House of Commons

Tuesday 27th January 2015 Commons Chamber

Tuesday 27 January 2015

The House met at half-past Eleven o’clock

Prayers

Tuesday 27th January 2015 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Tuesday 27th January 2015 Commons Chamber

The Chancellor of the Exchequer was asked—

[Katy Clark (North Ayrshire and Arran) (Lab)]

1. What recent estimate HM Revenue and Customs has made of the amount of uncollected tax in the UK.

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

Her Majesty’s Revenue and Customs published its latest tax gap estimates on 16 October 2014. In 2012-13, the tax gap was estimated at £34 billion, 6.8% of total tax due.

[Katy Clark]

The Government’s own figures suggest that the tax gap has increased by £3 billion. Independent experts say that the tax gap could be up to £120 billion. In North Ayrshire, the local tax office has been closed by this Government, and since 2010, 10,000 people in the Treasury have lost their jobs, despite the fact that every tax inspector brings in far more—in taxes—than they cost. Do the Government believe that they should rethink their strategy?

[Mr Gauke]

The reality is that the tax gap for 2012-13 was lower than in any year under the previous Labour Government. As for the yield—the money that is brought in by HMRC as a consequence of its activity—that has gone up by £9 billion since 2010-11, and is forecast to be £26 billion this year. That is a very good record.

[Andrew Jones (Harrogate and Knaresborough) (Con)]

Will the Minister confirm that the compliance tax yield for this year has been revised up to £26 billion, which is an increase of £9 billion since this Government came to office?

[Mr Gauke]

My hon. Friend is absolutely right to make that point, and there has been an increase—[Interruption.] It is a point that bears repeating. Members really should take in the fact that, under this Government, we have seen a significant increase in HMRC’s yield. HMRC is more effective than ever in dealing with tax evasion and tax avoidance.

[Nick Smith (Blaenau Gwent) (Lab)]

Two thirds of people getting tax credits are in work, so why does the Chancellor want to cut tax credits again? That will penalise hard-working families.

[Mr Gauke]

I suspect that, a couple of weeks ago, the hon. Gentleman walked through the Lobby in support of the charter for fiscal responsibility, which requires us to find £30 billion of savings, either in tax increases or in spending cuts. If he is not prepared to take action in that area, he has to tell his constituents where he is prepared to take action.

[Mr Philip Hollobone (Kettering) (Con)]

I congratulate Her Majesty’s Treasury on its successful efforts to reduce the tax gap. Where are the main hiding places that people are using to try to avoid tax?

[Mr Gauke]

My hon. Friend raises an important question to which I could give a lengthy reply. But what I will say is that, as a Government, we have taken action, for example, to improve the automatic exchange of information between various jurisdictions, so that there is nowhere for people to hide their money. The net is closing in on those who have evaded their taxes, and we are increasingly effective at dealing with tax avoidance as well.

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

With economic growth now showing signs of slowing and wages stagnating, is the Minister not worried that the amount of income tax and national insurance that he said he would collect is failing to live up to expectations? Will he tell the House by how many billions of pounds income tax and national insurance receipts have fallen short because of low wages, compared with the original Office for Budget Responsibility forecasts back in 2010?

[Mr Gauke]

We are aware that, since 2010, the economy has had to face challenges, which in 2010 were not anticipated by the OBR to occur in the way that they did. We have had to deal with the eurozone crisis, the high commodity prices at the time and the aftershocks of the financial crisis. The consequences have been significant, but if we want wages to rise we need to improve productivity. That is about improving our education system, and having more apprentices and a competitive tax system, and that is what this Government are delivering.

[Chris Leslie]

The answer is that income tax and national insurance receipts are down by a staggering £95 billion over this Parliament. Is it any wonder that the Minister and the Chancellor have failed so woefully to eradicate the deficit, and when will he realise that it is the low-wage economy that is the recipe for more borrowing, more welfare spending and more debt?

[Mr Gauke]

We discovered this morning that in 2014 the UK was the fastest growing major western economy. Employment is at a record level and unemployment has fallen dramatically, contrary to the Opposition’s predictions—but, yes, we have got further to go to reduce the deficit, which is why we need a Government who are prepared to make difficult decisions. All that we have heard from the hon. Gentleman is that he is going to put up fees on gun licences, which is not going to solve the deficit.

[Sir Tony Baldry (Banbury) (Con)]

Am I right in thinking that under the charter for fiscal responsibility, to which everyone recently signed up, we have made it clear that part of the savings that we are going to make involves bearing down on tax avoidance? Indeed, we have set out clearly exactly where we are going to save every penny of the £30 billion that needs to be saved. How is it possible for anyone to sign up to a charter for fiscal responsibility without making it clear where they are going to make those savings?

[Mr Gauke]

My right hon. Friend is absolutely right; the Opposition have given no indication of the balance between tax and spending and how they are going to find that £30 billion. At a time when Labour Back Benchers are saying that Syriza shows the way while those on the Labour Front Bench apparently support a £30 billion fiscal tightening, all we get from the Opposition is chaos.

[Kerry McCarthy (Bristol East) (Lab)]

2. What recent representations he has made to the EU on the cap on bank bonuses.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

The Government keep their opposition to the EU-wide cap on bonuses, but we withdrew our legal challenge in November 2014 after it became clear that it was not likely to succeed. We believe that the cap is flawed, and will just serve to put up fixed salaries, but instead of pursuing the legal challenge we are looking at other ways of building a system of pay in the banking system that only rewards excellence and clearly promotes responsibility.

[Kerry McCarthy]

Can the Minister tell the House how much the Chancellor spent on legal fees alone in that failed legal challenge? Was that not a huge waste of money when the priority should have been to help those people most in need?

[Andrea Leadsom]

No. The amount spent was £43,000. The Government believe fundamentally that we need to have the toughest regime in the world of any global financial centre on pay, and that is what we have. We have ensured that bankers will be remunerated in future on performance and that pay can be clawed back. We have put in place a system that is far better and far more accountable than anything that the previous Government attempted.

[Mark Garnier (Wyre Forest) (Con)]

In the light of all the hard work by the Government to ensure that bonuses are held back by banks to secure better behaviour by staff and greater stability for banks, is not the bonus cap a crude measure that will increase bank instability and bad behaviour by bankers?

[Andrea Leadsom]

My hon. Friend is exactly right. The Government wanted to challenge that cap because it would push up fixed pay, which means bankers being paid not for performing but for simply turning up and raises prudential risks associated with higher fixed costs. It was vital to the interests of this important sector to the UK that we introduced a better regime, and I am delighted that the Chancellor has written to the Governor of the Bank of England in his role on the Financial Stability Board to ask him to look at other ways of ensuring accountability.

[Michael Fabricant (Lichfield) (Con)]

3. What assessment he has made of the effects of recent trends in the price of oil on the economy; and if he will make a statement.

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

5. What assessment he has made of the effect of falling oil prices on households.

[The Chancellor of the Exchequer (Mr George Osborne)]

The fall in the oil price clearly means that certain sectors such as the North sea face real pressure, which the Chief Secretary and I are determined to help them with, but overall this is a good thing for the United Kingdom and for British families. Today’s GDP figures confirm that the recovery is on track, and our plan is protecting Britain from the economic storm with the fastest growth of any major economy in 2014. However, the international climate is getting worse, and with 100 days to go to the election, now is not the time to abandon the plan and return Britain to economic chaos.

[Michael Fabricant]

We have all noticed that we no longer hear about the cost of living crisis. Could my right hon. Friend tell me precisely how the change in oil prices has affected the retail prices index and how that compares with wage inflation?

[Mr Osborne]

Inflation is at 0.5% and wages are growing at three times that rate. If the oil price is fully passed on—and we have put pressure on the petrol and utility companies to do so—British families will on average be £750 better off. If we had accepted the ludicrous price freeze proposed by the Opposition we would have locked in those high oil prices and people would not see the benefit in their utility bills.

[Andrew Percy]

The good folk of Brigg and Goole have noticed that the price of a gallon of petrol has fallen significantly and they welcome that. Many of my residents, however, are off the grid and their heating oil bills have not necessarily fallen as they should have. What steps can the Chancellor take to put pressure on heating oil companies to make sure that the cost of heating also falls for those residents off the grid, in line with oil prices?

[Mr Osborne]

My hon. Friend has been a champion for his constituents and for all the 1.5 million people who are off the grid and rely on heating oil to warm their homes. That price has fallen by 20%, so people are seeing the benefit of the falling oil price, but we continue to put pressure on the heating oil companies, and we have met them in the Treasury to continue to reinforce the argument that those prices must be passed on and must continue to be passed on.

[Stewart Hosie (Dundee East) (SNP)]

The oil industry has told us that the softening in the oil price has highlighted the underlying problem in the North sea, which is the high cost of doing business there, driven by an up to 81% tax on production. Instead of waiting till the Budget, will the Chancellor take urgent action on investment allowances and on a cut to the supplementary charge?

[Mr Osborne]

The Chief Secretary and I certainly recognise the pressure on the North sea producers. We want to make sure that we continue to extract the maximum amount of oil from the North sea basin. That is why we cut oil taxes at the autumn statement, published a consultation on the investment allowance and made it clear that further action may be required at the Budget.

May I draw it to the House’s attention that what the hon. Gentleman calls the softening of the oil price would have done disastrous damage to the finances of an independent Scotland? The Scottish National party’s projections for its oil revenue were out by almost threefold. It is a reminder of the strengths of the United Kingdom that we can bear pressures such as a falling—or, indeed, a rising—oil price across the entire UK.

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

Industry and economic experts say that thousands of jobs in the North sea oil sector are at risk, yet both the UK and the Scottish Governments seem to be passing the buck, rather than taking the urgent action that is needed. Will the Chancellor give a commitment to bring forward tax measures immediately to support the industry, as we have called for, rather than delaying for another seven weeks until the Budget?

[Mr Osborne]

As I said, we have already cut the supplementary charge. I announced that in the autumn statement and it came into effect at the beginning of this year. We have launched a consultation on an investment allowance. We regularly meet the industry; we met industry representatives last week. They think the Budget is the appropriate time to make further announcements, if there are further announcements, on the North sea oil and gas tax regime, but the hon. Lady and the industry have my assurance that we will do everything we can to support the North sea oil and gas industry during this difficult time. Of course it is impacted by the fall in the oil price. We want to make sure that we get the maximum amount of oil out of the North sea and that the record investment that we have seen over the past year is sustained.

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

Given the financial short-termism of the previous Government, I welcome the Chancellor’s comments about a shale gas fund. When he is Chancellor after the next general election, will he consider expanding the concept to create a North sea sovereign wealth fund for the benefit of the country as a whole?

[Mr Osborne]

Of course, our challenge is to eliminate the deficit and to get our debt falling. Sovereign wealth funds are built up by countries that run consistent budget surpluses, which is exactly what we need to do in the United Kingdom. In particular, I would like to see some of the revenues from the shale gas industry used to support local communities. That would be a boost to communities across the country, especially in the north of England.

[Dame Anne Begg (Aberdeen South) (Lab)]

Although the Government cannot control the world oil price, they can do things such as drive down the costs in the industry. If the oil price remains low and perhaps drops further to the level where it costs more to take the oil out of the North sea, that is bad not just for the economy of Aberdeen and north-east Scotland, but for the economy of the UK.

[Mr Osborne]

I agree with the hon. Lady and I know that she is deeply involved in these issues as the Member of Parliament for Aberdeen South and chairs the all-party committee on these issues. We have to work out how we protect the industry as best we can from a rapid fall in the world oil price, and we must make sure that the brilliant skills, jobs and investment in north-east Scotland continue. That is why we anticipated the challenge by launching the consultation in the autumn statement and making immediate cuts to the tax regime. We have to take further steps over the coming year because we are determined that this brilliant industry will have a brilliant future.

[Mr Andrew Tyrie (Chichester) (Con)]

Will the Chancellor confirm that when the oil price halves, as we have just seen, that is likely to be extremely good news for the British economy? Will he also confirm that this fall in the oil price is particularly good news for the 70% of car owners who need cars to get to work? The House will realise that no Chancellor will want to commit himself now, but will he at least agree that there is now great merit in a period of stability in fuel duty?

[Mr Osborne]

My hon. Friend is right. As I said at the beginning, the fall in the oil price, for all the challenges it poses in the North sea, is good for the British economy and good for British families. It is being felt at the pump, where petrol is now cheaper than when this Government came into office. One of the reasons why is that we abolished Labour’s fuel duty escalator. As a result, petrol is 20p per litre less than it would have been had we stuck with the shadow Chancellor’s disastrous tax plans. We have to make sure that motorists feel the full benefit of the falling oil price. As I say, it was a good move to abolish that disastrous escalator.

[Nigel Adams (Selby and Ainsty) (Con)]

4. What assessment he has made of the effect of lowering the rate of national insurance on levels of employment.

[Adam Afriyie (Windsor) (Con)]

6. What assessment he has made of the effect of reducing employers’ national insurance contributions on employment.

[The Chancellor of the Exchequer (Mr George Osborne)]

This Government inherited damaging plans from the previous Government to increase the jobs tax. We responded by reducing the burden of national insurance. Since then, we have introduced an employment allowance that cuts national insurance for almost 1 million firms, and now we are going to cut national insurance for employing under 21-year-olds and young apprentices. These measures have contributed to record falls in unemployment. A rise in the jobs tax of the kind contemplated by Labour would have the reverse effect and destroy jobs.

[Nigel Adams]

I am very grateful to the Chancellor. Will he join me in congratulating the entrepreneurs and risk takers who, across my constituency, have stepped up to the plate since 2010—so much so that we now have 60% fewer people claiming out-of-work benefits? What further measures can my right hon. Friend deliver to ensure that the economic recovery continues in my part of North Yorkshire?

[Mr Osborne]

My hon. Friend is absolutely right that unemployment in his constituency has fallen. Twelve thousand extra jobs have been created in his constituency. That is because local businesses are benefiting from the employment allowance, and there is more to come with the cuts to national insurance for employing under-21s and apprentices. One of the reasons businesses are coming to his constituency is that he is such a champion of his constituency as a place to invest and employ. He goes out of his way to bring businesses and jobs to his constituency. That is why unemployment has fallen so fast there.

[Adam Afriyie]

It seems to me that we would be wise as a nation to reduce taxation on the activities that we wish to encourage. I therefore very much welcome the reduction in employers’ national insurance, which has created jobs in my constituency, and I suspect in every constituency around the country. Does the Chancellor agree that we would do well to push on with these reductions in employers’ national insurance, which, to all intents and purposes, is a tax on jobs that discourages their creation?

[Mr Osborne]

My hon. Friend is absolutely right that national insurance is a tax on jobs—

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

He is a champion!

[Mr Osborne]

My hon. Friend is a champion of businesses in his constituency. That is one of the reasons unemployment has fallen in Windsor and 2,000 businesses in Windsor are benefiting from our employment allowance. We are going to go on reducing national insurance on employing 21-year-olds and apprentices. The alternative path—the path offered by the Labour party—is to put the jobs tax up. That would increase unemployment and return Britain to the economic mess it was in when Labour was last in charge.

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

The lower-paid, particularly those who are earning £15,000 a year or less, should benefit from the Chancellor’s decision to raise the personal income thresholds, but will he also look at raising to the same level the threshold at which national insurance contributions are made, so that the lower-paid pay neither income tax nor national insurance contributions on £300 a week?

[Mr Osborne]

We increased the employer’s threshold when we came into office to reverse the damage done by the jobs tax increase proposed by the previous Labour Government. We have used the personal income tax allowance as the best method of lifting people out of income tax. It stands at £10,600, and our long-term economic plan proposes to raise it to £12,500. I am happy to work with the hon. Gentleman on other measures we can undertake to support employment and jobs in Northern Ireland. Is it not absolutely striking that on a question about the jobs tax and a question about unemployment, not a single Labour MP gets up to speak?

[James Morris (Halesowen and Rowley Regis) (Con)]

7. What progress his Department has made on supporting businesses.

[The Exchequer Secretary to the Treasury (Priti Patel)]

This Government champion British businesses. We are delivering a significant programme of reform to enable businesses to grow, expand and, importantly, become successful. The reforms are all part of the Government’s long-term economic plan to secure business-led economic recovery.

[James Morris]

The number of new business start-ups in my constituency has increased by 100% since 2010. Does the Minister agree that creating a good business environment, with lower taxes and incentives to invest, is crucial to the future of the black country economy in the west midlands, part of which I represent?

[Priti Patel]

My hon. Friend is absolutely right. [Hon. Members: “Is he a champion?”] He is, indeed, a champion, and a strong voice for his constituency and his constituents. He is of course right in every respect. This Government are backing business every step of the way. Our long-term economic plan is making it easier to start and grow businesses, as he has seen across his constituency.

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

Figures published by the Bank of England last week show that net lending to business is still negative. After four and a half years of this Government, when can we expect the figures to go positive, and will we see out the last 100 days of this failed Government, who need a fresh Government to do the job for them?

[Priti Patel]

To put it bluntly, this Government have turned around not only the economy, but the business environment. This Government have backed British businesses and business lending every step of the way, which is in stark contrast to a Labour Government, under whom that would only go backwards.

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

Does the Minister recognise that when the consultation on tax reforms for the North sea finishes, it will be crucial to businesses in the north-east of Scotland for the Budget to set in place permanent reforms for the long term, not just for the crisis?

[Priti Patel]

My hon. Friend touches on a very significant point. The reality right now is that the reforms are all about long-term economic security. This Government have worked assiduously to ensure that every measure undertaken, whether to back businesses or to create the right tax environment for businesses—he has championed that in his constituency—is the right way forward.

[Meg Munn (Sheffield, Heeley) (Lab/Co-op)]

What discussions has the Minister had with her colleagues in the Department for Business, Innovation and Skills who, in answer to a recent question, admitted that they expect to spend less than £1 million of the employer ownership fund, which was allocated £30 million to help businesses? What will she do about this failure to help businesses?

[Priti Patel]

I emphasise again that this Government have supported businesses and lending to businesses. That is in stark contrast to the failed policies of the Opposition, and to the fact that the hon. Lady’s party would just put up business taxes and take away the support given to small businesses under this Government.

[Nigel Mills (Amber Valley) (Con)]

8. What assessment he has made of the further steps which are necessary to ensure the fair treatment of defined contribution pension customers in response to the recent market reports published by the Financial Conduct Authority; and if he will make an assessment of the potential merits of introducing a second line of defence protection for such pension schemes.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

We welcome the Financial Conduct Authority’s announcement yesterday that it will introduce new rules in April to protect consumers accessing their pension pot. The rules will introduce a second line of defence, with pension providers required to give consumers wanting to access their pension pot very clear risk warnings and to highlight the fact that guidance from Pension Wise or regulated advice can help them to avoid making a poorly informed decision.

[Nigel Mills]

I thank the Minister for that answer. I welcome the fact that the FCA, perhaps at the last minute, recognised there was an issue and took the right action yesterday. What more will she do to ensure that when people make free choices about their investments after April, they buy the right thing, not make a terrible mistake?

[Andrea Leadsom]

I congratulate my hon. Friend on expressing the importance of a second line of defence. The Government are determined to give pensioners the opportunity to make their own decisions about what to do with their pension savings. Nevertheless, it is vital to ensure that they have reasonable protections.

[Sheila Gilmore (Edinburgh East) (Lab)]

There were reports yesterday that some people who exercise these rights might face large tax bills that they did not know about. Will the Minister be absolutely clear about what measures will be put in place to ensure that people are not disadvantaged, because she knows, as I do, that people are already being approached informally to get them to exercise these rights?

[Andrea Leadsom]

I reassure the hon. Lady that we have sought to give people the opportunity to make their own decisions about what to do with their lifelong savings. That is far better than in the past, when they were effectively told, “You buy an annuity and that’s that.” We are putting in place clear protections, with a criminal measure on scamming and on pretending to be the Government’s pensions guidance service, and there will be proper guidance, with fully qualified guiders who are able to help people through the process. There is now a further line of defence, because pension providers will be required to point out to people the vital importance of taking guidance or regulated advice.

