For example, under the new registration processes, 16 credit rating agencies are already registered in Europe and another 15 more have applied to be registered, so there are a lot more out there already than the three that get all the focus. As to rotation, it is actually part of one of the two rounds of European directives that have come in since the financial crisis that analysts need to be rotated within firms, which is probably the proportionate response.

[Lord Forsyth of Drumlean]

My Lords, will my noble friend indicate what view he thinks the credit agencies will take of the Government’s proposal to issue 100-year bonds. If these bonds are bought by the Bank of England as part of a quantitative easing process, what will be done to avoid the problem of the value of the bonds falling as interest rates rise and being eliminated by inflation over that period of time?

[Lord Sassoon]

My Lords, my noble friend conflates a number of interesting questions. The key point is that the UK is in a very strong position to look at ultra-long or perpetual bonds. We have historically very low rates of interest and significant investor demand, particularly from the domestic funds, for very long-dated gilts. In response to that situation, we think that it is right to consult the market, as my right honourable friend the Chancellor of the Exchequer has indicated we will do, and to see what it has to say, but we will not make any issue unless it represents good value for the taxpayer.

[Lord McFall of Alcluith]

My Lords, given that the credit rating agencies have demonstrated a consistent lack of accuracy, have failed in their governance, are flawed in that the person paying for the rating has to ask for it, and competition is non-existent, will the Minister encourage investors in the City to establish their own credit rating agencies on a not-for-profit basis? At a stroke, they would remove conflicts of interest, introduce healthy competition and establish accurate credit rating figures. Let us remember that all the credit rating agencies gave Northern Rock a AAA rating immediately before its demise.

[Lord Sassoon]

My Lords, while we should not underestimate the difficulties with the credit rating agencies historically, equally we do not want to make the situation sound more dramatic than it is. On sovereign ratings, the IMF’s analysis in the autumn of 2010 indicated that the rating agencies had performed relatively well and that, in all cases of sovereign default since 1975, they had had those sovereigns on speculative grade ratings at least one year ahead. I have already given some answers as to how we should introduce competition. If one of the vehicles that comes in is of the sort which the noble Lord, Lord McFall, mentioned, that would be up to the market and it should not be prevented from using it.

[Lord Harrison]

My Lords, I know that the Minister has read closely our report on the sovereign credit rating agencies, which was published last November and is available to Members of the House, but does he share my concern that the three major credit rating agencies are American? Does he also share our concern, as expressed in the report, that to generate an agency from within the European Union would not be well received by the markets and that it is therefore essential to ensure that there is open, free and fair competition to establish markets for new players to come in and compete with the existing three?

[Lord Sassoon]

I am certainly very happy to commend again the report, Sovereign Credit Ratings: Shooting the Messenger?, to which the noble Lord, Lord Harrison, referred. It is an excellent report, which said among other things:

“The criticism that credit rating agencies precipitated the euro area crisis is largely unjustified”—

so it offered a very proportionate and measured response to the criticism. I do not think that we should mind the nationality of the rating agencies; it is the competition that we want. In that connection, the Government believe that it would be wrong to create a public European credit rating agency because that would just serve, among other things, to crowd out the competition.

[Baroness Kramer]

My Lords, until the mid-1970s, investors paid the credit rating agencies, not the issuers. The change was driven very much by the awareness of credit rating agencies that they could gouge more money from issuers. Does the Minister agree that there is no evidence that the so-called private conversations that now take place between the credit rating agencies and the issuers because of their relationship have in any way improved the quality of credit rating? Does he further agree that returning to an investor-paid system would take out the key conflict of interest?

[Lord Sassoon]

My Lords, I agree that the conflict of interest question is important. I draw my noble friend’s attention to the fact that in the two rounds of legislation to date since the crisis, one of the things that has been done is to ban credit rating agencies from providing a paid advisory service. So some attention has already been given to this issue by Europe.

Education: Skills

Wednesday 14th March 2012 Lords Chamber

Question

15:15

Asked by

[Lord Addington]

To ask Her Majesty’s Government whether the key skills and functional skills requirements in the Apprenticeships, Skills, Children and Learning Act 2009 are compatible with the Equality Act 2010 in relation to accessibility for dyslexic and other disabled conditions.

[The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox)]

My Lords, the apprenticeships provisions within the Apprenticeships, Skills, Children and Learning Act are compatible with the Equality Act. Employers say that basic English and mathematics are essential for apprentices. The specification of apprenticeship standards for England sets out minimum requirements for apprenticeships. Key skills are being withdrawn as they are not fit for purpose and, from October, apprentices can choose between the GCSEs or functional skills for English and mathematics.

[Lord Addington]

I thank the Minister for that Answer and draw attention to my declared interests. Does my noble friend agree—I have shown this to her—that I have some legal opinion which might contradict that? Does she acknowledge that, at the moment, there are people who are failing to pass the English qualification because of dyslexia who could be helped through to degree level if they chose that path? There is also evidence which shows that people are having problems because those who administer these tests do not know what they could do. Under these circumstances, does not our Government have a duty to make sure that something which has been brought forward as a great saviour of our skill force—the apprenticeship—is made fit for purpose?

[Baroness Wilcox]

The noble Lord is an expert on this subject and I think carefully about the answers that I give him. Yes, he had already given me sight of the Question he was going to ask. There is no evidence to suggest that the Apprenticeships, Skills, Children and Learning Act is not compliant with the Equality Act. The Equality and Human Rights Commission is a critical friend in order for us to be assured of continued compliance, and it stays alongside us. On tackling the colleges and providers, where a college or provider is not using appropriate access arrangements they may lose their right to deliver these qualifications as an approved centre. We will be watching that situation very carefully. Both English and mathematics, of course, are ongoing problems for people with dyslexia but, where barriers to access remain, as a last resort individuals can be exempted from up to two or three of the assessed components within the functions skills—I have checked this and found it to be right—speaking, listening, communication, reading and writing. In the last event, two or three of those components can be removed to make it as accessible as possible.

Perhaps I might add that the employers are very keen that everyone should have basic English and mathematics, and we know how difficult this is for many people with dyslexia. However, it is important, if we can, to keep people with disabilities and dyslexia inside the system and to help them to be as much a part of our community as everyone else. So, wherever it is possible to keep people inside the community, we will. I am sorry that my answer was long but the issue is important.

[Lord Martin of Springburn]

My Lords, does the Minister agree that many of our excellent tradesmen and tradeswomen would readily acknowledge that when they were young they were not too good at passing exams? We must be very careful when encouraging young people to come into apprenticeships that we do not make exams a barrier.

[Baroness Wilcox]

That is absolutely right, and that is why it is important for us to have functional skills, which are much more accessible to people with disabilities. I would be happy to talk to the noble Lord further on that matter.

[Lord Storey]

My Lords, the Minister will be aware that those students who go to university who have special needs are supported, perhaps through a scribe or assistive software, but that is not the case with apprenticeships. How would the Minister advise on this case? An apprentice electrician had an outstanding report on his practical skills from his employer. However, as he failed his key skills component, his employer was unable to retain him and he is now, sadly, unemployed. What advice would the Minister give to that young person as to the support that we could give him and other apprentices?

[Baroness Wilcox]

I am very sorry to hear this. We have just commissioned Peter Little to carry out research and recommend improvements to the accessibility of these apprenticeships. In April we will publish his report and a plan setting out exactly what we will do to improve and to help the situation.

[Lord Foulkes of Cumnock]

My Lords, since this Question refers to disabilities other than dyslexia, is the Minister aware of the report published today by the Scottish Association for Mental Health about discrimination against people with mental illness in employment? Will she get a copy of it and consider its recommendations and applicability to England and Wales?

[Baroness Wilcox]

Thank you very much indeed. Yes, I will get a copy.

Police: Vehicles

Wednesday 14th March 2012 Lords Chamber

Question

15:20

Asked by

[Lord Hoyle]

To ask Her Majesty’s Government what recent discussions they have had with police authorities about the cars they purchase.

[The Minister of State, Home Office (Lord Henley)]

My Lords, Ministers frequently meet police authorities. In 2011 the Government made regulations that require police vehicles to be provided through a specified national framework agreement. Decisions about what to buy from that framework are for chief constables and their police authorities.

[Lord Hoyle]

My Lords, I thank the Minister for that reply, but does he agree with me that as all the police authorities in the north-west and many throughout the country are changing from buying Vauxhall vehicles to buying Hyundai, that is a kick in the teeth for Vauxhall workers who are trying to keep the efficient car plant in Ellesmere Port open? Could he give an indication that any Korean police authorities are thinking of buying British-built vehicles?

[Lord Henley]

My Lords, I do not speak for the Korean Government and cannot speak for the police authorities in Korea, so I do not know what police cars they are buying. I am aware of the noble Lord’s concern about matters in relation to his own police area, and I understand that it is buying Hyundai. But I can give an assurance that, if he looks at the figures, he will find that Vauxhall is still the largest supplier of lower and intermediate-performance police cars, which are manufactured in his own area of Ellesmere Port. The important point is that police authorities and chief constables should be able to buy the cars that they believe are suitable for their needs, and deal within the framework in doing so.

[Lord Low of Dalston]

I do not much mind what kind of cars the police use, but could the Minister use his influence with the police to persuade them to moderate their use of sirens, which are such a widespread source of noise pollution in our cities? The siren is for use in a real emergency, and not just when the officer is in a hurry to get home for his tea.

[Lord Henley]

My Lords, I am aware of this complaint from a number of noble Lords who have put it to me on a number of occasions. I understand that there might be one or two occasions when police cars are using sirens in an inappropriate way. Again, that should be a matter for the police authorities, but I hope that they will bear in mind what the noble Lord has to say.

[Lord Jones of Birmingham]

I draw noble Lords’ attention to my declared interests. Would the Minister agree with me that it is becoming increasingly difficult for the businesses of this nation to believe that Her Majesty's Government want business to employ more people and pay more tax when they buy their ships from South Korea, their police vehicles from Korea, their trains from Germany and their cars from Japan? Further, would he agree that the EU procurement rules talk about best value and not best price, and that the Government increasingly show that they know the price of everything and the value of nothing?

[Lord Henley]

My Lords, I would not want to go down the line that the noble Lord is suggesting, which smacks, dare I say it, of protectionism. I want the police authorities and chief constables to buy the cars that they feel are best for their needs. That is why I am particularly grateful, as I said in answer to the noble Lord, Lord Hoyle, that Vauxhall is the largest supplier of one category of cars, which are being built in Ellesmere Port, very close to where he comes from.

[Baroness Trumpington]

May I ask what the police do with their cars when they have finished with them? Do they send them to auction? A few years ago my husband bought the ex-chief constable of Cambridgeshire’s car and we drove happily at all kinds of reckless speeds because everybody thought it was the chief constable’s car.

[Lord Henley]

I am very grateful that I was not driven in that car by my noble friend or her late husband. Police cars do not last that long because they have a fairly heavy life. The police sell them at the end of their lives and try to get the best possible value for them.

[Lord West of Spithead]

My Lords, when I was a Minister in the Home Office I was shocked at how little co-ordination there was across police forces in terms of procurement, and I tried to change that. Can the Minister reassure us that, notwithstanding some differentials between police forces, they are quite minimal and there would be a huge gain to the public purse if we could co-ordinate procurement?

[Lord Henley]

My Lords, the noble Lord refers to his time in government. I was trying to make clear in my original Answer that there have been considerable changes since then. That is why we have brought in the framework, which brings in co-ordination of a great deal of procurement across all police forces that we believe will save something of the order of £350 million a year. This is money that we need to save.

[Baroness Doocey]

My Lords, do the Government agree that there is no justification for the Metropolitan Police keeping 32 luxury cars not for security purposes but to chauffeur senior officers to and from their homes?

[Lord Henley]

My Lords, obviously I cannot comment on decisions made by the Metropolitan Police Authority —that is a matter for the mayor’s office. If it is spending money inadvisably, I hope that it would look carefully at the circumstances in which it could possibly save money in the future.

[Baroness Worthington]

Would the Minister comment on the appropriateness of the list of activities in the leaked tender document by the West Midlands and Surrey police forces? Alongside the management of the vehicle fleet, these included a whole host of activities that ran to almost everything apart from the powers of arrest.

[Lord Henley]

My Lords, I am not sure that that is directly relevant to the Question. We are talking about the purchase of vehicles. I want to make it clear that that is a matter for the chief constables and we want them to buy the appropriate cars for the job that has to be done.

[Lord Grenfell]

My Lords, prompted by the very pertinent question put by the noble Baroness, Lady Trumpington, can I ask the Minister if, when these police cars are no longer considered roadworthy, they are put out to grass and placed at the disposal of the Prime Minister and his friends?

[Lord Henley]

My Lords, as I made clear in my earlier answer, they are sold for the best possible price.

[Baroness O'Cathain]

My Lords, can I ask my noble friend to make sure that the opinions in response to this Question do not make noble Lords go away with a feeling that the British motor industry is in a bad state? It is in the best state it has been in for about 15 years and we should talk up our industry rather than the reverse.

[Lord Henley]

I am very grateful to my noble friend for her comments. I remind her about the announcement made about Nissan and the extra jobs that will be available there as a result of decisions that Nissan has made about further inward investment in this country.

[Lord Brooke of Alverthorpe]

On the day when it has been announced that 2.7 million people in this country are unemployed, and the likelihood is that that figure will continue to rise for some time, is it not important that we take such factors into account when we address issues such as public procurement? Can one conceivably believe that the French, German or Belgian Governments would do some of the things that we do in this country?

[Lord Henley]

Yet again, the noble Lord is heading down the road of protectionism, which I do not believe is the right answer. The answer that I gave to my noble friend Lady O’Cathain about the success of Nissan addresses that point exactly. Why have we attracted so much inward investment? It is because we have the right conditions to do so. The Nissan announcement is one that even the noble Lord should welcome.

[Viscount Simon]

Is the noble Lord aware that ACPO is reviewing the use of police vehicles with a view to standardisation, which will result in reducing the cost of those vehicles?

[Lord Henley]

My Lords, again, I answered that point earlier when I dealt with the co-ordination that we have brought to this matter through the national framework. That is why we are looking to make savings of the order of £350 million a year, compared to what used to happen under the previous Government on proper co-ordination of all police procurement.

Armed Forces: Vehicles

Wednesday 14th March 2012 Lords Chamber

Question

15:30

Asked by

[Lord Empey]

To ask Her Majesty’s Government whether fighting vehicles supplied to British troops in Afghanistan provide adequate protection against Taliban attacks using improvised explosive devices.

[The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)]

My Lords, the current range of fighting vehicles supplied to British troops in Afghanistan has been optimised for that particular environment and offers the most suitable form of survivability in that theatre of operations. However, no vehicle can currently withstand a blast of infinite magnitude and there will always be gaps in a vehicle’s protection. The strengths and weaknesses of the different types of platform that make up the vehicle fleet give operational commanders the option to mix and match capabilities and to tailor them for a specific operation.

[Lord Empey]

My Lords, we were all shocked by the tragic deaths last week of six of our service personnel in Afghanistan. Can the Minister assure the House that the flat-bottomed Warrior fighting vehicle is the most suitable equipment to protect our Armed Forces from improvised explosive devices? Can he further assure the House that financial constraints on the provision of equipment or modified equipment are not delaying the deployment to Afghanistan of the best possible protection for the brave men and women of our Armed Forces?

[Lord Astor of Hever]

My Lords, my thoughts are also with the families and friends of those six soldiers. Every death and injury reminds us of the human cost paid by our Armed Forces to keep our country safe. The Warrior is optimised to protect our Armed Forces from IEDs and is suitable for the task that it is required to do. It has a good track record in both Iraq and Afghanistan. The protected vehicle fleet in Afghanistan comprises a mix of armoured capabilities, some of which have flat-bottomed hulls with tracks and others have V-shaped hulls with wheels. This provides commanders with a range of operational capabilities to match the threat. Despite financial constraints, there is a successful programme that allows the Treasury to fund urgent operational requirements to procure equipment within a shortened timescale. Since 2001, more than £5.5 billion has been spent on UORs for Afghanistan.

[Lord Morris of Aberavon]

My Lords, it is many years since I had ministerial responsibility, under the noble Lord, Lord Healey, for the equipment of all our Armed Forces. My advisers then sought to prioritise needs for research and development. I believe that the Taliban is skilful in simplifying the components of IEDs, which may be part of the problem. Has any priority been given to technological means of counteracting IEDs? If so, when was priority given to research and development in this field?

[Lord Astor of Hever]

My Lords, this is a very important question. Survivability is measured by a number of factors, not just the width of the armour. A vehicle’s ability to manoeuvre around a battlefield, its firepower and its situational awareness capabilities all contribute to its survivability along with other factors such as tactics and procedures. A platform’s relative strength in one of the areas of survivability will result in a corresponding trade-off against another. For example, a highly mobile platform will have to be lightweight and therefore cannot have heavy armour, such as the Jackal and the Coyote, whereas a well armoured platform will lack mobility, such as the Mastiff. The same is true of lethality as the greater the firepower the more the weight will increase, which means less armour and less mobility. As tactics change, so does the optimal platform of choice.

[Lord Burnett]

My Lords, as my noble friend knows, when assessing an armoured vehicle, a balance has to be struck between physical protection, mobility and firepower. All contribute to survivability and operational effectiveness. Is my noble friend satisfied that the upgraded Warrior meets these standards more effectively than other similar vehicles? Does it require a further upgrade? What is the opinion of those in our Armed Forces who have to use these vehicles?

[Lord Astor of Hever]

My Lords, the Warrior is very popular with our troops. I was out in Afghanistan two weeks ago and I spent quite a lot of time talking to members of the Armed Forces who work with this bit of equipment. They are very impressed by it. It is seen by insurgents as a tank and they will normally melt away on its arrival. It provides excellent mobility and survivability and is able to operate over the most difficult terrain. I need to be careful what I say for security reasons but I can say that the recent incident was a combination of several really unlucky combinations. No vehicle in theatre, including one with a V-shaped hull, would have survived a similar explosion. Warrior has been extensively upgraded, particularly to deliver enhanced protection against IEDs. I have copies of the upgrade work on the Warrior, which has been security cleared. I am very happy to distribute them to any noble Lords who would like to see them.

[Lord Davies of Stamford]

My Lords, anybody who knows anything about this subject will know that the noble Lord is absolutely right. There is a level of weight of explosive which will destroy any vehicle, including a main battle tank. That is just one unfortunate fact of life. In my time I think that I ordered eight new armoured vehicles, seven of which were procured specifically for Afghanistan under the UOR initiative. I hope that all of them were successful in their way. Does the noble Lord agree with me that the outstanding success among them has been Mastiff 2 and that there must be a very strong case, even though Mastiff 2 was ordered under the UOR programme, for keeping that permanently in inventory, where almost certainly its qualities will be necessary in any other deployment we make in a third world context?

[Lord Astor of Hever]

My Lords, this Government take the protection of our Armed Forces against IEDs very seriously. I know that the previous Government did so as well and I pay tribute to them for what they did in this area, particularly as regards equipment such as the Mastiff. I take seriously what the noble Lord says about Mastiff in the future. We are looking at that very closely.

Business of the House

Wednesday 14th March 2012 Lords Chamber

Timing of Debates

15:38

Moved by

[Lord Strathclyde]

That the debate on the Motion in the name of Lord Howell of Guildford set down for Friday 16 March shall be limited to three and a half hours and that the debate on the Motion in the name of Lord Sassoon set down for Thursday 22 March shall be limited to five hours.

[Lord Barnett]

I take the opportunity of asking the noble Lord the Leader of the House why we have not yet had an opportunity to debate the serious matter of access by Members of the House to the Peers’ car park. When I last raised it, the noble Lord’s deputy told me that it would be a matter of course. But in practice we have been prevented by putting down Written Answers. If an early opportunity is not given, I will have to put down a Motion myself to allow the House to decide.

[The Chancellor of the Duchy of Lancaster (Lord Strathclyde)]

Of course, the noble Lord is free to do whatever he wishes to do within the rules as laid down in the Companion to the Standing Orders. However, I am prepared to have a discussion with the Chairman of Committees.

Motion agreed.

Misuse of Drugs Act 1971 (Amendment) Order 2012

Wednesday 14th March 2012 Lords Chamber

Statistics and Registration Service Act 2007 (Disclosure of Social Security and Revenue Information) Regulations 2012

Immigration and Nationality (Fees) Regulations 2012

Schedule 5 to the Anti-terrorism, Crime and Security Act 2001 (Modification) Order 2012

Motions to Refer to Grand Committee

15:39

Moved by

[Baroness Anelay of St Johns]

That the draft orders and regulations be referred to a Grand Committee.

Motions agreed.

Legal Aid, Sentencing and Punishment of Offenders Bill

Wednesday 14th March 2012 Lords Chamber

Report (4th Day)

Relevant documents: 21st Report from the Constitution Committee, 22nd Report from the Joint Committee on Human Rights.

15:40

Clause 26 : Choice of provider of services etc

Amendment 119

Moved by

[Baroness Grey-Thompson]

119: Clause 26, page 21, line 11, leave out subsection (2) and insert—
“( ) Notwithstanding subsection (1), the Lord Chancellor’s duty under section 1(1) must include a duty to secure that a person eligible to legal aid advice is able to access it in a range of forms at the outset, including securing the provision of initial face-to-face advice.”

[Baroness Grey-Thompson]

My Lords, the amendment is also in the names of the noble Lords, Lord Bach, Lord Newton of Braintree and Lord Pannick. It seeks to remove the provisions for both a mandatory telephone gateway and the delivery of legally aided services exclusively by telephone. Instead, the amendment would insert a duty to promote the plurality of provision and the delivery channels in order to have regard to the needs of clients when procuring services.

The Government have said that they will introduce the mandatory gateway initially in four areas of law. However, the Bill gives the Government wide powers to make legal aid services available exclusively by telephone or other electronic means in the future. I move the amendment for several reasons. A telephone-only service may work for a large number of people. However, it may adversely impact the most vulnerable clients, who may struggle to explain complex problems over the phone. I should like to ask the Minister to share with us how the coalition Government will identify the groups of people for whom this service is not suitable, and the criteria that will be used, given that the Government acknowledged the difficulty in their impact assessment, which stated:

“Disabled people may … find it harder to manage their case paperwork through phone services. They may also find it harder to communicate via the phone or manage any emotional distress more remotely”.

Indeed, it may be hard for many people even to access a telephone suitable for dialling in. Many people in current times do not have a land line but only a mobile. Accessing a telephone gateway via a mobile could be expensive. Due to waiting times, credit may even run out before a conclusion has been reached. Also, fewer public phones are available, and they are perhaps not the best way to try to resolve issues. I am also concerned that people with language or speech difficulties may be deterred from seeking advice. Without early intervention, it is likely that their problems will become more complex and costly to resolve at a later date, and their problems will be pushed to another area.

We must also think carefully about training operators. It is my understanding that they will receive some training, but there will be no formal legal training. As a result, operators may not be able effectively to interpret the nuances of complex cases put to them, let alone cases put to them by clients who may be confused or have some difficulty in communicating.

The Government’s savings from their proposals will be negligible, and they may in fact cost more. The June 2011 impact assessment predicted savings of between just £1 million and £2 million—a relatively small amount. In fact, a study by the Legal Services Research Centre found that telephone advice can take longer to resolve problems than face-to-face advice. Face-to-face advice is important in many cases for fostering trust and building relationships in order to get to the right resolution.

We could also lose the current streamlining. Much good work has been done by local advice agencies, which collaborate to streamline advice, whereby clients need to go through the advice journey only once. The mandatory telephone gateway will fracture this again, because clients would need to phone in first and then be referred to special advice elsewhere.

During the Bill’s Second Reading and Committee stage in your Lordships’ House, Peers from all sides expressed the view that a telephone-only legal aid service would not be appropriate for all users. While I accept that it may suit many, those with language difficulties, learning difficulties or mental health problems may be disadvantaged. Vulnerable clients, perhaps those experiencing bereavement, loss of a job or debt, or those with low self-esteem or poor literacy or numeracy, are much more likely to be disadvantaged.

The Government risk excluding vulnerable people from accessing meaningful and effective legal advice. I beg to move.

[Lord Phillips of Sudbury]

My Lords, I started in a Suffolk solicitor’s office in the late 1950s. As was common then and now, a lot of preliminary advice, particularly to people who could not pay anything, was given by junior members of staff. Ever since, I have been imprinted by early recollections of how difficult it is for some people to give instructions at all. Later, I became non-executive director of a company that ran the first telephone helpline in the country, and observed first-hand, as one might say, how that worked. Of course, a great many people in the present age feel perfectly comfortable with telephones. Provided that there is no cost factor, to which the noble Baroness, Lady Grey-Thompson, referred, that may prove an adequate way to give instructions. However, we know that there are many, even now, who are not comfortable with telephonic communication and for whom, if the matter they are seeking advice on is painful to them or arouses great emotion, it is not a satisfactory way to try to impart instructions.

If one thinks of poor people—perhaps I should not have said poor people, because they can be highly articulate, but inarticulate people and those who cannot begin to analyse their problem and do not know quite what it is—the telephone is unlikely to be an effective means to impart information without which the adviser cannot hope to help them to best effect. We are all wholly aware of the Government’s need and wish to save expenditure on legal aid, but I put it to my noble friend that this is the falsest of false economies. Anyone who has given such advice will readily say that the cost in the adviser’s time is released when the client is in front of them, when they can help the client, who is often confused or emotional, to give them the precious information without which they cannot hope to do a satisfactory job. On cost grounds, the savings assumed for the telephone helpline as an exclusive channel of advice are misconceived. More importantly, I think we all agree, so it does not need emphasising any further, that justice cannot be done if there is no alternative to deliver advice by face-to-face means.

I end by saying that where the person needing help is poor, confused and deprived, the notion that one should add to that catalogue of disadvantage the inability to access the only advice that will work for them—face-to-face advice—would be a terrible indictment of our claim to be a democracy where we are equal before the law.

[Lord Wigley]

My Lords, I shall speak briefly in support of Amendment 119, moved so persuasively by the noble Baroness, Lady Grey-Thompson. The amendment removes the provision contained in Clause 26 for the Lord Chancellor to make legal advice services available by telephone gateway or other electronic means. It would instead place a duty on the Lord Chancellor to ensure that individuals eligible for legal aid advice are able to access that advice in the forms most suited to their needs, including initial face-to-face contact.

Clause 26 is perhaps one of the most controversial elements of the Bill and has attracted widespread criticism from disability groups and campaigners. The clause contains provisions to establish a compulsory telephone gateway and to make this gateway the only method by which advice in certain categories of law is available. These proposals will in effect disfranchise individuals with learning difficulties or disabilities that impair their ability to communicate efficiently from being able to access advice. As Scope has pointed out, many legal aid clients experience complex and multifaceted problems that would be difficult to explain over a telephone, while those with limited English or with language or speech problems may be deterred from seeking advice at all. Common sense suggests that cases that are not dealt with at an early stage will be more costly to resolve at a later stage.

The proposals represent a retrograde step that would put up shocking barriers to equal access to justice. The Government acknowledged this in their own impact assessment, recognising that:

“Disabled people … may find it harder to manage their case paperwork through phone services. They may also find it harder to communicate or manage any emotional distress via the phone”.

What is more, as pointed out once again by Scope, these proposals could end up costing the Government more money, as opposed to making savings. The impact assessment published in June 2011 predicted modest savings of about £1 million to £2 million, while a study compiled by the Legal Services Research Centre found that advice provided over the telephone can unnecessarily prolong cases, as was mentioned a moment ago, and thereby make them more difficult to resolve.

In summary, Clause 26 adds further stress to already distressing situations and risks excluding vulnerable individuals from accessing legal advice altogether. The proposals go against the principle of equality of arms before the law and, frankly, display a cavalier attitude towards the needs of those with disabilities or impairments. Individuals with disabilities should be treated with the utmost respect and dignity in all areas of society. It is our duty to ensure that they are not disfranchised by a scheme that aims to provide justice on the cheap.

[The Lord Bishop of Chichester]

My Lords, I, too, support the amendment. Quite a number of people find it quite hard to find their own voice and need the support of a friend. As a priest I know how many of the clergy spend a lot of time accompanying people and enabling them to speak for themselves: not providing a voice for the voiceless but enabling the voiceless to find a voice. It seems that a lot of people are simply not able to put their own case individually over the telephone and need to have friends and supporters with them. It seems essential that this alternative means, the face-to-face interview, is available for those people so that they can have friends and advocates with them.

[Lord Roberts of Llandudno]

My Lords, I join in supporting the amendment. In recent debates we have spoken about Jobcentre Plus and how, when young people are looking for work, face-to-face interviews are far more effective than sitting before a computer or dealing over the telephone. This also holds true for those who need advice. I understand that all those under the age of 18 will be able to have face-to-face interviews. This should be extended because people are asking for advice at the most vulnerable time in their lives, with turbulent economic situations, job losses and so on. They need advice, and as the right reverend Prelate stated, and as I know as a minister of the Methodist church, the telephone has its uses, a helpline has its uses, but you sometimes need to sit face to face with a person—to have a personal relationship within which they find far greater comfort and guidance than they would otherwise. I am happy to give my support to the amendment.

[Lord Newton of Braintree]

My Lords, perhaps I may intervene briefly once again in these debates, in complete support of the points that have been made, not least by the noble Baroness, Lady Grey-Thompson and my noble friend Lord Phillips of Sudbury but to a degree by everyone who has spoken.

As it happens, I have other recent brief experience of this in my capacity as a trustee, along with the noble Lord, Lord Rooker, of the National Benevolent Fund for the Aged, which is concerned with isolated elderly people. We have recently been lobbying Ministers about the apparent assumption that everyone can deal with things on the telephone or through the internet. That is essentially—dare I say it?—a middle-class presumption that does not necessarily apply to the areas that we are talking about now. To their credit, the Ministers whom we have lobbied are, I think I am right in saying, having a round-table discussion tomorrow on how the problem might be dealt with, and I recommend that the Ministry of Justice joins in.

Anyone who has been an MP will have been confronted in their surgery by people who just need to talk to someone, with a sense of the body language, to sort out one to one what may be important in their case, what is not relevant to an appeal and so on. I notice the noble Lord nodding. You can spend an hour listening to people who want to tell you their life story and it is only face to face that you can disentangle the points on which they might have a case. This is important to a lot of people who cannot really fend for themselves. I confess that even I, with a pretty high-quality, advanced education, still prefer, if possible, to go and see someone rather than talk to them on the phone because the body language and the feel of the conversation are important. Therefore, I do not think that we should underestimate these things.

In a curious way, the Government have acknowledged that in the briefing that I have here. It says that, although it is a telephone gateway, there has to be a careful assessment of whether the advice can be provided face to face or over the telephone. Indeed, they have already decided not to include in the single telephone gateway debt, in so far as it remains in scope, discrimination and special educational needs, as well as, I think, community care. What is it that makes these things so different from other forms of advice? There will be many community care cases, and there are also welfare benefit needs, as well as a need for advice on a lot of other aspects of people’s lives. Why is this to be exempted but not the other things? In a way, therefore, I think that the case has been conceded. The costs cannot be large and the need is great, and I think that we are entitled to ask the Government to reconsider this proposal.

[Lord Pannick]

My Lords, I added my name to the amendment and I did so for a very simple reason: this amendment is truly about access to justice. The concern surrounding the Bill is that legal aid should not be provided only by means that are simply inaccessible to a number of people, as explained comprehensively and persuasively by the noble Baroness, Lady Grey-Thompson.

[The Earl of Listowel]

My Lords, coming late to this debate, I regret that I may have missed some of its complexities, but I ask the Minister for reassurance on one point. I very warmly welcome the publication this week of the Government’s social justice strategy and the proposal for an early intervention foundation. The Secretary of State, Iain Duncan Smith, has recognised for a very long time how important it is to intervene early with families if their children are to have good and successful lives. Therefore, my concern over this issue is whether it is going to provide a further barrier to parents who need vital services. Will they find it difficult to attain those services and get access to the law, and will their children suffer as a result? I understand that children under the age of 18 will have access to a person if they need to speak to someone, but I am worried about disabled parents, parents who are very challenged and perhaps poor parents who, as a result of this change, may not get the support that they need and their children may suffer as a consequence.

16:00

[Lord Quirk]

My Lords, I very much support the amendment. As the noble Lord, Lord Newton, reminded us, communication is by no means dependent solely on ears and eyes. It is multisensory and—as the noble Lord, Lord Phillips, hinted earlier—the greater one’s need, the more senses one needs for satisfactory communication. I hope very much that the Government will accept the amendment.

[Lord Campbell of Alloway]

My Lords, I will take very little time. I am very concerned about the situation, for all the reasons that were given—and that were put better than I could have put them. I ask only that consideration be given, and an assurance of further consideration, so that this proposal will not simply be cast away in some form of dismissal. That is all I ask for: an assurance that consideration will be given.

[Lord Bach]

My Lords, I am proud to be associated with the amendment in the names of the noble Baroness, Lady Grey-Thompson, and the noble Lords, Lord Newton and Lord Pannick. The amendment is of the greatest importance, and many people outside the House are following it with exceptional interest.

It is perhaps important to remind the House that the mandatory gateway will apply only to those elements of social welfare law that are still in scope—including, of course, for the moment, welfare benefits because of a decision that the House took last week on an amendment moved by the noble Baroness, Lady Doocey. That is a statement of the obvious, because those areas of social welfare law that the Government intend to take out of scope will be quite irrelevant for these purposes. There is no possibility of legal aid in those cases. In effect, the Government are saying that people with those legal problems will have to fend for themselves if they have no money. That is a pretty shocking state of affairs.

We have had a short but powerful debate in this House today—and we had a very powerful one almost three months ago at the end of the first day of Committee, on 20 December 2011. Very powerful speeches were made. I have in mind that of the noble Lord, Lord Shipley, whose final words were:

“There are real dangers that some of those most in need of help will fail to secure it through a mandatory telephone gateway”.—[Official Report, 20/12/11; col. 1764.]

The noble Lord, Lord Phillips of Sudbury, made yet another powerful speech today. The one he made on that occasion was powerful, too. He said:

“If it is mandatory for those seeking assistance to go through a telephone gateway, we will cast adrift a significant minority of our fellow citizens who will never use a telephone gateway for the sorts of problems with which they are confronted”.—[Official Report, 20/12/11; col. 1766.]

The Minister says from a sedentary position that there is no evidence of that. What an unbelievable response. One only has to know from human nature—from living in the real world rather than the world of Whitehall—that that is how people are. It is about time that the Government started taking people as they are rather than as they want them to be. There were powerful speeches also from the Liberal Democrat Benches on that occasion.

I made the point that it was nearly three months ago because we have had no hint of a concession in all that time. We know from a letter that a telephone call will not be free, as was suggested at the time. There will be a cost to the client who has to make the call. It will not be huge, but it will be there—and that is another factor that will apply. It is simply common sense that to have a mandatory gateway for all clients seeking legal advice is absolutely inflexible and will almost certainly lead to a number of people who clearly should be helped receiving no help at all. It will lead to injustice after injustice.

The Bolton CAB is a large CAB which covers all these fields and has a legal aid contract. It runs an advice surgery from time to time. Yesterday it tried an experiment. Every client who came in had their tale told in general terms by way of a tweet, in other words on Twitter, so that one could read each one of these cases during the course of the morning and afternoon while this surgery lasted. One could see from reading these how the world of a busy CAB or law centre or advice centre actually worked in practice. There were 126 clients who sought legal advice on social welfare issues and they covered practically everything that you could think of. I have no doubt that some of those clients were well able to make a telephone call and start proceedings in that particular way, and I am an undisguised fan of telephone advice when it is appropriate. But are the Government really saying, as I suspect they are, that all 126 of those clients would have been able to do this? Are they saying it is not highly advantageous to have face-to-face contact in some cases? And are they really saying that someone who turned up to a CAB should be turned away and told to call a hotline, as will happen unless this amendment is passed? Can you think of a more bureaucratic, fussy and less efficient system and one that is less reflective of the way people actually live their daily lives? I would argue that it is an absurd proposition which is un-British in the sense that it is one-size-fits-all and too dirigiste and inflexible an approach.

Sometimes Governments just get things completely wrong and Parliament has some sort of duty to say so. It actually helps Governments in the long run if they do not charge off in the wrong direction. Here is a short story. I remember when I was a Minister sitting where the Minister is, in the same department, putting forward some foolish, to put it mildly, proposition and then seeing, when the vote was called, many of my own supporters walking past in order to vote in the Opposition’s Lobby and losing the vote for the Government by a large amount. It was the right thing for them to do. Actually, there was so many of them that none of them could be picked out and dealt with later. There is an advantage in numbers sometimes. And they need not even be afraid on this occasion of the noble Lord, the Deputy Chief Whip of the House. Frankly, I would argue that this is one of those instances. If the Government are defeated on this issue and if the Liberal Democrats could just bring themselves for once to vote against the Government, the world would not stop, the Government would not fall, but an enormous mistake might be averted and Parliament would have done the right thing.

[The Minister of State, Ministry of Justice (Lord McNally)]

My Lords, in case my colleagues on the Liberal Democrat Benches missed it, that was a subtle attempt by the noble Lord, Lord Bach, to woo them into the Aye Lobby. All that I can say in this technological age is, just think what the noble Lord, Lord Bassam, will be tweeting about them if they do not do as he suggests.

Throughout this Bill it has been very difficult to reply to a debate, trying to deal with very narrow, specific terms, when the noble Lord, Lord Bach, constantly makes his case in the broadest terms. We are not forcing everybody through a telephone gateway; we are doing a specific and very narrowly drawn test. I ask noble Lords to make their decision on the facts.

We make jokes about this House and its otherworldliness, but we are living in the most communications-savvy generation in our history. I do not just mean teenagers and young people; I mean silver surfers and people right through. They buy on eBay; they use telephones and new technology in a very broad way. It is patronising to assume that people cannot make use of it. Of course, we are aware that there may be exceptions. That is why, when noble Lords come to vote, it would be worth listening carefully to what we actually propose to do and what safeguards we are putting in place, rather than what I would call the broad-brush approach adopted by the noble Lord, Lord Bach.

There will be safeguards. Face-to-face advice will remain an option in the exceptional circumstances when there are callers for whom adaptations cannot be made to ensure that there is an appropriate level of service. Our starting point is that telephone advice is effective and efficient. The Community Legal Advice helpline figures for 2010-11 show that more than half a million calls were made to the service. The 2010 survey of clients who subsequently received advice from the specialist service showed that 90 per cent of clients found the advice given helpful.

The benefits of electronic services generally and the Community Legal Advice helpline service in particular are twofold. The first benefit is access. These services particularly help people with specific needs who find it difficult to get to face-to-face services; for example, those living in remote areas or who have a physical disability. Callers can access the Community Legal Advice helpline service at a time and place convenient to them. The second benefit is quality. Contrary to the assumption that face-to-face advice is always better, specialist telephone advice providers are currently required to meet higher quality standards than their face-to-face counterparts. For both these reasons, the Government believe that the Community Legal Advice helpline should be the mandatory gateway for applying for legal aid.

However, I can confirm today that the Government have listened to concerns and will not proceed with the proposal to include community care as one of the initial areas of law for which clients will be required to use the mandatory single gateway. We acknowledge particular challenges in delivering a quality service to community care clients. The Government have always recognised that this is a complex area of law and said in the impact assessment that around half of clients in this area would require face-to-face meetings with legal representatives even where only legal help is being provided.

We have heard since from stakeholders that individuals’ circumstances can be so unique that face-to-face meetings are frequently required to deal with problems in this area even where only legal help is being provided. We have accepted that the numbers of community care clients requiring face-to-face advice is in fact likely to be more than our original estimates, and we are therefore not proceeding with the proposal to include community care as one of the initial areas of law for which clients will be required to use the mandatory single gateway.

[Lord Newton of Braintree]

My Lords, I acknowledge that point. I would also like to acknowledge that I inadvertently misquoted the briefing. I referred to community care but I also said that debt, discrimination and special educational needs were covered—I got that wrong. However, I come back to my basic point. What distinguishes the potential recipients of community care from the recipients of welfare benefits and a lot of other things? The same people will have needs elsewhere, and they will need face-to-face help not only with their community care needs.

16:15

[Lord McNally]

That is what I call a second bite of the cherry on Report. However, I was in fact about to clarify, for the benefit of the House, that indeed the noble Lord was wrong, and that the first gateway areas of law will therefore be debt, discrimination, and special educational needs.

As the House is aware, the Government have been working with a range of groups, including equality organisations, to discuss the many adaptations and adjustments already in use through the existing community legal advice helpline. As a result of this work, we are comfortable that meaningful access to legal aid services for the majority of callers in the areas of law that are to be covered by the mandatory gateway is very much achievable. The mandatory gateway will, therefore, be relatively narrowly drawn, and we will proceed sensibly and prudently. This is precisely about ensuring that services remain accessible.

We believe that these are the right areas to begin with, because the community legal advice helpline already offers specialist telephone advice on debt, special educational needs and some discrimination cases. We trust that this provides sufficient knowledge on which to base our volume estimates and have a good sense about the realism of ensuring accessible services. Now that we have made further movement on the issue—a matter that I know the noble Baroness feels strongly about—I hope that she may be able to meet us halfway, particularly given the safeguards that we are also putting in place, which will apply across the three remaining areas.

The Government are not only committed to a review of the whole implementation, including operation, of the gateway in the three areas of law, but will ensure that face-to-face advice continues to be available where it is genuinely necessary. All callers will need to be assessed on a case-by-case basis to determine whether they should be offered advice only over the telephone. Those making the assessment will be required to have an awareness of the difficulties faced by callers, who may have various conditions such as learning impairments, hearing impairments, and mental health conditions. Where they assess callers as not being suitable, even with a reasonable adjustment, to receive telephone legal aid advice, callers will be referred to face-to-face providers. The key consideration will be whether the individual client is able to give instructions over the telephone and act on the advice given over the telephone.

As I have previously stated, specialist telephone advice providers are currently required to meet higher quality standards than their face-to-face counterparts. I understand that the LSC is reviewing the quality standards of all contracts in order to ensure that they remain appropriate and fit for purpose once this Bill is implemented. However, while the precise detail is still being developed, I can assure the House that the tender process, overall quality requirements and contract management approach for the specialist telephone advice providers will mean that they will continue to meet a higher service standard than that expected of equivalent face-to-face advice providers, and that this will include a specific requirement for appropriate training both in relation to understanding individual needs and the assessment process itself. Noble Lords should therefore rest assured that access will be protected under these plans.

A number of specific points were made. My noble friend Lord Roberts argued that the face-to-face guarantee for under-18s should be extended to age 25. Again, I must say to him that those aged 18 to 25 must be the most telephone-friendly generation in our history, and I do not think that we would extend it to 25.

The noble Baroness, Lady Grey-Thompson, made the point that helpline operators are not legally qualified. No, but they are fully trained to identify key words or issues from the client’s description, and then—and this is important—pass the client on to the appropriate legally trained adviser. She also asked how we will assess whether a person is in need of special attention. As I have said, all callers will be assessed on a case-by-case basis to determine whether they should be offered advice over the telephone or assessed for direct face-to-face advice. It is also possible for callers to have an authorised third party to make the initial call for them. Therefore, one should look past the broad brush swept by the noble Lord, Lord Bach, and the suggestion that this is a fundamental bar to access to legal aid.

I say to the noble Lord, Lord Pannick, that earlier this year I went to the Law Society awards ceremony for the best law officers of the year. I was extremely impressed by how many of the prize winners gave distance advice either by telephone or via the internet. It is the age in which we live.

In this explanation, I hope that noble Lords will understand that this is a narrow scope attempt at using a telephone gateway. Built into it, in training the people undertaking it, is the discretion to refer to other specialists and the right of those specialists to offer face-to-face advice if an inquiry warrants it. Noble Lords can see that that is a far road from that painted by some of the speeches today. We have also made a significant move in response to the representations made to us. Based on the facts and the arguments, I hope that the noble Baroness will withdraw her amendment and that, if not, noble Lords will support me in the Division Lobby this afternoon.

[The Earl of Listowel]

Before the noble Lord sits down, I thank him for clarifying the guidance to those who will take these telephone calls. Will the Minister consider giving these people guidance on the fact that a disabled person may have parental responsibilities, so that if they have children additional thought might be given to a face-to-face meeting? If for some reason this does not work, we harm not only the adult but also the children.

[Lord McNally]

I would certainly consider that. As so often with suggestions from the noble Earl, that is well worth considering. However, to put it to him the other way round, if the person phoning has children the benefit of being able to get advice at a distance by telephone at a time of their choice could also be an advantage.

[Lord Campbell of Alloway]

I thank the noble Lord. His speech opened the gateway, for which I am grateful, to the face-to-face, one-by-one necessity which arises in a lot of desperate cases. Therefore, on that basis, I accept that the Government will do the right thing.

[Lord McNally]

I am very grateful that my eloquence has won the noble Lord over. I would ask the House to consider what he has rightly drawn attention to: namely, that some people may be in need of an hour-long chat, which is why the gateway is important for the volume that we are dealing with and for making sure that people get the right and the best advice as quickly as possible.

[Baroness Grey-Thompson]

My Lords, I thank the Minister for his response and I recognise that there has been much positive movement. I also thank all noble Lords who contributed to the debate and have expressed their support. I will not précis each contribution, but I feel that there is significant support on all sides of the House. Perhaps I may quote the noble Lord, Lord Wigley, who said that this section is controversial. It is about respect and dignity.

In his response to the noble Lord, Lord Bach, the Minister said that there is no evidence that people will be reluctant to use the telephone gateway. I am afraid that I disagree, and I do not believe it is patronising to say that people will have difficulties with or will be put off from communicating in certain ways. The noble Lord, Lord Pannick, said that it is about access to justice. People should be able to access justice in the most appropriate way. I still do not feel that we are in the right place yet because some cases are incredibly complex. While I welcome the clarity on the training of operators—it is very positive news that the operators of the telephone lines will be better trained than those who do face-to-face interviews—it still comes down to the ability of the client to use the right keywords. If they do not do that or are not able to express things in the right way, I am very concerned that we will be doing a great disservice to a huge number of people.

Again, I thank the Minister, but I do not believe that he has gone far enough, and I wish to test the opinion of the House.

16:25

Division 1

Ayes: 234

---

Labour: 160
Crossbench: 56
Bishops: 5
Democratic Unionist Party: 2
Independent: 2
Conservative: 1
Plaid Cymru: 1

Noes: 206

---

Conservative: 125
Liberal Democrat: 63
Crossbench: 14
Ulster Unionist Party: 1

16:39

Schedule 3 : Legal aid for legal persons

Amendments 120 to 122

Moved by

[Lord McNally]

120: Schedule 3, page 157, line 43, leave out “for” and insert “to”

121: Schedule 3, page 158, line 16, leave out “for” and insert “to”

122: Schedule 3, page 158, line 20, leave out “for” and insert “to”

Amendments 120 to 122 agreed.

Schedule 4 : Transfer of employees and property etc of Legal Services Commission

Amendment 123

Moved by

[Lord McNally]

123: Schedule 4, page 164, line 4, leave out “1” and insert “37(1)”

[Lord McNally]

My Lords, with the implicit trust that the House has in me—I am glad to see the noble Lord, Lord Bach, nodding vigorously—I assure the House that these are minor technical amendments. They are really a belt-and-braces exercise to ensure that there are no gaps between the Bill coming into force in April 2013 and various contractual arrangements that we must have. They are minor technical amendments to cover an eventuality in which things did not quite knit together in passing from one Bill to another. I hope that the House will accept that assurance. I have written explaining in detail, and the letter is in the Library of the House. I beg to move.

Amendment 123 agreed.

Amendments 124 and 125

Moved by

[Lord McNally]

124: Schedule 4, page 164, line 4, at end insert “(subject to regulations under sub-paragraph (2))”

125: Schedule 4, page 164, line 7, at end insert—
“(2) The Lord Chancellor may by regulations amend or otherwise modify the definition of “the transfer day” in sub-paragraph (1).”

Amendments 124 and 125 agreed.

Clause 38 : Consequential amendments

Amendment 126

Moved by

[Lord McNally]

126: Clause 38, page 28, line 2, at end insert—
“(2) Where the Lord Chancellor considers it appropriate as part of the arrangements for effecting the transition from the operation of Part 1 of the Access to Justice Act 1999 to the operation of this Part of this Act, the Lord Chancellor may by regulations make provision requiring or enabling prescribed 1999 Act services to be made available to individuals or other persons under this Part for a period specified or described in the regulations.
(3) In subsection (2) “1999 Act services” means services which, immediately before the day on which the first regulations under that subsection come into force, may be funded under Part 1 of the Access to Justice Act 1999.
(4) Where the Lord Chancellor considers it appropriate for the Legal Services Commission to cease to exist before this Part is brought fully into force, the Lord Chancellor may by regulations make provision for the purpose of requiring or enabling the Lord Chancellor and the Director, or persons authorised by the Lord Chancellor or the Director, to carry out LSC functions for a period specified or described in the regulations.
(5) In subsection (4) “LSC functions” means functions conferred or imposed on the Legal Services Commission by or under Part 1 of the Access to Justice Act 1999.
(6) Regulations under subsection (4) may not include provision requiring or enabling the Lord Chancellor—
(a) to take decisions about whether services should be funded in individual cases, or(b) to give directions or guidance about the carrying out of functions under Part 1 of the Access to Justice Act 1999 in relation to individual cases.(7) Regulations under this section—
(a) may amend, repeal, revoke or otherwise modify Part 1 of the Access to Justice Act 1999, this Part of this Act, any other Act and any instrument made under an Act;(b) may describe a period, in particular, by reference to the coming into force of a provision of this Part of this Act or the repeal of a provision of Part 1 of the Access to Justice Act 1999.(8) The requirement for regulations under this section to specify or describe a period does not prevent the making of further regulations under this section.
(9) The powers to make regulations under this section are without prejudice to the generality of the powers to make regulations under the other provisions of this Part and under section 138.
(10) In this section “Act” includes an Act or Measure of the National Assembly for Wales.”

Amendment 126 agreed.

Clause 40 : Orders, regulations and directions

Amendment 127

Moved by

[Lord McNally]

127: Clause 40, page 28, line 11, leave out “specified period” and insert “period specified or described in the order, regulations or direction”

Amendment 127 agreed.

Amendment 128

Moved by

[Lord McNally]

128: Clause 40, page 28, line 28, leave out “subject to subsection (6)” and insert “unless it is an instrument described in subsection (6) or (9)”

[Lord McNally]

My Lords, the amendment deals with matters on which I have written to colleagues; the letter is in the Library of the House. It is in response to the report of the Delegated Powers and Regulatory Reform Committee, which recommended that the procedures for regulations under Clause 10(1)(b) should be subject to the affirmative resolution procedure. These regulations will set out the merits criteria for civil legal aid and set out rules around the prospects of success and cost-to-benefit ratios. The Government accepted this recommendation subject to allowing for a provision as in the Access to Justice Act to allow changes to be made without delay where appropriate. I hope that noble Lords will see this series of amendments as putting those recommendations into place. I beg to move.

Amendment 128 agreed.

Amendment 129

Moved by

[Lord McNally]

129: Clause 40, page 28, line 34, at end insert—
“( ) regulations under section 10(1)(b), other than regulations in respect of which the Lord Chancellor has made an urgency statement;( ) regulations under section 12(9);”

Amendment 129 agreed.

Amendment 130 not moved.

Amendments 131 and 132

Moved by

[Lord McNally]

131: Clause 40, page 28, line 41, at end insert—
“( ) regulations under section 38 that amend or repeal a provision of an Act (as defined in that section), other than regulations revoking such regulations or inserting or repealing provision previously repealed or inserted by such regulations;”

132: Clause 40, page 29, line 2, at end insert—
“(8) An urgency statement is a statement that the Lord Chancellor considers that it is desirable for the regulations to come into force without delay for the reasons given in the statement.
(9) Where a statutory instrument contains regulations under section 10(1)(b) in respect of which the Lord Chancellor has made an urgency statement—
(a) the regulations may not come into force before the instrument and the statement are laid before Parliament, and(b) the regulations cease to have effect at the end of the period of 120 days beginning with the day on which the instrument is made unless the instrument is approved by a resolution of each House of Parliament before the end of that period.(10) In reckoning the period of 120 days no account is to be taken of any time—
(a) during which Parliament is dissolved or prorogued, or(b) during which both Houses are adjourned for more than 4 days.(11) Where regulations cease to have effect under subsection (9) that does not affect—
(a) anything previously done in reliance on the regulations, or(b) the making of further regulations.”

Amendments 131 and 132 agreed.

Amendment 132A

Moved by

[Lord Beecham]

132A: Before Clause 43, insert the following new Clause—
“Qualified one-way cost-shifting and uplift in general damages
(1) Before making an order to commence sections 43, 45 or 46 the Lord Chancellor must—
(a) establish a one-way cost-shifting for civil litigation in accordance with this section; and(b) increase the quantum of general damages for pain suffering and loss of amenity by 10% above the levels awarded immediately before this Part comes into force.(2) A “one-way cost-shifting for civil litigation” means a regime that applies to a claimant regardless of means, where that person has entered into a funding arrangement by which he or she receives legal services to pursue proceedings against a defendant covered by insurance or self-insurance.
(3) Subject to subsection (4), the general rule that the court will order an unsuccessful claimant to pay the costs of a successful claimant shall not apply to a claimant within the regime.
(4) The court may apply the general rule where the court finds—
(a) the claim was fraudulent;(b) the claim was so unreasonable that it was or could have been struck out on the grounds that it was frivolous, vexatious or an abuse of process; or(c) in respect of a claim for damages, the cost consequences under Part 36 of the Civil Procedure Rules apply, save that the proportion of a defendant’s costs payable by a claimant within the regime, whether fixed or assessed, shall be limited to 10% of the damages awarded to the claimant.(5) In the event that a claimant within the regime discontinues his action, the general rule shall not apply, unless the court on application finds the action to have been fraudulent, frivolous or vexatious.
(6) In this section, a “funding arrangement” means an arrangement where the claimant has—
(a) entered into a conditional fee agreement or a collective conditional fee agreement which provides for a success fee within the meaning of section 58(2) of the Courts and Legal Services Act 1990; or(b) taken out an insurance policy to which section 58C of the Courts and Legal Services Act 1990 (recovery of insurance premiums by way of costs) applies.”

[Lord Beecham]

My Lords, once again I declare an interest as a non-paid consultant of a firm of solicitors in which I was a senior partner. Having slipped and fallen on my way to my office at Fielden House, I am tempted to declare an interest as a potential claimant against Westminster City Council. But even I would not have the effrontery to pursue such a claim. There may be no shortage of noble Lords who would proffer their services, although I am doubtful about that, but I may consult one of my clinical colleagues before the day is over.

Today we reach Part 2 of the Bill, a part that has received little scrutiny in either House or in the media. Yet it deals with matters of profound importance. The conditional fee agreements system, which replaced and supplemented some areas of legal aid, is as important in ensuring access to justice for people of moderate means and all people in certain areas of law not within the scope of legal aid as legal aid has been to the poorest. Without a robust and easily accessible civil justice system, victims of terrible wrongs—industrial disease, clinical negligence, privacy violation, such as that suffered by Bob and Sally Dowler, and even grotesque human rights abuses, as in the case of Trafigura about which we will hear more later this afternoon—will not get justice.

16:45

Today’s debate therefore matters to potentially millions of people in terms of securing access to justice and redress for harm. Part 2 is not driven by the need to reduce public expenditure, which is repeatedly cited as the justification for the drastic reductions in legal aid when we were discussing Part 1, and for which Part 1 now effectively provides. Part 2 instead seeks to implement some but, crucially, not all of the recommended reforms of the civil litigation system proposed by Lord Justice Jackson after an exhaustive review of it.

We heard in debates on Part 1 that the Government have studiously ignored the strong advice on retaining the scope of and eligibility for legal aid, but it does not stop there. They are also ignoring Lord Justice Jackson’s recommendations for a modest increase of general damages to help successful claimants meet the cost of success fees and “after the event” insurance. Hitherto these have been met by defendants under the conditional fee system. Furthermore, they are not implementing an important recommendation to protect claimants with an arguable case from paying defendants’ costs by introducing qualified one-way costs shifting, except in personal injury cases. Qualified one-way costs shifting would mean that an unsuccessful claimant would not be liable to pay the costs of a successful defendant.

In this new system the losers would be successful claimants who forfeit part of their damages to pay success fees and the cost of “after the event” insurance, and successful defendants and their insurers under the QOCS system. The losers also include people who would be deterred from bringing a claim by the cost of “after the event” insurance to cover their own disbursements. The winners will be unsuccessful claimants, whose liability for costs would be met by the defendants, and losing defendants. It might be thought a somewhat perverse set of outcomes.