[Mark Hunter (Cheadle) (LD)]

9. What assessment he has made of the implications for his policies of recent trends in unemployment figures.

[The Chief Secretary to the Treasury (Danny Alexander)]

Since the Government came to power, employment has increased by 1.75 million and now stands at its highest level ever; unemployment has come down by almost 600,000; and the number of jobseeker’s allowance claimants has fallen by more than 40%. That is one of the many ways in which the stronger economy that we are building is leading to a fairer society in this country.

[Mark Hunter]

Does my right hon. Friend know that unemployment in my constituency is down to 1.3%, which is precisely half what it was at the last general election and one of the lowest figures in the north-west of England? Does he agree that without the Liberal Democrats and the coalition Government, we would not have had the political stability that was essential for the recovery to take hold?

[Danny Alexander]

I wholeheartedly agree with my hon. Friend. Not only has unemployment halved in his constituency, but employment has risen by 1,300 since 2010. That is testimony to the work of Liberal Democrats and the Government in creating stability and to his role of supporting and championing local businesses in the north-west of England.

[Stephen Timms (East Ham) (Lab)]

A striking feature of the recent trends in unemployment is the increase in youth unemployment, which has risen for three months in a row. In the figures that were published last week, it rose by 30,000, which is the biggest jump for almost two years. Why is it that while overall unemployment is coming down, youth unemployment is going up? Why are young people losing out?

[Danny Alexander]

I am sorry to have to correct the right hon. Gentleman, but youth unemployment has come down by 171,000 over the past year and is 175,000 lower than when the Government came to power. In his constituency, it is down 53% since 2010—a fact that I am sure he will join me in welcoming. I would agree with him that we need to continue for a number of years with the successful policies that are reducing unemployment in this country, to ensure that every young person has the opportunity to make the best of their life.

[Richard Drax (South Dorset) (Con)]

May I congratulate the Front-Bench team on their economic policy and their long-term economic plan? Unemployment in South Dorset has halved over the past five years. Does the Chief Secretary agree that to hand the country back to the Opposition in a few months’ time would be an absolute disaster for the economic future of this country?

[Danny Alexander]

I agree that the right course for the country is to continue with the balanced, sustainable, fair action that we have taken to deal in a common-sense way with the country’s financial problems. Lurches away from that path are offered by the Labour party and, I am afraid to say, the hon. Gentleman’s party. That is why it is necessary to have the Liberal Democrats to keep the country on the straight and narrow.

[Sammy Wilson (East Antrim) (DUP)]

Although unemployment in Northern Ireland is lower than would be expected at this point in the economic cycle, growth has not reached out to many of the regions of the United Kingdom, including Northern Ireland. What steps are the Government taking to address the concentration of growth in the south-east of England and the fact that it does not extend to the regions?

[Danny Alexander]

I do not accept the hon. Gentleman’s characterisation, because we see strong economic growth in London and the south-east and in Scotland, and the economy of the north-west of England has been growing well, particularly in employment. We are seeing a more balanced pattern of growth and job creation than in previous economic recoveries.

None the less, the hon. Gentleman is right to say that there are significant problems of unemployment in Northern Ireland. That is why we have put in place a range of policies to help support the Northern Ireland economy, some of which we will be debating this afternoon.

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

11. What progress he has made on his fiscal consolidation plans.

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

The Government inherited the largest deficit since the second world war. Since then, we have made substantial progress on reducing the deficit. Borrowing has already fallen by more than a third since 2009-10 and is forecast to have fallen by half this year as a share of GDP. The Government’s consolidation plans have been central to the reduction of the deficit.

[Daniel Kawczynski]

I thank my hon. Friend for that answer. Given the eye-watering amount of British taxpayers’ money that is spent on paying the interest on our national debt, I am pleased that the Government have already reduced the annual structural deficit by half. Does he agree that it is vital to continue with the policy of reducing the annual structural deficit in order to tackle our national debt?

[Mr Gauke]

I completely agree with my hon. Friend, who is right to make that point. We need to go on and run an overall surplus, to ensure that our public finances are sustainable over the longer term.

[Clive Efford (Eltham) (Lab)]

Is the Office for Budget Responsibility not right to say that stagnant wages have led to more borrowing? Is that not the key reason why the Government have missed their borrowing targets by more than £200 billion?

[Mr Gauke]

If we want wages to increase, which we do, we need to improve our education system, ensure that we have a welfare system that makes work pay, improve our infrastructure and have competitive tax systems. In brief, we need a long-term economic plan. That is what we have got with this Government, and it is not what we would have with the Labour party.

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

My hon. Friend will recognise that getting the deficit under control is vital if we want a strong economy. For all the posturing that we have seen today from the Labour party about the NHS, does he recognise that Greece, which had a smaller deficit to the one we had in this country when we came to power, had to cut spending on health services by 14%? Does he agree that only a strong economy can deliver a strong health service?

[Mr Gauke]

I completely agree with my hon. Friend, who puts it well. We want a strong NHS, but a strong NHS requires a strong economy, and that requires the Government’s policies to continue.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

In the long-term economic plan—[Hon. Members: “Hurray!”] I would wait for the second part of the question. In the long-term economic plan, is missing a target by 50% evidence of success or failure?

[Mr Gauke]

We have turned the British economy around, and we grew faster in 2014 than any major western economy. Employment is increasing and unemployment is falling, including by 40% since 2010 in the hon. Gentleman’s constituency. That is a success.

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

12. What recent representations he has received on creating a northern powerhouse.

[The Chancellor of the Exchequer (Mr George Osborne)]

We are making good progress in building a northern powerhouse. Over the past year, private sector employment in the north has increased by more than 200,000, a faster increase than the national average and faster than in the south. We want to sustain that by investing in new transport, new skills and new science, by devolving power and by bringing our northern areas closer together into that powerhouse.

[Miss McIntosh]

May I applaud the Chancellor and the Government for their work on creating a northern powerhouse? Will he ensure that rural communities participate in that wealth growth, and that rural broadband reaches farms and rural businesses that want to drive the rural economy and economic growth?

[Mr Osborne]

My hon. Friend is absolutely right that we want our rural communities in the north to be part of the powerhouse. It is not just about connecting the cities; it is about ensuring that the rural economy is a vibrant part of the northern economy. Superfast broadband is a key part of that, and, as she well knows, we have made special efforts to develop it in North Yorkshire. Rural transport is also incredibly important, as is supporting agriculture. The investment that we are making in agricultural science will benefit agriculture all over the country, including in her constituency.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

The Chancellor will have noticed that, for the first time in a recessionary period, the unemployment figures in Scotland—our northern powerhouse—are consistently better than in the rest of the UK, as the SNP Government, where possible, have followed different economic policies. Is his opposition to proper economic powers for Scotland based on a fear of being further outperformed by the Scottish Government? Is he afraid of the competition from a real northern powerhouse?

[Mr Osborne]

I am delighted for Scotland that unemployment has fallen and it is seeing growth. I remember, however, that the SNP predicted that our economic plan would cause unemployment to rise in Scotland and shrink the Scottish economy. That has not been the case because Scotland has been part of a stable United Kingdom that is following a long-term economic plan that is benefiting the entire country.

[Andrew Stephenson (Pendle) (Con)]

20. On 4 November at Treasury questions, I raised the issue of Brierfield Mill, the largest redundant mill complex in Lancashire and situated in my constituency. Following that, my right hon. Friend the Minister for Universities, Science and Cities visited the project on 16 January. Now, inexplicably, the Lancashire local enterprise partnership has failed to bid for even a penny of funding as part of the second round of the growth deal. Will my right hon. Friend agree to meet me urgently to discuss Government support for that important project?

[Mr Osborne]

I am well aware of the economic potential of the Brierfield Mill development and when I met my hon. Friend in Nelson recently we talked about those benefits with local businesses. He is a champion of that development and it is extraordinary that the Lancashire LEP and, in particular, Lancashire county council have not promoted the project. He is promoting the project because he is a champion of his constituency and I will happily meet him to see how we can progress the Brierfield Mill project and bring more jobs to the Pendle constituency.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Centre for Cities recently reported that for every 12 new net jobs created in the south-east of England, only one is created in the rest of the UK. What is the Chancellor doing to address that two-tier economy?

[Mr Osborne]

The hon. Gentleman says it is a two-tier economy, but youth unemployment is down by 45% in his constituency and unemployment down by 31%. I agree that the Labour Government in the Welsh Assembly are doing damaging things to the Welsh economy, but thankfully the UK Government are promoting Wales and the Welsh economy and, as a result, we are seeing jobs being created. I am happy to continue to come forward with policies that support Wales and its economic development.

[Ian Swales (Redcar) (LD)]

The north-east chamber of commerce recently said:

“Businesses are surging into 2015 on a wave of sustained growth and positivity”,

and unemployment is falling faster in the north-east than anywhere else in the country. Will the Chancellor ensure that the north-east is properly connected to the northern powerhouse and that the necessary infrastructure investment is delivered?

[Mr Osborne]

I assure my hon. Friend that that will be the case. The north-east is an incredibly important part of the northern powerhouse, and that is why we are investing in road and rail links there. We are also putting investment into science there, for example at Newcastle university, and of course in his constituency he has seen steelmaking begin again after it ended under the Labour Government. People will have a clear choice at the general election.

[Tom Greatrex (Rutherglen and Hamilton West) (Lab/Co-op)]

13. What proportion of recipients of tax credits are in employment.

[The Exchequer Secretary to the Treasury (Priti Patel)]

Seventy-one per cent. of households in receipt of tax credits are in employment.

[Tom Greatrex]

I thank the Minister for that confirmation that more than two thirds of people getting tax credits are in work. How can she claim to be helping working families when the Chancellor wants to cut their tax credits again, causing real-terms economic pain?

[Priti Patel]

Let us put this into some context. For a start, tax credit spending rocketed under the previous Government and throughout this Parliament we have made it abundantly clear that we support those with low incomes. Let us not forget either that the impact of Labour’s great recession is still being felt. We continue to help people with the cost of living through the increases in personal allowances, the freeze in fuel duty, cuts in council tax and, of course, by reducing the cost of child care.

[Richard Fuller (Bedford) (Con)]

Working tax credits are in effect a form of corporate welfare for employers who could pay higher wages, especially if tied to increased skills. Will the Minister continue her conversations with the Minister for Skills and Equalities about ways in which we can create a combination of those two, perhaps in the form of tax credits for training, such as proposed by Premier Inn?

[Priti Patel]

I thank my hon. Friend for his suggestion. He is right that more can be done through working with business and learning from their suggestions.

[Pat Glass (North West Durham) (Lab)]

17. How can the Minister claim there is no cost of living crisis when average full-time wages are down by £2,000 a year, when huge and increasing numbers of workers are dependent on state benefits to make ends meet, and when the gap between chief execs’ salaries and the people who work for them is growing all the time?

[Priti Patel]

Let us be clear. There are a couple of points I would like to make. The Government have shown that the only way to improve and increase living standards is by tackling head-on the country’s economic problems, which are down to the legacy of the previous Government, and by supporting those who do the right thing and aspire to work. I hope the hon. Lady welcomes the fact that in her constituency things have improved, with employment down substantially by 47% and youth unemployment down by 52%.

[Richard Graham (Gloucester) (Con)]

Tax credits have helped many people, but it is also true that some have been prevented from taking a promotion or a salary increase because they would lose more in taxpayer-funded benefits than they would gain from their employer. That has to be wrong. Does my hon. Friend agree that as universal credit is rolled out across the country, so we return to the crucial principle that work always pays? I am afraid that that got lost under the previous Government.

[Priti Patel]

My hon. Friend is absolutely right. He mentions the very important universal credit roll-out. As it rolls out—[Interruption.] It is already being rolled out, and it is going well. As it rolls out, more and more people will benefit. He is right to point out that this is about both the value of work and aspiration. We are the only party that stands for aspiration and value in work, and inspiring people to get off benefits and back into work.

[Helen Goodman (Bishop Auckland) (Lab)]

14. What recent estimate he has made of the effect on household budgets of tax and benefit decisions taken in the present Parliament.

[The Chief Secretary to the Treasury (Danny Alexander)]

Since 2010, I have published regular distributional analysis of the impact on households of our reforms to tax, welfare and public spending. It is the most comprehensive analysis available. The most recent analysis we published, alongside the autumn statement last month, shows that the wealthiest continue to make the biggest contribution towards reducing the deficit. By 2015-16, the net contribution of the richest 20% will be larger than the remaining 80% put together.

[Helen Goodman]

Today, the second independent report in as many weeks shows that proportionately the Government have hit the poorest and those with small children the hardest. Today, half a million more children are living in absolute poverty than when the right hon. Gentleman walked into the Treasury. Will he tell us why, instead of tackling that, he supported tax cuts for millionaires?

[Danny Alexander]

Those analyses ignore some of the most important and most progressive policies put in place by the Government. They ignore the pupil premium, which is investing money in the life chances of young people. They ignore the extra early years education provided to three and four-year-olds, and to the most disadvantaged two-year-olds. They are not included in those analyses, but they are helping to ensure that young people have better life chances under this Government.

[Charlie Elphicke (Dover) (Con)]

Does the Minister not agree that it is important to note that real wages are rising, real disposable income is rising, child poverty is down and inequality is down under this Government?

[Danny Alexander]

It is very important to note all three of those facts, but it is also important not to be complacent. There is a lot more to do to ensure that we continue to deliver the successful growing economy that is creating jobs, because ultimately getting into work is the best route out of poverty for families.

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

I am not surprised that the Chief Secretary to the Treasury does not want to acknowledge the full truth unveiled last week by the Institute for Fiscal Studies’ figures. Its report shows clearly that tax and benefit changes under this Government have left households £1,127 a year worse off on average, and that families with children have been hardest hit of all. Does that not make a complete mockery of the Government’s claims that they would be the most family-friendly Government ever?

[Danny Alexander]

As I said, the published analysis is incomplete because it ignores public expenditure. Public expenditure is a very important part of fiscal consolidation, but it is the shift in public expenditure, towards such things as early years education, the pupil premium and supporting disadvantaged young people through the education system, that is a vital part of improving life chances. I hope the hon. Lady will want to recognise that the measures the Government have taken have been aimed at improving the life chances of people. That is why we are making so much progress on attainment in schools, reducing child poverty and so on.

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

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

[The Chancellor of the Exchequer (Mr George Osborne)]

The core purpose of the Treasury is to ensure the stability and prosperity of the economy.

[Nadhim Zahawi]

We in Stratford-on-Avon are rightly proud of our world-class chamber orchestra, the Orchestra of the Swan, which, as well as playing to packed audiences in Stratford, is busy exporting British culture to the US and China. What assessment has my right hon. Friend made of the extra jobs and growth resulting from the new tax relief for theatres and orchestras?

[Mr Osborne]

The new tax relief for theatres has been a real success. It has been taken up by many theatres and is supporting regional productions. Separately, at my hon. Friend’s request, we have also helped the Royal Shakespeare Company to take its plays to China. Orchestra tax relief, the consultation on which we announced last week, will be another huge boost for British culture and music. We will set out further details in the Budget about how it will work, but it will be there to support a thriving orchestra industry—if that is the right word!

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

First, on a note of consensus, today is Holocaust memorial day. Following our conversation last night concerning today’s report by the cross-party Holocaust commission, on which I am proud to serve, will the Chancellor confirm the cross-party agreement to fund the commission’s recommendations, alongside ongoing funding, for the rest of the decade, for the vital work of the Holocaust Educational Trust, to ensure we have a new and permanent memorial and that future generations never forget that terrible atrocity?

Turning to today’s GDP figures, is the Chancellor, like me, concerned that economic growth is slowing? With just 100 days until the election, will working people be better off than when he became Chancellor, or will they be worse off?

[Mr Osborne]

First, this being the 70th anniversary of the liberation of Auschwitz, we should remember the inhumanity and the suffering of those who died and those who live with the memories of the holocaust, and we should vow as a nation to keep their memory alive. The right hon. Gentleman and Members from other political parties served on the Holocaust commission, the chairman of which, Mick Davis, briefed the Cabinet today on its proposals for a permanent memorial and an education learning centre. I made it clear in the Cabinet meeting that the Government would provide £50 million to support this brilliant plan, and of course we will continue to fund the work of the Holocaust Educational Trust, which takes Members and many school children to Auschwitz to see for themselves the horror that happened there. Across the House, we can come together to commemorate this day and ensure that the holocaust is never forgotten and that we never repeat its mistakes.

I hope you, Mr Speaker, will allow me a slight change of tone for a couple of seconds. The GDP numbers, which the shadow Chancellor complains about, show that Britain’s was the fastest-growing major economy in the world in 2014. He kept telling me to listen to the IMF—well, the head of that organisation said that few countries were driving growth like America and the UK. Growth is improving, the deficit has been reduced and unemployment is falling, and the President of the United States says we must be doing something right. When the shadow Chancellor complained about the Prime Minister’s going for dinner at the White House, he said, “I haven’t been neglected. They invited me in and gave me coffee and biscuits.” That is all the endorsement he is going to get for his economic plan anywhere in the world.

[Ed Balls]

It is good we have cross-party agreement fully to fund the Holocaust commission’s report.

If things really were fine and if the economy really were fixed, people would be better off, but instead they are worse off, and the Chancellor would have balanced the books, as he promised, but he has not—he has completely failed to do it. It is because of that failure on the deficit that he is now planning spending cuts in the next Parliament that the IFS calls “colossal” and that the Office for Budget Responsibility says will take us back to levels in our economy not seen since the 1930s—before the NHS existed. Every developed country with spending as low as he is aiming for has widespread charges for health care. Is that not the real Tory economic plan?

[Mr Osborne]

We have a free-at-the-point-of-use national health service, which we are proud of and will continue to fund. What is clear is the total confusion in Labour’s health policy today. This morning the Labour leader said he was going to use his so-called mansion tax to pay down the deficit; six days ago the shadow Chancellor said that money would be used to pay for his NHS plan. It is total confusion today. The only way to have a strong national health service is to have a strong economy.

Let me end on this note. We read in the last couple of days that the shadow Chancellor has been sidelined from the general election:

“In a major humiliation, party bosses have quietly shunted”

him

“out of the media spotlight”.

Let me reach across the Dispatch Box and offer the hand of friendship. Let us resolve that we are both going to put him at the centre of this general election campaign.

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

T2. By sticking to our long-term economic plan, huge strides have been made towards reducing the deficit—something that seems to evade the shadow Chancellor. Does my right hon. Friend agree that there is only one party that can be trusted to take the difficult decisions needed for prosperity in this country and for sound public finances, and it is the one that he and I represent?

[Mr Osborne]

My hon. and learned Friend is absolutely right. In Lincolnshire and across the country, people have seen unemployment fall and businesses grow. We have got to stick with the long-term economic plan, particularly at a time when the global economic risks are increasing. By working through that plan, we can deliver that economic security for his constituents and mine, and make sure this country has a brighter economic future.

[Mr Jim Cunningham (Coventry South) (Lab)]

T4. Is the Chancellor aware that of the 150,000 people employed in Coventry, 50,000 of them—mainly women and young people—are in part-time, low-paid jobs? What are the Government going to do about it?

[Mr Osborne]

Of course we want to get unemployment down further, and for those who want full-time work, we want to make sure it is available. However, I would point out that, in the hon. Gentleman’s constituency, youth unemployment is down by 73% over this Parliament and unemployment is down by more than a half, so we have got to go on with our long-term plan, which is delivering those jobs in Coventry. Eighty per cent. of the jobs created in the UK at the moment are full time, so we need to sustain that plan, not go back to the chaos we saw under the Government he supported.