It is as well to remember the rationale for introducing success fees in the first place. This was to encourage lawyers to take on riskier cases, some of which would be lost, at no cost to their clients; the lawyer is compensated for the risk by the success fees in cases which they win. The Lord Chancellor and some Members of your Lorships’ House have suggested that the Government’s proposals of limited success fees to be paid by successful claimants will lead to a competition between lawyers and drive down success fees. However, the corollary of that is that lawyers will be less disposed to take cases with a significant degree of risk so that the legally squeezed middle will find themselves denied access to justice in the same way that 650,000 people and their dependants will be denied access. For them, legal aid will no longer be available unless they have a high prospect of success.

We are proposing that QOCS, recommended by Lord Justice Jackson, should be embodied in the Bill and not be delegated as a subject for the Civil Procedure Rule Committee, a point made in Committee by the noble and learned Baroness, Lady Butler-Sloss. We agree with the Civil Justice Council that the system should be simple. It should apply to all forms of litigation, not just personal injury, and it should be neither means-tested nor subject to a minimum payment by the claimant, as has apparently been suggested by the Ministry of Justice. Perhaps when he replies the Minister will comment on the Government’s intentions in those respects.

Subsection (4) of my amendment identifies the circumstances in which liability for costs would not shift, including cases where a claimant fails to beat a reasonable offer made by the defendant. The second limb of the amendment deals with an uplift of damages by 10 per cent, proposed by Lord Justice Jackson, to help offset the cost to successful claimants of the new requirement to pay the success fee out of damages recovered—limited, it should be said, to 25 per cent of the damages. The cost of ATE insurance would no longer be recoverable from the defendant.

The Government appear to want to hand responsibility for such a decision to the courts. That is not acceptable. After all, it is some 13 years since the Law Commission called for general damages in injury cases to be increased by between a third and a half, and there has been very little movement in that direction. Three eminent cost judges who do not support the abolition of recoverable success fees and ATE premiums point out that 10 per cent would have been adequate to compensate for the additional amount that would be lost by a successful claimant. It is interesting that today’s Guardian reports that the Master of the Rolls has written to the Ministry of Justice, saying that the 10 per cent uplift cannot be assured unless it is included in the Bill. What is the Minister’s response to that? If he is confident that the Master of the Rolls is wrong, will he not accept that the provision needs to be in place before Clause 43 is implemented, if enacted? For our part, although we would have preferred a higher figure, we are prepared to accept the Jackson recommendation.

I have mentioned “after the event” insurance. It is not strictly the subject of the amendment but it is frequently prayed in aid by Ministers as the answer to the withdrawal of legal aid and for people above the financial limits in any event. However, I have received a letter from the Legal Expenses Insurance Group, which represents 60 per cent to 80 per cent of the “after the event” insurance market, which casts considerable doubt on ministerial assertions in this matter. Astonishingly, if it is correct, it would appear that,

“the government has not consulted with or approached the independent providers with a view to discussing alternative and workable business models”.

The Legal Expenses Insurance Group believes that,

“unless some form of ATE premium recoverability is preserved, access to justice will be significantly affected, both for personal injury and non-personal injury risks. ATE insurers have made proposals during the consultation process to assist the government but the proposals have been ignored”.

It goes on to say that without amendment—this is the crucial point—it would be completely unrealistic for the “after the event” market to respond positively to the intended reforms.

Even with the system of QOCS, “after the event” insurance will still be needed to cover a claimant’s own disbursements. According to another group of insurers, premiums could range from £900 for an employer’s liability claim to £1,900 for a disease claim and as much as £11,000 for a contributory negligence claim. The figures apparently reflect average success rates and are based on these insurers’ experience of unsuccessful claims. I call on the Minister to tell us what discussions have taken place over this critical issue, with whom and with what result, and what he has to say about this disturbing communication. This all demonstrates the need for the Jackson recommendation on QOCS to be implemented and, crucially, extended well beyond personal injury claims.

Having effectively demolished the legal aid system, Ministers are now, by their selective implementation of Jackson, threatening further to limit access to justice by undermining the conditional fee system. Their preference appears to lie with “before the event” insurance, which is beyond the reach of a significant proportion of the population and is, in itself, inherently uncertain, administered as it is by an industry second only to banking in the depths of public esteem.

Our amendment would ensure that the Government could implement the proposals to limit victims’ access to justice contained in the Bill only if they implement the counterbalancing proposals that Lord Justice Jackson envisaged as promoting access to justice. Together, they aim to bring down the cost of litigation for all.

Might it be that some reforms could be adopted later than others? The answer to that question is no. To target one feature of the landscape will not work. That question and its answer are not mine; the question was posed and answered by Lord Justice Jackson himself in a recent edition of the New Law Journal. Therefore, the question that the Government must answer, should they choose to oppose this amendment, is: if they intend to implement both aspects of Lord Justice Jackson’s plans, why do they oppose an amendment that would ensure that they are implemented simultaneously? In that event, how will the Government ensure that access to justice is continuously facilitated? I beg to move.

[Lord Thomas of Gresford]

My Lords, conditional fee agreements—no-win no-fee arrangements—were first permitted by the legislation introduced by the noble and learned Lord, Lord Mackay, in 1990. In the beginning they were limited to personal injury cases, insolvency cases and cases before the European Court of Human Rights. They were a radical breach with the principle that a lawyer ought not to have a financial interest in the outcome of a case, and drew at the time much opposition from Law Lords and the Law Commission. Your Lordships are familiar with the way this system now works. If the case is lost, the lawyer receives no fees and therefore he needs to win or to settle to earn a living. To recompense him for the risk of losing, he is paid a success fee when he wins, a percentage uplift of his standard fees, which in theory recompenses him for those completely unrelated cases he has taken on and lost. He recovers the standard fees, which are payable by the losing defendants, but the initial concept was that the winning claimant should pay the success fee—the uplift—out of his damages. When the scheme was initially introduced, the uplift was limited to 20 per cent of standard fees. That was increased in 1995 to 100 per cent uplift to cover the most unlikely case—that was how it was introduced—where the risk of losing was 50:50.

Under the normal costs-shifting rules, the losing claimant was open to pay the tax costs of the defendants. He was not protected, as he would have been under a legal aid certificate, from the costs that the defendants had incurred in defending the case. Under legal aid an order was very often made that a losing plaintiff—as he then was—should pay the costs of the defendant. However, it was almost never enforced, so effectively he was not at risk of paying the defendant’s costs; but if he was, he could not pay. In answer to a query from Lord Hailsham, who was concerned that defendant insurers were left out of pocket even when they won, the noble and learned Lord, Lord Mackay, said:

“I understand that the Law Society is in the final stages of organising a form of insurance policy to protect clients against a costs order under a conditional fee agreement … If that is implemented it will be a complete answer to the anxiety to which my noble and learned friend has just referred”.—[Official Report, 18/7/94; col. 5.]

So “after the event” insurance was born to protect the losing claimant against the defendant’s costs.

There are further matters to which I may refer later such as caps on damages, but in 1999 the noble and learned Lord, Lord Irvine of Lairg, as Lord Chancellor, extended conditional fee agreements to all civil proceedings except family law. However, the most radical change he introduced was that the success fee and the “after the event” insurance premium should then be paid by the losing defendant. In a debate on 23 July 1998 he resisted Lord Ackner’s amendment that success fees should be capped. I said on that day:

“There has been no research as to whether solicitors overestimate the risk in order to justify an excessive uplift of the fees. There may be a doubling of fees now that 100 per cent. uplift is permitted. But the solicitor who is charging the fees, who determines that uplift, has to justify that uplift, assessing the risk himself. Is he doing it properly?”.—[Official Report, 23/7/98; col. 1112.]

Even then, in 1998 when I was speaking, the evidence suggested that the cherry picking of risk-free cases was occurring. I was a teller for Lord Ackner on that amendment, which was, unfortunately, lost. I hope that your Lordships will forgive me for quoting my own speech but it indicates that I was involved at an early stage in the discussions that were taking place in 1999.

17:00

We now know what has happened. Whipped up by dubious marketing forces and claims farmers, litigation in smaller claims has increased. Success fees are charged at 100 per cent in every case that goes to trial, not the most unlikely cases—which was the original reason for the introduction of such fees. That occurs even under a system of fixed uplifts that have been agreed with the insurance industry. The claimant does not care. If he loses, he does not pay even his lawyer’s standard fees, only his disbursements for expert reports and court fees. If he wins, the defendants have been paying the standard fees and the uplift, or success fee. This is the point relating to the amendment of the noble Lord, Lord Beecham: after-the-event insurance premiums have sky-rocketed because the claimant never pays them and cost judges have failed to tax them down. There needs to be reform of this system, which has led to a completely unnecessary—I do not speak as a lawyer when I use that word—escalation in legal fees. They are out of proportion.

Ministers and Members of this House have been buffeted from all sides over the past few weeks by the lobbying of interested parties—claimant solicitors, defendant solicitors, “after the event” insurers, the Bar, the Law Society, concerned organisations of lawyers and so on. What is the best way forward? I have tabled some amendments that I shall deal with at a later stage. However, perhaps I may say in response to the amendment that it is essential, as the noble Lord, Lord Beecham, said, that the introduction of one-way costs-shifting in CFA cases should go hand in hand with any alterations that there may be to conditional fee agreements. I latched on to the word that was used—I think it was by my noble friend Lord McNally—in Committee: that it should be “synchronised” with the CFAs.

The only issue I have with the noble Lord, Lord Beecham, is whether that provision needs to be in the Bill or whether we on these Benches can accept assurances from our Government that these issues will be dealt with by way of regulations. It is government policy that has been announced from the Front Bench that there will be one-way costs-shifting. It has been announced that that will happen in synchronisation with any alteration to the CFAs and that there will be a 10 per cent uplift in general damages to cover the changes that are being made to conditional fee agreements. All I have to say to the noble Lord, Lord Beecham, is that the amendment seems to be unnecessary in the light of government assurances that we on these Benches are bound to accept.

[Lord Faulks]

My Lords, I should like briefly to add to what the noble Lord, Lord Thomas, has said. I entirely endorse his comments. One of the problems with ATE premiums is that they are, in effect, unchallengeable because there is an assertion of what a case costs a particular litigant and, when it comes to an assessment, no alternative is put forward. Thereby, a defendant will always have to pay that.

My second and final point is that the noble and learned Lord, Lord Wallace, said in earlier debates that the Government were proposing to increase bereavement damages by 10 per cent, along with damages for pain, suffering and loss of amenity—which, of course, are general damages assessed by judges. I understand that this proposal was made because those damages are statutory and there would need to be a formal amendment or some other device. I would be happy to accept the assurance, which I understand to be coming, that QOCS is on the way and that there will be the appropriate method of bringing it in.

[Baroness Kingsmill]

My Lords, I should like to speak to the amendments in my name. I am encouraged to do so because, as a former personal injury lawyer, I have a deep commitment and engagement with accessibility of claimants to fair and appropriate redress when they are suffering personal injury.

There has been a lot of discussion about the so-called compensation culture in our legal system, but I refute that: there is no such thing as a compensation culture. In fact, if you exclude motor claims, the total number of claims has fallen from 116,380 in 2001 to little over 100,000 in 2010-11. It is 15 per cent lower than that it was in 2001. The Motor Insurers’ Bureau states that total claims provision and expenditure fell by 10 per cent compared to 2009. It is important that we all understand that the so-called compensation culture is a myth, a perception which is very far from reality.

That is why I have tabled some of the amendments. They are technical. It is possible that there have been oversights by the Government. I know that a 10 per cent increase in general damages has been discussed as a possibility. The Government have said that they will implement the 10 per cent increase by unenforceable means, such as requiring the judiciary to increase damages all round, but that is not enough. It is appropriate and important that that should be in the Bill. I should like to hear the Minister's comments on that. When we are talking about something as important as access to justice, people should not be burdened with additional uncertainty about what the costs will be.

I speak also to Amendment 141ZC, which would protect claimants against excessive costs in the event that they lose their claim. It is fully in the spirit of Lord Justice Jackson’s recommendations. As other speakers have said, the amendment implements Lord Jackson’s proposals for qualified one-way costs-shifting by including them in the Bill. That seems a very sensible proposal. It means that claimants would not be scared off by the risk of astronomic costs in the event that they lose. That will encourage access to justice. There is nothing quite as scary for claimants as the feeling, when there is uncertainty about their case, that they will be stuck with a very large bill at the end of it. I would like that to be stated clearly in the Bill and I join noble colleagues in asking the Minister to consider the amendments.

[Lord Mackay of Clashfern]

What is the justification for the costs-shifting system in the case where a person has been able to get a funding arrangement? If a person decides to take his case without a funding arrangement, why should he not have the benefit of the costs-shifting system just as well as the other? Why should the fact that someone has managed to agree with his solicitor be an important point as between the claimant and the defendant? I have said before, and I repeat briefly, that I have heard many expositions from the late Lord Simon of Glaisdale about the unfairness of the legal aid provision in that it deprived successful defendants of their right to recover their costs. This is an even more difficult situation. This is nothing to do with the state and the state’s grant of legal aid but is a question as between the client and solicitor. The client may well decide, “I don’t want to pay this success fee in any event. I am prepared to take my case and if I lose, why should I have to pay the costs of the other side when my colleague, who decides to pay a big success fee to the solicitor, is going to be protected?”.

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, we have, as the noble Lord, Lord Beecham, indicated, moved on to Part 2, but I open by saying that on my walk from Dover House to the House this afternoon, I, too, fell. I went over on my ankle on what I think was a crack in the pavement, so I have every sympathy with him and I trust that he will need neither medical nor legal assistance as a result. Indeed, I hope I will not either.

Part 2 implements the Government’s reforms to civil litigation funding and costs following, as has been discussed already in this debate, Lord Justice Jackson’s recommendations. These reforms have a number of important components. Abolishing the recoverability of success fees and “after the event”, or ATE, insurance is key to the Government’s aim of returning a sense of proportion and fairness to the current regime. My noble friend Lord Thomas of Gresford talked about premiums going sky-high. I will return to these issues in more detail in the course of responding to specific amendments.

As part of these reforms, the Government will introduce QOCS—qualified one-way costs shifting—for personal injury cases. This is an area of law where most claimants are individuals, acting under CFAs, and most defendants are insurers or other well-resourced organisations which can well afford to defend themselves. My noble and learned friend Lord Mackay of Clashfern asked a very specific question, to which I hope that by the time I conclude my remarks I can give him an answer, about those who are funding themselves and not acting under a CFA. The Government agree with Lord Justice Jackson that QOCS in these cases is the right way forward and strikes a fair balance between claimants and defendants. In particular, it means that in many cases claimants will no longer have to take out expensive ATE insurance.

On ATE insurance, the noble Lord, Lord Beecham, asked what engagement there had been with the insurance industry on these matters. I am advised that insurance both “after the event” and “before the event” can certainly help. It is self-evident that it could help with legal costs. The “after the event” insurance market has developed alongside the current CFA regime and, of course, there is substantial financial interest in seeing that regime continue. It is not surprising, therefore, that the ATE industry’s public stance is to lobby hard against the proposals that we are bringing forward. Ministry of Justice Ministers and officials have met a significant number of different insurers as the proposals have been developed since Lord Justice Jackson’s recommendations were published early in 2010. Although we acknowledge that some ATE insurance providers have said publicly that they will pull out of the ATE market if the changes go ahead, others have indicated that they will look positively at developing products which meet new market needs as the details of these proposals are finalised. We are also introducing a 10 per cent increase in damages for non-pecuniary loss, such as pain, suffering and loss of amenity, which is being taken forward by the senior judiciary.

17:15

I accept that the 10 per cent uplift in general damages could be achieved through primary legislation. It is something that we considered and discussed with the senior judiciary. However, the Government have concluded that it would be appropriate for the senior judiciary to take this forward. We believe that this reflects the historic position that such damages are for the senior judiciary to determine, as set out, for example, in the Court of Appeal case of Heil v Rankin, a case, picking up the other point made by the noble Lord, Lord Beecham, regarding the Law Commission report on damages. Heil v Rankin was a Court of Appeal bench that was established very much to take forward the proposals of that Law Commission consultation paper in 1996, Damages for Personal Injury: Non-Pecuniary Loss. The House may wish to note that in his report Lord Justice Jackson listed recommendations which would require primary legislation to implement. Increasing damages was not one of them. Indeed, in his response to the Government’s consultation, Lord Justice Jackson agreed with the Government’s approach that this was for the senior judiciary to take forward. Lord Justice Jackson said at paragraph 4.2 of his response to the Government’s consultation:

“Method of achieving the adjustment. The Consultation Paper states at para 97: ‘adjustments to the level of general damages have hitherto been regarded as a judicial issue for the courts rather than the Government’. I agree and have not included this item in the list of reforms requiring legislation. It will be recalled that in so far as the Law Commission’s recommendations for increasing personal injury damages were accepted, those increases were implemented by means of a guideline judgment handed down by a five member Court of Appeal, presided over by the Master of the Rolls: see Heil v Rankin ... The same procedure could be adopted for implementing any future increase in the level of general damages”.

We also want to ensure that the increase in the level of damages does not, unlike the proposal in Amendment 136E, apply simply to personal injury but, where appropriate, to general damages for torts, of which pain, suffering and loss of amenity are examples. It is not practical to identify all of these in legislation and any formulation that is designed to be a catch-all provision runs the risk of excluding some.

My noble friend Lord Faulks referred to the increase in bereavement damages under the Fatal Accidents Act. As he said, those damages are statutory and fall to be increased under the statutory process, whereas the general damages for non-pecuniary loss are different. However, I repeat what I said in an earlier debate—we are minded to increase these as well.

QOCS and the 10 per cent uplift in damages do not need to be implemented through primary legislation and so have not been included in the Bill. We believe that the same legal effect will be achieved through other means. I know that this is a matter of considerable importance not only to my noble friend Lord Thomas, who has raised it with me on a number of occasions, but to the House in general. We certainly intend to introduce QOCS at the same time as the relevant provisions in Part 2 are implemented in April 2013.

The noble Baroness, Lady Kingsmill, and the noble Lord, Lord Beecham, have tabled amendments that would seek to put QOCS in the Bill, rather than including it in the Civil Procedure Rules. Amendment 132A would also extend QOCS to areas of litigation other than personal injury. In Committee, I spoke about the reasons for including QOCS in the rules rather than in primary legislation. The Government do not believe that Amendments 132A, 136E, 141ZC and 151ZA are either necessary or proportionate. The rules are a much better mechanism than primary legislation for implementing a new costs regime. They provide flexibility and can be altered in the light of developments, as required. There is a risk in being too prescriptive in primary legislation, as it would prevent the development of QOCS in the rules.

On the extension of QOCS to different types of cases, the Government believe that Amendment 132A is too broad and that it leaves itself open to possibly unintended interpretation. It is not difficult to imagine the potential consequences if the amendment were accepted. Perhaps I may give two examples, because I think that the circumstances in which it is proposed that QOCS might apply would be in cases of breach of contract. We could have a situation in which a premiership footballer pursued a claim for contractual damages at no financial risk, or a builder could sue an insured homeowner over a building contract at no financial risk to what might be one of the country’s biggest building companies. We would be powerless to amend the rules to allow for some degree of financial risk for these claimants in such circumstances. We believe that Amendment 132A could become a speculative claimant’s charter, and it goes against the principles of the reforms in Part 2, which are intended to reduce the scope for speculative litigation.

The amendment would also restrict the future development of QOCS. Currently, any extension of QOCS to other areas of litigation beyond personal injury cases may be achieved through changes to the rules. Being too restrictive in primary legislation could restrict the scope for the expansion of QOCS in the rules. For example, while it may not be appropriate to have an initial financial means test for QOCS in personal injury cases, this is unlikely to be the case in, for example, defamation or privacy cases. To list in statute different types of cases where QOCS should apply would mean that any future expansion might also need to be effected through primary legislation, which could be a lengthy and complex process.

The noble Lord, Lord Beecham, asked about the financial test for QOCS. We agree that, for personal injury cases, there should not be an initial financial means test. We are in discussion about whether there should be a financial contribution, although we recognise the arguments that there should not be. The Civil Justice Council, chaired by the Master of the Rolls, is helping the department on the way forward. We are in full consultation with stakeholders and very much appreciate the considerable support of the Master of the Rolls and the Civil Justice Council.

My noble and learned friend Lord Mackay of Clashfern made a point about the applicability of QOCS in circumstances where a claimant raises his or her own funding. I recognise that it is fair to point out that there will be cases where someone cannot or is unwilling to obtain a conditional fee agreement. We have said that QOCS will apply in all personal injury cases, however funded. Although typically they are run under CFAs, different considerations may apply in other cases that we would need to consider carefully if the types of cases covered by QOCS were to be extended.

As I indicated, we do not believe that it is appropriate to put these provisions in the Bill. There is a precedent for the 10 per cent uplift being taken forward by the senior judiciary, and we would look to that happening in this case. I also give an assurance that QOCS will be brought in at the same time as Part 2 of the Bill, so the flexibility that will go along with having it in the rules will certainly outweigh the advantages of having it in primary legislation. We also believe that the extent of the noble Lord’s amendment is far too wide. For these reasons, I invite him to withdraw it.

[Lord Ramsbotham]

My Lords, before the noble and learned Lord sits down, perhaps I may ask whether he has considered the position of two groups of families who may be considering making civil claims against the Government following inquests. I refer to the families of members of the Armed Forces and of those who die in either police custody or prison.

[Lord Wallace of Tankerness]

My Lords, this may not be quite what the noble Lord was thinking about, but in some cases, as my noble friend Lord Faulks indicated, if there is a question of a claim following a bereavement, we have indicated that we intend that there should be an uplift in these cases.

On the question of why we are not introducing QOCS for judicial review claims—this may be the circumstance to which the noble Lord was referring—the responses to the consultation indicated that conditional fee agreements were less commonly used outside the area of personal injury and were not frequently used in judicial review proceedings.

[Lord Thomas of Gresford]

I hope my noble and learned friend will forgive me for mentioning that I have tabled an amendment dealing with precisely that point. It is for debate at a later time and proposes that QOCS should apply in cases where, for example, there is a death in custody—and to other matters referred to by the noble Lord, Lord Ramsbotham.

[Lord Wallace of Tankerness]

I am grateful to my noble friend. Debate on his amendment might allow a better exploration of the important point raised by the noble Lord, Lord Ramsbotham.

[Lord Beecham]

My Lords, that exchange was quite useful because it illustrated the argument against what the noble and learned Lord seeks to persuade us to agree to; namely, the proposition that these are matters for the Rules Committee. The noble Lord, Lord Thomas, has tabled a sensible amendment that covers the situation raised by the noble Lord, Lord Ramsbotham. However, under the Bill these will not be matters for Parliament. The scope of access to justice will not be in the Bill and will not be the subject of legislation. The matter will be in the hands of the Rules Committee. That is a delegation of responsibility too far in a very significant area of public policy. Therefore, I cannot accept the arguments of the noble and learned Lord.

The noble Lord, Lord Thomas, has tabled amendments that we will debate later. I say in advance that I have sympathy with some of them, including the one to which he referred. Perhaps he will forgive the obvious pun: we understand that there are not many doubting Thomases on the government Benches. He will also understand that we do not necessarily share that perspective and that a degree of scepticism is more naturally to be found on this side.

In respect of one or two other matters, the Heil v Rankin decision is based on a particular level of damages. It is not a binding provision, applicable across the piece, as is suggested in terms of the 10 per cent uplift. It seems to us, and not only to us, that it is imperative, given that we are now dealing with the matter of principle of access to justice via this particular method, that the legislation should encompass the range of issues that arise. It can do so in the form of a starting position and provide for additional regulations to be approved by Parliament later. That would have been an option. I would like to think it might still be an option but I am not getting much encouragement from the noble and learned Lord. I cannot accept that the Government’s position is satisfactory. I am grateful up to a point for an indication that one object of these amendments will take place—that is to say that change will be synchronised. I wish that the noble and learned Lord and I had not synchronised our stumbles today. But in terms of legislation, that is a welcome assurance. Nevertheless, there are significant points of principle here and in the circumstances I wish to test the opinion of the House.

17:25

Division 2

Ayes: 189

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Labour: 162
Crossbench: 18
Independent: 2
Bishops: 1
Plaid Cymru: 1

Noes: 237

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Conservative: 129
Liberal Democrat: 62
Crossbench: 38
Ulster Unionist Party: 3
Democratic Unionist Party: 2

17:37

Amendment 132AA

Moved by

[Lord Alton of Liverpool]

132AA: Before Clause 43, insert the following new Clause—
“Exception in respiratory (industrial disease or illness) cases
The changes made by sections 43, 45 and 46 of this Act do not apply in relation to proceedings which include a claim for damages for respiratory disease or illness (whether or not resulting in death) arising from industrial exposure to harmful substance.”

[Lord Alton of Liverpool]

My Lords, in speaking to Amendment 132AA, I shall speak also to Amendments 136, 141 and 142, which relate to Clauses 43, 45 and 46. In speaking to them I return to the issue of mesothelioma and its victims, the question that I raised on 22 November at Second Reading, at some length in Committee on 30 January, and during Oral Questions on 29 February. At the outset, may I thank the Minister for his courtesy in meeting the noble Lord, Lord Avebury, and myself yesterday, and for listening so carefully to the arguments that we advanced to him?

Anyone who has ever contested a parliamentary by-election knows that it is the most special way of entering Parliament. It is something that I share with the noble Lord, Lord Avebury, and it is 50 years to the day since the noble Lord, Lord Avebury, entered the political lexicon as Orpington Man. Over the many years that have passed since then I have always found myself wanting to be on the same side of the argument as the noble Lord, Lord Avebury, and nothing gives me greater pleasure than the fact that he is one of the signatories to this amendment.

Some 18 Members of your Lordships’ House are signatories to a letter supporting this amendment. They include the noble Lords, Lord Bach, Lord Beecham, Lord Brennan, Lord Elystan-Morgan, Lord McColl, Lord McFall, Lord Monks, Lord Newton, and Lord Wigley, the right reverend Prelate the Bishop of Blackburn, my noble and learned friend Lady Butler-Sloss, and my noble friends Lady Finlay, Lord Martin, Lord Patel and Lord Walton of Detchant. I give those names to your Lordships’ House to demonstrate the breadth of support for this amendment from all sides and they include distinguished lawyers, distinguished medics and representatives of working people’s interests.

Noble Lords may also have seen a letter which appeared in the Times on 3 March signed by several Members of this House. In conclusion, it states that,

“asbestos victims should not, and financially cannot, subsidise other claimants’ access to justice, nor can they afford to defend test cases run by rich insurers”.

In a nutshell, that is the principle we are debating today. We must decide whether it can be right that asbestos victims should be required to surrender as much as 25 per cent of their damages for pain and suffering to pay for legal costs. Let me repeat, the clauses we are now debating required terminally ill asbestos victims who succeed in a claim for compensation against negligent, guilty employers to pay up to 25 per cent of their damages for pain and suffering in legal costs associated with the conditional fee agreement system, the CFA.

Let us also be clear about what we are not debating. This is the Legal Aid, Sentencing and Punishment of Offenders Bill. Into which of those categories contained in the Title do people suffering from mesothelioma fall? As the Bill aims to restrict legal aid and to curtail what has been described as a compensation culture, it is worth nailing two myths at the outset. First, these mesothelioma cases have not been legally aided and are not legally aided now. They have not been legally aided for some 12 years. Secondly, they are not part of the compensation culture. I know that the Minister concurs with those propositions.

Mesothelioma cases receive no legal aid. They are not fraudulent cases and do not involve fakery. On that much we can be agreed. As one victim put it to me, “I can understand the need for legislation to prevent the trivial and no-win fee claims but how can the claim of a mesothelioma sufferer be ‘lumped in’ with ‘ambulance chasers’? Mesothelioma has only one outcome and that is loss of life. It is not trivial, and patients need help not hindrance”.

Currently, solicitors are paid a success fee by the losing defendant to fund very difficult but meritorious cases. This replaces the funding which was available under legal aid. One claimant will have to pay for another claimant’s chance to gain access to justice if we agree the provisions in the Bill. Important test cases which determine the right of mesothelioma sufferers to claim would never have been run under the new prescription. Those who tabled this amendment argue that asbestos victims should not, and financially cannot, subsidise other claimants’ access to justice, nor can they afford to defend test cases run by rich insurers.

What else do we agree about? We are all agreed that this is a terrible disease. The Minister movingly described to us in Committee how a member of his own family had their life cruelly ended by this fatal disease. We are all agreed that once diagnosed the victim’s life is drastically curtailed. Many doctors say that the average lifespan from diagnosis to death is likely to be around nine months to one year. Some 30,000 people have died to date and as many as 60,000, according to official figures, could die in the future.