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

T3. May I suggest that the Chancellor heed no criticism from the Labour party about deficits, given that it more than doubled the national debt when last in power? As we have heard, the Government have done much to help small businesses, which is why unemployment is falling across the country and in my constituency. As the country’s finances continue to improve, will he look further to ease the tax burden on small businesses—particularly corporation tax—which are very often the backbone of our local economies?

[Mr Osborne]

My hon. Friend is right that small businesses are absolutely central to our country’s economic growth and job creation in the future. We have cut small companies corporation tax in this Parliament. From April, we will have a single corporation tax, as it is consolidated around 20%, which removes a lot of the bureaucracy. On top of that, we have taken the smallest businesses out of business rates, and the employment allowance has helped with the national insurance bills of small businesses. Of course I will bear in mind anything else we can do to help small businesses. We have got some measures in the pipeline, but there is clearly more to do.

[Chi Onwurah (Newcastle upon Tyne Central) (Lab)]

T6. This Government are demonising those on benefits, while doing little about tax evasion and avoidance, which, as we have heard, have risen significantly on their watch. Today sees the launch of the Tax Dodging Bill campaign, as 85% of British adults say that tax avoidance by large companies is morally wrong, even when it is legal. Why will the Chancellor not impose penalties for breaches of the general anti-avoidance rule, as we have called for?

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

First, it was this Government who got the base erosion and profit shifting process running with the OECD, looking to deal with the international rules. It was this Government who announced at the autumn statement that we are bringing in a diverted profits tax to deal with some of the contrived and artificial behaviours that people are worried about. It was also this Government who introduced the general anti-abuse rule and it is this Government who are consulting on bringing in penalties for it. I have to say, it is not a bad record.

[Mr David Ruffley (Bury St Edmunds) (Con)]

T5. I commend the Chancellor’s aim of running an overall budget surplus in 2019-20 and cutting the national debt so that the next generation are not saddled with punitive taxes. Does he agree that this is a case of simple fairness, not ideology?

[Mr George Osborne]

My hon. Friend is absolutely right. Countries such as Canada and Sweden, both of which have quite strong social democratic traditions, have forms of balanced budget rules, or rules where surpluses are run in good times. That has enabled them to bring their public finances under control and their debt down. They did not endure the hardship we saw as a result of the financial crisis here in the UK. We propose that countries should run a surplus in good times. That is the only sustainable way to get our national debt down. If we do not do that, we leave Britain exposed to whatever economic shocks the world throws at us.

[Mr Stephen Hepburn (Jarrow) (Lab)]

T7. The Chancellor will be aware of the importance of the success of Newcastle international airport and of the need for successful businesses to plan ahead. He will understand, then, how the possible cut in air passenger duty north of the border is felt as a threat. Will the Chancellor give an assurance to the business of the Newcastle international airport and to other potential businesses affected that we will match any cut in APD funding north of border?

[Mr Osborne]

The hon. Gentleman raises a serious point, and there is agreement on it across the political divide. The devolution of air passenger duty to Scotland raises the potential for real pressure to be put on airports in north-east England, but also on Manchester airport, which is partly in my constituency. We will of course have to see what the Scottish Parliament does when the powers are devolved, but the hon. Gentleman has my assurance that we will work together to ensure that we minimise the impact on the north-east if this happens, and that we will protect regional airports in England. We have a couple of years to work this out—it does not have be done tonight or tomorrow—and we can work out a plan that protects the brilliant Newcastle, Manchester and other regional airports.

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

This Treasury team abolished Labour’s unjustifiable and unfair beer duty escalator and delivered two historic successive cuts in beer duty. We still pay more tax on our beer, however, so our British brewers are not getting a fair deal in comparison with their European counterparts. Will the Treasury make it a hat trick?

[The Chief Secretary to the Treasury (Danny Alexander)]

During his time in Parliament, my hon. Friend has been a champion of the beer industry, small pubs and small brewers across the country—and a very effective champion he has been, too. Of course I cannot make any commitments about the Budget at this stage, but I welcome his recognition of the progress made on this subject during the course of this Parliament, and I will certainly take his recommendations for the Budget very seriously.

[Kelvin Hopkins (Luton North) (Lab)]

Britain has an enormous and persistent trade deficit with the European Union—clear evidence of a misaligned exchange rate. The significant weakening of the euro in recent days will make the position even worse and cause damage to British industry. When are the Government and the Bank of England going to take seriously the need to achieve and sustain an appropriate sterling-euro exchange rate?

[Mr George Osborne]

This Government do not target a particular exchange rate. Successive previous Governments found to their cost that doing so was difficult and damaging. What we do is ensure that Britain is competitive. I think the best thing to do to support exports is to make sure that our British businesses are taxed in a competitive way; they have great skilled work forces working for them—[Interruption.] They are chuntering away on the Opposition Front Bench. I seem to remember that when the Labour leader was asked recently when Britain would join the euro, he said it depended on how long he was the Labour leader. It is still official policy to join the euro and tie the currency up to the eurozone—with all the ensuing chaos that would follow.

[Mr Henry Bellingham (North West Norfolk) (Con)]

Is the Chancellor aware that since 2010 unemployment in my constituency is down by a staggering 1,000? What assessment has he made of the role of small business start-ups in reducing unemployment?

[Mr Osborne]

Small business start-ups have been central to job creation. We have helped them with the employment allowance and the enterprise investment scheme, and we have given the new enterprise allowance to young unemployed people to help them to start businesses—and that has been a great success. We have in place many initiatives to back our brilliant small businesses in Norfolk and across the country.

[Ms Margaret Ritchie (South Down) (SDLP)]

Considering the economic modelling carried out by one of the Treasury’s own economists, Professor Blake, what further progress has been made on reducing VAT on tourism, which would benefit all regions and particularly coastal regions in the UK?

[Mr Gauke]

We have looked at that, but there is a significant cost involved in making the changes. On the point of helping tourism, the hon. Lady will be aware of the substantial increase in Northern Ireland and other places over recent years and, secondly, the coastal communities fund provides a lot of support to many of the areas that benefit from tourism.

[Mr Nigel Evans (Ribble Valley) (Con)]

Cutting beer taxes, raising income tax thresholds and stopping the petrol tax increases proposed by the Labour Government have helped the Evans household and, probably, a number of other household budgets throughout my constituency. In the next Budget, will the Chancellor please keep calm and carry on cutting taxes?

[Mr Osborne]

I will not make any commitments in relation to the Budget, but my hon. Friend is right to point out that our support for the pub industry and for motorists has provided huge boosts for industries and families in Lancashire and throughout the country. Of course, we do not encourage people to mix the two.

[Mr Speaker]

Last but not least, and very pithily, Alison McGovern.

[Alison McGovern (Wirral South) (Lab)]

Will the Chancellor confirm that he has ruled out a further VAT increase in the next Parliament?

[Mr Osborne]

Our plans do not involve a VAT increase, because we are prepared to make difficult decisions on public expenditure, including decisions on the welfare budget. The hon. Lady and her colleagues voted for £30 billion of consolidation. If they are not prepared to do that by achieving expenditure savings, they must be contemplating big tax rises. With 100 days to the election, we know the choice: it is between a competent Conservative plan that is delivering growth, and a return to economic chaos under the Labour party.

[Several hon. Members]

rose—

[Mr Speaker]

Order. I apologise to colleagues whom I was not able to accommodate, but, as usual in the case of Treasury questions, demand massively outstripped supply.

On-the-Runs Scheme

Tuesday 27th January 2015 Commons Chamber

[Mr Speaker]

Before I call the hon. Member for North Antrim (Ian Paisley) to ask his urgent question, I must remind the House that the inquest into the death of Mr Gareth O’Connor, although stayed, is still sub judice. I have agreed to waive the sub judice resolution in order to allow an issue of national importance to be raised, but I ask Members in all parts of the House to be very careful in making any reference to the inquest. Members should also take care to ensure that their comments do not impede any future prosecution. Questions about the on-the-run scheme and the dates of the crimes concerned would be in order.

12:37

[Ian Paisley (North Antrim) (DUP)]

(Urgent Question): To ask the Secretary of State for Northern Ireland to make a statement about recent developments relating to the on-the-run letters which have permitted a second fugitive to evade justice.

[The Secretary of State for Northern Ireland (Mrs Theresa Villiers)]

On Monday 26 January, the coroner conducting the inquest into the death of Mr Gareth O’Connor, who disappeared in May 2003, directed that the inquest should be stayed pending an investigation by the Police Service of Northern Ireland into one of the suspects in Mr O’Connor’s murder. The suspect was part of the administrative scheme dealing with so-called on-the-runs, and was in receipt of a letter from the Northern Ireland Office informing him that he was not wanted for arrest by police forces in the United Kingdom. This case is specifically covered on pages 107 and 108 of the Hallett report on the on-the-runs scheme, where it is described as “error 2”. The fact of the error has therefore been in the public domain for some time, and the case is not a new development.

The Police Service of Northern Ireland is investigating the suspect’s case, and will be considering whether charges can be brought against the individual concerned. I spoke to the Chief Constable of the PSNI yesterday, and I understand from him that this is a live police investigation. I also briefed the Justice Minister—in brief—on the case. The police will investigate where the evidence leads them. In the circumstances, it would not be appropriate for me to comment further on the specifics of the case.

As for the OTR administrative scheme, I set out the Government’s position fully in my statement to the House on 9 September. That followed detailed consideration of the report by Lady Justice Hallett, which was published in July. I made clear in my statement that the scheme was at an end, and that there was no basis for any reliance on letters received by so-called OTRs under the scheme. There is no amnesty, immunity or exemption from prosecution. Those who received letters under the scheme should be in no doubt: if there is considered to be evidence or intelligence of their involvement in crime, they will be investigated by the police, and if the evidence is sufficient to warrant prosecution, they will be prosecuted.

[Ian Paisley]

I thank the Secretary of State for her answer. The most disturbing aspect of what she has told the House today is the fact that the O’Connor murder relates to a post-1998 murder that occurred in 2003. We have been consistently told that the names of the OTRs were critical to securing a 1998 peace agreement, yet this murder post-dates that. Will the Secretary of State now agree to publish all the names with all the letters? Will she publish correspondence between Baroness Scotland and the right hon. Member for St Helens South and Whiston (Mr Woodward), whom I informed earlier I would be mentioning in the House, in terms of the relationship between that correspondence and the murderer of Mr O’Connor? Will the Secretary of State estimate how many other errors there are in this catalogue of errors and accept that the Government and the Hallett review conclusion that there is a single error is now without foundation?

Will the Secretary of State now consider legislation formally to annul the value of all these letters, to put meat on the bones of what she has said: that these letters are without value? Does she agree that Gerry Kelly must be formally investigated for how these letters have been distributed and for whom these letters have been requested? What compensation is now being considered for the families of those who have suffered as a result of Mr Downey’s activities and as a result of the actions by the murderer of Mr O’Connor, because these people cannot get justice by any other means and must now be entitled to some form of compensation?

[Mrs Villiers]

As is clear from the conclusions of the Hallett report, this letter should not have been issued; it was issued in error. For a number of reasons I do not think it would be appropriate to make public the names of the individuals who received letters under the scheme, not the least of which is that doing so could prejudice a future prosecution and make it more difficult to secure a conviction.

In relation to the number of errors, Lady Justice Hallett identified in her report two errors in addition to the one made in the case of Mr John Downey. She also identified a further 36 cases considered by Operation Rapid where she believed there was a risk that the wrong test had been applied. She did not conclude that there were actually errors in these cases, but she proposed that they should be a priority for further investigation because the risk of error in those cases was higher than in others.

In relation to legislation, as I briefed the House in September, it is clear to me that the most effective means to guard against future collapses of trials and future abuse of processes defence is to issue a clear statement indicating to anyone who received a letter under the scheme that it is not safe to rely on those letters—that they should not be relied on—and that is what I did. The option of legislating on these matters was carefully considered, but the conclusion is that legislation would not be as effective as a clear statement at the Dispatch Box that the scheme is at an end and these letters should not be relied on, not least because of a risk that errors have been made in other cases.

[Mr Laurence Robertson (Tewkesbury) (Con)]

I thank the Secretary of State for the response to the urgent question. She will be aware that as well as the 36 cases identified by Hallett as being perhaps the most worrying, we were told by the then assistant chief constable, now the deputy chief constable, of the PSNI that 95 people who received letters are connected through intelligence to almost 300 murders. That is a very serious situation indeed. Will the Government ensure that the PSNI has the full resources to look into all those cases not in the period of as long as nine years that the PSNI estimates it may take it, but very quickly so that the Government can decide whether there is a need for legislation to make it absolutely clear that nobody can rely on these letters to protect them from prosecution?

[Mrs Villiers]

I am grateful to the Chairman of the Select Committee on Northern Ireland Affairs for his question. It is of course important that the PSNI has appropriate resources for its investigations under Operation Red Field relating to OTRs, as is the case for all other matters for which it has responsibility. I welcome the fact that the agreement on a final budget for the Northern Ireland Executive for 2015-16 allocated an additional £20 million to the PSNI. There is also the Stormont House agreement, which commits the Government to contributing £150 million to aid Northern Ireland in its treatment of legacy cases. I will look carefully at how that money should be appropriately deployed in the coming weeks.

On the question of legislation, I do not think I can really add to my previous answer. Having considered this carefully, the most effective means to ensure that we do everything we can to remove barriers to justice is a clear statement indicating that this scheme is at an end and these letters should not be relied on. That is what I have done. Legislation would not take us further and, I believe, would not be the right option in this instance.

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

As the hon. Member for North Antrim (Ian Paisley) suggested, the revelation yesterday regarding the collapse of the inquest into the murder of Gareth O’Connor has caused further concern and anxiety in Northern Ireland. Our thoughts today should be with the O’Connor family. Like so many of those left behind, they sought justice and truth about what happened to Gareth in 2003. They have waited 12 long years for an inquest into the death of their son, and the thought of preparing for a week-long inquest would have been harrowing for the family. This development made a highly stressful situation even worse.

News of another error from the administrative scheme for the on-the-runs is devastating, following the catastrophic error in the Downey case last year. We have apologised for the Downey error, and do so again for the error in the O’Connor case. In the same way as this scheme never offered amnesty, it was also never intended to cover alleged offences committed after the signing of the Good Friday agreement. Doubly troubling is the delay in the coroner and the family being made aware of the error. The Northern Ireland Office and the police knew about the case—indeed, it was referred to in the Hallett report.

I have several questions for the Secretary of State. Why did the Northern Ireland Office not ensure this family were told of the error in the immediate aftermath of the publication of the Hallett report? Secondly, further to the question from the Chairman of the Select Committee, in view of the financial pressures facing the PSNI, how long does the Secretary of State estimate it will take to review all the cases covered by the OTR scheme? I do not believe she has clarified that in her answer to the House today. Finally, on a related matter that has caused similar concerns, can the Secretary of State update the House on investigations into the missing information regarding royal prerogatives issued before 1997?

[Mrs Villiers]

I thank the shadow Secretary of State for his questions. It is useful to remind the House that this scheme never offered an amnesty, and that it was designed to give individuals who were not wanted an indication that they were not wanted by police, so the letters issued in relation to the Downey case and this one were clearly issued in error.

On the Chairman of the Select Committee’s question about the connection between the 95 individuals and intelligence or indications relating to 300 crimes, these are of course matters for the police to investigate, but I would emphasise that a connection to intelligence or evidence is not necessarily sufficient to justify arrest or prosecution.

I welcome the shadow Secretary of State’s repetition of the apology he gave on behalf of the previous Government for the errors made in these cases, and I, of course, am happy to reiterate the apology I made on behalf of this Government for the pain and hurt caused to all families affected by the OTR scheme. I think there is consensus that the scheme should, at the very least, have been handled in a much more transparent way.

I acknowledge that the way the family in this case found out about the connection to the OTR scheme was very problematic. My understanding is that the PSNI has issued an apology for that, and I join in confirming that apology. It is, of course, as I said in response to the previous question, important that the PSNI is properly resourced for all its functions, which is why the Government have provided extra security funding of £230 million and one reason why we have provided funding for help in investigating the past. Even with those additional resources, it is clear that Operation Red Field, the investigation into all the OTR cases, will take some years.

[Mr Andrew Robathan (South Leicestershire) (Con)]

The Secretary of State is to be congratulated on bringing some transparency to this scheme, via the Hallett inquiry. Such transparency was needed, because the previous Government set up the scheme and kept it under the carpet, if not secret from the nation. Does she agree that it was one of the shabbiest deals they did, notwithstanding the shadow Secretary of State’s apology? Will she further reassure me, the House, the country and the courts that she has taken legal advice on her statement that nobody can rely on one of these letters any more?

[Mrs Villiers]

I have taken into account a number of factors in deciding how to respond to the Hallett report, and they of course include legal advice on the best way to guard against further trial collapses as a result of abuse of process. My right hon. Friend has referred in clear terms to his view of the scheme. As I said, I think there is agreement that it was deeply unfortunate that the scheme was not handled in a more transparent way. That is something for which I have apologised, but I emphasise once again to the House that it was never an amnesty and it was never a scheme to let people wanted for arrest get off without arrest or prosecution; it was, from the start, intended to be a scheme that merely indicated to those who were not wanted by the police that that was the factual position at the time in question.

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

The Secretary of State has repeatedly said that individuals should not rely on the OTR letters as the police carry out their duties. Does she agree that the law-abiding community in Northern Ireland would see much greater strength in that reassurance whenever they saw people with an OTR letter in their possession standing in the dock and the judge carrying out his duty, despite their having possession of a letter?

[Mrs Villiers]

It is, of course, important for all crime to be properly investigated in Northern Ireland and for those guilty of offences to be brought to justice, regardless of whether or not they have an OTR letter.

[Nigel Mills (Amber Valley) (Con)]

We all want to see people with a strong case against them standing trial to see whether a jury will convict them. Will the Secretary of State revisit her legal advice on her statement that these letters should not have any great effect on a trial, to make sure that, in the light of this new decision, it remains correct and there is no need for further action by this place?

[Mrs Villiers]

I am certainly happy to do that, and I discussed the matter with the Chief Constable yesterday. Just to reiterate, the Northern Ireland Office stands ready to take any further steps that might assist in removing barriers to prosecution. My current view is that the best way to guard against future problems in relation to abuse of process is a clear statement that these letters should not be relied on, and that is what I have made and issued to this House in September.

[Naomi Long (Belfast East) (Alliance)]

The PSNI has already confirmed that Operation Red Field will take at least three years, so I am glad the Secretary of State is looking directly at how she can assist with the funding. This was a Northern Ireland Office scheme, not a devolved scheme, and so the review should not come from the Northern Ireland budget. Is she in a position to shed any light on the allegations that have been made in the media that this individual was issued with a letter in respect of crimes that predated 1998 but which included a crime for which they were wanted in 2003, and that the tag of “wanted” on their file was then changed subsequent to the issue of that letter to “not wanted”, which would have made this incredibly difficult to detect?

[Mrs Villiers]

For the reasons I have given, I am reluctant to get into the specifics of this case. As I have mentioned, the hon. Lady will find some further detail on these matters on page 108 of the Hallett report. In particular, there is a real concern that the offence in question was a post-1998 offence.

[Richard Drax (South Dorset) (Con)]

Having done three operational tours in Northern Ireland, I fully appreciate that some areas are murky and remain so, and these 200 letters were a shabby effort to sign up to the peace deal. Will the Secretary of State tell me how long it will take to investigate these 95 people who have received letters? As we understand it, through intelligence, they are connected to 300 murders, so how long will it take to pursue this and ensure that proper justice is done?

[Mrs Villiers]

As I have said to the House, it will, unfortunately, take some years to go through all the OTR cases. That is why we will need to give serious consideration as to whether some of the extra funding provided as a result of the Stormont House agreement to deal with matters relating to the past can be used in some way to assist the PSNI in this important work.

[Mr David Anderson (Blaydon) (Lab)]

In response to the question that my hon. Friend the Member for Bury South (Mr Lewis) asked about why the family and the coroner were not involved in July when Hallett produced the report, the Secretary of State said that it was “problematic”. That is not good enough. We want to know what has been going on since July. We have been told earlier that the police are now investigating this case, but what have they been doing since July? And what has the NIO been doing since July?

[Mrs Villiers]

The NIO has been involved in a number of matters implementing the conclusions of the Hallett report. They include consideration of this case by the policy board set up as a result of Lady Justice Hallett’s conclusions. We also implemented a number of her conclusions through my statement to the House to provide clarification of the status of the scheme. That also covers the recommendations that she made in relation to removing barriers to prosecution. The PSNI has also made progress on the matters in Lady Justice Hallett’s recommendations on how it deals with police databases and the PSNI’s liaison with other police services in the United Kingdom.

[Mr Anderson]

What about this family?

[Mrs Villiers]

We have to bear in mind that deployment and disclosure of information in relation to these individual cases needs to be handled with the greatest care, because any disclosure presents risks in relation to future prosecutions. That is probably one of the reasons why the information came out at the time that it did. So we need to reflect carefully on these matters. It did come out in an unfortunate way; I reiterate the apology I made earlier to the family for how they learned of this matter, but we all need to take care on the disclosure of information about this scheme, because none of us would want to be responsible for the collapse of a future trial.

[Ms Margaret Ritchie (South Down) (SDLP)]

I am reflecting and thinking of the O’Connor family from Newry today. Will the Secretary of State confirm, notwithstanding the content of the Hallett report, that no further errors will be revealed?

[Mrs Villiers]

No, I am afraid that I cannot give that confirmation. The Hallett report was clear in its conclusions about the management of the scheme: it was not properly managed and the risk was not properly managed. Anyone reading the Hallett report must expect that further errors will come to light. As I told the House earlier, Lady Justice Hallett highlighted 36 further cases as ones where the risk of error is higher than in others. That is one reason why nobody should be relying on these letters; because of the errors in the way the scheme was managed, it is likely that other errors will come to light.

[David Simpson (Upper Bann) (DUP)]

The Secretary of State will know that I have raised the position of the victims on a number of occasions, and they are at the core of the whole issue. Many victims will never see justice because of these OTR letters. My hon. Friend the Member for North Antrim (Ian Paisley) made a point about printing the names. Is one reason why the Government will not print the names of those with OTR letters and the royal pardons that they were received by some people who have been elected to this House and are currently elected to the Assembly?

[Mrs Villiers]

Let me emphasise that the issue of an OTR letter does not necessarily lead to the result that it did in the John Downey case. The judgment is clear: the reason why the trial collapsed was that the letter was incorrect. Mr Downey was wanted, but he was sent a letter indicating that he was not. The issue of an OTR letter does not give immunity from prosecution; it never did and it will not do so in the future. On the disclosure of names, I have said to the Northern Ireland Affairs Committee on many occasions that, by disclosing names, there is a risk that I would jeopardise future prosecutions, make them more difficult and increase the risk of an abuse of process. That is why I will not disclose names in relation to this scheme or be drawn on categories of individuals who might have been part of it.

[Mr Stephen Hepburn (Jarrow) (Lab)]

Does the Secretary of State agree that we should not have short memories when it comes to Northern Ireland? The fact is that 3,600 people were killed during the civil war. Rather than condemn the previous Government, we should acknowledge the risks that they took to make Northern Ireland the fantastic place that it is today.

[Mrs Villiers]

I have certainly always tried to be objective and measured in how I view the actions of the previous Government on these matters. In relation to OTRs generally, there certainly are some differences between the parties, not least of which is the opposition of the Conservatives and the Liberal Democrats to the Northern Ireland (Offences) Bill. In relation to this scheme and the way in which Northern Ireland matters were handled generally by the previous Government, I do not doubt their sincerity. They were motivated, I am sure, by a wish to see the process move forward and to secure peace and stability for Northern Ireland. The key problem that was revealed by the Hallett report was that, unfortunately, the scheme was not managed in the way that it should have been, and that gave rise to risks. Errors were made, which, unfortunately, could jeopardise future prosecutions.

[Jim Shannon (Strangford) (DUP)]

At a time when yet another OTR is issued a covert letter to escape jail, British soldiers—funded by legal aid—are being investigated for a shoot-out with terrorists which led to the much-deserved deaths of those terrorists. Does the Secretary of State not accept that the legal system and the rule of law are being undermined by the fact that while some individuals are not being charged for their terrorist activities, British soldiers are being investigated?

[Mrs Villiers]

For some, confidence in the legal system has been shaken by the OTR scheme. But that is a reason to be very clear that it was not an amnesty; it never was. It was a scheme designed to ensure that individuals who were not wanted by the police were told that that was the case as a matter of fact at a particular point in time. It is important that the scheme is described in such a way to provide as much reassurance as possible to the people who have been understandably distressed by what has happened.

[Mark Durkan (Foyle) (SDLP)]

The Secretary of State will recall that much of the negotiations in relation to the Stormont House agreement revolved around concerns to protect the option of the inquest process into the future. Does it not strike her as somewhat disappointing that after parties such as the SDLP and Sinn Fein argued to defend that very process, an inquest has been compromised by what has happened in relation to this discredited OTR scheme? Although we will not join the call for the publication of the names of everyone who received letters, we ask the Secretary of State to assure us that those letters and the details around them will be shared with the new bodies that will be dealing with the past, which were set up as a result of the Stormont House agreement. In that way, no one else can be surprised by events in the way that they were with this twisted and terrible case.

[Mrs Villiers]

I agree with the hon. Gentleman that inquests were a key matter that were considered at great length in the Stormont House agreement talks. Although we could not build a consensus on the way to reform inquests, we did reach a consensus on the fact that the inquest system needs to be reformed because, at the moment, it is not working effectively enough to give proper answers to families. I am working with the Justice Minister and others in the devolved Executive to do everything we can to take that reform process forward; it is vital that we do that. Disclosure was also debated at length, and I can assure the House that the Government are committed to the fullest disclosure in relation to the new bodies to be set up under the Stormont House agreement. But when it comes to onward disclosure, we will of course need to put in place national security measures, which are broadly equivalent to those that apply in respect of current institutions. In conclusion, I wish to pass on my condolences to the O’Connor family, who must have been distressed and upset by recent events.

[Sammy Wilson (East Antrim) (DUP)]

I am sure that the Secretary of State will understand why the people of Northern Ireland are cynical about her oft-repeated mantra that no one can rely on these letters, when we have already had two people relying on them, and she has indicated today that there could possibly be another 36. Will she tell the House who was responsible for the error, and what the nature of the error was? In that way, we can at least determine whether this was a deliberate action to ensure that a killer was not brought to justice or a genuine mistake.

[Mrs Villiers]

The Hallett report indicates that the error may well have originated within the PSNI, but we should not rush to judgment on that. As I have said in relation to the John Downey case, wherever the error arose, the problem was that the scheme was not designed to guard against errors or to pick up on them when they were made. The overall responsibility for the errors still rests at ministerial level. There is a consensus on both sides of the House that the Ministers in power at the time need to take responsibility for what happened, even if, at the end of the process, the error may have been made by the PSNI. It is a matter on which we should not rush to judgment. The hon. Gentleman may wish to look at page 108 of the Hallett report to assess how the error occurred.

Voter Registration

Tuesday 27th January 2015 Commons Chamber

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

13:07

[Chris Ruane (Vale of Clwyd) (Lab)]

I beg to move,

That leave be given to bring in a Bill to make provision for the registration of voters by registration officers; and for connected purposes.

Mr Speaker, as you and many Members of this House may know, I have been raising the issue of voter registration since 2001. In that time, we have seen massive and far-reaching changes to the way in which we register to vote in order to empower citizens with the ability and confidence to cast their vote come election time. What I propose in this Bill will work towards increasing the number of people registered to vote, particularly those who are least likely to be registered to vote, which includes young people.

Since 2001, we have seen the number of non-registered voters increase. I do not wish to shy away from the arguments about why people are not registered to vote, but first let me say that, according to revised figures from the Electoral Commission last year, some 7.5 million people were missing off the electoral register in 2010. But even in the past 18 months, England, Wales and Scotland have collectively gone through the biggest change in the way people register to vote since the Great Reform Act 1832. The move to individual electoral registration has seen 5 million people fail to transfer over from the household register to the new individual electoral registers, and 1 million people have fallen off the electoral register completely.

I have been working with the fantastic group, Bite The Ballot, which is a neutral cross-party youth democracy group, to bring forward this Bill to tackle the under-registration of young people in England Wales and Scotland, and to make registration easier with an “opt-in” option on Government forms.

The first part of this Bill seeks to emulate what is now practice in Northern Ireland. Following the transition to individual voter registration in Northern Ireland in 2002, there was a marked decrease in the number of people registered to vote. In 2008, to tackle that problem, the chief electoral officer for Northern Ireland was given the power to request information from post-primary schools to pre-populate electoral registration forms for those eligible attainers.

The schools initiative, according to the chief electoral officer for Northern Ireland, is the most productive part of his community engagement programme. His office visits 182 schools between mid-September and early November each and every year, and has successfully registered 50% of the total eligible youth population via the scheme alone. Bite The Ballot, which has five years’ experience in inspiring attainers and young people to register, tells us that face-to-face engagement is the best way of ensuring that young people register, so I say, why not follow best practice in Northern Ireland, and follow suit in the rest of the United Kingdom? By visiting schools and colleges, and running voter engagement sessions, our youngest citizens can be inspired to begin their lifelong democratic journeys as active, engaged citizens.

The Bill also seeks to open up the avenues to registration with a simple opt-in tick box on all Government forms. The measure is similar to the USA’s “Motor Voter” Act of 1993, which has enabled a massive 32% of American voters to register through interactions with the state. It would empower citizens to register to vote when filling in, for example, applications for a renewed driver’s licence, a passport and benefits, or when enrolling with a GP. The system I am advocating would only ever operate on an opt-in basis to protect the individual’s private data and identity. Having moved to a system of online registration, that type of data sharing is surely not beyond the skill of the Government Digital Service.

The Government have just announced £10 million to aid local authorities and national organisations in the task of registering people to vote. That is welcome, and must be spent on activities that work and are known to work. School and college visits, as Bite The Ballot proves, work. Enabling people to register when they interact with Government services, as the Americans have proved, works. My Bill seeks to make the UK’s system of voter registration as easy, engaging and accessible as possible. I believe that the two proposals I make in the Bill go some way towards achieving that.

In conclusion, may I pay tribute to you, Mr Speaker, for your support for the issue of registration and turnout, including your support for lighting up the Victoria tower with a big X on voter registration day next week, and your support for online voting by 2020?

Question put and agreed to.

Ordered,

That Chris Ruane, Mr Russell Brown, Nic Dakin, Mr Clive Betts, Mr Kevan Jones, Mr George Howarth, Mr Mark Williams, Mr Elfyn Llwyd, Jim Shannon, Jessica Morden and Mark Durkan present the Bill.

Chris Ruane accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 6 March 2015 and to be printed (Bill 163).

Corporation Tax (Northern Ireland) Bill

Tuesday 27th January 2015 Commons Chamber

[Relevant documents: First Report from the Northern Ireland Affairs Committee, Session 2010-12, Corporation Tax in Northern Ireland, HC 558, and the Government response, HC 1767.]

Second Reading

13:14

[The Secretary of State for Northern Ireland (Mrs Theresa Villiers)]

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

The Bill provides for the devolution of a rate-setting tax power to the Northern Ireland Assembly and would allow Northern Ireland to set its own rates of corporation tax. Just under five years ago, the Conservative party went into the general election with a commitment in our Northern Ireland manifesto to produce a Government paper examining the mechanism for changing the corporation tax rate in Northern Ireland. The pledge subsequently formed part of the coalition’s programme for government. It was part of our strategy for rebalancing the Northern Ireland economy from over-dependence on the public sector by revitalising private enterprise and attracting new investment.

The commitments in the Conservative manifesto and the programme for government were fulfilled a little under four years ago, when the Government launched a consultation on rebalancing the Northern Ireland economy and on the potential for devolving corporation tax powers to the Executive and the Assembly. The response to that consultation was near-unanimous support from Northern Ireland’s political leaders and the business community for the devolution of corporation tax. We have worked tirelessly since then on the technical details needed to make devolution possible.

My predecessor, my right hon. Friend the Member for North Shropshire (Mr Paterson), whom I welcome to the Chamber today, established a joint ministerial working group with the Treasury and Executive Ministers in late 2011 to work through the main questions of contention. In the economic pact that we signed with the Northern Ireland Executive in June 2013 on the eve of the G8 summit, we committed to further progress and a final decision in principle on devolution no later than the autumn statement of 2014. In that autumn statement my right hon. Friend the Chancellor said that

“we recognise the strongly held arguments for devolving corporation tax-setting powers to Northern Ireland. The Treasury believes it can be implemented provided that the Northern Ireland Executive can show that they are able to manage the financial implications. The current talks will see whether that is the case. If it is, the Government will introduce legislation in this Parliament.”—[Official Report, 3 December 2014; Vol. 589, c. 314.]

As I informed the House on 7 January, following extensive negotiations, those cross-party talks reached a successful conclusion on 23 December with the Stormont House agreement. That agreement, which also covered crucial legacy issues such as flags, parading and the past, sets a path for the Executive to put their finances on a sustainable footing for the future. That has paved the way for us to go beyond the commitments we made in our manifesto in 2010 and to introduce the Bill to devolve corporation tax rate- setting powers to Northern Ireland. Unlike the Opposition, the Government believe in lower taxes for business because we understand that businesses thrive when they are free to get on with what they do best, unencumbered by burdensome regulations and excessive taxes.

That is why since 2010, the Government have cut the main rate of corporation tax from the 28% we inherited from Labour to 21% today. It will fall still further to 20% in April, giving the UK the joint lowest rate of corporation tax in the G20—a competitive edge that Labour wants to deny British business, as the Shadow Chancellor is committed to reversing that reduction. The small profits rate has also been cut to 20%. Those tax cuts are a central part of the Government’s successful long-term economic plan to make the UK as a whole more competitive, supporting business investment and job creation— something that would be jeopardised by a return to the high-tax, high-spending, high- borrowing policies of the previous Government.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The Secretary of State will be aware that the UK Government-sponsored Silk commission, which was set up in Wales a number of years ago, reported that if corporation tax were devolved to Northern Ireland, consideration should be given to devolving it to Wales and the other devolved Parliaments. Can she enlighten the House on the Treasury’s thinking, now that a decision has been made for Northern Ireland, on the other devolved Parliaments?

[Mrs Villiers]

Careful consideration has been given to the devolution settlements across the United Kingdom. The Government have made it clear that the fact that Northern Ireland shares a land border with a low corporation-tax jurisdiction means that the case for reform is strong for Northern Ireland, but it is not made out in relation to the rest of the United Kingdom. Northern Ireland is different from the rest of the country, because the history of the troubles has left its economy with a high dependence on the public sector. That is another reason why Northern Ireland is different, and corporation tax devolution could provide a boost to growing the private sector in Northern Ireland. While there is a clear case for doing this in Northern Ireland it would not be the right move for other parts of the United Kingdom.

[Ian Paisley (North Antrim) (DUP)]

Has any assessment been carried out about the level at which Northern Ireland should set its new rate of corporation tax, given what the Minister has just alluded to—our competitiveness with the Republic of Ireland, which has a rate of 12.5%? Has any research been carried out by the Treasury on that?

[Mrs Villiers]

The principle of the Bill is that that becomes a matter for the Northern Ireland Assembly and the Executive. It is for them to make the choice and decide whether to go ahead with implementation of a reduced rate. Obviously, there is a great deal of support for bringing down the rate of corporation tax in Northern Ireland to the same level as in the Republic of Ireland. I know that the hon. Gentleman’s party colleague, Minister Foster, would like to see it reduced still further. Those matters are not provided for in the Bill because the Bill vests that choice with the Northern Ireland Executive once commencement has taken place.

As I was saying in response to the intervention, Northern Ireland has a unique position within our United Kingdom. The land border that it shares with a very low corporation tax environment in the Republic of Ireland puts it at a significant competitive disadvantage when competing for inward investment into the island of Ireland. Northern Ireland is also more dependent on the public sector than most other parts of the UK. Estimates vary as to the extent of this dependence, but it is generally accepted that around 30% work in the public sector, compared with about 20% in the rest of the UK. Some surveys put the dependence on the public sector at even higher levels.

Economic prosperity as measured by gross value added per capita is still some 20% below the UK average and has been so for a number of decades. Of course, Northern Ireland faces a range of difficult issues flowing from the legacy of the troubles. All these challenges need to be overcome if Northern Ireland is to compete successfully on the national and global stage for jobs and for investment. None of this is to say that Northern Ireland does not have some amazing entrepreneurs and some hugely successful businesses that are truly world-beating. Under this Government unemployment in Northern Ireland has fallen in every month for the past two years and the record of foreign direct investment is strong, not least because of the efforts of the Northern Ireland Executive.

But for all the great businesses we have in Northern Ireland, the blunt truth is that there are just not enough of them, so the Government are convinced that to boost the private sector and enable Northern Ireland to perform even more strongly in attracting inward investment, we need to go further. We need to provide stronger incentives for Northern Ireland firms to invest in growth. The Bill before the House today will give the Assembly a powerful tool to help them do this, enabling Northern Ireland to take a decisive step forward towards rebalancing its economy.

The Bill provides a further demonstration of this Government’s general commitment to devolution, which we have shown in many ways, including with the Scotland Act 2012. We are making progress on implementing the Smith commission proposals for further powers for Scotland over tax and welfare to be transferred to the Scottish Parliament. Draft legislative clauses were published on 22 January.

[Nigel Mills (Amber Valley) (Con)]

Is my right hon. Friend aware of the data which suggest that almost twice as much will be raised from companies moving from Great Britain to Northern Ireland than from those moving into Northern Ireland from overseas? If that is the case, does she think it fair that Members from Northern Ireland may vote on the UK-wide corporation tax rate as well as their own, when they are effectively competing with our constituents?

[Mrs Villiers]

I emphasise that the new system is designed to deal with artificial avoidance. A number of measures are in place to prevent abuse of the new system; I will come to those in a moment. In relation to voting on taxation matters, my hon. Friend will be aware that ensuring that the devolution settlement is fair to the English as well as to the rest of the United Kingdom is an important matter under consideration by the House and by the political parties. I am sure it will be extremely important that we get the right outcome to ensure that the devolution settlement is fair across the board, but it is also crucial that we have a coherent and unified tax system.

[Naomi Long (Belfast East) (Alliance)]

I take on board the issue raised by the hon. Member for Amber Valley (Nigel Mills). Does the right hon. Lady agree with me, though, that Northern Ireland would want to avoid corporation tax devolution and any subsequent reduction by the Assembly leading merely to brass-plating of companies in Northern Ireland? For us to benefit from the economic out-turn of investment, we need people who are involved in creating employment and raising skills levels as well.

[Mrs Villiers]

As the hon. Lady will hear when I get further into my remarks, the approach in the Bill is to focus on genuine economic activity which generates jobs. We want to minimise the risks of matters such as brass-plating and artificial avoidance schemes, so the Bill maintains the coherence of the corporation tax system as a whole and also provides an incentive to bring genuine economic activity to Northern Ireland and assists in that rebalancing process.

The Wales Act 2014 came into effect on 6 January, providing the legislative framework to support the implementation of recommendations made in the first report of the Silk commission. As my right hon. Friend the Secretary of State for Wales has told the House, he continues to take forward discussions on the next steps for devolution in Wales. The debate continues on the most effective way to ensure that devolution operates in a fair way with regard to England, as one of the component nations of the United Kingdom.