What have been the lines of disagreement? The Government have argued that conditional fee agreements, as currently constructed, mean that win or lose a claimant risks nothing but that has encouraged frivolous and fraudulent claims to flourish. Yet those who tabled this amendment argue—as I have said, the Government have said that they agree—that the claims of dying asbestos victims can never be frivolous or fraudulent. So who is responsible for exploiting CFAs? The Government and the insurance industry are quite clear: road traffic accident claims, which make up over 70 per cent of all personal injury claims, particularly whiplash claims, are to blame. In total, whiplash claims add up to a staggering £2 billion annually. We argue that RTA problems will not be solved by punishing asbestos victims. As one victim explained to me:

“My life has been turned upside down, and I really didn’t want to think about anything except spending my last days with my family. I worked all my life and paid all my N.I. and taxes, so this seems unfair”.

That is expressing it with commendable understatement.

17:45

Those who tabled this amendment argue that the victims suffer enough. It is iniquitous that they should lose their modest compensation to reduce solicitors’ costs. Those costs can be reduced directly and access to justice preserved, but not by scapegoating asbestos victims. Many sufferers are so defeated by their illness that they never make a claim as things stand now.

The Government additionally argue that claimants must take some of the risk and have an investment in a claim—“skin in the game”. This in my view is an ugly, awful phrase and it is telling. If you consider that mesothelioma sufferers have given their health and their lives because unknowingly they took unwarranted and fatal risks, it is obscene that they of all people should have some “skin in the game”. A contributor to a family asbestos forum said:

“The whole point of making a claim is to make a guilty party pay attention and take responsibility. As the ‘victim’, why should we ‘pay’ again? Is our life not enough?”.

This is not like a win on the lottery or a windfall, it is about restoring victims to something like the position they were in before diagnosis, and making proper provision for them and for their families. Making mesothelioma sufferers pay legal costs will not result in greater competition, thus driving costs down, or give mesothelioma sufferers “skin in the game”. Instead, it will inhibit claims, thus adversely affecting access to justice.

Another perverse outcome will be that challenges to insurers’ appeals to limit liability for mesothelioma claims will be unaffordable, as will taking a case to trial, a point raised by me and by the right reverend Prelate the Bishop of Liverpool during our recent exchange at Question Time with the Minister. The perverse effect of making claimants responsible for success fees will be to make one claimant pay for another’s chance of taking a claim—an extraordinary prospect for mesothelioma sufferers.

Let me also say a word about “after the event” insurance. It has been said that qualified one-way costs-shifting will resolve the issue of claimants paying ATE insurance. Leaving aside the punitive qualifications, that is true, but the Government failed to add that mesothelioma sufferers will face heavy disbursements in the form of court costs, medical reports and so on, which are not covered by QOCS. If ATE insurance is available for disbursements, the premiums are expected to be about two-thirds of the present premiums. These fall to the claimant. If the punitive qualifications regarding the behaviour of the parties and their financial status are unchallenged, claimants will not risk their savings and perhaps their houses to make a claim.

Let me end by returning to the Government’s best argument, that changing the law will turn claimants into a rod for the back of recalcitrant lawyers. Let us think about that. What dying man or woman is going to do this? Would you or I? It is simply fallacious to argue that making claimants pay costs will mean that they will shop around for the best deal. Dying asbestos victims have already invested enough, and given their pitiable condition, it is risible to suggest that they will shop around. Terminally ill and dying people will simply not have the energy, and they have other things on their mind than looking for a lawyer to give them a better rate.

Whatever else now divides the House on how the increased costs of litigation should be resolved, surely we can see the force of the practical and the moral case to exempt people who are dying of mesothelioma from the strictures and provisions of the Bill. Once again, I am indebted to your Lordships for the widespread support for these amendments and to the Minister for the courtesy he extended yesterday in listening to the arguments. I hope that the amendments will commend themselves to a majority in your Lordships’ House and I beg to move.

[Lord Avebury]

My Lords, I congratulate the noble Lord, Lord Alton, on the effectiveness and the tenacity with which he has pursued the issue of mesothelioma victims, and I am also grateful to him for his kind reference to my 50th anniversary, which falls today. I also join him in the thanks he has expressed to my friend Lord McNally for the sympathetic and careful hearing he gave us yesterday to discuss these issues.

The horrors associated with these diseases go back four decades and more, when it first became known that the ingestion of tiny amounts of asbestos could lead to painful and invariably fatal diseases. Even then, it was in the teeth of opposition from the manufacturers of asbestos products that health and safety measures were finally enacted to remove the use of this deadly product from the workplace and pave the way for the existing health and safety at work legislation.

When we discussed these amendments in Committee, the first reaction of my noble friend the Minister was to classify them as yet another in the series of amendments calling for an exception to some aspects of the Bill’s architecture. As my noble friend Lord Thomas of Gresford pointed out, Lord Justice Jackson was not looking for an architecture that involved everything but for what was right in particular categories of case, which must be the right way to proceed.

As we know, this is not an area of the Bill where there is public money to be saved, other than in cases where public authorities are defendants. What we are arguing about is whether some of the costs of this very special group of victims of mesothelioma disease in CFA cases should be borne by the claimant rather than the defendant or the insurers. Nor is this one of the areas of the Bill on which there has been lobbying by lawyers or insurance companies, as the noble Lord, Lord Alton, said.

Furthermore, it is not an area in which, as my noble friend the Minister put it, we are trying to create a structure that squeezes out an inflationary element of the process. Between 2007 and 2011, there was a 6.6 per cent reduction in employer liability cases, of which most respiratory claims are a subset, and it is expected that mesothelioma claims will peak in 2015, or perhaps a little later, because of the elimination years ago of asbestos from the working environment. During that same period, 2007 to 2011, road traffic accidents increased by 43 per cent to nearly 800,000 cases. That is where there may well be the abuse referred to by my noble friend. Unscrupulous claimants may be able to fake road traffic injuries, but not mesothelioma or asbestosis. It is impossible for the victims of these horrible diseases to launch a frivolous or fraudulent claim, and it is unconscionable that people on their deathbeds should be mulcted of thousands of pounds out of the damages that they are awarded by the courts.

As matters stand, the claimant pays nothing if he loses. He takes out “after the event” insurance which will pay the defendant’s costs as well as the ATE premium if the case is lost, and the claimant’s solicitor bears his own costs if he loses under the no-win, no-fee arrangement. If the claimant wins the case, the defendant pays the claimant’s solicitor’s base costs plus disbursements, including medical reports, court fees et cetera, plus the success fee and the ATE insurance premium; that is, all the costs. So, with ATE insurance, the claimant pays no costs, win or lose.

Under QOCS, which is not in the Bill, as we have heard, but is due to be implemented by order—we are glad to hear that it will be coterminous with the introduction of this part of the Bill—the defendant again pays the claimant’s solicitor’s base costs whether the claimant wins or loses. ATE insurance will not have to be taken out to cover the contingent liability. Whether a market will develop in this area remains to be seen, as the noble Lord, Lord Alton, said, but assuming that it does, we are advised that the premium could amount to at least two-thirds of the current ATE premium in a similar case.

My noble and learned friend Lord Wallace wrote to me and the noble Lord, Lord Wigley, on 7 February, partly explaining how QOCS would operate. Yes, it removes the need to fund an ATE premium to cover the risk of having to pay the defendant’s solicitor’s costs if the case is lost, but that is not the full story, as the noble Lord, Lord Alton, has reminded us. Given the high costs of disbursements in mesothelioma cases it would be right to extend the recovery of the ATE premium to mesothelioma claims as it is already in clinical negligence claims.

My noble and learned friend omitted to say also in the letter that the claimant is now going to forfeit not only the ATE premium, which is no longer recoverable, but the far higher amount of the success fee, for which the defendant is no longer liable. The claimant is effectively to be fined 25 per cent of the general damages he has been awarded, losing perhaps £15,000 or more from the amount that has been awarded by the court. It is certain that when this and the ATE liability is explained to mortally ill claimants, many of them will decide that it is not worth the hassle of pursuing the case.

My noble friend Lord Thomas suggests that the claimant should pay only half the success fee, but our case is that victims of mesothelioma should receive the whole of the amount they are awarded by the courts, as hitherto. My noble and learned friend Lord Wallace says that solicitors will compete on maximising the damages that claimants can keep, an expectation which is unlikely to materialise in some of the very complex cases to which we are referring. However, if our amendments are accepted, the right way to reduce the legal costs would be to regulate them further, such as by providing that a success fee is payable only in cases that come to court.

My noble friend says that he cannot believe that lawyers will be unwilling to take cases after the Bill becomes law, and of course they will, but, in the opinion of those advising us, they will take far fewer of these cases. We are also told, not as a matter of opinion but as a fact, that fewer claimants will decide to pursue their cases under this regime. As matters stand now, the victims of these painful diseases are often reluctant to bear the mental stress of dealing with solicitors and court proceedings. Almost unanimously they have said to Tony Whitston, the expert who advises us, that the prospect of losing thousands of pounds out of the award that they may receive would mean that many of them will not go ahead with their claims.

We are not talking only about another concession in the range of issues discussed in Committee, as the Minister put it, but one that engaged the support of every one of your Lordships, of all three parties and the Cross-Benches, who spoke in that debate. The Minister, who has personal experience through his family of the dreadful fate of the victims of mesothelioma, as we have heard, recognises that we are dealing with cases that are sui generis. They have at least as great a claim to be dealt with in a different way from the run-of-the-mill CFA claims as clinical negligence cases, and conceding this amendment would involve no costs to public funds.

[Lord Howarth of Newport]

My Lords, as another co-signatory to the letter to which the noble Lord, Lord Alton, referred, I endorse the argument so ably put forward today by the noble Lord and the noble Lord, Lord Avebury. I do not need to add anything to what they have said. The speech of the noble Lord, Lord Alton, today follows the magisterial speech that he gave in Committee. These arguments are irrefutable. To trammel the access to justice of mesothelioma sufferers would be a terrible thing to do. I am sure the Minister, as a kind and good man, will agree with that.

[Lord Thomas of Gresford]

My Lords, I add my tribute to the noble Lord, Lord Avebury, for his 50-years’ celebration of Orpington. It was life-changing for me because I joined the Liberal Party a fortnight afterwards. Therefore, in a fortnight’s time it will be my 50th anniversary as a member of the party and, shortly after that, my 50th anniversary of failing to win a seat. That is how it goes.

The amendment seeks to retain the status quo in relation to one industrial disease—mesothelioma. Your Lordships will appreciate from what I said in Committee that these cases are terrible. I feel that completely. I told your Lordships about a lady who lives very close to me in Gresford. She came to this House and spoke, and no doubt a number of your Lordships will remember her vividly. Her husband died as a result of being exposed to asbestos in Brymbo steel works, which is perhaps three miles from where I live. But if you give mesothelioma a special, unique status, what about the people in my village who were in Gresford colliery—that has a certain resonance, as your Lordships may recall the disaster in 1934—or in Llay Main colliery, about two miles away, which was the deepest pit in the United Kingdom? I refer to those who suffer from pneumoconiosis, another industrial disease. How can I say, “I’m supporting that lady but I’m not supporting your claims to have the same treatment for pneumoconiosis”?

18:00

However, you could widen that to all sorts of industrial diseases and add in the person who has suffered catastrophic injuries in a factory or road accident, or multiple injuries that have severely disabled them. Should mesothelioma be given an exceptional status? To an extent, it already has that status because under the Compensation Act 2006, there are very special provisions. Providing that you can prove that a person has been exposed to asbestos negligently in the past, you do not have to prove that the mesothelioma that arises 30 or 40 years later has derived from that particular act. The responsible person under the 2006 Act is liable to all the damages, and the person suffering from mesothelioma can recover accordingly.

Of course, there are special provisions about tracing the insurers of employers some 30 or 40 years back. The Government have a scheme to identify insurers. I hope that they take it a step further, so that when they cannot identify insurers of employers who have long since departed they introduce something similar to the Motor Insurers’ Bureau. Your Lordships will recall that if you are injured in a car accident and either the driver cannot be traced or was driving uninsured, it is possible to bring an action against the Motor Insurers’ Bureau and recover damages as if they were the insurers of the person injured. In those cases of mesothelioma where the original employers’ insurers cannot be traced, a scheme like that should be introduced.

Furthermore, is the status quo for which this amendment argues the best model? I do not believe that it is. The model that the Government have adopted follows the Jackson proposals in part; it does not follow them entirely as it has left out some crucial caveats such as the retention of legal aid in all clinical negligence cases. The model adopted in this Bill is too crude and needs refinement. I have searched for a solution that would cover not just mesothelioma but pneumoconiosis and other industrial diseases, such as skin diseases in certain other employments, as well as the catastrophic and multiple injury cases. The model that I propose is not the status quo. As I said earlier, I have listened to so many people from all sorts and all sides, who have bombarded all of us with their briefs and submissions. The model that I argue for is this.

First, there is no rationale for paying claimants’ lawyers success fees in cases where liability is admitted, either by way of settlement before proceedings are commenced or by formal admission in the defence that is filed initially to the claim. In those circumstances, where liability is admitted at an early stage, the lawyers conducting the case for the claimant are not at risk at all. They know that they are going to win and that their fees will be paid. My Amendment 132C deals with that situation.

Secondly, if liability is an issue and is denied in the defence, at that point lawyers are at some risk and claimants’ lawyers may lose the case, but there comes a point in proceedings that is very important. Under part 26 of the rules of procedure, which deals with case management, a district judge allocates a case to a track; it is a formal stage in the proceedings. There is a small claims track for personal injuries of less than £5,000 and other cases less than £1,000, and some housing cases. Then there is a fast track, which is for claims up to £25,000—soon to be put up to a limit of £50,000, with no more than a day’s hearing—and a multi-track. The multi-track cases, which include judicial review and all serious personal injury cases, involve mesothelioma, industrial diseases and multiple and catastrophic injuries, fatal accidents and environmental and civil liberties cases.

Thirdly, for small claims and fast-track cases, the Government’s proposal is that the claimant should pay the success fee subject to a cap set at 25 per cent of the damages to date of trial, and he should be responsible. Of those cases—the small, whiplash cases that have bedevilled us, the RTA cases—70 per cent will come under that track. With damages at the top end of the scale of £50,000 in fast-track cases, the success fee could not exceed £12,500. That is all right; it means that the claimant’s damages are less, but he would not have been able to bring the case if he had not had a conditional fee agreement. The argument that the noble and learned Lord, Lord Mackay, put way back in 1990 was whether litigation should be completely risk free.

In multi-track cases, where there is so much more at stake, I consider that the success fee should be split 50:50 between the successful claimant and the losing defendant. It should be stressed that the success fee is a percentage uplift of the standard fees; the cap beyond which the uplift cannot go is a percentage of the damages that are awarded. The Government’s model is that the success fee uplift should be capped at 25 per cent of the general damages and losses to the date of trial. In a large case, that award of damages to the date of trial can be a small fraction of the total damages, future care and loss being by far the greater proportion. Yet we have to recognise reality. There is a need to ensure that such potentially difficult and risky cases remain commercially viable and attractive to experienced litigation solicitors. Some solicitors on the high street will take a case on a one-off basis. Is that the best way? Do we not want to have some speciality and experience? Commercially viable litigation will keep the solicitors who currently do those cases taking those cases on.

My argument is, further, that the cap should be placed on the whole award of damages, and not damages to the date of trial where it is multi-tracked—with a serious award of damages—as the noble and learned Lord, Lord Mackay, originally proposed in his scheme. From the claimant’s point of view, his share of the success fee cannot extend beyond 12.5 per cent of the damages, and that would be assisted by the proposed 10 per cent increase in the level of damages that we discussed in the course of the last amendment. To try to illustrate this, in a catastrophic case where the damages award might be £10 million, taking into account future loss, the claimant’s solicitors and barristers will get their standard fees but they will also get a success fee. Such a fee, which is a percentage uplift of the standard fees, is never going to reach £2.5 million. It is going to be a lesser sum.

In a lesser case where the damages are £600,000, to illustrate a different proposition, a success fee might reach £150,000 but it could not go any higher. Under my proposed model, that would lead to the claimant losing £75,000 of their £600,000 award and the defendants paying £75,000 themselves. What are the consequences of this? It is complicated and we have heard so much about it. It would mean that the claimant has an interest in the amount of the success fee and that lawyers would compete for his business. It is not too much in cloud-cuckoo-land to suppose that a solicitor would advertise, “My success fee will be nil”, or, “My success fee will be 5 per cent”, in order to attract business.

As for the “after the event” insurance premiums, we have already agreed that one-way costs-shifting will be introduced where there are conditional fee agreements to remove the burden of heavy defendants’ costs. One-way costs-shifting has operated in practice in legal aid cases since the inception of legal aid. I have tabled amendments which follow the amendments that we discussed last time. If one-way costs-shifting is introduced, the exorbitant “after the event” premiums to cover the risk of paying heavy defendants’ costs are removed at a stroke. You do not have to insure against the defendant’s costs because one-way costs-shifting means that the defendant will pay his own, even if he wins, as has happened in legal aid cases. It may be necessary to obtain “after the event” cover for disbursements which might cost in a typical case £3,000 to £5,000.

[Lord Bach]

I must be under a misapprehension. I thought that this group was about the amendments that the noble Lord, Lord Alton, had so succinctly moved and about my own amendments to which I also hope to speak, perhaps even more succinctly in due course. I am listening carefully to the noble Lord, as I always do, but it seems that his amendments are part of the group that begins with his Amendment 132B. I am surprised that the noble Lord has not waited to speak to his group as it appears on the Marshalled List. Perhaps he can explain to the House why he is doing this.

[Lord Thomas of Gresford]

I am very happy to do that. I will speak to it further in due course. Frankly, I am anxious not to make the 31-minute speech that I made when we last discussed this particular issue and to relieve your Lordships of that burden. I am splitting what I intend to say, which I think is necessary to cover the whole field, so that it becomes a little more understandable. I take the noble Lord’s rebuke in good part, but let me repeat that asking for the status quo in mesothelioma cases only is not the way to go forward.

[Lord Alton of Liverpool]

My Lords, I would draw the noble Lord’s attention to the actual words in the amendment and indeed in the amendment of the noble Lord, Lord Bach, which is in this group. We have corresponded about this and he has been good enough to share with me prior to the debate some of the points that he has made eloquently this afternoon. I am grateful for that. However, this amendment goes slightly wider than he is suggesting in his remarks today and would cover, for instance, pneumoconiosis as well.

18:15

[Lord Walton of Detchant]

My Lords, I support the amendments tabled by my noble friend Lord Alton. I do so as a doctor. I was brought up in a mining village in Durham County where as a youth I saw some of the ravages of industrial injury and the effects of pneumoconiosis on those who worked in the mines. Later, when I moved to industrial Tyneside, I had considerable acquaintance with industrial injuries of all kinds and industrial diseases caused by a variety of different agents. At an earlier stage of this Bill, I commented that I was asked not infrequently to make reports on people who had suffered neurological damage as a result of these agents. The noble Lord, Lord Beecham, responded by saying that when instructing me to give such reports he had been grateful for their nature and extent and also for the modest fees. Had I known that he took that view the fees might have not been quite so modest.

There is no doubt, as the noble Lord, Lord Thomas, has said, that industrial injuries of all kinds are prevalent in our society. Is there anything special about mesothelioma? There is indeed. It is a disease caused by exposure to asbestos. The cause is known. The clinical course is known. In this condition, the result of particles lodging in the lungs means that the pleura or membrane which covers the lungs becomes progressively thickened, causing compression of the lungs and respiratory failure. Unlike many other diseases, such as pneumoconiosis, this disease is inevitably fatal. It is a very special condition. It deserves special legal attention and for that reason I strongly support these amendments which I believe should be accepted by your Lordships’ House.

[Baroness Butler-Sloss]

My Lords, I apologise for not being present at the beginning of this debate. My name is on the letter and I want to underline my support for it. As a judge, I was involved with a number of these extremely sad cases, particularly at the Court of Appeal. The letter has been very helpful in setting out what is needed. I apologise to the noble Lords, Lord Alton and Lord Avebury, for not having heard most of what they said, but I have a shrewd idea that it was said extremely well.

[Lord Wigley]

My Lords, I support Amendment 132AA and wish to speak to the group which is associated with it, standing in the names of the noble Lords, Lord Alton and Lord Bach. I do so enthusiastically as I indicated in Committee. Whereas the noble Lord, Lord Thomas, may well have arguments in certain cases in relation to the legal processes that he outlined, I come to this from the point of view that compensation should be available in full to people, reflecting their suffering and the condition they have had, and that any legal fees should be other than the sum allocated as a response to that suffering. If this group of amendments is not accepted, the House will no doubt hear the noble Lord’s proposals in a later group of amendments. The scope not only of Amendment 132AA but also Amendment 132AB, which goes wider and covers a number of other equally distressing and deserving conditions, means that they can be supported when it comes to a vote if it does indeed come to a vote.

These amendments would have the effect of exempting cases involving claims for damages for respiratory illnesses following exposure to harmful substances from the range of changes proposed in Clauses 43, 45 and 46 of the Bill. The case for doing so was covered extensively in Committee but, unfortunately, the Minister has not so far moved towards accepting the changes that we hoped he might accept at that stage. A couple of weeks ago, at a St David’s Day dinner, I found myself sitting opposite a widow from my home area of Caernarfon. She had lost her husband to asbestosis six years ago. She described what he and they, as a family, had suffered. She received a modest sum of compensation. However, she told me that she had been following our debates in Committee and doubted that she would have got that compensation under the changes that are coming through. My goodness, if that is the effect that they will have on people who have suffered in that way, we have to make sure that the Bill is watertight and looks after people who have suffered as a result of the work that they have undertaken.

If Clause 43 is agreed unchecked, success fees under a conditional fee arrangement will no longer be recoverable from the losing party in all proceedings. Instead, in cases where claims are made against an organisation as a result of illness due to negligence, the fee will be recovered from damages awarded to the injured person, sometimes substantially eroding those damages. Likewise, if Clause 45 is agreed as it now stands, “after the event” insurance premiums will no longer be recoverable from the losing defendant and will also be taken out of the damages awarded to the injured party. Similar changes are proposed in Clause 46, which prevents organisations recovering their insurance premiums from a losing party. Unsuccessful cases involving more than one claimant can be highly expensive if there are multiple defendants whose costs need to be covered in the event of the case being lost. Without recoverable insurance premiums, these cases simply will not, in practice, be able to proceed.

Many organisations, including the Association of Personal Injury Lawyers, have been at pains to make it clear that damages are awarded for the pain and suffering caused by prolonged and debilitating illnesses. As I said earlier, damages were never intended to pay towards legal costs. Making an insured person or their family suffer an erosion of the financial compensation to which they are entitled on top of the physical distress they have endured is neither just nor dignified. It is wrong that the Government are intent on ploughing ahead with these changes without making exceptions where they are due.

In Committee, the Minister spoke of the Government’s overarching aim as being,

“to create an architecture which squeezes inflationary costs out of the civil justice system”.—[Official Report, 30/1/12; col. 1433.]

Those are grand words indeed but they cover a multitude of sins. As the noble Lord, Lord Alton, remarked, the only people who will be squeezed as a result of these changes are those who are already suffering from fatal diseases and their families. That does not sound like justice to me.

In Committee, the Minister also assured me that a number of possible routes of redress would be made available for individuals who had contracted diseases such as mesothelioma and asbestosis through schemes operated by the Department for Work and Pensions. We have heard reference to this but, as yet, I have seen no further detail on how these schemes may work. In the mean time, we should proceed on the basis that they are not there yet. However, I would welcome any clarification that the Minister might give and will listen carefully to what he has to say.

I support not only the group of amendments spoken to by the noble Lord, Lord Alton, but support very strongly Amendment 132AB in the name of the noble Lord, Lord Bach. It is relevant to a group of industrial diseases such as pneumoconiosis, silicosis and associated lung diseases, which are certainly of considerable importance to me and the community from which I come.

If these clauses are agreed unchecked, individuals who have suffered harm and distress will be dealt a further blow and access to justice will be severely undermined. It is perhaps futile to press the Government to agree to changes that they have already so utterly dismissed out of hand. However, I urge noble colleagues to support these amendments and to argue the case that individuals already suffering due to negligence should not face further hardship.

[Lord Newton of Braintree]

My Lords, may I briefly split up the Cross-Benchers, albeit in support of everything that they and most others have said? I have a couple of prefatory remarks. I cannot quite share the enthusiasm of the Liberal Democrat and former Liberal Democrat Benches for the anniversary of my noble friend Lord Avebury, although not because I do not have the highest regard for him. However, I was in the Conservative research department at the time and it was a major culture shock, which did not tempt me to join the Liberal Party. It could yet happen of course, but not today.

The Minister may be glad to hear my other prefatory remark. This will probably be my last foray on the Bill because, in general, I regard Part 2 as being above my pay grade. I have been reinforced in that view by the speech of the noble Lord, Lord Thomas of Gresford, which left me feeling—I hope he will not find this too rude—as though I had been enveloped in fog.

I spoke on this matter at an earlier stage and I do not intend to repeat myself. I simply endorse some points that have been made. In an earlier incarnation, when I was Minister for Disabled People, I was also the Minister for the Industrial Injuries Advisory Committee, so I know a bit about industrial diseases, including respiratory diseases such as this one. While they all have their problems and the scheme has its offerings, this disease is pretty unique for reasons that the noble Lord, Lord Alton, has outlined so clearly with his medical knowledge. This was reinforced by what the noble and learned Baroness, Lady Butler-Sloss, said about her experience of seeing and being involved in such cases. We cannot dismiss that.

I said earlier that we need to recognise that this disease is not only terrible but moves very fast. Someone gave the figure of nine months. To repeat something that I said earlier, we also need to acknowledge that this is one of those cancers—it is effectively a cancer—that is still growing. It is not diminishing. There is a long time fuse on exposure to asbestos. We have known about it for a long time and action has been taken; when asbestos is found, there is great expenditure on getting rid of it. However, there are still more cases to come than there have been because of that long fuse. One way or another, it is a pretty special case. I just do not like the idea that it can be dealt with only under CFAs, with the consequences that were so eloquently outlined by the noble Lord, Lord Alton.

This is not part of the mischief of exploiting whiplash injuries. It is very much sui generis and needs to be treated as such. The notion that someone who has just been told that they have nine months or less to live will engage in a lot of frivolous legal activity is far fetched in the extreme.

The noble Lord, Lord Thomas of Gresford, referred to all sorts of other ways of getting compensation, including schemes that the Government have and the possibility of a rival to the Motor Insurers’ Bureau. We are talking about people with nine months to live. It will probably take nine months for them to find out where to start under some of those arrangements, let alone to get some compensation. In any event, what we are offered here are not the alternatives that the noble Lord, Lord Thomas, outlined. They are not here and would have to be worked up. What we have is what is in the Bill. We need to look at that with care and, once more, we need to ask the House of Commons to think again.

18:30

[Lord Faulks]

My Lords, I agree with every speaker that this is a dreadful disease for which the sufferers deserve compensation. Just as importantly, they deserve compensation speedily. I am glad to say, as a practising barrister with some experience of cases of this sort, that the mechanisms and systems by which compensation can be achieved have greatly improved so that this can be done.

I agree that all these claims are thoroughly deserving. There can be no dispute about diagnosis. They are not the sort of cases that are covered by the much described “compensation culture”. The real question, though, is simply this: will these cases still proceed if the Bill becomes law? There is no doubt that they will become less profitable for lawyers, but will they become so much less profitable that these very deserving cases will be denied justice? That is the real question, I suggest.

The reason why lawyers do not take cases on CFAs—this is perhaps particularly so in clinical negligence cases—is that there are real difficulties and they might lose the case. In a series of cases on mesothelioma and other cases deriving from exposure to asbestos, the courts have done a great deal to help in terms of the law on causation. Not just through the 2006 Act but in a series of cases in the Court of Appeal and in the House of Lords, they have circumvented the difficulties in proving liability, particularly the so-called “single fibre” theory, where it was difficult to establish which of a number of employers was responsible. That difficulty is largely overcome. As I say, the noble Lord, Lord Walton, has confirmed that diagnosis is rarely controversial, so we do not have the situation of doctors disagreeing. So what is the real difficulty about these cases? There is a great deal of experience out there, both on the claimants’ and the defendants’ side, in taking these cases forward. One of the problems is not being able to identify the appropriate defendant or the policy. We have heard from the noble Lord, Lord Thomas, that steps have been taken through the ABI and other bodies to keep proper records of these matters.

However, where I have real difficulties, in agreement with all noble Lords who have spoken, is on the question of damages. A recent decision of the High Court has dealt with the quantum of damages in these cases. They are very modest. That is not because judges are not profoundly sympathetic to the claims, but simply because they are claims for pain and suffering and loss of amenity and do not involve long-term care claims or loss of earnings claims. Thus they are modest. However, I find it unattractive in the extreme that there should be 25 per cent taken off these damages, albeit that will be increased by 10 per cent. I very much hope that the Minister’s words are justified and that solicitors will not see fit—how could they?—to take a percentage of damages in these circumstances. I share with the noble Lord, Lord Alton, a revulsion of the expression “skin in the game” in the context of these desperately sad cases.

I suggest that Part 2 of the Bill is a very real and positive attempt by the Government to cope with what I have encountered as a disfiguring feature of the litigation world when inflated costs are involved and when cases become too much about lawyers’ fees and interests and insurers’ interests rather than the underlying dispute. This is a desperately sad series of cases. I share all noble Lords’ concern that damages should be recovered as quickly as possible. However, I venture caution lest, in the wake of these cases, we lose the structure and the architecture that Lord Justice Jackson put forward.

[Baroness Finlay of Llandaff]

I support the comments made by my noble friend Lord Walton of Detchant. As a doctor, I look after these patients and have found repeatedly that they do not even want to seek compensation but are persuaded to do so. They do not seek it for themselves as they know that their lives are over, but because they want to leave something behind for their bereaved families who will have to live on after their death, facing a loss in pension.

As has been said, a common feature of mesothelioma and the other respiratory diseases mentioned in other amendments in this group is that diagnosis is clear. Histological diagnosis under the microscope shows the fibres and fragments of substance to which these people have been exposed, such as asbestos fibres and small amounts of substances such as beryllium and silica. Another feature of these respiratory diseases is that they form a discrete group. Protection of the respiratory tract has been around for a long time but workers have not always been adequately protected. Sadly, there was a time lag in that regard. Indeed, as regards these diseases, blue asbestos was thought to be the culprit. It took some time before all forms of asbestos were identified as being fundamental pathogens. We must put the interests of the people suffering from these diseases before any other interests. For those reasons, I strongly support these amendments.

[Lord Mackay of Clashfern]

My Lords, obviously, the people who fall into this category should have our sincere sympathy. I certainly feel strongly that they deserve that. However, I want to mention one or two matters. First, when this system of contingency fees—or whatever name you want to call it—was introduced, there was no special rule for such cases. I do not know to what extent the noble Lord, Lord Alton, or the noble Lord, Lord Avebury, have looked into the situation as it was when the system as I introduced it was working.

Secondly, it will not have escaped your Lordships that the next amendment of the noble Lord, Lord Alton, concerns industrial disease cases generally. The amendment we are discussing deals with respiratory cases; the next amendment deals with industrial disease cases. I particularly draw to your Lordships’ attention the question of justice as between different claimants. I entirely accept what has been said by those highly medically qualified noble Lords who have spoken about the disease we are discussing. However, other troubles that are the subject of personal injury actions involve lifelong deprivation of practically all one’s faculties. That kind of long-lasting trouble comprises another type of personal injury action. If your Lordships wish to support this amendment, they have to think how they would justify treating the cases we are discussing differently from other terrible cases which those of us who have experience of personal injury actions know exist.

Long ago I was professionally involved in cases that concerned the National Coal Board. Pneumoconiosis cases were brought but other cases were brought involving people who had been injured while working underground. People who suffered those injuries were in terrible distress and eventually died. However, before they died they were in a very distressing situation. Therefore, one has to be careful about how one distinguishes between the different cases. Justice requires that similar cases be similarly dealt with.

If I understood him correctly, the noble Lord, Lord Alton, said that the cases in the group he was asking for should not be required to subsidise other cases. My understanding of this system is that you do not subsidise other cases: the success fee is dependent on the chances of success in your case. It is a factor which is dependent on a probability of success that works into the success fee. It is not dependent on other cases; it is dependent on the precise potential for winning that exists in the case that you have in hand. Therefore, I do not accept that this system in any way subsidises other cases across the board except in the sense that the probability of success in a particular case is what determines the success fee.

If the noble Lord, Lord Alton, wishes to press this amendment, I assume that he will not have the benefit of the 10 per cent uplift for his amendments in this group, which is on the way as a result of the undertakings given by the Government. There is also the question of the one-way shift. That would probably apply if it were done generally in respect of these cases, but the other may not.

This is a very difficult area. The sympathy of the whole House is with these people, and that is very much the case with me and my noble friend in particular, given his experience of this issue. However, justice requires us to do justice as between different claimants. Other claimants also have very difficult conditions. How do we say to X, “Your claim and the conditions to which you have been exposed are so bad, as distinct from the others, that we can justify treating you differently”?

I should perhaps have said that I of course associate myself with the congratulations offered to the noble Lord, Lord Avebury. I did not suffer from the difficulties that my noble friend Lord Newton of Braintree had.

[Lord Alton of Liverpool]

Perhaps I may put two points to the noble and learned Lord before he sits down. The system as it operated under his stewardship did not take funds away from the claimant when they were successful in litigation. That is surely the difference from the matter before your Lordships’ House. When the noble and learned Lord oversaw the system, it was fair and just, and did not raid any of the funds that the claimant was able to receive in compensation. We are merely seeking to maintain the status quo in the way that it operated during his time.

As to exceptional circumstances, surely, if someone is terminally ill, they are exceptional or sui generis, as described by the noble Lord, Lord Newton, and my noble friend Lady Finlay in their interventions. If people in this group are terminally ill, that is surely what makes their cases exceptional.

[Lord Mackay of Clashfern]

My Lords, it is possible to describe other types of illness and the basis for claims in very much the same language as that used by the noble Lord, Lord Walton of Detchant, and the noble Baroness. So far as the first point is concerned, in the system as I introduced it the success fee would be payable by the claimant out of his or her damages.

[Lord Bach]

My Lords, we have had a powerful and emotive debate and I want to be very brief because the House wants to hear from the Minister, who is obviously sympathetic, as was demonstrated by what has been said about his visits made and meetings with noble Lords on this issue. I am proud to support the amendment in the name of the noble Lord, Lord Alton of Liverpool, also supported by the noble Lord, Lord Avebury. I am delighted that the noble Lord, Lord Alton, supports my amendments in this group that deal with other industrial diseases—Amendments 132AB, 132D and 141ZB. In response to the noble Lord, Lord Thomas of Gresford, I say that if he thinks that other diseases are also important to deal with, he should look carefully at the amendments I may move in due course.

I shall cut down appreciably on what I wanted to say. We know that asbestosis is not the only problem, but speeches have been made in this debate by experts who suggest that it is a problem out on its own that should be considered separately, as it will be this evening. It is because asbestosis is not the only problem that I tabled my amendment that deals with other serious industrial diseases. I do not need to go through the types of diseases that I am talking about, but they are the by-products of hard work. All these are inflicted on hard-working people who have spent their lives contributing to our society and economy, often in industries that no longer exist, and in heavy industry, manufacturing and public services. As has been said by many noble Lords, many of these diseases do not manifest themselves for years and are the legacy of coal mining, our proud tradition of manufacturing, steel making and other professions.

18:45

I have here a letter received from the wife of a man who suffered from mesothelioma, to which the noble and learned Lord, Lord Davidson, referred in his Second Reading speech many months ago. The man was between 16 and 24 years old when he was exposed to asbestos as an apprentice lift engineer, erecting lifts on building sites. He stayed in that industry throughout his working life. He loved his job and most of his customers became his friends. His wife said:

“This disease has affected our lives in every possible way and stress levels have been extremely high for both of us”.

She went on to say many things that will move the House, and added that the stress and worry that go with what she described were unbelievable. Yet, she claimed, the Government were trying to make victims face additional stress and worry by making them decide whether they can afford to take out a civil action. She added:

“Compensation would be eroded by having to pay legal costs plus insurance to cover defendants’ legal costs, plus the worry of having to pay some fees upfront. This is an insult and will discourage people from making a claim to which they are entitled. This Bill should be designed to stop the ‘ambulance chaser’ brigade who contact prospective clients and advertise constantly, not workplace victims whose lives were put at risk by exposure to asbestos”.

Of course we are right to control the cost of litigation, but road traffic accidents and slip-and-trip accidents are quite separate and distinct. It is incongruous to somehow link them with what we have been talking about in this debate. It is unnecessary and rather cruel. It is with pleasure that I invite the Minister to accept the amendments in the name of the noble Lord, Lord Alton, and myself.

[Lord McNally]

My Lords, I should first say to the noble Lord, Lord Newton, that if he is thinking of joining the Liberal Democrats he would fit in very well.

This is not a debate about those who care about mesothelioma sufferers and those who do not. We all care, and many of us have been trying to address the problems associated with that dreadful disease. Indeed, the Department for Work and Pensions is working closely with all stakeholders to see what can be done to compensate people with mesothelioma and similar conditions who are unable to claim civil damages because their employer no longer exists and their insurer cannot be found.

It is true, as has been mentioned, that Governments of all parties have taken action to aid sufferers of industrial injuries and illnesses, and the legacies of our industrial past. However, it is also fair to put on record that legal aid was removed from this area of litigation by the previous Administration in 2000.

Before turning to the detail of these amendments, I wanted to say a few words about the importance of the changes we are introducing in Part 2. As we heard in the earlier debate, the changes we are proposing to no-win no-fee agreements were recommended by Lord Justice Jackson after his year-long review, and supported by the senior judiciary. The Lord Chief Justice said that the report addressed civil costs as a comprehensive, coherent whole. Our proposals were welcomed by the previous Lord Chancellor, Mr Straw, and by the opposition Front Bench in the other place when the current Lord Chancellor announced them on 29 March last year. The shadow Justice Minister said at Committee stage:

“the intention of part 2 is perfectly sound, and it is one with which we have a great deal of sympathy”.—[Official Report, 13/9/11; Commons, Legal Aid, Sentencing and Punishment of Offenders Bill Committee, col. 501.]

So there is broad agreement on the principles of our reform.

Part 2 addresses the way that the present system is—as I think that the noble Lord, Lord Faulks, described it—distorted. The agreement is perhaps not surprising given the high costs that have arisen under the current regime and the unfairness that has resulted between claimants and defendants.

I remind the House of that, because I am concerned that in making the position fairer between claimants and defendants, as we seek to do, we should not make the position less fair between different classes of claimants, as some of the amendments would, as the noble and learned Lord, Lord Mackay, just reminded us. The current regime of recoverable success fees and insurance premiums allows for risk-free litigation from claimants and substantial additional costs for defendants.

Allowing exceptions, so that the regime continues in relation to certain cases only, would introduce unfairness for those claimants in an otherwise similar position where the exception does not apply. Allowing an exception for defamation claims, for victims of industrial diseases or for claims of corporate harm by multinational companies, for example, would introduce an advantage to claimants in those specific categories which would be unfair to those in otherwise similar positions whose claims fell into a slightly different category. Clauses 43 and 45 are a fundamental element of the Government's reform in ensuring proportionality and fairness across the board. That is why we resist any substantive amendments to them.

I will take Amendments 132AA, 132AB, 132D, 136, 141, 141ZB and 142 together, as they are intended to retain recoverable elements in claims dealing with respiratory diseases or industrial diseases caused by an employer’s breach of duty to an employee. Amendments 132AA, 136, 141 and 142 would retain recoverability of success fees after the event, or ATE insurance payments and membership organisations’ self-insurance costs for respiratory disease cases. Amendments 132AB, 132D and 141ZB would do the same for employers’ liability claims relating to industrial diseases.

Although I will address all industrial disease claims in my response, I am aware of the keen interest of the noble Lords, Lord Alton and Lord Avebury, in mesothelioma in particular. They have been tireless and dedicated campaigners on behalf of sufferers of that fatal and tragic disease, and I commend them on that. Although we can agree on the tragic nature of the disease and its impact, I cannot agree that those cases should be exempted from our reforms. Noble Lords have argued that industrial diseases, including mesothelioma and other less serious conditions, are not part of the compensation culture. The Government accept that—I did so in Committee. There is no suggestion that those claims are brought improperly. Our reforms are intended to address high cost throughout civil litigation. This is not just about driving out fraudulent or exaggerated claims but about ensuring that legal costs are proportionate to the sums at issue. For that, wholesale reform is needed. To be effective, it must apply across the board.

Specifically on mesothelioma, I said in reply to an Oral Question from the noble Lord, Lord Alton, on 29 February that I am not aware of anything associated with those cases which makes them particularly expensive to bring. I have not heard anything since which persuades me that there is anything particular about the nature of those cases—the cases, not the disease—which makes them any harder to bring in legal terms than any other case. Indeed, it is quite the reverse. As my noble friend Lord Thomas of Gresford and the noble Lord, Lord Faulks, pointed out, significant steps have been taken in recent years to lower the barriers to bringing compensation claims for those diseases. Senior Master Whitaker, who oversees these cases in the High Court, has helped to introduce a fast-track procedure for mesothelioma cases. That has been incorporated into a practice direction ensuring that those claims are dealt with as quickly as possible—again a point brought up by my noble and learned friend Lord Mackay.

Various legal changes over the past few years, including primary legislation such as the Compensation Act 2006, and judgments of the Supreme Court, have removed some of the hurdles for sufferers of respiratory diseases to bringing claims. The Department for Work and Pensions has undertaken various initiatives to make it easier for claimants to trace their employers’ insurers. I understand that it can be difficult and expensive for those with what the noble Lord, Lord Wigley, I think, referred to as long-tail diseases, such as mesothelioma, to track down the liable insurer. In April 2011, the insurance industry set up the Employers’ Liability Trading Office, or ELTO. Supported by the Government, the ELTO provides an online resource through which claimants and their representatives can search for the relevant policy, reducing time and costs for those involved in such searches.

The Department for Work and Pensions continues to work with stakeholders to see what can be done to compensate people with mesothelioma and similar conditions who are unable to claim civil damages because their employer no longer exists and their employer’s liability insurer cannot be found. A response to the government consultation, Accessing Compensation Supporting People Who Need to Trace Employers' Liability Insurance, which reflects further on possible solutions, will be published in due course. I recently met the insurance industry to discuss ongoing work. I can tell the House that, as a result of this issue being raised in discussion on the Bill, I will be taking the matter up with my noble friend Lord Freud at the Department for Work and Pensions to discuss what progress is being made and how it can be advanced. As noble Lords will be aware, my noble friend told the Grand Committee yesterday that we will be increasing the mesothelioma lump-sum payments by 3.1 per cent from 1 April this year. I welcome my noble friend’s statement and his commitment to working with interested parties to offer further help to sufferers who have difficulty in tracing their insurer.

Noble Lords have spoken of the prohibitive costs of bringing industrial disease claims against well resourced defendants. There is concern that claims will not be brought if claimants risk being liable for high defendant costs should they lose. In response, I remind noble Lords that in personal injury claims, including industrial disease, qualified one-way costs-shifting will apply—that is, a losing claimant will usually not be at risk of paying a defendant’s costs. We discussed QOCS earlier in the debate.

We turn, then, to the claimant’s own disbursements, which noble Lords have argued will be unaffordable should “after the event” insurance premiums no longer be recoverable. On respiratory disease claims, my understanding is that only one medical report is required by rules of court in order to issue a claim. This report will cover the diagnosis, basic causation, prognosis and what the life expectancy might have been without mesothelioma. In exceptional circumstances, a forensic engineering report may also be necessary to show causation. However, the majority of mesothelioma sufferers will not need reams of expert evidence to bring their claim and consequently are unlikely to face high up-front costs for expert reports.

Claims for industrial diseases are not unique in requiring expert evidence to show the nature and extent of the illness. The same is true of many personal injury cases, where there may be disputes, if not of the causation or liability, of the extent of the damage caused. It is not true to say that such reports will be unobtainable without a recoverable ATE premium, particularly as a claim may be brought on the basis of one report. A claimant may pay for reports through their own means; solicitors may decide to bear up-front costs themselves; or a claimant may take out ATE insurance and pay the premium themselves. In any of those instances, either the claimant or the solicitor will have a direct interest in the costs that are being incurred—which is one of the main principles underlying our reforms.

It should also be noted that general damages for non-pecuniary loss, such as pain, suffering and loss of amenity, will be increased by 10 per cent—a point emphasised by the noble and learned Lord, Lord Mackay, but not mentioned in other speeches when there was talk about a raid on damages. That will help claimants to pay any success fee that may be due once their claim has ended. I also point out that the proposed cap on success fees of 25 per cent of damages awarded is not compulsory. It is a negotiated amount and excludes those for future care and loss. We expect solicitors to compete for business by offering lower fees. We also expect those who specialise in this area to offer fair and realistic terms for their clients that take into account not only the risk of the case but also the needs of the individual claimants and their families at what, of course, will be a particularly traumatic time in their lives.

19:00

I have previously explained the concerns of the Government around the current regime and the significant disadvantages it has for defendants, with no incentive for claimants to control costs. I must underline that those reforms in Part 2 are not about saving money for the public purse. Making savings is a benefit, of course, but that is not what Lord Justice Jackson was considering when he wrote his comprehensive report. The Government are determined to see more proportionate costs in civil litigation, with greater fairness in the risk borne by parties. Without our reforms, high and disproportionate costs in civil litigation will continue. Access to justice would not become more meaningful for all parties. If these amendments were accepted, claimants in these particular cases would have an advantage over others who may be suffering from equally debilitating conditions. This cannot be justified, but I am grateful to all noble Lords. I am grateful to my noble friend Lord Thomas for what was obviously deep thinking about alternatives and I will study his remarks and the issues he raised carefully. As I say, I will be taking these matters further with my noble friend Lord Freud and other ministerial colleagues with all due urgency, and, as I have indicated, I hope that we can make some progress.

As I say, I do not believe that this is a debate between those who want to help here and those who do not. It is about keeping the Jackson reforms in Part 2 in their place without producing a whole range of anomalies, and at the same time the Government taking forward with a sense of real urgency ways of giving practical help to those who suffer from this dreadful disease. I hope that the noble Lord, Lord Alton, in the light of that reply, will withdraw his amendment.

[Lord Alton of Liverpool]

My Lords, I am grateful to the Minister for the way in which he has addressed this issue this evening and, indeed, I reiterate my thanks to him for meeting the noble Lord, Lord Avebury, and me yesterday to discuss what more could be done to help this unique group of people—a point I shall return to in a moment. I am conscious that your Lordships want to come to a decision on this matter, so I promise that I will be brief.

There was no debate about this issue when it was before the House of Commons; there was no Division in the House of Commons. Your Lordships will be doing your job in scrutinising legislation by supporting these amendments this evening, because Members of the House of Commons will now, I think, welcome the opportunity to return to this question. I am told by my noble friend Lady Finlay of Llandaff, whom I spoke to earlier about this, that very small numbers of people other than mesothelioma victims would actually be caught by this amendment. However, if it should be that this is slightly extended from this exceptional group of people who are terminally ill and dying to one or two other groups, let us make this more generic and extend it to people who are terminally ill. That is the difference; that is why I disagree with the noble Lord, Lord McNally, when he says that this would be giving this category of people an advantage over others. This is a group of people who are entitled to an advantage. If you are diagnosed as terminally ill—if you are told that you only have nine months to a year to live—then you are not in the same category as others, and we have to do all we can to help.

The Minister said that his noble friend—in fact, it was the noble Lord, Lord De Mauley, yesterday, speaking on behalf of the noble Lord, Lord Freud, who was unwell—gave an assurance that there would be an increase in lump sum payments. That is extremely welcome but it has no bearing whatsoever, of course, on the litigation that we are talking about this evening, which people might embark upon to seek compensation. It is also welcome that there should be an uplift and I hope that no one is suggesting that that should not also be available to people who are terminally ill and dying as a result of mesothelioma.

The Jackson proposals have been referred to a great deal during the debates in your Lordships’ House, but we all know that they are a curate’s egg—they are there in part. They have been chosen where it suits those who are proposing these new arrangements and, where it does not, they are set to one side: this is a very good example of where that has happened.

Let me reiterate: this is not about public money. Legal aid, as the Minister himself has said, has not been available for the past 12 years, so this is not about public money. Nor is it about the compensation culture; we are all agreed about that. It is about an exceptional group of people, but it is also more than that. The noble and learned Lord, Lord Mackay of Clashfern, said that it is about justice. I simply ask your Lordships how it can ever be just to raid the compensation that someone has been awarded because they have proven their case in court—to take up to 25 per cent of what they have been awarded to help them through the last days of their life. How can it ever be a matter of justice to do that? It is for that reason that I would like to seek the opinion of your Lordships’ House.

19:05

Division 3

Ayes: 189

---

Labour: 142
Crossbench: 31
Independent: 3
Liberal Democrat: 2
Bishops: 2
Ulster Unionist Party: 2
Democratic Unionist Party: 1
Conservative: 1
Plaid Cymru: 1

Noes: 158

---

Conservative: 106
Liberal Democrat: 47
Crossbench: 4

19:16

Amendment 132AB

Moved by

[Lord Bach]

132AB: Before Clause 43, insert the following new Clause—
“Exception for industrial disease cases
The changes made by sections 43, 45 and 46 of this Act do not apply in relation to proceedings which include a claim for damages for a disease, condition or illness (whether or not resulting in death) resulting from any breach of duty owed by an employer to an employee.”

[Lord Bach]

My Lords, I beg to move.

19:16

Division 4

Ayes: 168

---

Labour: 133
Crossbench: 24
Independent: 3
Bishops: 2
Democratic Unionist Party: 1
Ulster Unionist Party: 1
Plaid Cymru: 1

Noes: 163

---

Conservative: 106
Liberal Democrat: 48
Crossbench: 6
Ulster Unionist Party: 1

19:27

Sitting suspended.

20:00

Amendment 132AC

Moved by

[Baroness Coussins]

132ACBefore Clause 43, insert the following new Clause—
“Exception for international human rights cases
The changes made by sections 43, 45 and 46 of this Act do not apply in relation to proceedings which include a claim for damages for international human rights cases.”

[Baroness Coussins]

My Lords, In moving Amendment 132AC, which was added as a manuscript amendment this morning, I shall speak also to Amendments 134, 135 and 138, which I believe are consequential to that first one and appear in the Marshalled List under my name and have the support of Members on all sides of the House. My amendments would ensure that in this country we retained effective access to justice in our courts for overseas victims of human rights abuses or environmental harm caused as a result of the operations of UK companies. These amendments would not involve any expenditure whatever from the public purse. I remind the House of my interest as a non-executive adviser on corporate social responsibility to various companies and I acknowledge the work of CAFOD, Amnesty, Oxfam and other organisations in the corporate responsibility coalition which strongly support these amendments.

I am grateful to the noble Lord, Lord McNally, and the noble and learned Lord, Lord Wallace of Tankerness, for meeting with me and others to discuss these amendments and for the subsequent letter the noble Lord, Lord McNally, sent. I am only sorry that I do not seem to have persuaded him of the need for these amendments but I will have one more go here today and make four brief points in response to the reasoning set out in his letter of 29 February 2012 to me and the noble Lord, Lord Stevenson.

First, the Government are clear that the effect of Part 2 of this Bill should be, and I quote from the impact assessment,

“a transfer of resources primarily from claimants and claimant lawyers to defendants. For many of the cases in scope, the defendant is a public body, funded by the taxpayer”.

There is the critical difference. In the type of cases that I am referring to, the defendant is not a public body. It is not the NHS, for example. The defendants here are multinational companies, often with huge resources and large teams of their own very expensive lawyers. The claimants, by contrast, in past cases have included rural farmers from remote areas of Peru or Colombia, South African asbestos miners, or citizens of the Côte d’Ivoire, one of the poorest countries in the world. So my amendments are about an exceptionally different type of claimant from those this Bill is really about, and I think that that must be acknowledged.

Secondly, the Minister has said that damages-based agreements, or DBAs, are the answer, but in my view he has not backed this up with evidence as to how DBAs would work specifically for these types of cases. Without my amendments, lawyers’ success fees would not come from the losing company; they would be taken out of the victim’s damages. Shifting the burden of payment for fees and insurance costs from the defendant to the victim risks substantially reducing or even wiping out the damages that victims receive. In such situations it is hard to imagine it being financially viable to bring the case in the first place.

Thirdly, the Government acknowledge that a potential impact of the Bill’s proposals is that fewer cases may be brought, especially where there is a lower probability of success or where cases involve highly disproportionate costs compared to the amount being disputed. That is exactly the case with these international corporate human rights abuse cases. This does not mean that such cases are not worth pursuing. It is still vital that vulnerable victims should get justice and at least some compensation. Companies need to know that they can be brought to account if they act irresponsibly. The proposed amendments to Clauses 43 and 45 would retain the current funding system for international human rights cases. I want to make it clear that creating this exception would not gut the overall aim of the Bill. It would not fundamentally undermine the Bill’s purpose at all. The offending company would have to pay out only if the case met all the existing prescribed criteria to do with public interest.

Finally, other countries will be looking to the UK to follow our lead in working out how to implement the United Nations’ guiding principles on business and human rights. What kind of example are we setting to other countries if we change our laws now to make it even harder for poor victims of corporate abuses to seek redress? I urge the Government to agree to carve out an exception for these rare cases, which the Bill was surely not intended to be about in the first place. I beg to move.

[Lord Judd]

My Lords, I strongly support and endorse this amendment. We have been reminded that a number of very significant organisations in this country which are working in the front line in the countries concerned feel passionately that this amendment is necessary. I declare an interest as a former director of Oxfam. All my experience during those years at Oxfam and since in my work with similar organisations has underlined the importance of this amendment. Not infrequently I found myself in a situation in which we were being asked to respond to need. In effect, by responding to need we were masking injustice because we were dealing with the consequences of what had happened instead of getting to the roots of what had happened. This seemed in a sense dishonest in that if we were serious about the issues that confronted us, we had to get to the underlying cause that had brought about the lamentable situation.

From that standpoint I reached a very firm conviction during my time at Oxfam and since that very frequently people in the Third World are not primarily asking for handouts or support, they are asking for justice. If they have not got justice, how on earth can they get themselves together to start self-generating progress and the rest because they are burdened by the consequences of what has happened to them as a result of abuse of one kind or another? That is fundamentally wrong. Of course, if people are desperate to start taking their situation forward themselves, we should ensure that that is possible and that they are not artificially and unnecessarily hindered.

I really do not know how a Government who set so much store by their commitment to the overseas aid programme—which is a great credit to them—in saying that it must be ring-fenced in the current economic situation do not see that the logic of that position demands that an amendment of this kind should be accepted. Failing to accept this amendment would be working against the very commitment of the Government. From that standpoint, I applaud the amendment and hope that the Government will feel able to take it seriously, even at this late stage.

[Baroness Miller of Chilthorne Domer]

My Lords, I have put my name to Amendment 134 in the belief that the Government are quite right, in general, on the principles in this part of the Bill but they are wrong not to have made an exception in this case. These are very modest amendments to allow exceptions to be made.

The noble Lord, Lord Judd, mentioned one reason why exceptions need to be made: DfID. This Government are working hard to follow the amount of aid that this country has committed—and I pay tribute to the Opposition. But it is not only DfID. The FCO realises that soft power is very important, and the Department for Business also realises that companies need to be socially responsible. Corporate responsibility has become a very important standard for this country.

This is recognised across almost all of government, and I urge my noble friend and the Ministry of Justice to join the other departments in making sure that companies listed here that have the potential to cause enormous damage—the extractive industries, in particular, whose work is accelerating at an enormous rate, and also agribusiness as commodity prices go up; there are a number of businesses whose turnover and impact in the world is growing day by day at a rate that was quite unimaginable even a decade ago—that needs to be balanced by better access to justice, not worse. It is for that reason that I support these amendments.

[The Lord Bishop of Newcastle]

My Lords, I too support this amendment, which I think is really important. It is about the impact this Bill will have on access to judicial remedies for victims in host countries who are harmed by the activities of multinationals. Under the existing regime, it is already difficult for these kinds of cases to be brought in the UK. This Bill will change that system to make it virtually impossible for such cases to be brought in the future.

The cases in question are typically brought by poor victims who have had their livelihoods destroyed, their homes despoiled or their health gravely damaged by the UK or a UK-based company. As it stands, the Bill makes it economically unviable for both claimants and law firms to bring such cases due to the high financial risks. Provisions on success fees and insurance premiums mean that even if they were successful, claimants would have to pay such fees and costs out of their own damages.