Turning back to Northern Ireland matters, the devolved system for corporation tax rates set out in the Bill reflects the following overarching Government goals: we want to attract genuine economic activity to Northern Ireland, minimise additional administrative costs for business, keep the costs of a reduced rate for the Executive at a proportionate level, and ensure as much consistency as possible between the new NI provisions and the main UK corporation tax regime—and of course we need to comply with legal requirements.

The legislation does not cut off Northern Ireland from the rest of the UK tax system or establish a separate and distinct corporation tax regime for Northern Ireland. Control over what is taxed remains a matter for the UK Government and this House. The Bill devolves only the power to vary the rate, so Northern Ireland’s trading regime remains firmly and clearly within the overall UK corporation tax system. The Bill will insert new part 8B into the Corporation Tax Act 2010 and amend the Capital Allowances Act 2001. These changes would give the Assembly the power to set a rate of corporation tax for certain trading profits, based on a proposal from the Northern Ireland Executive. That would be a decision for Northern Ireland, independent of the UK Government or this House. It will give the Assembly and the Executive a powerful economic lever to drive potential growth and enable it to be exercised on the basis of the wishes of Northern Ireland voters, taxpayers and businesses.

Efforts are made to minimise the scope for artificial tax avoidance, as I said in response to interventions. Existing anti-avoidance measures will continue to apply, including the UK targeted anti-avoidance rules and the general anti-abuse rule, and further protections may be introduced before implementation. The overall structure of the devolved regime has been designed to limit the opportunities for avoidance, as I told the House in response to interventions.

A new Northern Ireland rate would cover trading profits, such as those associated with manufacturing and providing services. Other profits—non-trading profits, such as those associated with property income—that do not generate jobs or economic growth in the same way will continue to be subject to the UK-wide rate. Similarly, activities such as lending, leasing, and reinsurance offer significant scope for profit shifting without the benefits of bringing substantial new jobs, so these, too, will be excluded from the Northern Ireland provisions.

To promote continued success in Northern Ireland in attracting back-office functions, companies with excluded trades and activities may make a one-off election for the back-office functions of those excluded trades or activities to qualify for the Northern Ireland Office regime. This is an example of the UK Government’s responding specifically to areas of activity where Northern Ireland has demonstrated its great strength in attracting inward investment. It will not apply to the oil and gas or long-term insurance sectors, which have their own separate regimes and will not be included in the new devolved arrangements. Allowances and credits remain reserved to Westminster to help to maintain a common tax base across the United Kingdom and to prevent unnecessary new complexity from being added to the tax system.

However, a number of rules will be amended to reflect the new circumstances. For example, if there is a lower rate of tax in Northern Ireland, research and development tax credits, capital allowances and creative reliefs for the film, TV and computer game industries will be adjusted to ensure that they continue to be broadly equivalent in value to those in Great Britain. That means that Northern Ireland can continue to be just as attractive a location for successful projects such as “Game of Thrones” and other film and television productions.

The devolved tax regime will also operate differently for larger and small businesses. Larger businesses will need to divide their profits between Northern Ireland and Great Britain, as they do now between the UK and other countries. This effectively means that they will treat their Northern Ireland trading activity as a separate business from their activity in the rest of the UK and allocate the appropriate amount of profit to Northern Ireland. We recognise, however, that this would be burdensome for smaller businesses. Indeed, the issue of potential administrative burdens on small business was one of the key concerns brought out by the 2011 consultation, and the matter was raised by Northern Ireland Executive Ministers on a number of occasions at the ministerial working group. Therefore, if at least 75% of such a business’s staff time and staff costs relate to work in Northern Ireland, then all their trading profits will be chargeable at the Northern Ireland rate. If not, they will be chargeable at the UK corporation tax main rate. This simple in/out test will mean that the majority of small and medium-sized enterprises are spared the burden and cost of apportioning profits.

As I made clear in my previous statement to the House, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement. Those include agreeing and delivering a 2015-16 budget that works, legislating for changes to the welfare system, and taking the steps required to put the Executive’s finances on a stable footing for the long term. I warmly welcome the progress that is under way on those three crucially important matters, with, for example, the recent agreement on a budget for 2015-16. Given the practicalities of implementation, the earliest point at which reduced rates could come into effect is April 2017. The Bill contains a commencement clause meaning that these devolved powers will be switched on for the planned start date in 2017 only if the Executive can demonstrate that they have succeeded in the third goal of achieving sustainable public finances. This is in line with the approach used for other tax devolution measures in other parts of the UK.

The Government have been very clear that devolving corporation tax rates is not an end in itself. Certainly, on its own, it is clearly not the answer to all the economic challenges facing Northern Ireland. If the full potential benefit of corporation tax devolution is to be realised, a number of areas of economic reform need to be addressed, such as planning, skills and infrastructure. However, given the land border that Northern Ireland shares with a lower-tax jurisdiction, it is difficult to think of any one policy which, on its own, may potentially have such a transformational impact on the Northern Ireland economy—

[Ms Margaret Ritchie (South Down) (SDLP)]

rose—

[Mrs Villiers]

And, I believe, on the hon. Lady’s constituency.

[Ms Ritchie]

Does the Secretary of State agree that, as regards potential visits and potential locations for foreign direct investment, there is a need to address the historical legacy of under-investment and regional imbalance if the issue of corporation tax is to have any meaningful benefit in pump-priming the local economy?

[Mrs Villiers]

I know that the Northern Ireland Executive are committed to doing all they can to ensure that the effects of boosting the private sector and enhancing prosperity are felt throughout Northern Ireland. All Administrations grapple with the difficult problem of how to ensure that economic prosperity is appropriately spread. I believe that corporation tax devolution—coupled with a focus on other areas of economic reform such as skills, planning reform and investment in infrastructure—is a crucial way to enhance the private sector and boost prosperity throughout Northern Ireland. I am sure that the hon. Lady will be aware of some of the many difficulties that have been experienced in border areas over the years. People living in border areas stand to benefit as much as everyone else in Northern Ireland from a potentially significant and welcome impact in achieving the rebalancing of the Northern Ireland economy that we all want to see.

Members of the business community have told me on very many occasions that they are convinced that this is the right measure for Northern Ireland. They believe that it will boost the indigenous private sector, both large and small, as well as attract foreign direct investment, and will provide an effective means of rebalancing an economy which for decades has been over-dependent on the public sector. They have therefore strongly welcomed the Government’s introduction of this Bill. I am very grateful for the support for this measure shown within the Northern Ireland business community.

The Government will use our very best endeavours to get the Bill on to the statute book before the Dissolution of Parliament. This legislation has strong support in Northern Ireland. Moreover, the whole of the UK will benefit if corporation tax devolution can help to drive economic growth and rebalancing, and help to deliver a prosperous and stable Northern Ireland.

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

The Secretary of State alludes to the need to get the legislation on to the statute book, and I hope that progress is now being made towards that. Does she agree that beyond that stage, the next Government, and the next Prime Minister and Secretary of State, will have a central role in helping the Northern Ireland Executive in terms of overseas trips and inward investment to ensure that maximum advantage is taken of the opportunity to get the most benefit out of corporation tax reduction?

[Mrs Villiers]

I agree that if the benefits of a reduced corporation tax rate for Northern Ireland are to be realised, that needs to be accompanied by a determined effort to sell the benefits of Northern Ireland to the world. I am absolutely 100% certain that if my right hon. Friend the Member for Witney (Mr Cameron) is Prime Minister in the next Parliament, that is exactly what the UK Government will be doing, because he is completely committed to Northern Ireland and believes that it is a wonderful place. That is why he takes every opportunity to tell the rest of the world what a fabulous place it is, and why he brought the G8 summit to County Fermanagh.

Turning to the mechanics of passing the Bill, any delay would be a great mistake. I therefore very much welcome the support that the Bill has received from hon. Members from Northern Ireland, who have rightly highlighted the importance of corporation tax devolution to their constituents and the potential benefits it could deliver. I welcome, too, the recent U-turn by the Leader of the Opposition, who last week confirmed that Labour will facilitate the passage of the Bill. I am most grateful for that. That recognises the firm and consistent support for the change from the five parties in the Northern Ireland Executive, as well as the fact that this new piece of devolution has a key part to play in the Stormont House agreement.

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

Will the Secretary of State explain at what point the Opposition ever said they would oppose the devolution of corporation tax to Northern Ireland in this Parliament? Can she give a date and a time when the Opposition said that?

[Mrs Villiers]

I seem to remember that when I reported to the House on the Stormont House agreement just a few weeks ago, the shadow Secretary of State was distinctly lukewarm in his approach to corporation tax change, and called for more consultation despite the fact that we had a very extensive consultation back in 2011. If he is now an enthusiast for corporation tax devolution, I welcome that and thank him for coming on board for a project which, of course, the Conservatives have been championing for many years. It is great that Labour has seen the light at last.

In closing, I want to pay the fullest possible tribute to my right hon. Friend the Member for North Shropshire, who picked this issue up off the floor where it had been left by the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), championed it, and put it firmly back on the political agenda here in Westminster and in Northern Ireland. It is in no small part due to his determined and dogged support that this ground-breaking Bill for Northern Ireland is before the House today.

Taking the Bill through Parliament shows that the UK Government are delivering on the commitments the Conservative party made to Northern Ireland at the last general election, and it demonstrates real progress on implementing our side of the Stormont House agreement. The agreement addresses issues that threatened the credibility, the stability and even the continued existence of devolution, and if it is fully and faithfully implemented, it will help us to build a Northern Ireland where politics works, the economy grows and society is stronger and more united. The agreement enables Northern Ireland to take a further step along the road towards a more stable, prosperous and confident future, and I warmly commend the Bill to the House.

13:40

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

On his visit to Belfast last week, my right hon. Friend the Leader of the Opposition spoke of the inextricable link between peace and stability and economic and social progress in Northern Ireland. He was right to do so: without stability, the business confidence necessary for investment and growth will inevitably be undermined; without economic and social progress, stability will be fragile as people see little or no evidence of a peace dividend. The interdependency between the economy and the peace process should be at the forefront of all our minds as we debate the Bill.

For Northern Ireland to move forward there is an urgent need for private sector jobs and growth as part of a long-term rebalancing of the economy. Both further increases in global inward investment and support for new local start-up businesses and small businesses with the potential to scale up will be crucial to progress in Northern Ireland in the coming years.

We should use every opportunity to celebrate the remarkable progress that Northern Ireland has made since the end of the troubles. There are no greater reminders of that than recent achievements such as Derry/Londonderry’s success as the city of culture, and Belfast’s holding the world police and fire games and turning pink for the Giro d’Italia last year. Those amazing events boosted the economy and brought communities together.

In the past few months, there have been major job investments supported by Invest Northern Ireland, including in more than 800 posts at PricewaterhouseCoopers in Belfast, and in almost 500 posts at First Derivatives in Newry. The services sector has recouped almost all the jobs lost during the recession. In recent years, there has been a significant increase in direct foreign investment to Northern Ireland. UK Trade & Investment figures for 2013-14 showed an increase of 32% in inward investment projects compared with the previous year. Northern Ireland outperformed all other nations in that regard: England, including London, achieved 11% growth; Scotland achieved 10% growth; and Wales achieved 18% growth. In 2014 alone, 50 new foreign direct investment projects were secured in Northern Ireland. That significant progress and international interest have been possible because of the leadership of the First Minister and Deputy First Minister, supported by the Northern Ireland Executive.

It must be said, however, that that investment is from a low base, and has inevitably been constrained by the consequences of the global banking crisis. We must acknowledge that the Northern Ireland economy still in fact faces real difficulties in relation to its economy overall, which is not working for the many or reaching kitchen tables in Northern Ireland.

Northern Ireland’s recovery continues to lag behind that in the rest of the UK. Last week’s labour market statistics show that unemployment is still gradually falling—we welcome the fact that it currently stands at 5.8%, a six-year low—but youth unemployment in Northern Ireland is stubbornly high at 19.2%, which is above the UK average of 15.4%, and over half of unemployed people have been out of work for a year or more. Northern Ireland has the highest inactivity rate of all UK regions. The earnings of a typical full-time employee in Northern Ireland fell by 1.4% in 2014, according to the official annual survey of hours and earnings. There has been a very disappointing loss of momentum in the private sector. For example, Ulster Bank’s purchasing managers index for January shows that business recovery in Northern Ireland has slowed, and output has dropped in the main sectors of manufacturing, construction, retail and services.

The Bill recognises many of the unique challenges that Northern Ireland faces. It shares a land border with the Republic of Ireland, where corporation tax is 8.5 percentage points lower than in the UK, and its society is emerging from conflict, with all the challenges that that presents. The public sector employs nearly one in three workers in Northern Ireland compared with fewer than one in five in the UK as a whole. It is therefore right that rebalancing the economy is a priority for the Northern Ireland Executive.

It is clear from the Stormont House agreement and the commencement clause in the Bill that the final transfer of the powers will not take place until April 2017 at the earliest. That ensures that there is adequate time for the proper impact assessment and consultation that the Opposition feel is essential in the interests not only of Northern Ireland, but of the rest of the United Kingdom.

For all those reasons, as well as out of respect for the existing political consensus in Northern Ireland on this issue, we will not seek to divide the House. Moreover, I want to make it very clear that, assuming we have reasonable time for an acceptable level of scrutiny, we will work with the Government to facilitate the passage of the Bill in this Parliament.

As the Secretary of State has set out, the Bill will give the Northern Ireland Assembly the power to set the main rate of corporation tax in respect of certain profits, while control over the corporation tax base, including reliefs and allowances, will remain with the UK Parliament. The devolved rate will apply to all the trading profits of micro and small and medium-sized enterprises if the majority of employee time and costs fall in Northern Ireland. The devolved rate will apply to all the profits of large companies attributable to a Northern Ireland trading presence. Certain trades and activities will be excluded from the scope of the rate, including lending and investment activities. Her Majesty’s Revenue and Customs estimates that the changes will affect 34,000 companies of all sizes in Northern Ireland, including more than 26,000 SMEs, with the exact impact depending on the conditions.

The Opposition accept that the devolution of corporation tax and its subsequent reduction could play an important part in boosting private sector investment in Northern Ireland, alongside a range of other measures.

[Jonathan Edwards]

I am happy that the Labour party is supporting the UK Government’s proposal to devolve corporation taxes to Northern Ireland. The Labour party is also in favour of fully devolving income tax to Scotland, yet it opposes the devolution of any major taxation powers to Wales. Why is Wales being offered an inferior deal?

[Mr Lewis]

We believe that Northern Ireland has special circumstances—a land border with the Republic of Ireland, and a society emerging from conflict—that are incredibly important in this context.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

I welcome this measure for Northern Ireland, and I think that it will inevitably come to Scotland when we have a large Scottish National party group in Westminster. The argument about the land border is a strange one, because there are many places on land borders that have different rates of corporation tax. Logically, that could lead to a situation in which corporation tax was set island-wide in Dublin. I would not like to see such a situation, but that is the logic of the argument about the land border.

[Mr Lewis]

The hon. Gentleman’s party has long advocated the devolution of corporation taxes in Scotland, but the fact is that it did not push very assertively for that during the Smith commission negotiations. Equally, Scotland has enough to do getting on with the very considerable devolution package on which there is tremendous consensus.

The point I want to make to both hon. Gentlemen is that the idea that the devolution of corporation tax is a panacea is a fundamental mistake. I will develop that argument further; astonishingly, it was noticeably absent from the Secretary of State’s speech. The PricewaterhouseCoopers report “Corporation Tax—Game changer or game over?” found that the devolution of corporation tax would be “no magic bullet” for Northern Ireland. It concluded that there was

“no evidence that the Republic of Ireland’s low Corporation Tax, by itself, attracted the high levels of foreign direct investment…that fuelled the Celtic Tiger economy.”

When the Secretary of State did a lap of honour and a hastily arranged photo opportunity in Lisburn earlier this month, she failed to address a number of issues—she has repeated that failure today—that her successor and those on the Treasury Bench will not be able to duck. Any responsible Westminster Government and Northern Ireland Executive will have to address these issues before 2017.

First, the current Government’s commitment to the final transfer of powers is highly conditional. The agreement states:

“The powers will only be commenced from April 2017, subject to the Executive demonstrating that its finances are on a sustainable footing for the long term including successfully implementing measures in this agreement and subsequent reform measures.”

Sometimes, the Secretary of State does not emphasise that high level of conditionality.

Secondly, should Northern Ireland reduce its corporation tax rate to that of the Republic of Ireland, it would lose at least £300 million from its block grant. Budgets would have to be cut. In the awful event of the Tories being re-elected, that £300 million cut would increase substantially as a result of the promised return to 1930s levels of public expenditure.

Thirdly, slashing and burning the state, rather than having a long-term plan to rebalance the economy, is opposed by all Northern Ireland’s parties. Fourthly, severe cuts to school, further education, higher education and adult skills budgets, as well as reduced funding for infrastructure, would moderate the potential benefits of reduced corporation tax. It is investment in skills and infrastructure that will make the biggest difference to private sector jobs and growth, alongside corporation tax devolution.

Fifthly, the Secretary of State has failed to acknowledge the plain truth that significant reductions in corporation tax must be used to stimulate investment, not to inflate excess profits or pay at the top. As my right hon. Friend the Leader of the Opposition said on his visit last week, Northern Ireland faces no greater challenge than inequality. My party is seeking to address that through the independent Heenan-Anderson commission, which is attracting much support and interest in Northern Ireland.

The cost of living crisis has hit Northern Ireland’s families hard. Northern Ireland consistently records the lowest rates of private sector pay in the UK. One in six workers are classed as low paid and a quarter earn less than the living wage. Wages have fallen by £1,683 a year since 2010. One in five children in Northern Ireland live in poverty. Northern Ireland continues to have the highest claimant count of any region in the UK—at 5.7%, it is double the UK rate.

Unless this legislation is carefully managed to ensure that it does not benefit only those at the top, it will not only fail to enhance growth, but perpetuate the horrendous inequality that is leaving too many people in Northern Ireland at the margins of the economy and of their communities. It will also be important, as the hon. Member for South Down (Ms Ritchie) said, to ensure that the whole of Northern Ireland benefits from the legislation—not just Belfast, but Derry/Londonderry, Strabane, Portadown and Newry.

Finally, it would be the ultimate folly if in 2017, as Northern Ireland was preparing to align its levels of corporation tax with the Republic of Ireland, the UK was exiting the European Union. No part of the UK would suffer more than Northern Ireland from the inevitable impact on economic co-operation between the north and the south.

We will enable the passage of the Bill in a spirit of transparency about the potential gains, but with an awareness of the risks. Not only is that the responsible stance for a party that seeks to govern the country in four months’ time; it is right because we have a duty to be honest with the people of Northern Ireland about the difficult choices that lie ahead. The Executive are right to make private sector jobs and growth top priorities as they strive to build a better shared future, but they are also right to reject the slash-and-burn approach to the state that is being pursued with such relish by this unfair and incompetent Tory-led Government.

An incoming Labour Government will not only balance the books in a responsible way, but work with the Northern Ireland Executive to pursue an active industrial strategy that will boost private sector jobs and growth, while tackling the chronic worklessness and poverty of those at the margins of the economy and society in Northern Ireland. We will transform the economic pact between Westminster and the Executive by setting goals to expand the creative industries and other sectors that build on Northern Ireland’s strengths. A shared aim should be to encourage young people who go away to study and travel to return home to Northern Ireland when they are ready to settle down. That will be possible only through the creation of well-paid, high-skilled jobs.

The Bill opens up new opportunities for Northern Ireland, but it will require political leaders to make difficult choices and to ensure that the potential gains benefit the many and not the few. As I have said, the devolution of corporation tax is not a panacea, but if handled properly, it could be part of a new economy that works for working people and leaves far fewer people behind. Ultimately, that is how the Bill will be judged.

13:54

[Mr Owen Paterson (North Shropshire) (Con)]

I was never quite sure that we would see this day. I heartily congratulate my successor as Secretary of State and the Financial Secretary on following this proposal through from the dark days when it was knocked on the head.