This fundamental change is inappropriate, surely, because damages awarded would be typically too low to cover the costs involved. Damages in these particular cases are assessed according to developing country standards, whereas legal costs are incurred in the UK. As a result, as others have said, the Bill will create a practical barrier to justice and it is very unlikely that such cases will continue to be brought.

There would be no additional cost to the taxpayer if this amendment were accepted, but the benefits would be hugely significant in enabling poor communities to claim damages where they have been harmed and, just as importantly, in showing companies that they cannot act with impunity. I hope that the Government will reconsider this aspect of the Bill and move towards accepting this amendment.

[Baroness Howe of Idlicote]

My Lords, my name is not on this amendment but, having listened to the arguments, there seems to be absolutely no good reason why the Minister should not agree to it. It is not going to cost the taxpayer anything extra and it means that companies that have been the cause of this sort of damage should pay the proper price and the proper compensation. I certainly back the amendment moved by my noble friend Lady Coussins.

20:15

[Lord Brennan]

My Lords, the arrival of globalisation as a world economic and human phenomenon, we hope, brings more benefits than disadvantages. However, reality tells us that globalisation produces serious adverse consequences from time to time, particularly in the developing world. It cannot be right that developed countries such as ours do not have a system of justice that provides remedies for those affected in such countries because of the liability of companies based in this jurisdiction. That reality in terms of what justice should provide should enable people from those countries access to our courts to seek appropriate remedies.

Amendment 134 in this group gives a power to the Lord Chancellor to provide regulations that would permit, in certain circumstances, our courts to deal with such cases. The numbers of cases that are likely to arise are few. Their cost and complexity is very large. To make provision for them would produce no consequence that would damage the Government’s policy in this Bill to save money and introduce cost control. None of that would be affected.

In my professional experience at the Bar I have done several of these cases. I have two examples to illustrate what I consider to be the validity of my submission to your Lordships. The South African resource of asbestos was a major benefit to companies in this country for decades. The standards of working practices and protection of ordinary workers were extremely low. I will not reveal anything that is not in the public domain by saying that I represented the plaintiff African miners—7,000 of them—many of whom were women, who were being used to break asbestos rock against granite to free the asbestos fibres for collection and use while bearing on their backs newborn babies. It is difficult to imagine that anyone would not think that that called for some remedy, if proved.

The case was dealt with in this country in the 1990s and it took three years of hearings in the lower court, the Court of Appeal and the House of Lords Judicial Committee before the plaintiffs finally got an order that the case should be heard in this country. Not surprisingly, it was eventually settled, a settlement that included compensation to all those people who had had to produce their medical records, their X-rays, from the very difficult administrative circumstances of the young South Africa of the 1990s and of the Government of South Africa, who were given money by the defendant company to contribute toward the clean-up of asbestos residues at the mines where they had been produced. All of that produced a trust settlement. All of that cost a huge amount in expense, with top class lawyers. Can it seriously be suggested that, under any of the reforms proposed in this Bill, such services by lawyers would be given these days? It is an absurd proposition.

I will move on to describe the second case, and then I will briefly come to a conclusion. I was involved in the Ivory Coast case in its early stages and I went to Abijan. We had tens of thousands of claimants, all of whom had to fill in questionnaires and produce medical evidence—often in French, in Francophone Côte d’Ivoire —and then come to England to pursue their case. By the time of this case, a few years ago, the law had changed, and I invite the Minister and his staff to bear this in mind. The law of the European Union now states that plaintiffs like that must sue the company which is alleged to be at fault in the jurisdiction from which that company operates. They are required to come to our country to pursue their claim. It is not a matter of form shopping—it is a requirement. That case cost a fortune, and it was settled, and it took years.

Companies such as this are often either insured, with enormous excesses that give them a lot of influence on the conduct of the litigation, or they are self-insured, because they are so big and powerful. For two or three years the programme is one of the plaintiffs producing all their medical and expert evidence and then going to court, hearing after hearing, long before trial, and spending a fortune. However, there was legal aid for the South African case and a conditional fee agreement for the case I have just mentioned. It worked and justice was done. That is all that I am asking the Government to consider should be done for this class of case in the future. These people have to come here. They do not have elite lawyers, funding or local remedies. They come to our country for justice. They come to where the company was based and where it should face justice.

This is a state of affairs which I commend to the attention of the Government and the House. How could it be said that any such case was properly catered for by allowing the previous system that was used in the Côte d’Ivoire case to continue? How could that adversely affect all the domestic factors that figure for local people? How could it benefit this country? Will we leave the Chamber having voted in favour of this, with our heads held high because we represent a country in which justice still prevails and access for the poorest, from wherever, is still available, or do we hang our heads in shame over something that cannot possibly be justified?

There is a risk that if this kind of exception is not made grave injustice will follow and the reputation of our country and our courts for just civil proceedings will be seriously damaged. It is time to think.

[Lord Stevenson of Balmacara]

My Lords, I thank those noble Lords who have spoken in this debate, in particular the noble Baroness, Lady Coussins, who, with her usual fluency and clarity, made the case extremely well. My noble friend Lord Judd, with his lifelong commitment to human rights, also drew attention to the many organisations who have written to us and who have supported the case that has been made tonight. My noble friend Lord Brennan, who has just spoken, has direct experience of many of the cases which we are talking about today and left us with a very powerful message about the impact that could be effected if the Bill goes forward unchanged. I thank the noble Baroness, Lady Miller, for her support of our amendment, particularly for drawing attention to the wider soft-power aspects which are so important in this area, and the right reverend Prelate for bringing into play the inevitable impact on poor communities of the Rome II regulations. Those will of course limit the level of expenses that they can possibly receive, and therefore create a completely unbalanced playing field in this area.

To apply the test that was proposed by the noble Lord, Lord Faulks, in the previous group, it is clear that the widely held view around your Lordships’ House is that once this Bill becomes law, it will not be possible to mount cases brought by vulnerable victims of corporate abuses perpetrated overseas by UK companies within the English courts. As we have been reminded, they have to be raised here. There can be little doubt that the Government really are on the wrong side of the argument tonight, and I join with the noble Baroness, Lady Howe, in not being at all clear why this is the case.

In his letter to me and the noble Baroness, Lady Coussins, of last month, which has already been referred to, the Minister argued that corporate human rights cases could still be viable under the measures contained in the Bill, and he helpfully highlighted the opportunity to use damages-based agreements—DBAs. This line of argument derives from the much quoted Jackson report which, it is worth pointing out, did not specifically deal with the cases that we are highlighting today. I will not go into the detailed arguments, as they have been well covered, but neither of Lord Jackson’s suggestions—under which the effect of lower damages recovery would be ameliorated, in his view—will work for typical corporate human rights abuse actions brought by claimants from developing countries.

We recognise, and indeed support in some ways, that one objective of this Bill is to reduce the costs of cases across the legal system as a whole, and one cannot be against that. Clearly there is a much better reason for this where these costs fall to be met in whole or part by the public purse but, as the Minister has already accepted, we are not dealing with this area in this part of the Bill. However, in the cases we have highlighted, not only is there no cost to the public purse, but there is already a system in place to decide whether the legal costs awarded are appropriate. Indeed, it was used in recent cases to significantly reduce the costs claimed by the winning side, although they did in fact settle.

It may be irritating to the department to have to create a carve-out in a Bill for such a small group of cases, but surely it is vitally important that vulnerable victims should get justice—and at least some compensation —for the trauma and harm that they have experienced, or for the loss of livelihood or even of life that has been caused by UK companies. It is equally important that companies need to know that they can be brought to account if they act irresponsibly. That is why we believe it is warranted to carve out an exception, so that the broader measures in this Bill do not close off justice in the UK for this small but very significant group of cases.

Our amendments would retain the current funding system in effect for human rights cases. Creating this exception would not be fatal to the overall aims of the Bill. The existing regime of success fees and “after the event” insurance premiums being paid by the losing company instead of coming out of the damages of the claimant are, in our view, the most sensible way of ensuring that these cases continue to be mounted. Moreover, it is unlikely to be more than a few cases a year, as stringent rules have to be met before such cases can be mounted.

In the debate last week, the noble and learned Lord, Lord Wallace of Tankerness, recognised that, in clinical negligence cases, removing the recoverability of ATE insurance premiums could create a real problem for claimants. The Government have therefore created a carve-out because expert reports are such an essential requirement for building clinical negligence cases successfully. However, the expenses of obtaining such reports would not necessarily be covered under the new regime. In the human rights cases that we are looking at, expert opinions and reports—for example, the analysis of alleged toxic waste or polluted water; or medical examinations in relation to asbestos ingested by miners in South Africa—are a vital part of showing that there is a valid case to answer. There is a very strong read-across from clinical negligence cases to the sort of human rights cases we are dealing with here.

I hope we can find an accommodation here. In plain terms, all the evidence suggests that the approach being taken in this Bill will kill off the chances of mounting this very small group of special cases in future. How poignant it is that at the same time as we are debating this amendment, the Foreign Office is leading valuable cross-governmental work on how we implement the UN guiding principles on business and human rights adopted in June 2011, which the Ministers told us in our meeting with them that the Government support. We were one of the countries most closely involved in UN Special Representative John Ruggie’s work. Indeed, the previous and the present Governments have been vocal in their support of the guiding principles and the present Prime Minister has committed publicly to implement them.

What sort of example are we setting and what message are we sending to UK companies if we now change our laws to make it hard for poor victims of corporate abuses perpetrated by UK companies to seek redress? They may be a small number of cases but they have had a direct impact on the lives of millions of people in the developing world. Each successful case has shone a harsh light on key areas of corporate misconduct in the developing world—from the dumping of pollutants in the water supplies of communities to appalling health and safety standards in mines and to direct corporate involvement in abduction and torture. Ultimately, it is surely important that businesses know that they cannot act with impunity. We do not want the majority of responsible UK businesses to be at a disadvantage because laggard companies get away with substandard, harmful business practices.

20:30

[Lord McNally]

My Lords, the noble Baroness, Lady Coussins, said that making this exception would not “gut” the Bill. But I hope that noble Lords who sit through these debates or perhaps read Hansard will see the pattern. Clauses 43 and 45 are a fundamental element of the package of reforms recommended by Lord Justice Jackson to deal with the problems of disproportionate costs in civil litigation under CFAs. I have called that the central architecture of the Bill. The clauses seek to reform and remove the inflationary defects introduced into the system by the previous Administration, which is the central point.

The Jackson reforms look at a specific part of our civil justice system. Throughout the passage of the Bill, we have had claims for exceptions to the central architecture. Certainly, in debates an adopter stands up and goes into the great clinical detail of an illness that we might be talking about, as if that is what the debate is about, and whether one should vote for or against it. Or the noble Lord, Lord Brennan, tells us of the suffering and the hardship of working in mines in South Africa as though that was the subject of the debate. Then everyone thinks, “Oh, we can’t be against poor women in South Africa in such conditions or people suffering from such terrible diseases”. In fact, that will remove the central reforms of the Bill.

In most of the examples that we have had so far, when one looks at what we are actually doing, they do not stand up to examination. It is of course always possible to make the case for an exception in a particular class of case, as noble Lords have done. But we believe that our changes must apply across the board. However, let me make it clear at the outset that we support claims arising from allegations of corporate harm in developing countries being brought and we support the protection damages for personal injury. No-win no-fee conditional fee agreements will continue on the same basis on which the noble and learned Lord, Lord Mackay of Clashfern, introduced them. Indeed, if the noble Lord, Lord Brennan, was referring to a case in the 1990s, it was probably brought under this regime, which is the basis on which it still operates in Scotland. We are also extending the availability of damages-based agreements, which are sometimes called contingency fees, to enable their use in civil litigation. Some of the objections to DBAs from the representatives of big business make me feel that they are a much more potent weapon than people give them credit for.

As I have said, we recognise how important these cases can be. We recognise also that, following the Rome II regulations, the damages in these cases can be relatively low. But the costs have been extremely high, as demonstrated in the now notorious Trafigura case, in which the Court of Appeal criticised the claimant lawyers for seeking costs of £100 million in a case which resulted in £30 million in damages. I should add that the defendant’s costs were only approximately £14 million, which was about one-seventh of the costs claimed by the claimants.

The reforms in Part 2 are about making costs more proportionate, while allowing meritorious claims to be pursued. As has been recognised by the noble Baroness, Lady Coussins, I and my officials have met on several occasions with representatives of NGOs which support these cases but we are not persuaded that they cannot be brought when our changes are implemented. We have asked for examples of further details of costs. If noble Lords want to engage between now and Third Reading, I will be happy to do so.

However, I continue to come to this Dispatch Box to answer attacks on this legislation that do not stand up to examination of the reality. It often means that the Opposition cleverly erase their own record in these areas and immediately adopt whichever hard case is being brought forward as the exception that will not damage the whole architecture of the Bill. We believe that Jackson was right in his reforms. We do not believe that those kinds of cases—I think the number referred to is about 10 such cases in the past 15 years —will be prevented from being brought.

We have listened carefully and we have sought to engage with relevant NGOs on this issue. As I said I would in Committee, I have now discussed this matter further with the Secretary of State but for the reasons that I have given we remain unconvinced that these cases cannot be brought under the new regime, as was suggested by the right reverend Prelate the Bishop of Newcastle.

[Lord Brennan]

The noble Lord is most gracious to give way. The points I was making were illustrated with cases. My principle point was that these cases are so expensive to run that you need a capital base which is not available to lawyers in this country. I should like the Minister to consider—if not now, later—in explaining to the House how it is that his advisers are telling him that lawyers in this country can raise £2 million, £3 million, £4 million or £5 million to run a case for three or four years. How will that be done?

[Lord McNally]

I will certainly take note of that. I realise the experience of the noble Lord, Lord Brennan, in these areas. When we asked the NGOs for hard facts and figures on costs, they were not forthcoming but perhaps there is time between now and Third Reading to re-engage. I also think that part of the problem is that whatever we have in civil law, conditional fee agreements or anything else, some of the problems raised by the noble Lord, Lord Brennan, in illustration will not be solved in British law courts or by changes in the British legal system. We are trying to reform what everyone who comes to the Dispatch Box acknowledges is a defect in our civil legal system and for which Lord Justice Jackson has produced a reform package that we are trying to put into law. Everyone agrees that we are right to do so, but for this, that and the other exception. Again, I am willing to discuss this further, but I do not think the case has been made—

[Lord Judd]

My Lords—

[Lord Martin of Springburn]

My Lords—

[Lord McNally]

I am sorry, but I am not going to take questions. We are hard-pressed for time. I have offered to re-engage, but as I said before, the evidence we asked for has not been forthcoming and I do not believe the argument that without this amendment, it is going to be catastrophic for these particular cases; that is, for those which people want to take through our law courts. I ask the noble Lord to withdraw his amendment—

[A noble Lord]

The noble Baroness.

[Lord McNally]

I am sorry, the noble Baroness, Lady Coussins. I am happy to re-engage between now and Third Reading, but at this point we are not convinced.

[Lord Judd]

So the earth is flat.

[Lord McNally]

No.

[Baroness Coussins]

My Lords, I thank all noble Lords who have contributed to this debate and I appreciate everyone’s support. I particularly appreciated the powerful contribution made by the noble Lord, Lord Brennan, who helped us to envisage what these amendments would mean to real people in the real world rather than just considering the administrative and legalistic matters that are set down on paper. I also thank the Minister for his thoughtful, if disappointing, response. It is all very well to support something in principle, but if in practice you cannot get at it, that support becomes meaningless. However, I appreciate the Minister’s offer to engage between now and Third Reading, and I can assure him that I will pursue that offer in order to look very carefully at what could be brought back at Third Reading. That is because if this Bill remains unamended, I fear that what we will end up with are poor, vulnerable people in developing countries who not only will be the victims of corporate human rights abuses, but the victims of the unintended consequences of this Bill. For now, however, I am content to withdraw the amendment.

Amendment 132AC withdrawn.

Amendment 132B

Moved by

[Lord Thomas of Gresford]

132B: Clause 43, page 30, line 10, after “are” insert “, subject to subsection 4C,”

[Lord Thomas of Gresford]

My Lords, this group of amendments sets out the refinements to the architecture of the Bill that I have previously suggested. Noble Lords heard from me at some length before and I do not propose to repeat everything I said. I would just remind your Lordships that the model I am suggesting is that lawyers’ success fees should not be paid if the case settles or liability is admitted before proceedings are commenced. The reason for that is that there is no risk to the lawyers that they will not be paid. Noble Lords will recall that I quoted from my own speech back in 1998 when I indicated then that the question of risk was important, but had never been properly assessed. That is the first limb of my argument, and it is set out in Amendment 132C.

I went on to draw attention to the significance of the point of allocation within proceedings where a case is sent to the fast track of small claims or becomes one of the multi-track cases. In the multi-track cases, I suggested that the success fee should be paid, but split 50:50 between the successful claimant and the losing defendant. While in this area, I suggested that the claimant would have an interest in the amount of the success fee and that there would be the possibility of competition. Those points are set out in Amendments 132E, 133B and 133E.

That is the point I reached when the noble Lord, Lord Bach, suggested that I had gone on for too long, and no doubt I had. It is interesting because we are supposed to have these discussions about legislation on Report. The last time I spoke on this issue, the noble Lord, Lord Newton, said that he was in a fog and someone leant across to ask, “What on earth is he talking about?”. That suggests that legislation on these detailed points should not be on the face of the Bill but should be dealt with in secondary legislation following negotiations between interested parties. This system builds in a form of solidity that it is very difficult to remove.

20:45

I want to make one or two points before I deal with the other matters. The first is ATE insurance premiums. The point has been made and accepted that one-way costs-shifting should be applied where there are conditional fee agreements. However, they should not only be applied in personal injury cases; rather, there should be a power along the lines proposed in my amendment to extend the areas of law to which one-way costs-shifting should be involved to when the Lord Chancellor thinks it is appropriate. Consequently I think there is far more flexibility, in the light of the experience available, in my Amendment 142B on one-way costs-shifting than was suggested by the noble Lord, Lord Beecham. It states:

“Rules of Court may provide that in proceedings of a description specified by order made by the Lord Chancellor”,

so that the introduction of other areas of law could come in by stages. I think that that is the way to go forward.

I shall give two specific examples of areas of law proceedings which I suggest should be subject to the one-way costs-shifting regime. The first and most important is environmental cases. These cases bring additional complexities. The United Kingdom is a full signatory to the Aarhus convention, which includes the requirement that the costs of environmental proceedings should not be prohibitively expensive. The Aarhus principles are themselves embedded in a range of European legislation which has been incorporated into a range of United Kingdom law. Indeed, I could quote cases in which those principles have been discussed.

I addressed in Committee the point that the changes which are to be implemented will mean that this jurisdiction is not compliant with the underlying requirements of the convention. Protective costs orders are not an answer. Your Lordships who were here in Committee may recall that my noble friend Lord Lester raised protective costs orders. Now that I have had the opportunity to consider them, as opposed to having a swipe from behind, I can give some answers to his arguments. First, a protective costs order is not available to claimants who want an injunction in nuisance or private proceedings. The whole arrangement is too uncertain and discretionary to be a reassurance for claimants who are contemplating environmental proceedings. The procedure is stressful, time-consuming and expensive. All sorts of satellite litigation are involved. The prohibition on a private interest in proceedings is of uncertain application and scope. If you have the private interest, if the nuisance is affecting you, you cannot apply for a protective costs order, which is an enormous limitation on its usefulness. The cap on the defendant’s costs of £30,000 may be sufficient in some cases, but there are certainly cases where a cap of £30,000 in a protective costs order will not be. It will ruin claimants, who will be put off taking proceedings. The application for a protective costs order has to be renewed at different stages of proceedings.

One-way costs-shifting is needed to ensure compliance with Aarhus and the international obligations which we have accepted, and they require specific provision; that is Amendment 142BA. Amendment 142BB deals with matters that were raised by the noble Lord, Lord Ramsbotham; that is, actions against the police, false imprisonment and deaths in custody. Such actions are pursued by civil liabilities firms and should be within the area of one-way costs-shifting, because the defendant is the state—in this situation, a powerful state, whether it is a police force or a prison; those are the sorts of cases that I am referring to.

The amendments make it clear that one-way costs-shifting should apply where there is a claim which entails either the protection of the environment or civil liberties. The Bill should import a specific definition which ensures that the rule is engaged only where the convention applies.

The model, which I have outlined in my past two speeches and which is fully supported by the personal injuries Bar, although it is not the solution that it originally argued for, strikes the right balance. It builds the house with a structure which is fair and will last. The claimant whose case settles before issuing proceedings receives his damages in total, free of any success fee deduction. The claimant who settles after issuing proceedings will receive most of his damages and there will be a commercial interest in driving down success fees. Claimants with smaller claims, such as for whiplash, will pay a limited success fee out of their damages, but there is an incentive for insurers to admit liability early and settle. If the case is allocated to the multi-track, that opens up liability to the insurers for 50 per cent of the success fee. There is an incentive for lawyers to engage in difficult cases where liability is denied on the multi-track, because they can earn a significant success fee if they win. A claimant with a difficult case on the multi-track will pay only half the success fee out of his damages and not, as the Government now propose, 100 per cent of the success fee. One-way costs-shifting will break the excessive “after the event” market, and premiums for “after the event” cover merely for disbursements will be much lower. Even then, my amendment would divide up those ATE premiums between the claimant and the defendant, whereas the Government propose that, if there is a premium, it should be payable by the claimant only. This is a refinement of the Government’s scheme. I know that the Minister is anxious to maintain the architecture of the Bill; my proposal does not destroy it but amends it in a way that is fair.

The reforms introduced by the noble and learned Lord, Lord Irvine, in 1999 were brought in in good faith but they were open to exploitation and abuse. I am not with those from the Opposition and Cross Benches who argue for simply taking their particular area of law out of the new arrangements. The current status quo has to be changed. It is no good saying that in this area, that area or another area we should maintain the status quo. It has to be reformed. We on these Benches pride ourselves as being the party of reform. It is in that spirit that I ask my noble and learned friend to continue the dialogue that we have had on these amendments and to come to some conclusions before Third Reading. I beg to move.

[Lord Beecham]

My Lords, I thought the party of the noble Lord, Lord Thomas, was a party of conscience and reform. Conscience appears to have taken a back seat. I have a good deal of sympathy with most of the amendments to which he has spoken and I shall briefly comment on them.

Although we would prefer that the success fee were not deducted at all from a successful claimant, the noble Lord’s proposal is clearly better than the Government’s proposal. So, to the extent that the Government might be disposed to listen to him on this, we would support that in lieu of what we regard as an even better position.

The other amendments to which the noble Lord spoke largely depend on matters being determined by rules of the court, which would appear to have a discretion to make the necessary changes, for example, under Amendments 142B, 142BA and 142BB, with the Lord Chancellor, in the case of Amendment 142B, identifying the proceedings but not necessarily requiring the change to be made.

I entirely share the noble Lord’s view about environmental claims, and a subsequent amendment in my name covers much the same territory. In Committee, I quoted at some length the legal opinions to which the noble Lord referred at that time and dealt with the point about the Aarhus amendment and the points made by his noble friend Lord Lester, which, I agree, misstate the position in respect of protective costs orders. The noble Lord, Lord Thomas, is absolutely right to say, as I said on that occasion, that they do not offer a sufficient defence, as it were, to those in that position.

I similarly agree in relation to the civil liberties claims and, again, we have tabled an amendment in somewhat similar terms, with the exception that under the opposition amendments the Lord Chancellor would effectively take the decision which would change the nature of the position in relation to those claims. As that would have to be, as the noble Lord implied at one point, through secondary legislation or affirmative resolution, it is a more accountable way of dealing with matters than simply leaving it to the courts to determine.

In these circumstances I apprehend that the Government will not be disposed to accept these amendments. Perhaps the Minister will be willing to undertake further discussions with his noble friend, if not with anybody else. If not, as the matter clearly will not be put to the vote tonight, I can only record our unfortunate disagreement with the position in which we will end up because it will not be satisfactory. I do not accept that it is undesirable and wrong to look at particular instances which might fall outside the general rules. The Government have acknowledged to some degree that this should be the case in relation to recoverability under clinical negligence. If they can do that in respect of clinical negligence, then they can equally extend a similar principle elsewhere. Having said that, we await the noble and learned Lord’s response.

[Lord Wallace of Tankerness]

My Lords, I thank my noble friend for his amendments. It will come as no surprise to the House if I yet again echo what has been said on numerous occasions on Report: the architecture, as my noble friend Lord McNally referred to it, of this part of the Bill seeks to ensure that there is fundamental proportionality and fairness across the board in these claims, and that is why we have adopted the proposals of Lord Justice Jackson.

The cumulative effects of Amendments 132B, 132C, 132E, 133B, 133E, 139D, 140A, 141ZA, 141ZB and 142B would be, as my noble friend said, a refinement on what has been proposed. When the noble Lord, Lord Beecham, talks about my party and my noble friend’s party as being a party of conscience, it is because we feel that some of the fees that have been charged have been unconscionable under the existing scheme. That is why we wish to address the issue.

My noble friend wishes to introduce staged success fees. I am very grateful to him for his complex set of amendments; he has set out what the fees would be at different stages, on the multi-track approach. His proposals would introduce staged success fees in ATE insurance premiums, the cost of which would be split between the losing defendant and the successful claimant. Some recoverability of success fees in ATE insurance premiums would therefore remain.

I assure my noble friend and the House that we have given the amendments careful consideration, even at this late stage. They are proposed as a compromise and are supported by some but not all personal injury claimant representatives. It is fair to recall that these proposals are not entirely new. In his report, Lord Justice Jackson made primary recommendations that have essentially been adopted by the Government in Part 2. He also made an alternative set of recommendations which, while not identical, bear some considerable similarity to the proposals put forward by my noble friend.

21:00

The Government consulted on both sets of proposals in their consultation. However, the respondents to the consultation expressed relatively little support for that alternative. Having given full consideration of all the responses, the Government announced almost a year ago their way forward in line with the primary recommendations of Lord Justice Jackson’s report. The proposals, which the Government essentially endorsed, amount to a package of measures which are carefully balanced to be fair to claimants and defendants. They are based on the abolition of recoverable success fees and insurance premiums, but have some supporting features which are intended to balance the abolition of recoverability. These include a 10 per cent increase in the level of general damages and the introduction of qualified one-way costs-shifting, or QOCS, in personal injury cases. In addition, measures to improve the arrangements for offers to settle under Part 36 of the Civil Procedure Rules are also seen as part of the package. Although the detail of all these proposals has not yet been finalised, the essential architecture is in place and is there to be seen.

Our concern would be that revisiting these essential features, which would be the consequence of accepting my noble friend’s proposals, would require us to reconsider the whole package, and in particular whether the balancing features, such as the Part 36 sanctions, or the specific exemption of clinical negligence cases, would remain as originally proposed. We do not believe that the alternative proposals would address the high costs under the current regime. As my noble friend indicated during the passage of the Bill, he generally supports the Government’s decision to transfer the burden of the success fee to the successful claimant. However, these amendments would allow elements of success fees to continue to be recoverable.

In the same way, the “after the event” insurers argue for their insurance premiums to be paid by the other side. In some of the more serious cases, these amendments would see successful personal injury claimants paying an increased amount from their damages in legal fees. Again, part of the architecture that we have talked about is a cap to protect damages, which would mean that damages for future care and loss, which can run into millions of pounds in catastrophic injury cases, would not be taken into account and would be free from any claim in terms of the success fee. Our concern would be that these amendments would see some of those carefully calculated, necessary but often substantial damages going not to the claimant but as additional fees to lawyers. While I accept my noble friend’s point that his amendments seek to limit recovery of success fees and ATE insurance premium at the point of allocation, we do not believe that this is right or fair. In particular, although we have no doubt that the amendments were moved with the best of intentions, they could lead to a continuation of the current problems by other means. They could see unnecessarily high costs for defendants, and a greater deduction from claimants’ damages than we propose.

The Government have tried to weigh up all the arguments, and balance the respective interests, and we believe that the proposals that we have introduced achieve that balance. They were consulted on and have been set out in the Bill, and we are not persuaded at this stage that this fundamental change—it is not a narrow refinement—is justified.

With regard to some of the specifics on QOCS to which my noble friend referred, we intend to introduce them at the same time as the relevant provisions in Part 2 of the Bill, as they are implemented in April 2013. My noble friend also seeks to place QOCS in the Bill—we had a debate about that earlier this evening—and he sets out limited exceptions for fraud, vexatious claims and abuse of process. I indicated earlier why we believe that this matter should be done by way of the Civil Procedure Rule Committee and should not be in the Bill. I do not intend to rehearse these arguments again, but it may be that through these rules we can get a kind of flexibility which would allow at a later stage some of the other points to be raised, perhaps more than would be possible if the rules were set out in statute and would therefore require primary legislation.

We believe that the rules allow for sufficient accountability. The Lord Chancellor would remain accountable for the policy of QOCS, and that would be set out publicly by the Lord Chancellor so that he could be answerable to it. The rules themselves would be made by the Civil Procedure Rule Committee, which includes the Master of the Rolls, and are agreed by the Lord Chancellor. They come into effect by way of statutory instrument. There is an established procedure which would involve consultation as appropriate. It would be relatively straightforward to devise a QOCS scheme regime for personal injury cases. Although there are many such claims every year, as a class they contain typical features which simply do not exist in other types of claims.

Other types of claims have been mentioned. My noble friend mentioned, particularly, environmental claims. Amendments 139 and 140 in a later group will no doubt explore this further, but as he may have anticipated the Government still believe that the protective costs order ought to provide better cost protection in environmental judicial review cases. We hope that it will be clear from the outset what costs the claimant would have to pay if the claim was unsuccessful while ensuring that some contribution is made towards the costs of public bodies that have successfully defended a claim. The Government believe that this is the right approach, but we are considering how best to deliver this in the light of recent developments. The Government are currently consulting on proposals to codify the current case law on protective costs orders in relation to judicial review claims which fall under the Convention on Access to Information, Public Participation in Decision-making and Access to Justice in Environmental Matters; it is much easier to say “the Aarhus convention”. That consultation closed on 18 January this year and the Government will announce their way forward in the near future.

The reason we wish to make a distinction is that, while personal injuries have typical features which allow us to go down the road of QOCS at this stage, different considerations apply in other types of cases. “Before the event” legal insurance may be available for professional negligence cases. Legal aid is available in judicial review cases. We will keep this under review, and having the matter dealt with by the Civil Procedure Rule Committee but with the Lord Chancellor setting the policy subject to consultation, and no doubt subject to accountability to Parliament, will allow greater flexibility for these matters to be looked at in the future if a case is made to extend the QOCS system.

We are not persuaded that the refinements proposed by my noble friend would lead to a fair or workable solution. We believe that we have struck the right balances, abolishing the recoverability of success fees, and ATE insurance premiums will mean that claimants have an interest in the cost being curbed on their behalf, which will help to restore proportion and fairness in the current regime. We are also clear that special damages for future care and loss, which provide for necessary care and equipment, should be protected and not apportioned among those representing the claimant. I cannot accept that to change the overall package in this way at this time would lower the costs of civil litigation across the board. Against that background I urge my noble friend to withdraw his amendment.

[Lord Thomas of Gresford]

My Lords, I am not so much disappointed as hurt by my noble and learned friend’s reply. I am hurt that he thinks that my amendments would increase the cost. The whole purpose of tabling these amendments was to come forward with a system that squeezes the excess costs of litigation out of the system. This is one area where he is wrong to make that suggestion.

The other matter that concerns me is that the Minister should suggest that I am in some way completely wrecking the architecture of the Bill. I am not; I am trying to make it better for one reason. The one factor that was missing from his response was whether litigation solicitors and barristers will take on difficult and risky cases under the regime that is now proposed. It is not about the Jackson proposals in toto, although various things are left out. This is the issue. Only time will tell. Will solicitors take these cases on when the success fee has been squeezed down in the way that is proposed?

I was suggesting that for one level—for settlements and so on—there should not be a success fee because there is no risk. That brings down the cost of litigation as a whole. However, where there are risky cases lawyers need a proper reward. That factor was not mentioned in my noble and learned friend’s response. I hope to talk to him more about this matter before we finally dispose of the Bill but, for the moment, I beg leave to withdraw the amendment.

Amendment 132B withdrawn.

Amendments 132C to 132E not moved.

Amendment 133

Moved by

[Lord Martin of Springburn]

133: Clause 43, page 30, line 24, leave out subsection (4)

[Lord Martin of Springburn]

My Lords, I am pleased to move this amendment. I understand that the night is getting on and we have all been here for many hours. I say in the nicest possible way that, as the hour gets later, the noble Lord, Lord McNally, seems to get a bit more edgy or, as we say in Scotland—I do not know if the term is used south of the border—a wee bit crabbit. The noble Lord would not give way.

The Jackson report has been mentioned many times tonight, and it sounds as though it is a commendable report. However, I put it to the noble Lord, Lord McNally, that we are not here just to take a report and rubber-stamp it. That would be easy. It has to be debated and thought through. It would be very easy for our democratic institutions if we just got a report and passed it through, saying, “It’s a good report”. It has to be tried and tested. In that spirit, I am moving this amendment.

I declare an interest. I successfully took the Times to task on a no-win no-fee basis. Even on that basis, it was very daunting to be up against a large media organisation. I have been in politics for a long time and I feel as though we have all been hardened to what the media do and say. It must be even tougher for men and women who never expected to be in a situation in which their reputation was tarnished. It is a great loss that we are losing no-win no-fee for libel damages. My thoughts go to Mr Christopher Jefferies, the landlord in Bristol who was accused of all sorts of things because he was in the wrong place at the wrong time. It was very sad for the poor victim of that murder, but Mr Jefferies was also a victim.

The media said all sorts of things about that poor man. He must have thought to himself that he must take them on, and he did so on a no-win no-fee basis. Mr Jefferies probably took them on knowing—or his lawyers would have known—that whereas he had one solicitor, every national newspaper has a whole team of solicitors. There is not a time in the day when a media editor does not have access to a solicitor. I do not need to reiterate the things that the media said about that poor man as your Lordships know what was said. I was appalled that when the editor—I believe it was the editor of the Mirror newspaper—spoke at the Leveson inquiry, his apology was so cold and unmoving that you would not have known from it that he had destroyed that poor man’s very reputation.

21:15

We all know that the media act as a pack. They have a pack mentality and when one of them went after the man, the others followed suit. I listened to that editor say, “I spoke to the night-shift lawyer and to the day-shift lawyer, and they both said that the story was all right to run. I therefore ran the story and I am very sorry about the difficulty that Mr Jefferies has had”. I think you would have made more of an apology to a next-door neighbour if you had forgotten to take the strimmer back after borrowing it to use in the garden. That is how cold these people are. Anybody else from any other sector, knowing what had been said about that poor man, would have said, “My God, we have done a terrible thing. Let us make sure that we never, ever do it again”. The fact that there was a night-shift lawyer and a day-shift lawyer indicates that the media have an absolute team of lawyers behind them, whereas the complainant gets a lawyer on a no-win no-fee basis.

Mr Jefferies is not the only victim of this: a lady in the Essex area sought damages, but not from the media. She was a local councillor and did her civic duty, which was recognised by the council which elected her as mayor. A very rich person who had more money than sense, as they say, decided that he would falsely allege that the lady was a shoplifter and was unfit to hold public office. He went to the extent of hitching a great banner to his private plane, and flew around Essex saying all sorts of things about this lady. That was not the only time that he had done that. He did the same thing to Christine Butler, a former MP. After the relevant lady had won her case, he said that she was falsely claiming incapacity benefits. The lady was seriously ill but she had to go to court again. At least with a no-win no-fee situation there is no concern about your mortgage or about any savings that you may have, and your lawyer will tell you whether your chances are good or bad.

We know about the things that some newspapers do because we have heard about phone hacking and the type of newspapers that were involved in that. However, I was disappointed in the Guardian as I have always found that newspaper to be very decent and reasonable. In my experience, its staff have not doorstepped people. If they want to make an inquiry or get a quote from you, they have done it through the usual channels or approached you directly in a reasonable way. However, somehow or other they got it wrong in the case of a career Army officer in the Intelligence Corps when they said that he was involved in torture. He took the newspaper to court—or, rather, he did not at first take it to court but sought damages. The newspaper offered him a derisory amount. He was then successful in obtaining a no-win no-fee case, which he won. It was disappointing that the Guardian should have pushed the matter to that extent. The judge awarded £58,000 in damages and described that man as a distinguished soldier. A former commanding officer gave evidence to the effect that the man embodied the best traditions of the British Army.

It is getting late in the evening. I have referred to cases, particularly that of the lady councillor who was on disability benefit. The no-win no-fee arrangement would have taken a great worry away from her, as it certainly did in the case of the soldier. I have declared an interest; the salary that I was earning as a Speaker was on public record, but there is still a worry if you are going to court and you have to engage barristers and lawyers, and take witness statements. You say to yourself, “Am I at risk? Will my mortgage and finances be at risk?”. I urge the Minister to think again. I know what he said about the Jackson report, but in this House and the other place you do not take a High Court judge’s report—no disrespect to High Court judges—fling it on the table and say, “There you are; it is a good report. We’ll all agree to it and go home”. That is not what democracy is about. It has to be tried and tested; and if it needs changing, then we change it. I beg to move.

[Lord Beecham]

My Lords, in fairness to the Government, they did not do what the noble Lord, Lord Martin, suggested. They did not put the whole report on the table and say, “We will have it”, but chose which bits suited them and left out the part of the report that dealt with legal aid, which we have debated at some length, among other matters. However, that is a little beside the point.

I support the noble Lord’s amendment, if only because subsection (4), which it seeks to delete, effectively locks and bolts the door to any subsequent change to the provisions on success fees without primary legislation. That is a formidable obstacle. The subsection is unnecessary and the Government could have dealt with the matter in a way that would have allowed them or a subsequent Government to review the situation without primary legislation. The way that the Bill is drafted does not allow that, and for that reason, if no other, I support the noble Lord’s amendment.

[Lord McNally]

Did the noble Lord, Lord Martin, say “crabby”? My goodness; I have always been thought of as a little ray of sunshine. Of course we have not accepted the Jackson report lock, stock and barrel. We have honed and polished it, and brought it to the House. We have of course accepted the proper role of this House, which is to revise and advise. I listened with a good deal of sympathy to the experience of the noble Lord, Lord Martin, although I have to say that I am not a lawyer, and I would have taken up the case of Christopher Jefferies, never mind anyone else. I think it was the Daily Mirror that accused him of being a Liberal Democrat, which would have been—I had better not say it.

[Lord Martin of Springburn]

My Lords—

[Lord McNally]

The noble Lord has come to my aid, because I think these cases are still going on, and I had better say no more. Whenever I hear the Opposition on the wickedness of the press, I have to remind them that from those Benches more than a decade ago I proposed a minor amendment on press accountability, and was told from this Dispatch Box by the Labour Minister of the day that I was proposing the “slippery slope” to a state-controlled press. We know today what slippery slope we were actually on.

I say to the noble Lord, Lord Martin, as I have explained in dealing with other amendments, that abolishing recoverability of success fees and insurance premiums from the losing side will rebalance the CFA regime to make it fairer for defendants by reducing the substantial additional costs which they have to pay under the current regime. Amendment 133 would retain the recovery of success fees from the losing side in all cases. I am not sure whether Amendment 133ZA was spoken to, so I shall not refer to it, but the noble Lord, Lord Martin, made it sound as though we were abolishing CFAs. I emphasise that CFAs will still be available to fund the same cases as they were under the original arrangements introduced by my noble and learned friend Lord Mackay of Clashfern.

However, I understand the concerns of the noble Lord, Lord Martin, about the press. I am not sure that they are best dealt with in this Bill. As the noble Lord will know, I hope that parliamentary time can be found to introduce a defamation Bill. It is in that Bill that we will look at the question of the balance of arms between the individual and large media interests. I hope that we can do that reasonably soon. In the light of that and what I have explained, I hope that he will withdraw his amendment.

[Lord Martin of Springburn]

My Lords, I am very pleased that the noble Lord has said that he hopes to bring in a defamation Bill. That at least is something, because my worry is that there is a great imbalance. I will not detain the House any longer. I beg leave to withdraw the amendment.

Amendment 133 withdrawn.

Amendment 133ZA not moved.

Amendment 133A

Moved by

[Lord Thomas of Gresford]

133A: Clause 43, page 30, line 24, at end insert—
“( ) In section 58A of that Act, after subsection (6), insert—
“(7) A costs order may include provision requiring the payment of any fees payable under a conditional fee agreement which provides for a success fee in the following proceedings—
(a) proceedings in England and Wales by a company which is being wound up in England and Wales or Scotland;(b) proceedings by a company which has entered administration under Part II of the Insolvency Act 1986;(c) proceedings in England and Wales by a person acting in the capacity of—(i) liquidator of a company which is being wound up in England and Wales or Scotland; or(ii) trustee of a bankrupt’s estate; (d) proceedings by a person acting in the capacity of an administrator appointed pursuant to the provisions of Part II of the Insolvency Act 1986.(8) In subsections (7)(a) and (7)(c) “company” means a company within the meaning of section 1 of the Companies Act 2006 or a company which may be wound up under Part V of the Insolvency Act 1986.”.”

[Lord Thomas of Gresford]

My Lords, I return to a subject which we addressed in Committee: proceedings brought by a liquidator of a company, the trustee of a bankrupt’s estate or an administrator appointed pursuant to the provisions of Part II of the Insolvency Act 1986 to recover the assets of a business or company which has gone into liquidation or has become financially insolvent.

The point is that insolvency practitioners who engage in that important work have to bring proceedings to recover the assets of the company, or money representing the assets of a company, from a company director or partner in the firm. They can be very expensive proceedings, because a lot of investigation has to be undertaken. Often, the director or partner who is in default has disappeared—or hopped it overseas—so it is not easy to bring those proceedings. The liquidators, and so on, cannot bring the proceedings themselves. They employ solicitors to do that and to carry out those investigations. From time to time, they are forced to go to court to try to get a court order against an individual. In so doing, a conditional fee agreement is entered into, and a success fee is part of that conditional fee agreement.

As all of us will know, one of the major creditors is Her Majesty’s Revenue and Customs. Consequently, it seems a little silly to employ insolvency practitioners to recover all this money and then to have a reduction, contrary to the interests of the Revenue and Customs, from whatever has been recovered in order to pay the success fee. It seems to me that the success fee, when these proceedings are successful, should be paid by the person who is in default—the person who has hopped it. That is the current situation.

I mentioned earlier today that back in 1990 when the noble and learned Lord, Lord Mackay, introduced conditional fee agreements for the first time, there were three categories: personal injuries, insolvency proceedings and applications to the European Court of Human Rights. So from the very beginning, from the inception of this type of agreement, insolvency practitioners have had this protection for the proceedings that they have to bring. From the point of view of making sure that the defaulter pays and in the interests of the Revenue and Customs and perfectly decent creditors which may be a large firm or a small firm, it seems only sensible that the amendment should succeed. I beg to move.

21:30

[Lord Bach]

I am happy to put my name to this amendment with the noble Lord, Lord Thomas of Gresford. I cannot think of anything he said that is not right on this. It seems an open-and-shut case—as it did in Committee, I have to say, when the noble and learned Lord, Lord Mackay of Clashfern, made the first speech in the debate on this subject. I have nothing to add to what the noble Lord, Lord Thomas of Gresford, said: he made the case. If the Government are to reject this, I very much hope that it will come back for final decision at Third Reading.

[Lord McNally]

My Lords, the Government accept that insolvency proceedings are untypical of our reforms to CFAs in an important respect. Across many areas of law—for example, in clinical negligence cases against the NHS—the Government are on the sharp end of our dysfunctional CFA regime as it is the defendants bringing cases against claimants, sometimes speculatively. However, as the noble Lord, Lord Thomas, has said, insolvency stands apart because it is one of the few areas where CFAs sometimes work to the advantage of government departments; for example where an insolvency practitioner recovers moneys for the taxpayer and other creditors. So if these amendments were to be accepted, they would effectively constitute a carve-out for the key place where CFAs can be useful to the Government—this at a time when we are asking everyone else to adjust to a new, more sensible regime.

We debated insolvency proceedings in Committee and I said then that we were considering this issue within government. I can report that we have thought about it carefully, but we do not agree that an amendment along these lines is the right way forward. I do not believe it is acceptable to say that CFA reform is good for everyone else, but is not good for the Government.

[Lord Bach]

I am sorry to interrupt, but it is not so much that this is good for the Government—it is good for the taxpayer. Surely that should be one of the main considerations. If it is good for the Government, that is fine; but if it is the taxpayer who will benefit, because creditors get their money, as it were—the HMRC gets its money by taking advantage of the amendment—I cannot see why the Government are resisting this.

[Lord McNally]

As the noble Lord will know, the interests of the taxpayer and the Government are synonymous, because one is working for the other.

[Lord Bach]

Which one is working for whom?

[Lord McNally]

It is far too late in the evening for such repartee. As I say, we have reached agreement across government, in respect of insolvency proceedings, that new ways will be implemented to deal with these cases without recoverable success fees and insurance premiums. We are working on a programme of implementation and we will set out the details in due course.

As with other areas now subject to a new CFA regime, the effect will be that claims occur at more proportionate cost, as claimants will have a stake in the legal costs being incurred on their behalf. We believe that the exemption proposed by the amendments in respect of insolvency proceedings is unnecessary and would breach the basic rationale of our reform policy. I therefore urge my noble friend to withdraw his amendment.

[Lord Thomas of Gresford]

Can my noble friend tell us when these proposals will be finalised and whether it will be during the currency of this Bill?

[Lord McNally]

I am trying to work out the vaguest reply that I can give to that. Discussions are going on and, as I said, we will make an announcement as soon as possible.

[Lord Thomas of Gresford]

I am very much enlightened by my noble friend’s formulation. The noble Lord, Lord Bach, made a very good point. It is the taxpayer’s money that we are talking about here, and not just the taxpayer but the worthy creditor, the small businessman or even the large businessman who has given credit to a firm that has gone into liquidation, sometimes through fraud and sometimes through incompetence. However, the taxpayer and the businessman are going to suffer because of this provision, unless my noble friend is saying that these proceedings are never going to be brought because there is some other way of doing it. The vagueness has left us all a little in the air. However, for the moment and subject to further discussions between now and Third Reading, I beg leave to withdraw the amendment.

Amendment 133A withdrawn.

Amendments 133B and 133C not moved.

Amendment 133CA

Moved by

[Lord Beecham]

133CA: Clause 43, page 30, line 25, after “proceedings” insert “, other than proceedings of a type listed in section 58(6A),”

[Lord Beecham]

My Lords, this amendment effectively deals with the position in which public authorities are the defendants to claims. In cases where the state is in fact the defendant—in other words, the converse of the previous situation that we discussed—the amendment would allow for success fees to be paid when a CFA is in place. To give a brief indication of the kinds of cases that might be involved, they would cover claims for assault, battery, false imprisonment, malicious prosecution, trespass to goods or land, and misfeasance in a public office, or claims in a judicial review or under the Data Protection Act and the Equality Act, negligence where there is a wider public interest in the claim being brought—a sort of localised Trafigura situation, one might imagine—or damages in respect of an act or omission by a public authority that involved a breach of convention rights.

Those are all potentially serious matters in which the state is, in one capacity or another, in the position of defendant. In those circumstances, it seems appropriate that the success fee position should not be that advocated for the rest of the legislation—although we have our differences about that too—but that the state should pay the success fee and not expect it to come out of whatever damages might be awarded to a successful complainant concerning acts that the state should never have committed. I beg to move.

[Lord McNally]

My Lords, I hope that my reply to the previous debate has shown our gritty determination to keep to the central architecture of the Bill. As I have explained, abolishing the recoverability of success fees and insurance premiums from the losing side is a key government reform which will reduce the substantial additional costs paid by defendants under the current regime. The reforms are intended to apply across all areas of civil litigation, and the Government do not believe that any exemptions are necessary, fair or desirable. If the amendments were accepted, claimants in these types of cases would have no incentive to control their lawyers’ costs. That cannot be right. Proposals to control legal costs should apply across the board. I urge the noble Lord to withdraw his amendment.

[Lord Beecham]

I decline the request to agree with the Minister. There is little incentive for the Government as a defendant to settle cases when they do not have the additional incentive of a success fee being awarded against them when they lose. However, in the circumstances I beg leave to withdraw the amendment.

Amendment 133CA withdrawn.

Amendments 133D to 135 not moved.

Amendment 135A

Moved by

[Lord McNally]

135A: Clause 43, page 30, line 30, leave out from “not” to end of line 32 and insert “prevent a costs order including provision in relation to a success fee payable by a person (“P”) under a conditional fee agreement entered into before the day on which that subsection comes into force (“the commencement day”) if—
(a) the agreement was entered into specifically for the purposes of the provision to P of advocacy or litigation services in connection with the matter that is the subject of the proceedings in which the costs order is made, or(b) advocacy or litigation services were provided to P under the agreement in connection with that matter before the commencement day.”

[Lord McNally]

My Lords, the government amendments in this group are minor and technical and will ensure that changes to the recoverability of success fees and the insurance element will apply consistently to all conditional fee agreements, including collective CFAs. I wrote to all Peers last week about the amendment. A copy of the letter was placed in the Library of the House. I beg to move.

[Lord Bach]

My Lords, I am not getting to my feet just to be difficult. When the Minister moves government amendments and describes them as technical, usually I sit absolutely still in my place. However, on this occasion I have a couple of questions. If he does not know the answers tonight, he is welcome to write to me and to other noble Lords. Will he confirm that the effect of Amendment 135A will be that a success fee as part of a CFA under which work for the claimant commenced before the Bill’s commencement day will still be recoverable from the defendant on exactly the same basis as it is now?

The second question is similar but concerns collective CFAs. Will the Minister confirm that the effect of the amendment will be that a success fee as part of a collective CFA under which work for an individual claimant commenced before the Bill’s commencement day will still be recoverable from the defendant on the same basis as it is now? I will not object to the amendment being agreed, but I would be grateful if in due course I could have answers to those questions.

[Lord McNally]

My Lords, I am sorely tempted to show that after months of total immersion in the Bill I can leap to the Dispatch Box and give the noble Lord a detailed response. However, as he knows, I did only one paper on English legal institutions in part 1 of my degree. Therefore, I will not pretend that I can give him a definitive answer. However, I firmly promise that a letter will go to him and into the Library of the House in response to those questions.

Amendment 135A agreed.

Amendment 136 not moved.

21:45

Amendment 136A

Moved by

[Lord Beecham]

136A: Clause 43, page 30, line 32, at end insert—
“( ) The amendments made by subsections (2) and (4) do not apply in relation to proceedings that include a claim for judicial review of a decision, or of a failure to decide, by a public body.”

[Lord Beecham]

My Lords, Amendment 136A is in another group of amendments that seek to modify the Government’s stance and I anticipate something short of a welcome from the Minister when he replies. Nevertheless, I want to raise these matters. The effect of Amendment 136A would be to permit the recoverability of ATE insurance in judicial review cases funded by a CFA. This is particularly relevant since at the moment there is no proposal to introduce QOCS for these cases. In addition, in any event claimants would have to fund their own disbursements via an ATE policy as well. Particularly in the absence of QOCS, recoverability remains an important issue in those cases.

Amendment 136B would effectively disapply the Bill’s provisions for breach of an employer’s duty leading to physical or psychological injuries—in effect, personal injury claims. I do not propose to repeat what was said in Committee or at Second Reading about the desirability of including personal injury cases within this proposal. The noble Lord will disagree but it strikes me as axiomatic.

Amendment 136C maintains the same approach in respect of professional negligence cases which can take a variety of forms, as we have said before, affecting members of the legal and other professions. The noble Lord will repeat the mantra that we should not be seeking to add to cases where the general principle is disapplied, but this is potentially important. In particular, the loss of money by professional negligence will be compounded by having to pay, potentially, a significant success fee out of damages, which does not seem at all reasonable.

Amendment 136D would give a complete exemption for clinical negligence cases as opposed to the partial exemption which is currently proposed. Amendment 139C would require the Lord Chancellor to make regulations to provide for cost orders to require payment where the applicant has taken out an insurance policy against the risk of liability to pay their own costs within a pre-action protocol period or 42 days in the absence of such a period. This is a potential stumbling block. In an earlier debate I referred to the potential scale of the cost of premiums to cover the cost of disbursements—leaving aside road traffic cases where it will be fairly nominal—ranging from £900 through to a very high claim of around £11,000 in respect of clinical negligence.

I am not anticipating a favourable response at this hour. It is a matter which will have be returned to if not at Third Reading then in future as we see an accumulation of cases in which claimants are put at a disadvantage or alternatively in which many people are deterred from taking proceedings in the first place by the potential cost of organising their own “after the event” insurance to cover disbursements—estimated by the Access to Justice Action Group to be something like 25 per cent of cases, following an extensive trawl through some 69,000 cases. That would represent a significant reduction in the number of claimants actually able to bring their cases before a tribunal. I beg to move.

[Lord Pannick]

My Lords, I am sure the Minister will tell us again that the general regime for success fees and “after the event” insurance must apply to all cases and one cannot have exemption for this type of case. But have the Government given any thought to whether it might be desirable to include in Part 2 a provision similar to Clause 8(2) of Part 1, giving some form of discretion to the Lord Chancellor to exclude from the scope of Part 2, in the light of experience of how Part 2 operates, any categories of case in respect of which it becomes apparent after this Bill comes into effect that the system is not working very well and is causing practical problems about access to justice? It might then be more sensible to go back, in relation to particular categories of case, to the old system under which the unsuccessful defendant would have to pay the success fee. Will the Minister give some thought to whether a general power for the Lord Chancellor to that effect might not be a good idea? Things might look rather different in a year or two from how they look now.

[Lord McNally]

My Lords, we have reached the stage of the evening when the noble Lord, Lord Pannick, not only asks the questions but gives the answers as well—cutting out the middleman, which is me.

I take note of his suggestion. As I do with all our deliberations, I will report back to the Lord Chancellor on this. I would have thought that his experience of the willingness of your Lordships to make exceptions, one after another after another, will make him think that giving such flexibility in the Bill will only encourage a constant stream of exceptions coming to his door.

We have thought very hard about this. We think that the architecture is right. We think that by going back to the system as it broadly was under the noble and learned Lord, Lord Mackay, repairs the damage that was done by the previous Administration—with the best of good will. I will report, and I will even tell the Lord Chancellor that it was an idea of the noble Lord, Lord Pannick, which I am sure will produce the appropriate response from the Lord Chancellor.

[Lord Bach]

I think we can almost see the response now.

[Lord McNally]

Amendment 139C, in the name of the noble Lord, Lord Beecham, seeks to amend Clause 45 to require the Lord Chancellor to make regulations to allow the recovery of ATE insurance premiums taken out to cover the risk of paying one’s own disbursements within the relevant pre-action protocol period. As I have already made clear, the Government’s position on ATE insurance is that it should no longer be recoverable from the losing party. Amendment 139C goes against the Government’s reform and we will strongly resist it.

In the same vein, I cannot accept Amendments 136A to 136D, which would retain recoverability of success fees for judicial review, employers’ liability claims, professional negligence and clinical negligence. I have touched on some of these issues before and I do not intend to detain noble Lords further by going into the details of each particular area or trying to assess which litigants should be classed as more deserving than others. As I have said, it would be invidious and unfair to set out exceptions for some claimants and not for others, and we do not intend to do so.

I urge the noble Lord not to press the amendments.

[Lord Beecham]

With my customary reluctance, I beg leave to withdraw the amendment.

Amendment 136A withdrawn.

Amendments 136B to 136D not moved.

Amendment 136E not moved.

Clause 45 : Recovery of insurance premiums by way of costs

Amendment 137

Moved by

[Lord Lloyd of Berwick]

137: Clause 45, page 31, line 38, leave out from “policy” to end of line 33 on page 32

[Lord Lloyd of Berwick]

My Lords, this amendment is concerned with one aspect of clinical negligence cases: the cost of expert reports. It would not have been necessary if the House had accepted my noble friend Lady Grey-Thompson’s amendment last week, but unfortunately it failed by a narrow margin.

Everybody, I think, agrees that the cost of expert reports at least should be recovered in one way or another. The trouble is that the Government set about it in the wrong way. In Committee on 16 January, I put forward some figures to show why. I did not expect that the noble and learned Lord, Lord Wallace of Tankerness, would deal with the figures there and then. However, I have to say that I did expect that I would get something rather better than what I got some weeks later, which said simply that the Government did not recognise or accept my assumptions. Nothing then happened for a further period of time, until 1 March, when the Government put forward their own alternative calculations.