For the benefit of the shadow Secretary of State, I will go over the history of the proposal, because he does not realise the enormous benefit that it could bring to Northern Ireland. I see it as the coalition Government’s opportunity to deliver a long-term benefit to Northern Ireland as big as that brought by the Belfast agreement.

When I was appointed shadow Secretary of State for Northern Ireland, most of the major negotiations had gone through, although we had not quite got policing and justice through. I made it my business to go to Northern Ireland every week. I found an economy that was dependent on public spending for 77.6% of its GDP. We all know the horrible historical reasons for that, but it was clearly unsustainable.

On my weekly visits, I found world-class businesses and very skilled people. There were businesses that had come in, often tempted by the generous grant regimes, that were very pleased with the quality of the work force and the education of the staff. However, time and again, we found cases of large investment opportunities being missed because of corporation tax. The hon. Member for East Londonderry (Mr Campbell) is not here, but I remember a very clear case where a big investment could have gone to East Londonderry, but it went to Letterkenny. With the deepest respect for Letterkenny, it is quite a small provincial town.

[David Simpson (Upper Bann) (DUP)]

I pay tribute to the right hon. Gentleman for all the work he did in Northern Ireland as Secretary of State and before that. He had several meetings in my constituency with companies. I want to put it on the record that he was a great enthusiast for this proposal, which has eventually arrived.

[Mr Paterson]

I thank the hon. Gentleman for his kind comments.

I would like to stress that this has ultimately been a team effort. I will list the people who have been involved. This proposal came from a black moment. I have cited the examples that I saw on the ground in Northern Ireland. At the time, a parallel process was going on. The last Government had asked Sir David Varney to conduct a report on the benefits of introducing a lower rate of corporation tax for Northern Ireland. In parallel, significant major figures in the business community were involved. The sadly late Sir George Quigley, to whom we should all pay tribute, had made significant representations. The Northern Ireland Affairs Committee had been involved, as had the Institute of Chartered Accountants in Ireland, led by Eamonn Donaghy.

Varney came up with a lukewarm response. He said, quite rightly, that corporation tax was not the only answer and that a skilled work force was also needed, as had been successful in the Republic. However, he missed the big picture that, time and again, major investment projects went to the Republic because of a lower rate of tax. The late Brian Lenihan, who was the Irish Finance Minister when I was shadow Secretary of State, said that the corporation tax rate was the “cornerstone” of the Republic of Ireland’s “industrial policy”. It therefore seemed bizarre that Varney looked not at the real advantages, but at the disadvantages.

I remember the crushing disappointment when the then Chancellor, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), knocked the proposal on the head. There was a conference at Stormont and then a bigger conference at Hillsborough. I remember Sir Tony O’Reilly waving his arms around and making a great burlesque speech about the advantages of lower corporation tax. Sir George Quigley was also there. Then the Chancellor knocked it on the head and came up with a number of palliative measures that were typical of him. I remember writing letters in subsequent weeks to try to get to the detail. He had stood up in public and said, “These measures will bring the same advantages as lower corporation tax,” but frankly, there were a lot of fiddly little deals that did not deliver. That was a black moment.

I remember sitting next to the late Sir George Quigley, by complete chance, and going over the matter. He was bitterly disappointed because the whole business community had been looking to the proposal. One reason why it had been knocked on the head was that the British state could not afford the forgone tax. At about the same time, we had the Azores judgment by the European Commission, which we could pray in aid. It said clearly—Varney took this conclusion—that corporation tax could be devolved. Lisbon had tried to reduce a tax arbitrarily in the Azores region and was told firmly that there were three conditions.

First, there had to be a democratically elected assembly with a clear jurisdiction over a defined geographical area. Northern Ireland qualified. Secondly, that assembly had to have complete decision-making powers, which could not be interfered with by central Government. Thirdly—it is a pity that the Scottish nationalists are not here to listen—there could be no compensation from central Government for the forgone tax, which had to be borne by the local assembly. For the record, Scotland pays about £2.5 billion in corporation tax, so if it dropped to the rates we are talking about it would have to find £1 billion. Perhaps the Scottish nationalists might consider that when they come back into the Chamber. Sadly, the figure is much lower for Northern Ireland because there are no FTSE 100 companies. Corporation tax is currently about £500 million.

We therefore came up with the idea, in accordance with the Azores judgment, of knocking the forgone tax off the block grant. Government spending in Northern Ireland is £23 billion—£13 billion raised locally and £10 billion from the block grant. If tax went down to Republic of Ireland levels, there would be a reduction of £200 million in the block grant. That is a very small investment to bring to Northern Ireland the sort of businesses that would come in.

That idea began to take shape. Following the dark days after it had been knocked on the head at the conference that I mentioned, two things happened. First, we set up a report by the TaxPayers Alliance, the investigation group, on corporation tax. Secondly, and I think more importantly, Sir George Quigley got together with others and pulled together a key group of people, to whom I pay tribute. There was Sir George, who at the time was chairman of Bombardier; Victor Hewitt, the head of the Economic Research Institute of Northern Ireland; Eamonn Donaghy, the head of tax at KPMG, who has been tireless throughout; Graham Gudgin and Neil Gibson, economists at Oxford Economics; Professor Mike Smyth, professor of economics at the university of Ulster; and finally Mike Hall, a tax partner at Ernst and Young. They formed the key Northern Ireland Economic Reform Group, and their report, which came out in February 2010, said categorically that if corporation tax in Northern Ireland changed from 28% to 12.5%, it would result in the creation of 80,000 new jobs over a 20-year period.

The previous year, there had been the terrible murder of Police Constable Stephen Carroll in Craigavon, which was an appalling event. We all know how divided the communities in Craigavon, Portadown and Lurgan have been. I remember clearly during one of my visits going to the great pharmaceutical company Almac, which employs about 2,000 people. The chief executive said, “If you can get this through and get corporation tax rates down to the level of the Republic, we’ll double the business and we’ll double the work force.” My direct response to the shadow Secretary of State and doubters in the Labour party—I am delighted that they have come on board today and said that they will support the Bill—is that they should think of the benefits to Northern Ireland, not just economically and socially but politically, of a further 2,000 people being on pharmaceutical-level wages and injecting money into their communities. The Labour party should get its head around that long-term benefit.

On that basis, and with strong support from the Prime Minister, I committed in March 2010, on behalf of the Conservative party, to devolve corporation tax. That became a manifesto pledge in our Conservative and Unionist manifesto. Although we did not quite win the election, that pledge was continued as part of the coalition programme. At the same time, there was real enthusiasm for the idea across the business community. In October of that year, Grow NI was formed, involving pretty well every business organisation—the CBI, the Institute of Directors, the Federation of Small Businesses, the chambers of commerce, the Northern Ireland Independent Retail Trade Association, Manufacturing Northern Ireland and about a dozen others. They lobbied people not just in Westminster but in Stormont, and importantly they got support from all five political parties in Northern Ireland. I pay tribute today to all those parties—I had endless discussions with them at that time, and they all came together. I think it was a unique event—I am not sure whether we had ever got all parties allied on a single policy before.

Key to that process was the Financial Secretary to the Treasury, who was then the Exchequer Secretary—I am pleased that he is in his place. He completely got on board with the long-term benefits not just for the Northern Ireland economy but for the UK economy. To pick up on the comments of my hon. Friend the Member for Amber Valley (Nigel Mills), if we can make Northern Ireland more economically viable, it will be of real benefit to our constituents in Shropshire and the east midlands. It will reduce the need for the block grant if the economy prospers and grows well. There is a massive UK-wide reason for supporting the devolution of corporation tax, and the then Exchequer Secretary really got that point.

My hon. Friend the then Exchequer Secretary and I went to Kelvatek, a splendid example of a Northern Ireland business, led by John Cunningham. All five political parties came along and we launched the consultation. It is important that the shadow Secretary of State understands that there was a lengthy consultation throughout 2011, and there were further launches for Grow NI, including the big launch at the Lyric theatre. There were about 750 responses to the consultation, and they were overwhelmingly in favour of the idea of devolving corporation tax.

That autumn, with the help of the then Exchequer Secretary, we began joint meetings involving the Northern Ireland Office, the Treasury and the Northern Ireland Executive. The first was in December 2011, and the last one in which I was involved was in June 2012. After that, I was delighted that my successor took up the baton. She has manoeuvred around Whitehall with great skill, because there was considerable hostility to the idea and real nervousness about it among significant elements of the establishment here. It is a tribute to her skills that we have the Bill today.

The Bill is quite something. This is a day that we will remember—as I said, in the long term, the benefits will be equivalent to what the last Government did in the Belfast agreement. It could help to create long-term prosperity and bring to disadvantaged communities the wealth that the shadow Secretary of State mentioned. The key thing is to get the message across. I would like members of the local parties to go back to Northern Ireland tonight with a clear message. The start date in the Bill is April 2017, and it is incredibly important that not only local businesses but UK and foreign businesses have a clear signal of what will happen on that date.

[Mr Ivan Lewis]

I pay tribute to the right hon. Gentleman for the work that he did in Northern Ireland. People have a great deal of respect for the contribution that he made.

May I ask the right hon. Gentleman a specific question? If, at the same time as corporation tax is devolved, the skills budget is slashed and there is inadequate investment in Northern Ireland’s infrastructure, what will the consequences be for the foreign direct investment that he keeps going on about?

[Mr Paterson]

I have cited the figure that state spending in Northern Ireland is £23 billion, which is a significant amount from public funds. With his obsession with public expenditure, the hon. Gentleman does not understand the concept of growing the cake. The reduction in corporation tax will lead to an increase in private activity. I have mentioned the figure of a £200 million reduction in the block grant, but the hon. Gentleman assumes that the size of the cake will be static, which it will not.

The local parties must grab this opportunity and make a clear statement that there will be a dramatic reduction in corporation tax from April 2017. I would happily go below 12.5%, but it must be that at most, to answer the question that the hon. Member for North Antrim (Ian Paisley) asked. The bigger the drop, the bigger the message that will be sent out around the world. My message was that I wanted to turn the whole of Northern Ireland into an enterprise zone. If we do that, the cake will grow, so the figure of £200 million is for the birds. There will be significant internal investment from companies such as Kelvatek, significant investment from the rest of the UK, and foreign direct investment. There will be more economic activity, which will rapidly make up for that modest reduction of £200 million. That money will stay in Northern Ireland hands, but it will be in business and private hands rather than state hands.

I therefore hope that the local politicians will go back to Northern Ireland with a clear determination to build on today. Although this is a dramatic day, all that the Bill does is provide the powers. The real trick in the long term is to make a clear statement that, as in the Republic of Ireland, there will be absolute determination to keep corporation tax low. That was what the Republic did through its most difficult time, and we can see the benefits there.

This is a great day for Northern Ireland, and I congratulate everybody involved, including all the political parties. I am delighted that the Labour party has come onside, and I congratulate the people in the Northern Ireland Office and the Treasury who have come up with a fiendishly complicated-looking Bill. I wish it well.

14:09

[Sammy Wilson (East Antrim) (DUP)]

I trust that I will do what the shadow Secretary of State did and give a balanced view, from a Northern Ireland perspective, of where we see the Bill taking the Northern Ireland economy and the impact that it will have on the economy.

It would be churlish if we did not acknowledge that considerable work has gone into the proposal. It has taken many years, and as the right hon. Member for North Shropshire (Mr Paterson) indicated, a large number of people have been involved in making the case for the devolution and then doing what was necessary to bring it about.

I pay tribute to the right hon. Gentleman for the role that he has played in this change, although I would point out that the cudgels were first taken up by the leader of my party, who was then Finance Minister in Northern Ireland and was convinced that the decision made after the Varney report was published was incorrect. He started the ball rolling on this issue in Northern Ireland. Many businesses also supported the campaign.

I also pay tribute to the work done by the Financial Secretary and his officials during the time that I was the Finance Minister in Northern Ireland. I know that sometimes we made progress and then were knocked back a bit, and it was frustrating at times. But many of the issues addressed during those discussions were essential if the issue was not to fall foul of European legislation or decisions by the European Court. Much of that groundwork was very necessary.

One of the things that drives this change is the desire in Northern Ireland to transform our economy. Our region has not always been in the economic doldrums. In fact, for a long time during the 20th century, Northern Ireland was a driver in the UK economy. We had world-leading, world-renowned industries that drove a healthy economy. Many of those industries declined because of changes in world demand, distribution patterns and global trends, which also coincided with the start of the troubles. As a result, major industries declined and Northern Ireland was an unattractive place for new private sector companies, resulting in an unhealthy increasing dependence on the public sector.

One of the aims of the Northern Ireland Executive is to rebalance the economy as well as to grow it. To do that we need the right economic levers, but—as the Secretary of State said and the shadow Secretary of State alluded to—there is no point having those levers in our hands if the right conditions do not exist. I agree with the Government—although some frustration is felt back home on this point—that it was right for them to insist that the Executive have a budget that showed the tax change was sustainable and that we could absorb its impact. It was right that we should not pay money annually to the Treasury because we had not concluded the welfare reforms, because that was of course a drain on the resources that were available to the Executive.

The conditions that were laid down were correct and the Executive has now proposed a budget, although it has not been supported by all the parties. Some parties, even though they are in government and their Departments would benefit from the savings in the budget, have taken an irresponsible attitude. They think they can benefit from the budget and at the same time distance themselves from the more difficult aspects of it—

[Naomi Long]

And you would never have done that.

[Sammy Wilson]

I seem to have hit a sore spot or at least the tender parts of the body politic among those parties that have engaged in such activity.

We have to get the welfare reform proposals through the Executive, but agreement has been reached and I hope that, as this Bill makes progress, we will also see the passage of the welfare reforms in Northern Ireland, albeit with changes—mostly secured by my party—to the Welfare Reform Bill that will make it less draconian. Indeed, I think that some of the changes in the Welfare Reform Bill will have to be revisited by this Parliament at some stage.

[Ms Ritchie]

Will the hon. Gentleman give way?

[Sammy Wilson]

I will, because I know that the hon. Lady is feeling sore from some of my remarks.

[Ms Ritchie]

I assure the hon. Gentleman that I am not feeling sore in any way. He is avoiding the reality to suit a certain political situation. He used to be a sceptic about corporation tax, but he has had a damascene conversion. Notwithstanding that, can he tell us what measures will be introduced to achieve the benefits of welfare reform for the people of Northern Ireland?

[Sammy Wilson]

If the hon. Lady is not feeling sore from some of my remarks, she is more brazen than I thought she was—[Laughter.] As she has not yet heard the rest of my speech, she does not know what I am going to say or the balanced arguments that I am going to make about corporation tax.

Everyone who has spoken so far has suggested that there is widespread support for the Bill in Northern Ireland. That is, of course, not true. The Green party opposes it, but then that party opposes economic growth apparently, according to its latest manifesto. I can understand, therefore, why it would not want to see any measures that would encourage economic growth in Northern Ireland. I do not know how the Green party expects us to tackle our unemployment or standard of living problems with no economic growth, but in any event it opposes the Bill.

The other opponents of the Bill are the trade unions, which are organising a one-day strike against it and other measures some time in March. At the same time as they complain about youth unemployment and the low-wage economy, they oppose a measure that has the potential to address all of those issues and want to strike against it. I do not understand their logic.

The only other party that opposes the measure is the traditional Unionist voice, but I think that is because we support it. That seems to be the rationale for anything it does.

All parties in this House are agreed that tax incentives can be beneficial in stimulating business growth. Some may disagree about the actual form the tax incentive should take or the degree to which it should be used, but there is an undeniable correlation between such incentives—be they small business rates relief, corporation tax reductions or oil industry taxes—and growth. Shareholders are attracted to putting money into businesses, which in turn have more profits to plough back into investment. Tax incentives can also give businesses a competitive edge over those in other countries. That is the rationale behind the Bill and no one can deny that it will have an effect.

In Northern Ireland there is an additional reason to make the change in that we share a land boundary with a country that has had a lower corporation tax rate. Some people say that this will not have a beneficial effect, but it is significant that, even when the Government of the Irish Republic were having to slash public expenditure and incur the wrath of the population by reducing wages in the public sector, putting up taxes, introducing new charges for water and so on, the one area for which they were fiscally responsible and did not make any changes was corporation tax. They had obviously judged that when it came to fighting for business, corporation tax—albeit along with other measures—was a shock and awe tactic they could use to try to attract businesses to the Irish Republic. That is a significant argument.

I have a degree of scepticism about economic modelling. As I am sure the Financial Secretary would tell us, we can put whatever finely tuned assumptions we want into economic models, but they can be upset fairly quickly. In the next 15 years, it is estimated that output in the Northern Ireland economy will grow by 11%, creating about 37,500 jobs. Any economic model must come with a warning that the assumptions on which it is based can change fairly rapidly. However, the estimate has been made using the economic data we have at present: assumptions, past trends, information from other economies and so on. In Northern Ireland, we cannot afford to ignore that estimate, even if it is not totally correct, especially if it will grow the private sector and bring in well-paid, above-average jobs.

We had concerns about a number of issues. We did not want a Bill for people who simply moved their profits to Northern Ireland and did not create jobs. There is no benefit to us in having companies with just a brass plate outside the door, but no substance. I believe the Bill addresses that issue, as much as it can, by indicating that it will benefit trading profits only. In addition, there will be strict investigation by the Treasury of companies who try to move profits. As I understand it, there will be a charge for ensuring that compliance measures are put in place to avoid such scenarios.

If we do that, what about small businesses? Many small businesses, especially in the construction industry, have a substantial amount of work in Great Britain because of the decline in the construction industry. We did not want small businesses to have huge administrative costs imposed on them for differentiating where they made their profits. I welcome the proposal in the Bill that businesses based in Northern Ireland with 75% of their activity and employment there, will be exempt on all their profits. That should cover 99% of small businesses in Northern Ireland so there should not be administrative costs for small businesses.

Oil and gas is excluded from the legislation. I hope that very shortly, despite the endeavours of the Social and Democratic and Labour party Environment Minister, we will have a substantial oil and gas industry that can exploit the shale gas resources that we believe are buried under the ground in Northern Ireland. There may be some who play the populist line and say, “Let’s just keep those resources there. After all, they’re nasty CO₂-producing fossil fuels.” I want them to be exploited for the benefit of the people of Northern Ireland and the United Kingdom. The profits from those companies would not currently be subject to the corporation tax arrangement, but I hope that if and when we develop such an industry, Northern Ireland will benefit from the kinds of promises that have been made to the north-east of England, including a sovereign wealth fund to take in part of the profits from those businesses and plough them back into public expenditure projects. I understand, however, why that has not been included at present.

On financial sector profits, there were two issues. I was not all that supportive of the argument about why those nasty banks, who nearly destroyed our economy, should benefit from reductions in corporation tax, paid for by reductions in the block grant. I understand the emotional rhetoric in that argument, but I am more concerned that the profits of banks and other financial institutions are much more volatile and more easily moved without detection than the profits of manufacturing or other companies. One has only to look at the difference between 2007-08 and 2008-09, when banks’ profits changed from £255 million to £45 million. That kind of volatility in tax revenue was a compelling reason why we should not include the profits of financial institutions in the Bill. I am glad that the Government have responded to that.

[Mrs Villiers]

I very much welcome the hon. Gentleman’s remarks. It is important to bear in mind that certain activities relating to banks and financial services can fall within the scope of a new Northern Ireland rate, in no small part because of the election provisions in relation to back-office functions. For example, the kind of work that is currently done in Northern Ireland by Citigroup could fall within a new reduced Northern Ireland rate.

[Sammy Wilson]

That was exactly the point I was going to make. Having said that there are exceptions to this, the exemptions are important because one of the fastest-growing sectors in the higher wage end of the Northern Ireland economy has been those back-office financial services jobs. We would not want to lose the ability to attract them. There is provision in the Bill to allow for that. Whether they are brought as separate or spur companies to the main company, they will nevertheless be subject to the new regime.