On the following day, 2 March, the Government were given a detailed answer which showed that their calculations were simply wrong. On 7 March, the third day of Report stage, I again explained why, but on that occasion the noble and learned Lord, Lord Wallace of Tankerness, did not deal with the figures, any more than he had done on 16 January. Instead, he said that he would place the Government’s calculation in the Library of the House. However, he had not done so by the time I had left the House last night, nor when I arrived this morning. I did not in fact see the Government’s calculations until early this afternoon.

However, that delay, which I would humbly suggest was unforgivable, at least meant that the Government have now put forward—at my request, I may say—and placed in the Library, not only the Government’s own calculation but the response to it, which was prepared by Mr Andrew Parker, a partner in the firm of Beachcroft, to whom I am especially indebted. That response shows that by accepting this amendment the Government would make a saving to the taxpayer of something between £10 million and £19 million.

I suspect that the House will be glad to hear that I will not go into the figures again, since the Government have simply left it too late for further consideration of the figures. The House has accepted the amendment that I tabled last week, on the basis of the figures which I then put forward, there having been no other figures with which to compare them. However, that is not an end of the matter, because the savings that I have indicated will depend on the Government accepting this amendment, the second part of the coupled amendments now before the House, as well as the one that they accepted last week. If the Government are serious about saving money, as they have said so often in Committee and so far on Report, then that is what they ought to do.

The repeal of Section 29 of the Access to Justice Act, which would get rid of recoverable insurance premiums, is one of the two or three main planks on which Part 2 of the Bill rests. What, therefore, is the point of repealing Section 29 and then, in the same breath, making an exception in the case of expert reports, when expert reports are now covered by legal aid as a result of last week’s amendment? It simply does not make sense. The only explanation given so far is that the Government want to help those who are above the legal aid limit. But how does that square with the Government’s attitude to those many deserving cases, of which we have heard from all sides, who are being denied legal aid even though they are within the legal aid limit? It is in the highest degree ironic that one of the grounds given by the Government for spending the extra £10 million is the need to secure access to justice for those who are above the limit. How much better that money would have been spent elsewhere in the course of this Bill.

The truth is that the Government simply made the wrong decision. They listened to representations, as a result of which they decided to fund expert reports by way of ATE insurance rather than by way of legal aid. They chose the most expensive course but they now have the chance to mend their ways. It is not too late for them to put the matter right by accepting this amendment. I beg to move.

22:00

[Lord Beecham]

My Lords, I strongly support the noble and learned Lord’s amendment, which makes every conceivable sense from the financial to the legal and logical. I have to say that I do not at all blame the noble Lord, Lord McNally, or the noble and learned Lord, Lord Wallace, but it is a matter of some concern that those responsible were not courteous enough to ensure that the noble and learned Lord, Lord Lloyd, who, after all, is one of the most distinguished Members of your Lordships’ House, should have been supplied with a copy of the document lodged in the Library. Indeed, had I not chanced across it myself today and given him a copy, he might not even at this stage have known of its existence. That is not good enough and I hope that Ministers will have a word with the appropriate members of their staff.

More significantly, the noble and learned Lord makes an unanswerable case for this amendment and I hope that the Minister will be able to say that the Government will respond sensibly. It would assist justice and assist the finances. It seems to me that it would be absurd for the Minister not to accept this amendment.

[Lord McNally]

My Lords, if there has been any discourtesy to the noble and learned Lord, Lord Lloyd, I absolutely apologise and take responsibility for it. I should like to put that on the record. The noble and learned Lord has described our proposal in the past as expensive and inefficient, and has made much of the difference between his and the Government’s figures. As he knows, we have now put our calculations in the Library of the House and I can assure your Lordships that we have given careful consideration to the calculations that the noble and learned Lord has provided. In addition, I have met with the noble and learned Lord, as have my officials, and we have swapped calculations. We have explained that we believe that he is omitting some vital costs from his calculations.

The method we have used is open and transparent. Taking costs to legal aid and to public sector defendants, we believe that the costs to the public purse of the proposals from the noble and learned Lord, Lord Lloyd, to fund expert reports by legal aid is about £17.5 million a year, whereas the cost to the public purse of our proposal for recoverable insurance premiums is between £18.5 million and £19.5 million. The result is likely to be an additional cost of about £1 million to £2 million.

I understand that the noble and learned Lord does not accept our calculations, but we do not accept his. This is a matter on which we have to take a judgment. These additional costs, as he has said, will enable more people to gain access to justice than under his proposals, which are limited to those who are financially eligible for legal aid. For this reason, and for reasons that are set out in more detail in the paper in the Library, we believe that the powers in Clause 45 are the best way to support victims of clinical negligence in a relatively inexpensive and fair way. I realise that this is a clash of figures and a clash of judgments, but I am making my judgment and we are willing to defend it in this House. At this hour, I would urge the noble and learned Lord to withdraw his amendment.

[Lord Lloyd of Berwick]

My Lords, I am afraid that I do not find the answer satisfactory. I will withdraw the amendment, of course, but in the hope that the Government will think again and perhaps, between now and Third Reading, take further and better advice. On that basis, I beg leave to withdraw the amendment.

Amendment 137 withdrawn.

Amendment 138 not moved.

Amendment 139

Moved by

[Lord Beecham]

139: Clause 45, page 31, line 39, at end insert “, (2A) or (2B)”

[Lord Beecham]

My Lords, we return briefly to the question of environmental cases which we also discussed under the amendments tabled by the noble Lord, Lord Thomas. The distinction between these amendments and the previous amendments are that, in this case, the amendments provide the Lord Chancellor with the opportunity to provide by regulation for the changes that are sought; namely, that in respect of Amendments 139 and 140, disbursements related to ATE insurance would be recoverable and, under Amendment 142BC, that qualified one-way costs-shifting would apply, as it should, to these cases. That was recommended by Lord Justice Jackson and I cannot see why the Government would differ from his view. Therefore, for environmental claims and judicial reviews connected with them, QOCS would apply, as indeed they should. This is an important area of policy and potential litigation. As the noble Lord, Lord Thomas, pointed out fully, it needs to be addressed. As I have said, we prefer this iteration of the remedy, but in one way or another the Government should be seen to move in the direction of facilitating these claims under the conditional fee arrangement scheme. I beg to move.

[Lord McNally]

My Lords, Amendments 139 and 140 seek to allow the continued recoverability of ATE insurance premiums in environmental claims to cover the costs of expert reports. Environmental claims will generally involve a number of claimants who could contribute towards the costs of any reports. Alternatively, the reports could be funded under a “before the event” insurance policy should claimants have one, or under an “after the event” insurance policy should claimants wish to purchase one. Further, the claimant’s solicitors might agree to fund disbursements in exchange, perhaps, for an increased success fee. A variety of means of funding disbursements are available in environmental cases without the need for an exception for recoverable insurance premiums.

So far as the other side’s costs are concerned, the Government’s view, as I explained in Committee, is that a protective costs order ought to provide sufficient costs protection in respect of the other side’s costs in environmental judicial review cases, as we set out in our recent consultation. Under a PCO, it will be clear from the outset what costs the claimant will have to pay if the claim is unsuccessful. The order will also ensure that some contribution is made towards the costs of public bodies that have successfully defended the claim. As I said earlier, environmental claims will generally involve a number of claimants and it is right that they should contribute together to costs, at least to some extent. The Government remain convinced that this is the right approach in these cases. We will shortly set out the details of the way forward in the light of our consultation. I hope, therefore, that the noble Lord will withdraw his amendment.

[Lord Beecham]

I beg leave to withdraw the amendment.

Amendment 139 withdrawn.

Amendments 139A to 141ZC not moved.

Clause 46 : Recovery where body undertakes to meet costs liabilities

Amendment 141A

Moved by

[Lord McNally]

141A: Clause 46, page 32, line 44, leave out “party to proceedings” and insert “person”

[Lord McNally]

Amendments 141A to 141C relate to the self-insurance element where a body undertakes to meet a member’s cost liabilities. They are intended to have a similar effect to government Amendment 135A. I beg to move.

Amendment 141A agreed.

Amendment 141AA not moved.

Amendments 141B and 141C

Moved by

[Lord McNally]

141B: Clause 46, page 32, line 45, leave out from beginning to “before”

141C: Clause 46, page 32, line 46, at end insert “if the undertaking was given specifically in respect of the costs of other parties to proceedings relating to the matter which is the subject of the proceedings in which the costs order is made”

Amendments 141B and 141C agreed.

Amendments 142 and 142A not moved.

Amendments 142B to 142BC not moved.

Amendment 142C

Moved by

[Lord Thomas of Gresford]

142C: After Clause 53, insert the following new Clause—
“Third party litigation funding
(1) A third party litigation funding agreement which satisfies all of the conditions applicable to it by virtue of this section shall not be unenforceable by reason only of it being a third party litigation funding agreement; but any other third party litigation funding agreement shall be unenforceable.
(2) A third party litigation funding agreement is an agreement under which a third party (“the funder”) agrees to fund (in whole or in part) the provision of advocacy or litigation services to another person (“the litigant”) by a person other than the funder in exchange for remuneration.
(3) For the purposes of subsection (2), “remuneration” includes—
(a) a payment or any other transfer of value representing or calculated by reference to the value of a judgment or settlement; and(b) an assignment of the proceeds (in whole or in part) of any judgment or settlement.(4) The following conditions are applicable to a third party litigation funding agreement—
(a) it must be in writing;(b) it must not relate to—(i) proceedings which by virtue of section 58A(1) and (2) of the Courts and Legal Services Act 1990 cannot be the subject of an enforceable conditional fee agreement;(ii) a multi-party action, representative action or any proceedings which are the subject of a group litigation order; or(iii) any other proceedings of a description prescribed by the Lord Chancellor;(c) it must comply with such requirements as shall be prescribed by the Lord Chancellor.(5) Regulations under subsection (4)(c) may—
(a) require any person which enters into a third party funding agreement with a litigant to first obtain a license from a licensing body to be designated by the Lord Chancellor; and(b) set out conditions to be satisfied in order to obtain such a license.(6) In this section “advocacy services” and “litigation services” are as defined in section 119 of the Courts and Legal Services Act 1990.”

[Lord Thomas of Gresford]

My Lords, the amendment raises the issue of third party litigation funding. I made a lengthy contribution in Committee which I do not propose to repeat. The basis of the amendment is to bring under government control third party litigation funding. Your Lordships may recall that a voluntary code has been entered into by those who are concerned in third party litigation funding and I suggested in Committee, and I repeat, that it is far better that the Lord Chancellor should take a look at this and bring in something along the lines of what I have suggested in my amendment. I beg to move.

[Lord Bach]

We agree with the amendments in the name of the noble Lord, Lord Thomas of Gresford.

[Lord McNally]

My Lords, I have said before that we are grateful to my noble friend for raising this issue. It is a possible problem and a number of noble and learned Lords and lawyers outside have given warning signals. At the moment we are looking at how voluntary regulation is working in the area. However, my right honourable friend the Lord Chancellor is very aware of the situation and is keeping it under review. We do not think that statutory regulation through this Bill is either the right place or the right time but we welcome the fact that my noble friend has put this issue on the political radar. Both lawyers and legislators will have to follow the matter closely to see whether we will need to return to it at some future date. In the mean time, I ask my noble friend to withdraw the amendment.

[Lord Thomas of Gresford]

On this occasion I am grateful to my noble friend for his reply. My purpose was to highlight the insidious advance of third party litigation funding. It is essentially an American concept that has advanced into this country. So far it has reached commercial litigation, with which I have no quarrel. It has also got into family law and I shall be extremely concerned if it were to get into personal injury cases. The fact that the Lord Chancellor now has it on his agenda and will monitor the way in which the voluntary code operates is of great comfort to me and it is on that basis that I beg leave to withdraw the amendment.

Amendment 142C withdrawn.

Amendment 142D

Moved by

[Lord Thomas of Gresford]

142D: After Clause 53, insert the following new Clause—
“Third party offers to settle
It shall be an offence for a third party insurance company to solicit a claimant who has a cause of action for personal injuries against its policy holder, to make an offer to settle that cause of action unless—(a) it has obtained adequate medical evidence of the personal injury and has disclosed it to the claimant; and(b) the claimant is advised when the offer is made of his right to obtain legal advice; and(c) the offer is in full and final settlement of the cause of action.”

[Lord Thomas of Gresford]

This amendment concerns the third party insurance company, which approaches a prospective claimant and offers to settle without there being adequate medical evidence, without the claimant being informed that he has a right to legal advice and without the offer being in full and final settlement of the cause of action. In Committee, I hesitated to suggest that it should be a criminal offence, and suggested that the best way of dealing with the matter should be that such settlements would be void, which would enable a claimant who subsequently discovered that he was in a far worse condition than he had thought to reopen the matter and to claim damages for the injuries that he received. That is a practice that has crept in. It means that people accept settlements without proper advice or evidence of what is wrong with them and without a proper calculation of their losses. It seems to me that a lot of people are vulnerable to that type of approach. That is one side of the problem. The other side is that it encourages people with no basis for a claim at all to make one and accept a sum of money that means that, over a large range of cases, the insurance company benefits. That is just as bad as that people should be incited to put forward fraudulent claims.

My noble friend’s answer in Committee was that the FSA rules are sufficient to cover the matters of which I complain. That immediately makes me ask who enforces the FSA rules. What control is there over the employee of a third-party insurance company who, quite clandestinely, makes offers of this sort to settle cases that are perfectly valid and which he knows to be valid? So at this stage I put forward the suggestion that it should be a criminal offence for people to engage in this type of behaviour. That may be going a step further. Perhaps my original concept that the alleged settlement obtained should be void was the right way to go. But certainly there is an abuse going on and I expect the Government to do more than to refer to FSA rules when there is no one to enforce them. I beg to move.

[Lord Bach]

The Minister would be well advised to give serious consideration to the amendment proposed by the noble Lord, Lord Thomas of Gresford. This is not one that he moved in Committee—he has moved it for the first time today. The House knows that he has become an expert in this field of litigation over the months that he has spoken to me about it. He may well be right that it is no good the Government taking a position that looks like it may take some time to develop. It is something that needs to be done and thought about pretty promptly. Therefore, as far as we can, we support the amendment.

[Lord McNally]

My Lords, I think it was the noble Lord, Lord Martin, who talked about the proper role of the House of Lords. Although the hour is late, my noble friend Lord Thomas has demonstrated one of the benefits of this House in bringing to the Government’s attention an area where there already is or could be a malpractice that will have to be dealt with. As he explained, this is a practice where an insurer approaches a claimant directly, usually immediately after a road traffic accident, with a view to settling the claim, where an insurer’s own policyholder is at fault in a car accident. As I understand it, claimant representatives refer to this practice as third party capture, whereas defendant representatives call it third party assistance. As I indicated in Committee, I shall continue to refer to this practice as third party contact.

Amendment 142D would make it an offence for an insurer to make such an unsolicited approach to a potential claimant in a personal injury case. The amendment also specifies those requirements which must be met before an insurer may make an offer to settle such a claim. This includes a requirement to obtain adequate medical evidence of injury and to advise the claimant of their right to obtain full legal advice before accepting the offer and making it clear to the claimant that the offer to settle is full and final.

It is unclear what my noble friend means when he says that this practice should be an offence. If he refers to this as being a criminal offence, I do not believe that a criminal sanction is appropriate or proportionate. You would have to prove beyond reasonable doubt that something amounted to an unsolicited approach. As I explained in Committee, the Financial Services Authority regulates the insurance industry and requires insurers to treat their customers fairly at all times and that this covers third party claimants.

Third-party contact does not in itself cause detriment to the consumer and may be to their advantage, as a claim can often be resolved quickly. In addition, this practice can allow insurers to reduce the legal costs associated with handling a claim and this in turn reduces costs for all policyholders. However, I am aware of the concerns around the potential risk of conflict of interest and the need for the claimant to have independent legal advice before any settlement is agreed. This matter was looked at by the FSA in its review of third-party contact during 2009-10 and it did not find conclusive evidence that unrepresented third parties could have achieved higher compensation had they obtained independent legal representation.

Following the FSA’s review, the Association of British Insurers published a code of practice in June 2010. The code contains specific guidance for insurers on contacting claimants. This limits unsolicited contact. For example, and I quote:

“Insurers will not make unsolicited visits to an unrepresented claimant at their current address, including hospitals”.

The code also requires that claimants are informed of their right to seek independent legal advice and other options available for them to resolve their claim.

Most of the issues which this amendment seeks to address in respect of the handling of third-party contact claims are already covered by existing regulation. The FSA rules require that insurers fully inform third party claimants of their legal rights, including to independent legal advice and alternatives to settling directly with the insurer. The Government do not believe it is right or appropriate to introduce further sanctions or regulation in this area, especially when a scheme already exists to monitor insurers’ activities. That said, I can reassure my noble friend that if a serious concern arises in the future in this area—and we will keep it under review—we will not hesitate to take this up with the Treasury and with the FSA.

I am therefore grateful to my noble friend for raising this issue with us, but for the reasons that I have mentioned I hope that he will agree to withdraw the amendment.

[Lord Thomas of Gresford]

My Lords, I am grateful to my noble friend. I am glad that some publicity has been give to this practice which I believe to be fairly widespread and causing a great deal of concern. As long as the Government keep their eye on this area, I shall be satisfied. I beg leave to withdraw the amendment.

Amendment 142D withdrawn.

22:30

Clause 54 : Rules against referral fees

Amendment 142E

Moved by

[Lord Beecham]

142E: Clause 54, page 39, line 24, at end insert—
“( ) A regulated person is not in breach of this section if the body to which the payment is made for the prescribed legal business is a not-for-profit organisation and the payment is in the nature of a service that was provided before 27 July 1999.”

[Lord Beecham]

My Lords, this amendment deals with referral fees. The Bill provides rules against referral fees and defines the nature of regulated persons, who are effectively prohibited from receiving a payment for referring prescribed legal business to another person. Under Clause 54(4), the legal services in question relate to,

“a claim or potential claim for damages for personal injury or death”,

or where,

“the business is of a description specified in regulations made by the Lord Chancellor”.

I do not know quite what is envisaged by the latter provision, but it is clear that the aim is to inhibit the referral of personal injury claims in return for payment. The regulated person, who for these purposes would presumably be acting on behalf of an injured person, would also be in breach of the subsection if he arranged for another person to provide services to the injured party and was paid or had been paid for making the arrangement.

A number of issues arise from this. The first is that the payment need not necessarily be financial; it could also involve, for example, the provision of another service. It might fall within the scope of the clause—I am not sure whether this was intended—if an organisation referred a client to a solicitor and, as part of their service, the solicitor prepared a will for that client or gave legal advice on another matter that was not related to the personal injury or other category that the Lord Chancellor might specify.

The purpose of Amendment 142E is to make it clear that a person would not be in breach of this subsection if the body to which the payment is made—that is, the person referring the client—is a not-for-profit organisation. There are of course organisations, such as charities and the like, which refer their members or others to solicitors and perhaps other professionals, and receive payment in return. In particular, I understand that a number of medical charities do this. I suppose that at one time organisations such as the Automobile Association, or other motoring organisations that are no longer membership organisations in the traditional sense, might have done likewise. Since they are not-for-profit organisations, it does not seem appropriate that this bar should be in place.

The situation is not analogous to that which the noble Lord, Lord Thomas, dealt with in terms of third-party funding, about which he is absolutely right to be exercised. Therefore, it should not be caught within the prohibition that is envisaged here. It could certainly do considerable harm to organisations and, for that matter, limit the benefit to clients of being referred. As I said, they might be referred on the basis of free advice or advice at a reduced cost, which would presumably appeal to the Government—quite rightly since they are talking about reductions in cost.

Therefore, I hope that the noble Lord will look again at this situation, perhaps with a view to coming back to it at Third Reading if he cannot accede to this measure tonight. There are other amendments before us in this group and there is to be a further amendment which will be taken next Tuesday, so we are not quite in the position of closing the door yet—not before Third Reading in any event. In these circumstances, I beg to move Amendment 142E.

[Lord Hunt of Wirral]

My Lords, in speaking to Amendments 146A and 148A, I wish to say how strongly I support in principle the Government’s proposal to ban referral fees. I declare my interest as a partner in DAC Beachcroft, the international commercial law firm. My amendments are intended simply to clear up some possible loopholes. Having just heard the comments of the noble Lord, Lord Beecham, I caution how important it is to have a blanket ban because any ban that is implemented has to work. However watertight the ban is—my amendments are intended to help the Government achieve that objective—it is critical that we also remove the incentive for referral and profit share by removing the excessive legal costs from the system. There are many vested interests here and a lot of money is at stake—too much money in my view.

At present, solicitors acting for claimants can still afford to pay out more than half of their fees to a third party whose only role is to buy and sell on the details of an injured person. That cannot be right. Amendment 146A would make a minor change to Clause 54(4) by inserting,

“which consist of or include damages”.

I raised in Committee the spectre of the current wording permitting the payment of a referral fee for some non-injury element of an injury claim, completely bypassing the Government’s intentions. I look forward to hearing my noble friend the Minister’s comments on that.

Amendment 148A would insert,

“whether received by the person referring prescribed legal business or not”,

into Clause 54(8). I highlighted in Committee this gap in the drafting which could be exploited simply by the way in which payment is routed. Again, I await my noble friend the Minister’s answer.

Finally, I would also be very interested to hear whether my noble friend can give this House a commitment about just how much of the excess cost can now be taken out of the system altogether, which is, frankly, a more effective remedy than tightening up the drafting.

[Lord Martin of Springburn]

My Lords, I wish to speak to Amendment 146 in my name. In doing so, I declare an interest as I have been a member of the Unite union for a long time. I am not having a go at the media on this matter but, often when trade unions are mentioned in the media, reference is made to trade union leaders. Not much is known about the activities of the lay officials and junior officers of a trade union. Tonight we have spoken about asbestos victims. A trade union would probably be the first port of call for a person who felt that they were suffering from the effects of asbestos inhalation. Apart from the serious matter of asbestos inhalation, your Lordships may be aware that even a National Health Service kitchen can be a very dangerous place for workers. They can fall, be scalded or be cut by the knives that they are using. After any injury such as that or any other injury relating to a person’s work, the first port of call is to the local trade union office, and an investigation is made before the matter is referred to a lawyer. Any of us who has run an office knows that photocopiers, heating, lighting and cleaning all cost money. It means that there should at least be some compensation for the trade union that is prepared to try to help that member before the member goes to a solicitor.

[Baroness Deech]

My Lords, I declare an interest as chair of the Bar Standards Board, which regulates barristers and prohibits the payment of referral fees, which we regard as immoral—I think that I am not putting it too strongly—and which we disapprove of because they are anti-competitive.

While I have every respect for my noble friend Lord Martin and for the work that the unions do to help their members, the amendment has brought to mind one of the most reprehensible incidents of modern times relating to lawyers and referral fees. I will not give the House too much detail because it is late at night, and the story is probably well known to noble Lords here, especially noble and learned Lords. When very many miners were sick and 23,000 cases were referred on by the union to a solicitors’ firm, it ended up with reprimand and with the law firm taking far more money than did the sick miners. The solicitors were paying the union, and in the case that I am thinking of the amount came to about £10 million, because 23,500 cases were referred to one firm.

If a firm of lawyers knows that a number of cases of that order are to be referred to them without the firm making any effort, without it going out into the market and proving how good it is, it is not surprising that things went wrong.

[Lord Martin of Springburn]

I know it is late in the evening and I thank the noble Baroness, but I am sure she would agree that not every union or every solicitor would conduct their affairs like that. Tomorrow, there will be unions that refer their members to a solicitor, and they will do so in good faith and in the best interests of their members.

[Baroness Deech]

I am sure that the noble Lord is right, but what I am objecting to is the exchange of money. If you go to the website of the union, you may click through to the page where legal services are offered, click where the page directs you to a law firm, the law firm is named, and then you can continue to click until it says, “For every case referred to this firm, the firm will pay the union a sum of several hundred pounds”. If the unions wish to help their members, it would be very easy simply to refer them to a whole number of local firms without money changing hands. There is nothing to stop the good work done by the unions, which I praise. It is the exchange of money that I object to. In the case that I am thinking of, it was actually public funds that went to the solicitors’ firm. It illustrates what is wrong with referral fees: the issue is treated as commercial and the law firm can sit back, knowing that cases will flood its way, whether it deserves them or not.

There have been other reprehensible incidents such as this, with which I will not delay noble Lords, save to mention one other effect. Given that very large sums of money are paid to the union, whichever union it is, by the law firm, and we know that many unions are inclined to support one political party, we end up with money being paid—very indirectly, I grant you—to the political party because the money is coming from the funds that the union has accumulated, and part of those funds come from referral fees.

If the solicitors can afford to pay £200 a time, or whatever it may be, to the union in return for every case, that must logically indicate that the case could have been handled for less money than was charged. I am by no means saying that that is always bad, but there is definitely a risk in referral fees. In particular, there is a severe risk to the interests of justice where a firm knows that thousands of cases can come its way without it making the effort in the market to get them and handle them well. Therefore, with all due respect, I hope that the amendment will not be pursued, as I do not think that it helps the Bill.

22:45

[Lord McNally]

My Lords, I think that there is broad agreement across the House about the need to ban referral fees in personal injury cases, as we propose in Clauses 54 to 58. However, there is some disagreement about how it should be done, as this debate has shown.

It may be helpful if, in reply, I deal separately with those amendments with which we have some sympathy and those with which we do not. The Government agree with the intention behind Amendments 146A and 148A in the name of my noble friend Lord Hunt of Wirral. I give the House a commitment that we will bring back amendments at Third Reading to address the issues raised by those amendments. However, the Government cannot agree with Amendments 142E and 146. We believe that it is not in the public interest for payments in receipt of referral fees to be allowed in any personal injury cases, regardless of whether the recipient is a solicitor, a charity, a trade union or some other party. If the provision applies to solicitors who pay referral fees, it must also apply to the not-for-profit organisations which deal with them.

The Government intend to ban the payment and receipt of referral fees in all personal injury cases, and we are not persuaded that there should be special treatment for not-for-profit organisations, or for solicitors dealing with trade unions, to exempt them from the ban. However, trade unions will of course still be able to refer cases, without payment, to those best able to pursue them. Nothing in the clauses prevents lawyers providing services free of charge to registered charities.

A number of points were made in the debate. The noble Baroness, Lady Deech, made a powerful case in favour of what we are trying to do on referral fees. She referred to a case, which we all remember, which shows how the best of intentions can be misused when trying to deal with a problem. I say to the noble Lord, Lord Martin, that I certainly advocate the value of trade union membership, but that there is a danger of trade unions, charities and others having a sweetheart relationship with a firm of solicitors based on referral fees.

My noble friend Lord Hunt of Wirral asked me how much of the excess litigation costs can be taken out of the system. My right honourable friend the Prime Minister has announced that we will be extending the road traffic accident scheme to cover claims up to £25,000, and to cover employer and public liability cases. As part of that process, the Government intend to make an objective assessment of the existing costs involved in RTA schemes, and we expect fixed recoverable costs of £1,200 to be reduced significantly as a result. The new fees will come in when the Jackson reforms in Part 2 of the Bill and the ban on referral fees are implemented in April 2013. Although I cannot give a precise figure, the aim, as in other parts of the Bill, is to squeeze out of the system excessive costs, which are undoubtedly there.

I hope that, in the light of those responses, the noble Lord will withdraw the amendment.

[Lord Beecham]

My Lords, I will be withdrawing my amendment. I must disabuse the noble Baroness, Lady Deech, with whom I shared a law course at Oxford, on the question of the political aspect of union funding. Union funds for political purposes, of course, derive from their political funds and not from general income. The noble Lord, who has a long memory of these things, is acknowledging that, for which I am grateful. It is not just a question, however, of fees, as I have indicated. Other services offered to members, whether they be of trade unions or other organisations, would be caught, apparently, by the Bill as it currently stands. I cannot believe that that is really part of the Government’s intention. Not all unions have an arrangement of this kind, where a referral fee is paid, but unions do have extensive and expensive legal departments which have to be supported. It does not seem unreasonable that those organisations—and, indeed, other organisations; charitable organisations—should have a scheme. I agree that the noble Baroness has identified a particularly abusive situation which, of course, has been rightly dealt with, but that is very much the exception. Having said that, we will, up to a point, be returning to this matter on the next day of Report in a slightly different context. I beg leave, therefore, to withdraw the amendment.

Amendment 142E withdrawn.

Amendments 143 and 144 not moved.

Consideration on Report adjourned.

London Local Authorities Bill [HL]

Wednesday 14th March 2012 Lords Chamber

Returned from the Commons

The Bill was returned from the Commons agreed to with amendments.

House adjourned at 10.50 pm.