There are some dangers. One danger we have heard about time and again—it was alluded to by the shadow Secretary of State—is the potential loss of public sector expenditure. Under the Azores ruling, we will have to pay for whatever the forgone revenue happens to be. That will depend on the rate we eventually set. At maximum, it could be about 3% of the current revenue budget available to Northern Ireland. In the current circumstances, to try to find that immediately would be very difficult, which is one reason why the decision to introduce this will not be implemented until at least 2016-17. That will give the Executive time to plan.

We must remember, however, that the reduction in the block grant and money available for public expenditure in Northern Ireland will be offset by the expansion in other parts of the economy. Yes, that is a gamble, but can we politicians in Northern Ireland sit on our hands and do nothing, knowing that public expenditure is going to tighten, regardless of whether there is a Labour or Conservative Administration, given how heavily reliant we are on public expenditure? That would be wrong. The shadow spokesman wants to know the reason for my alleged conversion. This is one of the issues to weigh in the balance. Can we just drift along, knowing that regardless of which party is in government at Westminster the public sector is going to contract, and make no provision for expanding the private sector?

[Mr Laurence Robertson (Tewkesbury) (Con)]

I agree entirely with the hon. Gentleman. On the reduction in the block grant, however, we do not know what the block grant will be in 2017. It might be higher than expected, in which case perhaps the consequential drop would not be felt. It could also be argued that the recent agreement at Stormont House already mitigates any reduction.

[Sammy Wilson]

Given the comments from the hon. Gentleman’s party and the Labour party, I suspect the grant will not be higher. Furthermore, we still have to deal with our dependence on public sector expenditure. It is being squeezed all the time, and therefore we need to look at rebalancing the economy.

[Naomi Long]

I agree that public finances will continue to be under pressure and that therefore we need to grow the private sector to counterbalance that. Does the hon. Gentleman agree, however, that Northern Ireland’s reliance on the public sector is even worse than the Secretary of State mentioned, because many of the privately owned companies are almost entirely reliant on Government contracts? It is not just about those directly employed in the public sector; it is about the number of private businesses that rely on the public sector for their employment.

[Sammy Wilson]

That is one of the reasons, of course, that some people say the public sector accounts for as much as 62% of employment in Northern Ireland. Some of it is disguised in the way the hon. Lady suggests.

We have to consider whether we can simply sit on our hands. However, there is a second consideration for the Northern Ireland Executive. Yes, there is some risk attached to the policy; all economic policies carry some risk, but in measuring and trying to balance that risk, we have to consider the impact of the policy elsewhere, especially in areas similar to Northern Ireland. I have already mentioned the approach of the Republic of Ireland Government.

As the changes to the rules on accounting and disclosure come forward, I know that some of the financial services issues might be addressed, but we have not touched on the ongoing cost of the devolution of corporation tax, which is currently reckoned to be about £300 million. However, as the economy grows, a formula will be imposed in respect of the loss of revenue, and given that there could be a substantial reduction in corporation tax in Northern Ireland, the formula must not be draconian. For example, if it was set at an unrealistic rate, based on the performance of better performing regions or of the UK economy as a whole, the burden could become substantially higher as time goes on. We need clarity on that issue.

The right hon. Member for North Shropshire said that from this day on the Executive should be proceeding with this matter, but we cannot do so because the Bill has not yet been passed. I know he is enthusiastic, but I think his enthusiasm has run away from the reality: the Bill has to pass its stages as normal.

[Mr Paterson]

I said that the Northern Ireland parties should make an announcement now about what they intend to do with the powers once the Bill has passed. If such an announcement were made, in the two years between now and April 2017, local businesses, UK businesses and, above all, foreign business could begin to plan in the knowledge that they would benefit from a much lower rate of tax. The hon. Gentleman is right—we have to pass the Bill, and I am delighted it has the support of the Opposition—but it is vital that, from today, the local parties say what they would do with these powers, on the basis that the Bill will pass before Dissolution.

[Sammy Wilson]

On the last point, given that the ongoing cost is not known yet, there remain some issues to resolve.

There is a challenge, not for politicians, but for the businesses that have campaigned for the devolution of corporation tax. As the shadow Secretary of State said, those businesses have a responsibility not to use their profits simply to pay higher salaries for managers, for shareholders or for vanity projects. Having campaigned for this change, and given its implications for expenditure in Northern Ireland, they have a responsibility to ensure that the additional money that results from forgoing tax revenue is invested in their companies to increase productivity, make them more competitive and create better-paid jobs. Only then will this campaign have been a success.

14:36

[Mr Laurence Robertson (Tewkesbury) (Con)]

It is a pleasure to follow the hon. Member for East Antrim (Sammy Wilson), who drew on his experience in the Northern Ireland Assembly to make a very useful speech. I also congratulate the Secretary of State on introducing the Bill, which has taken a good deal of skilful negotiation, and on doing so before the election. It would have been easy to push it back. I think the whole House is grateful to her.

I also pay tribute to my right hon. Friend the Member for North Shropshire (Mr Paterson). I had the pleasure of working with him in opposition when he thought outside the box and came up with this idea. Yes, it had been discussed to some extent, but it had not been fully discussed in this place. At the time, there was opposition, as there always is when somebody comes up with a radical new idea, but he had the foresight, determination and courage to press ahead, and when he became Secretary of State, he made it clear that it was one of the most useful things we could do for Northern Ireland. We are now seeing the benefit of his work.

A few years ago, this proposal was the first thing the Select Committee looked at when we wanted to find something that moved us away from the orange and green issues and the security situation—serious though it was—to look at different ways of helping the people of Northern Ireland. We thought that the economy was one way we could do that. We took evidence from a great many witnesses—businesses, trade unions and very many other people—and eventually came up with a report that recommended the devolution of corporation tax to the Assembly. I should point out that it was not a unanimous decision. Several Committee members had concerns or reservations, a number of which have been addressed by the hon. Member for East Antrim. However, we felt that the benefits would be overwhelming and that we could address the problems that the decision might throw up.

As has been said, Northern Ireland is the only part of the United Kingdom that shares a land border with another country, and that country happens to have corporation tax at a much lower rate. As has been pointed out, southern Ireland—the Republic of Ireland—stuck to that policy through thick and thin. I remember going to see the EU Commissioner when the Select Committee was looking at the issue. He was rather dubious about the Republic of Ireland’s low level of corporation tax and expected that it would have to roll over, give way and increase the rate. However, as I said to him, that might have been okay in the short term, but what would it have done for the Republic of Ireland’s longer term prospects? I am glad that that country won the day.

I recognise—I say this as a Unionist—that there was some concern about setting the rate of corporation tax in Northern Ireland to match that in the Republic, as though that was somehow giving up or compromising on Britishness. It is nothing of the sort. We have a single electricity market across Ireland. Ireland is promoted as one for tourism—I think we could do more on that—and there are experiments with common visa arrangements. All that is sensible. To me, that is not about green or orange; it is not about Britain or a united Ireland. These are sensible measures. Giving the Assembly the ability to cut the rate of corporation tax in Northern Ireland to compete with the south would be a simple and sensible arrangement, and there is a need to do it.

As we have seen from the economic statistics, which have been discussed in the House and repeated many times, Northern Ireland lags behind on many measures when compared with the rest of the United Kingdom. It is doing okay—it is improving and getting there—but it really needs a boost to move it along rather more rapidly. That is why, interestingly, as well as most members of the Committee and most witnesses agreeing with the proposal to devolve responsibility for corporation tax to the Assembly—along with every political party in Northern Ireland, which is rather unusual—the Irish Government agree with it too. I have heard the Taoiseach on more than one occasion say that he thinks it would be a good idea for Northern Ireland to be able to have the same level of corporation tax. He does not see it particularly as a threat; he sees it as a sensible move.

The Committee also found that corporation tax in itself is not necessarily the silver bullet. It is not going to transform the whole economy—other measures are needed, such as improvements in the planning regime and many other areas—but it is a good headline grabber. It will grab the attention of the business world, and that can only be a good thing. For example, just a few weeks ago the Committee travelled to Belfast and had a meeting with Senator Gary Hart, who was over to help with the discussions. We put the point to him, and he said the change would remove one of the reasons for not investing in Northern Ireland, because when people look from afar and see the island of Ireland, where are they going to go? Of course, other factors come into play too, but if corporation tax is 12.5% in the Republic and 20% in Northern Ireland, surely that is a draw towards the Republic of Ireland. He said he would be willing to try to set up a trade delegation from the United States to come to Northern Ireland with a view to exploring the investment opportunities. That has to be a very positive move indeed.

Again looking from afar, it is not just that Northern Ireland shares a land border with the Republic of Ireland that is a compelling reason for making this move. Northern Ireland is also part of an island off an island. If it is exactly the same as the rest of the United Kingdom, what is the benefit of investing in Northern Ireland? We have to ask ourselves that question. What will draw companies to Northern Ireland rather than investing on the mainland? If everything is the same, perhaps they will not do that, but if things are more attractive in Northern Ireland, surely companies and investors will consider their options in the Province. To an extent, it is the same with the United Kingdom, which is one of the very many reasons why I am not for making ourselves exactly the same as the European Union. If we are exactly the same as mainland European countries such as Germany or France, what is the attraction of coming to the United Kingdom and investing here? There has to be a reason for people to come here, and it is up to us to give them that reason.

I want to touch on another point, which is slightly off the issue, but which is important when we consider the extent of the benefit that reducing corporation tax might bring. When we were in the United States on a Select Committee visit about 18 months ago, we discussed this issue—very positively—and a number of others, but one thing that came up time and again was the violent scenes that we see on our television screens and which are flashed across the world. No matter what this place or the Assembly does on tax or any other incentives, it is destroyed in a single night, with a single vision of any violent scenes or paramilitary activity that is flashed across the world. Nothing could drive people away from Northern Ireland in a worse way or more quickly than that. Anybody in a republican organisation or a so-called loyalist organisation who engages in such activity is betraying the people they purport to represent. They really ought to bear that in mind.

There are a number of issues that perhaps need to be looked at in greater detail. I am not making a criticism, but I would ask the Secretary of State whether she has given any thought to how the Bill might be considered during its Committee stage. As I understand it, it will be considered in Committee upstairs. However, there are a number of issues that still need discussion, so it might be an idea to consider holding the Committee stage on the Floor of the House. As we move towards the election, sometimes the Chamber is not as heavily used as it might be at other times. Maybe we could consider discussing these issues in a way that allowed all Members to take part, rather than just a few Members upstairs.

I understand why this change cannot be introduced absolutely straight away, but I am a little concerned that it is being pushed back two years. A lot can happen in two years. However, while we have the full agreement of people in all the political parties in Northern Ireland—on this issue at least, if not on any other—let us take advantage of that. Let us drive this forward as quickly as we can.

[Sammy Wilson]

Does the hon. Gentleman not accept that, first, budgetary planning must be put in place to deal with the payment that will come off the block grant? Secondly, as many firms make investment decisions over a long period, it makes sense to announce the change soon, but for payment to be in two years’ time, because that will reduce the cost to the Northern Ireland Executive, while at the same time attract firms that are thinking about investment now, but which will perhaps not implement it for a couple of years.

[Mr Robertson]

The hon. Gentleman makes a very reasonable point, which I suppose goes back to the point made by my right hon. Friend the Member for North Shropshire, who said we should get on at least with saying what we are likely to do, as that will start the ball rolling.

We also have to be careful not to expect too much of the Assembly when it comes to looking like an efficient decision making machine and getting this matter devolved. As everyone in this House knows, it was not designed for the purpose of being an efficient decision making machine; it was designed to bring people together to bring about peace, and there can be no greater cause than that. That issue has already started to be addressed through the Stormont House agreement; nevertheless, the Assembly is not the most effective machine. It has its problems—there is of course the need for votes on both sides to be in a majority. All that is not how this place works; nor would we get very much passed if we worked in that way. The Assembly was set up in that way for a different purpose, so I do not think too much store should be set by that. We should get on with this proposal in any case.

There are other important matters, including planning. Skills and education are important, too. We must ensure that we have a skilful and well educated work force in Northern Ireland, and then it becomes important for Northern Ireland to retain the people it educates. So many times we see a number of countries training and educating their people well, only to see them attracted to work abroad rather than bring the benefits of their skills and education to their own country. We need a peaceful society in Northern Ireland for that to happen—otherwise we will continue to lose people—and we need to create the sort of prosperity that people want to enjoy. If we can do all that, I think we will ensure that future generations are able to enjoy greater prosperity and greater peace than was available to past generations.

14:50

[Mark Durkan (Foyle) (SDLP)]

I join fellow Northern Ireland Members in acknowledging not just the enthusiastic contribution from the right hon. Member for North Shropshire (Mr Paterson), but his long-standing role on this issue. I know that when he was Opposition spokesperson on Northern Ireland, he took a deep interest in the issues facing the community in different parts of the country, and he was particularly interested in helping those who were trying to develop the economy. I recognise that he had a particular sympathy with the case that was being made, but giving Northern Ireland the capacity to differentiate itself in respect of corporation tax was not getting much of a hearing from the then Government.

I recall chairing the Enterprise, Trade and Investment Committee in the Assembly during some of those years, and in that capacity I had meetings with David Varney, who had been asked to produce a report by the British Government. It was quite clear from my conversations with David Varney and when we collectively as an all-party Committee met him that he was picking up different sentiments from across the political parties, and certainly from the permanent Government. A particularly sceptical attitude was notable on the part of certain quarters in the civil service, who may or may not have been speaking for their Ministers. The strong suggestion was made that the case noisily being put collectively by the Northern Ireland parties via the business groups—I recall the late Sir George Quigley doing great work on this—was not being matched by what was being said in private. That is what the Government were saying.

That might have reflected some trepidation about the possible impacts of the change or the price that would have to be paid for making it, but it was always the case that a price would have to be paid when it came to corporation tax. I remember when the Business Alliance had its first meeting about corporation tax. I recently heard that that ball was thrown in by Peter Robinson when he was Finance Minister. This was back in late 2002, after the Assembly had been suspended, and it went into 2003. Some of us said then that the issue would come down to whether we were prepared not just to seek the devolution of corporation tax, but to pay the price for such devolution, and that we needed to prepare for that conversation. At that stage, some of the parties said no, as they did not think that was needed, so the issue was ducked.

To be honest, I do not think we shaped up enough to make the case as well as we might have done. That was not the first time that the issue of capacity in relation to corporation tax was raised because it came up in the negotiations leading to the Good Friday agreement. Some of us said that we wanted to build in capacity for fiscal discretion, particularly in relation to corporation tax and some other taxes that had an economic impact. That was certainly the SDLP’s position.

The right hon. Member for Torfaen (Paul Murphy) was chairing the detailed negotiations on strand 1, and that is often forgotten, when everybody else claims all sorts of credit for the peace process. He honestly reflected that he was under strictures from the Treasury not to encourage too much discussion on the issue, but he nevertheless facilitated and allowed it. It just so happened that there were not too many takers among the Northern Ireland parties for it at that time. Perhaps people did not believe that we would get an agreement at that stage. There were certainly not many takers. With the exception of the SDLP, which put forward arguments about corporation tax and other matters, and the Alliance party, which favoured the Scottish-style proposal of 3% on income tax, there were no other takers for according fiscal discretion to the Assembly. The argument and the case were made, but for whatever political reasons, people did not embrace them.

So the argument was put back on the table by the Business Alliance between late 2002 and early 2003, but it particularly came back into play with the restoration of devolution in 2007. To be honest, the question arises as to why more of a case for it was not made when the terms for restoring devolution were discussed. Some of us raised the issue again during all those negotiations in 2005, 2006 and 2007, but there were no takers or backers for it. Perhaps people needed the confidence of seeing a more settled phase of devolution before they could fully turn their minds to the issue.

Perhaps if we had achieved the devolution of corporation tax much earlier, we would have been much further down the road when it came to all the benefits it can offer. We are told that all this opportunity and prosperity can come on the back of this corporation tax differential, so would it not have been much better if we had done this years ago—at a time when we had a much healthier budget management situation for the devolved Executive?

[Mrs Villiers]

Given that the hon. Gentleman’s party holds the environment portfolio in the Executive, does he agree that one way to get the full benefit of corporation tax devolution is by making Northern Ireland more competitive by reforming the planning system? It would be good to see back on the agenda in the Assembly the amendments that were debated on the reform of judicial review and planning, because it seems that the system is getting in the way of some important and worthwhile infrastructure projects in Northern Ireland.

[Mark Durkan]

I think that is a very unfair criticism of previous Ministers of the Environment who presided over that very system for many years and who are here. Yes, we hold that portfolio at the moment and, yes, we have made significant moves and improvements. What we did not agree with was the attempt to abandon planning criteria on the basis of the say-so of the First Minister and the deputy First Minister by designating a particular area. We thought that would lead to controversy, and the resistance to it came not only from the SDLP Minister but from many stakeholders, including many economic representatives, who were very sceptical about this strange approach. There are straighter and better ways of improving the planning system in Northern Ireland and of making it more efficient and more effective.

Many people have raised the issue of Northern Ireland’s competitive position compared with the south of Ireland. We need to remember that the sort of factors at play in the south of Ireland’s very successful drive for inward investment and its successful growing of its indigenous companies to become increasingly global players—to be acquired and, indeed, to conduct acquisitions themselves—go beyond just the corporation tax regime. They include the very significant long-term investment in further and higher education—not just at university level, but at the level of the institutes of technology. Many people are going to graduate from the technical universities as well, and this has happened alongside heavy investment in infrastructure and a very responsive and better managed planning system to deal with the needs of companies. The planning system in the south might have been long and delayed for some infrastructure projects, but when it comes to industrial projects, it has moved with a fleet of foot, and Northern Ireland does not compare well with that.

Like others, I believe that corporation tax on its own is not a silver bullet, a magic bullet or any other type of bullet. We in Northern Ireland are not meant to like bullets nowadays, but we sometimes find ourselves talking about them in contexts such as this. The fact is that we need to consider other policy measures as well. The Executive will be put under some strain by the budget scenario that they will face over the next few years when it comes to the other drivers that will be needed to maximise the benefits of corporation tax in a way that would compare favourably with the success of the south.

Mine is a border constituency. The Foyle constituency contains the city of Derry, or Londonderry as some Members would be quicker to call it, and many people in the constituency work in businesses across the border. The right hon. Member for North Shropshire referred to investments in Letterkenny. Many of my constituents work there, and there is strong cross-border co-operation. Something that is good in Letterkenny is good for Derry, and something good in Derry is good for Letterkenny.

There are firms that are paying 12.5% in corporation tax, but that does not mean that we have full employment in Derry. Some Derry firms are in nearby Donegal, and firms there that are Derry-based and originated in Derry employ many Derry people. A peripheral border region will face other infrastructure challenges, and the corporation rate on its own will not deliver high employment.

We must ensure that the Bill does not create unnecessary complications or confusions for the firms that would benefit from it, or create reputational problems for the region and its governance. The Chairman of the Select Committee, the hon. Member for Tewkesbury (Mr Robertson), wanted to know whether some clauses would be taken on the Floor of the House during the Committee stage or whether the entire Bill would be dealt with upstairs, but, in any event, we shall need to go through all the detail. I agree with the hon. Member for Bury South (Mr Lewis) that the Bill requires the fullest and best possible scrutiny, so that we do not find ourselves surprised or confused by what may emerge later, whether it is the behaviour of businesses or the response from the Treasury or Her Majesty’s Revenue and Customs. We may be confronted by patterns and practices that we did not anticipate, or that we assumed would be dealt with by measures in the Bill.

The Bill introduces not just the capacity to devolve corporation tax in the sense of allowing the Assembly to set a different headline rate, but a whole calculus in relation to the effects on the block grant. There is what could almost be called a new ecosystem of company definitions: for instance, the Bill defines Northern Ireland regional establishments, Northern Ireland small and medium-sized enterprises, and Northern Ireland rate activity. All that will clearly provide a field day for the accountants and others who will have to work their way through it and take companies through it, but we, as legislators, will have to be careful when dealing with those terms. We shall need to understand how they will operate in practice, and how they will be interpreted. We shall need to know how the relevant profits will be measured, not least the relevant intellectual property profits.

The Bill states that the Government—the Westminster Government—will retain full control of allowances and credits, and I can see the case for avoiding an arrangement whereby the regional Government would be responsible for both the headline rate and for allowances. The devolved Government might well be susceptible to particular pressures from particular sectors for specialised allowances. That could create more difficulties and confusion, and it could also create a risk of some regional disrepute. There is, rightly, an increasingly worldwide movement in favour of more transparency in respect of tax matters and the conduct of taxation. We in Northern Ireland are not in the business of trying to create twilight zones in relation to tax adherence, and we recognise the need for a proper balance.

Today a Tax Dodging Bill campaign is being launched by a very active alliance that includes Action Aid, Christian Aid and Oxfam. The aim is to broaden efforts to create greater transparency in respect of corporate taxation, to establish new standards, and to bring about the introduction of a Bill in the next Parliament. I support the campaign, and was involved in many of the preliminaries. I must make it clear that there is no tension or contradiction between supporting the principles of that campaign and supporting Northern Ireland’s capacity to set its own differential rate of corporation tax.

Other Members have talked of the need to balance the economy, Growing our indigenous private sector while also attracting more inward investment and investment from industries that can partner our local companies is hugely important, and the corporation tax measures can open some windows for us in that regard. However, it is not just a question of rebalancing the economy; we must rebalance the region. The west of Northern Ireland—not least my own constituency—is clearly lagging behind in terms of both infrastructure and employment. We must ensure that, we well as the corporation tax rate, we have other instruments that have been properly developed. We need infrastructure investment to underpin shared growth across the region, and we also need significant advances into tertiary education.

People refer to corporation tax as a game-changer, but most people and businesses in my constituency are clear about the fact that the single biggest game-changer for us would be an expansion in higher education. That is not just needed to enhance the university status of the city of Derry; it is needed in Northern Ireland, which is, in effect, exporting a university campus every year. Given what is happening in the south of Ireland, the north will lose out very badly if it decides that corporation tax is the only thing on which it wishes to compete with the south. We are not competing with the south, or indeed this country, on further and higher education.

However, we also need to recognise this is not just about competing with the south. There has been almost an obsession with Northern Ireland’s competition with the south in relation to corporation tax. We need to recognise that the game is changing when it comes to competition in cities and city regions. Important things are happening on this island. For instance, enterprise zones have developed and taken on a different life. As we have heard from the Opposition, it is not a question of “Life on Mars”, or a return to the 1980s. Enterprise zones have had different effects in different areas, and some have been more vibrant than others. More and more Opposition Members want them in their constituencies, along with city deals and growth deals.

Cities and other locations in Northern Ireland are not just competing in economic terms with parts of the south, but with places on this island as well. Alongside the latitude on corporation tax, I should like the Executive to pursue the idea of creating their own version of city deals, and recruiting support from the Treasury and any other support that is needed from Whitehall. That is what happened in Scotland in connection with the city deal for Glasgow. Therefore we could, and should, be developing more tools, rather than leaving everything to corporation tax alone.

The hon. Member for East Antrim (Sammy Wilson) and others raised issues to do with the financial sector, and I think it is right that there are limitations and qualifications there. People would have been very sceptical if a corporation tax measure for Northern Ireland had meant that the banks were freely able to move their brass plates or some of their offices purely to avail themselves of lower corporation tax. I do not think people in Northern Ireland would want that, and certainly people elsewhere would not want it. Would it happen? Well, we suddenly saw at one point during the Scottish referendum campaign that banks were saying they might move, depending on the result. That would have been the first bank run in history in which the banks were going to move yet the money was going to stay, but that was what was being talked about, so there is reason to believe that might happen.

We will have to tease out in Committee or at another time some of the questions around the financial sector and other sectors in terms of the interpretations and implications of what does or does not count as a back office. Similarly, questions have been raised around what we have been told about the calibration that will be done in relation to allowances and credits, so that, for instance, the film industry and other creative industries may be told that there will be a clawback of some of their other allowances and credits if they are in Northern Ireland, to take account of the benefit they are getting in terms of corporation tax. We need to tease out whether people actually have to have those benefits and receive them before the clawback will take place, or whether they will be told that on paper they could benefit from that as they are in a different corporation tax environment and that therefore they are in a different environment as far as the allowances and credits are concerned. So the question of when some of these things are triggered or kick in is important.

There are similar issues in relation to the impact on the block grant. If we are going to start with assumptions being made as to the opportunity cost in revenue terms of the lower rate of corporation tax for Northern Ireland, this issue arises: once we know what it actually is, will adjustments be made year on year to the block grant, so that if less is forgone in one year than was anticipated, that will be made up in next year’s block grant? Similarly, will more come out of the block grant if there is deemed to have been more uptake in relation to the corporation tax differential? We need to tease out more detail.

The credit union movement is very dear to many people in my constituency. The credit unions are strong in my constituency. They pay corporation tax and they would like to think that they will not be counted as benefiting from the lower rate, because they are rooted in the community and exist totally for, and are dedicated to, the community, so they will not be salting away profits in an egregious way. They will not be abusing the system, and they want assurances that they can be protected and that they will not be treated in the same way as the banks in terms of the protection against any possible undue benefits going to the financial sector.

On procedure, the hon. Member for Tewkesbury (Mr Robertson) has made the point that he would like this Bill to be taken on the Floor of the House. I believe it could be, and certainly significant clauses could be taken on the Floor of the House, so that if and when issues arise in a few years’ time, none of us has the excuse of saying that we did not know and we were not in on that. I am not afraid of the questions that arise from the Scottish position, the Welsh position or anything else, so I do not agree with those who say we should just take this away in secret Upstairs, and that we cannot afford to answer any questions that might arise. I think we can address those questions.

It is my belief that, as this plays out, Northern Ireland will end up with lower rates of corporation tax but probably not for long, because I think a deal will be done in future that sees corporation tax devolved in some form or other to Scotland, and I think that on the back of that there will be strong pressure to say that the corporation tax rate in England must come down further. The Government who have produced this Bill are a Government who have reduced corporation tax throughout this Parliament, as the Secretary of State said in her opening remarks, and I cannot believe that they will not be committed to trying to reduce corporation tax if they are in government in any future Parliament—and of course they would use the lower rate of corporation tax in Northern Ireland and Scotland to drive that measure and catch the Opposition in the same way as they think they caught the Opposition today.

15:12

[Ian Swales (Redcar) (LD)]

I congratulate the right hon. Member for North Shropshire (Mr Paterson) and the Secretary of State on getting this proposal into the starting gate and add the support of the Liberal Democrats to getting it to the finishing post.

I recognise that I am no expert on Northern Ireland. In fact, I think this is the first time that I have stood up in the House to speak on Northern Ireland issues, and I ought therefore to pay tribute to one of my illustrious predecessors as Member for Redcar, Mo Mowlam, who of course played an important role in the progress towards peace in Northern Ireland.

The hon. Member for Foyle (Mark Durkan) in his extensive speech talked a lot about the detail that needs to be worked out. We recognise that that is the case, and there may be some devils in that detail. This could turn out to be quite complex when we come to look at the interactions of this proposal with all the various existing proposals. We all know that tax competition works between countries, and it is particularly evident where there is a hard border. I vividly remember the Belgium-Luxembourg border when I lived over there, where there were about 20 garages all on one side of the road due to the difference in petrol taxes. The hon. Member for South Down (Ms Ritchie) again raised today the question of VAT tourism, and I pay tribute to her for her campaign, particularly as I also represent a coastal community and would very much like to see the same move.

The Republic of Ireland has a headline corporation tax rate of 12.5% and that is what we are mainly addressing here today. However, it is not the 12.5% that gets all the US technical companies to register in Dublin and that gets Marks and Spencer doing its mail order through Dublin; instead, it is some very special arrangements in Ireland, and I certainly would not want to see future pressure to align Northern Ireland with those arrangements. I believe the Ministers should be addressing some of those arrangements in Dublin rather than opening any doors towards further alignment with what happens in Ireland, because I think we all recognise that some of those arrangements are deeply damaging to the UK as a whole.

I noted that Northern Ireland Members rightly referred in their speeches to the unemployment rate and the economic situation in Northern Ireland and the reliance on foreign direct investment. I very much identify with that as an MP from the north-east of England. In unemployment and other such criteria, in all the tables where Northern Ireland is top—or bottom, if we want to look at it that way—the north-east of England tends to be the next region. My constituency is 31st out of 650 for unemployment and my biggest private sector employers are Saudi Arabian, Korean, Thai, Indian and Singaporean, so I know what foreign direct investment means and how important it is to areas like mine.

Therefore, I have a question for Ministers. I recognise that foreign direct investment is not a zero-sum game but there is an element of that. If a company is choosing where to go, it only makes one decision. What assessment have Ministers made of the effect on the rest of the UK of encouraging more foreign direct investment into Northern Ireland? I am not saying I disagree with this measure, but I think it is important to note that in some cases it will switch investment from other parts of the UK. Indeed, as the hon. Member for Foyle said, because of the different corporation tax rate the rest of the UK will, in effect, become a foreign country and Northern Ireland may attract investment from UK companies that otherwise would have gone elsewhere in the UK. That is an important thing to remember and to consider.

I am also concerned about potential further devolution of corporation tax and, ultimately, a race to the bottom, as the hon. Member for Foyle said. I am particularly concerned about the situation in respect of Scotland and the north-east of England, which of course borders Scotland. The logic of this measure—that we have to move towards aligning corporation tax rates in Northern Ireland with those in southern Ireland because those countries share a border—suggests that we should not allow Scotland or Wales to deviate from the corporation tax rate on this large island that we inhabit. It would be argued in this place that we need to align the English rate with the Scottish and Welsh rate. I very much support what the hon. Member for Foyle said—that that may be a path we want to go down, but let us do so knowingly, at least. A different rate in Scotland could be very damaging to the north-east, which, I repeat, is England’s poorest region.

It has rightly been pointed out that corporation tax rates are not the only consideration. According to an Ernst and Young study, corporation tax comes only sixth on the list of things that foreign direct investors look for. However, it is very important to half of them and has some importance to most of the rest, so it is not unimportant—it is just not the most important thing.

I am sure the Minister is expecting me to talk about avoidance possibilities, given that I often do in such debates. I note that the Government have included various measures in the Bill to exclude activities such as investing, and trades such as lending and property, and the Bill does not give the Northern Ireland Executive power over reliefs and allowances. However, once we get into the detail, we may find that if the rate goes down to 12.5%, the way some of the reliefs and allowances in the UK are drawn means that they will interact strangely. HMRC needs to check all that out as part of the process.

It is always worth applying a bit of game theory when looking at new taxes, tax reliefs or changes in taxes, because if it is possible to imagine a tax avoidance scenario, it will probably happen. Does the Minister recognise that the Bill puts a new transfer pricing interface in place? At the moment, when corporations transfer goods backwards and forwards to Northern Ireland, there is no corporation tax difference, so there is no incentive to do anything strange with transfer prices. This arrangement will give an incentive to shade transfer prices in a particular direction. Does the Minister agree, and what resource will he put in place to deal with that? According to a Public Accounts Committee hearing that I participated in, HMRC has less resource on transfer pricing than each of the big four accountancy companies, so it is not an area in which we are currently heavily staffed.

Of course, transfer pricing is not just about products; it is also about royalties and management fees, and I imagine that if a bank has a back office in Northern Ireland, it will become a highly profitable operation under these new arrangements, because there will be an incentive for the management fees to be as high as possible.

Can the Minister confirm that corporate financing operations will not qualify for the lower rate, which might allow profit shifting of the sort we see to Luxembourg and other countries? Will he confirm that such operations cannot be concealed within a genuine trading operation? Here I am thinking of the regular movements of capital and interest within a manufacturing company, for example. Can he confirm that there will be no hidden financing and profit-shifting operations through interest payments and similar means?

The Bill is designed to encourage foreign direct investment, but in effect the rest of the UK also becomes foreign from a corporation tax point of view. What assessment has the Minister made of the moves that might happen from the rest of the UK and the loss of tax that they might incur? The expression “brass plate” has been used many times today. I believe that the Bill is written in such a way that that will not happen, but I hope the Minister will confirm that.

The legislation will be tightly drawn, but I ask that the Minister resist any further calls from the Northern Ireland Executive to compete with Dublin on special arrangements or to get power over reliefs, which would create new complexity within the UK tax system.

I do not think it right to say that the cost of these measures will be the entire difference in the tax rate on the tax base of Northern Ireland. If that were true, there would be no point in doing this. The whole point is that these measures will encourage economic activity in Northern Ireland, so there should be quite a payback of tax; otherwise, why do it? What assessment has been made of that?

Can the Minister say a bit more about the constraints that the UK Government are putting in place on the overall cost of these measures? What constraints, if any, are there on the rate that the Northern Ireland Executive could choose? Would zero be allowable? I should be interested to hear the Minister’s answer.

I am conscious that other Members, particularly from Northern Ireland, wish to speak. I look forward to hearing the Minister’s response.

15:26

[Naomi Long (Belfast East) (Alliance)]

I am pleased to be able to speak in support of the Bill. Much has already been said and I do not want to repeat the points that have been made; rather, I want to set out why I believe the Bill will be good for Northern Ireland. I also want to sound a note of caution on those issues to which we will need to give some thought here in Westminster and in the Assembly, in order to ensure that we maximise the Bill’s impact on economic growth.

We are all aware of the need to rebalance the Northern Ireland economy. At the moment, we are more reliant than any other part of the United Kingdom on the public sector, and our private sector often struggles to be competitive because of particular disadvantages. For example, the private sector companies that compete internationally are often at a significant disadvantage because of energy costs. So there are a number of issues that put us at a competitive disadvantage compared with our nearest neighbours, but despite that, we are one of the best-performing regions in attracting foreign direct investment, and we do an excellent job of getting those companies to come to Northern Ireland.

One of the issues that corporation tax might assist us with is ensuring that with those companies come with not just back-office jobs but jobs with good salaries, and good profits that will then be out-turned and benefit the wider economy. So there are real opportunities to change the kind of foreign direct investment we can attract and to build on the reputation we have been able to grow overseas for being a good destination for investment.

As others have said, Northern Ireland is unique in having a land border with another country, the Republic of Ireland, which has a much lower rate of corporation tax. It is right that we should seek to be competitive with that country, but we should also not forget that we have other advantages that it may not. So we should not always seek simply to balance our taxes against its taxes; we should look to be competitive on a range of fronts. When companies are coming to make their investment, they will look at not only tax regimes, but a host of other issues that will influence their decision. I want to focus briefly on some of those towards the end of my remarks.

Devolving corporation tax rate-setting powers to the Northern Ireland Executive, when complemented by other measures, has the potential to help transform our economy, increasing growth, productivity and exports. So the Bill is a timely move to facilitate that growth. When the Northern Affairs Committee dealt with the issue, we found strongly that not only business, but local politicians, particularly those represented in the Executive but also some outside the Executive, were in favour of this measure. I must pay tribute to the hon. Member for East Antrim (Sammy Wilson), in that, although he has been sceptical about the issue, he has today given reasons why there needs to be caution about the fiscal modelling on which people have based their projections for the future. Although we may be able to address corporation tax, we cannot control the global economic picture, which will also dictate the amount of foreign direct investment we can achieve. So we should not set our sights too high in terms of the number of jobs that that may create. We have projections we can use as a basis and we can look at the evidence from other regions, but we have to accept that other factors will influence how big an impact this measure will have.

It is important that we weigh those factors carefully when setting the rate—that will be a matter for the Assembly, which will need to give them due consideration. I agree with other Members who have said that we would want to do that quickly, I also think we need to carry out due diligence in setting the rate, to ensure that we know exactly what it will cost the Northern Ireland Assembly in block grant and exactly how we will manage the bridging period between making the cut to the block grant and seeing some reward from the economic investment that will follow. We will also need carefully to examine the long-term impact this measure will have on the wider economy. So although it is good that we are making these moves today—I commend the Secretary of State and her team for upholding their part of the Stormont House agreement at this stage, while, almost simultaneously, the Assembly is today upholding one of its parts of the agreement on the budget issues—I hope we will see an opportunity for the Assembly to take more responsibility over its financial measures.

I also wish to commend the Secretary of State for her work on the Bill, which will ensure that if the Assembly does not show a responsible way forward on the budget and if we are not able to get our finances in order in the next few years, this move will not go ahead. It is quite simple: we cannot continue with a situation where we make promises beyond the money we have to fulfil them and where we make commitments on public sector expenditure that are not covered by the block grant or by revenue raising that is available to us already. We need to get our financial house in order, so that we are able not only to make the corporation tax reduction, but convince the people of Northern Ireland that we have the capability to manage our finances in a way that is for their benefit. There is a gap between what the politicians would like to be able to do and what the Northern Ireland public trust them to do, particularly on financial matters. That gap needs to be closed quickly over the next few years, by dealing with the budgetary matters before the Assembly both today and over the next few weeks.

It is important that after the Stormont House agreement we have bought some more time in which to be able to make those transformations to the economy, but all parties will have difficult decisions to make. Where the money comes from to pay for the corporation tax devolution will be one of a number of difficult decisions that will have to be taken. Whatever the colour of the Westminster Government after the next election, it is clear that nobody is arriving with a pot of gold and none of us can expect that huge amounts of money will be available that are not available now for public sector investment. I accept that some in this House wish it were otherwise.

It is hugely important for us to be realistic in our projections and in the promises we make to the public we represent, and to recognise that corporation tax is only one of a number of avenues we can pursue to grow our private sector. A low rate of corporation tax alone will not attract all the investment needed to grow Northern Ireland’s economy. Other corresponding measures will need to be taken in order to make Northern Ireland an attractive place in which to base a business or company, so let me briefly discuss some of them. Some are relevant to Westminster, whereas others will ultimately be dealt with by the Assembly. It is important for us to consider them, because that mix will allow companies to have the confidence to come to Northern Ireland.

The first and foremost issue is stability and good governance. The Stormont House agreement offered us an opportunity to deal with some of the issues associated with political stability, but, as hon. Members know from my response, I believe many of those were, unfortunately, parked and could still be the undoing of the good progress made thus far. I want local parties to commit to dealing maturely with those issues, which are politically sensitive, so that we do not have the kind of situation we have had recently, where lots of years of talking to companies and encouraging them to come to Northern Ireland and consider us as an inward investment opportunity are written off on the basis of a few nights of rioting, which is projected worldwide and damages our reputation irrevocably.

We need to have stability and maturity around political decision making. The opportunity is there for that to happen, and I hope that all parties will grasp it. They should stop the petty arguments over peripheral issues and try to pull together to create the sort of stability that is beneficial for business, public sector growth, and small and medium-sized enterprises. Those SMEs suffer greatly when we have traffic disruptions as a result of bomb alerts and bomb hoaxes. Such an incident happened in my constituency just this week. The whole city, including the train service and local roads, was brought to a standstill. We cannot afford for that to continue, so we must deal with the politics to bring about that stability.

We also need to ensure that there is good governance. As I have said, the Stormont House agreement has given us an opportunity to look at right-sizing our civil service and to do so in a way that will not force people into compulsory redundancy. That agreement was good for Northern Ireland, but we still have to find other employment for people, which is where corporation tax could play an important role.

There are other issues to consider. Members have mentioned infrastructure and planning, and, as a civil engineer, it would be wrong of me not to address that matter. We need not just significant investment in that area, but reform, because we cannot deliver the infrastructure investments that are needed in Northern Ireland with the current amount of money that we receive from the block grant and the emphasis that the Assembly gives to the matter. Some restructuring will be required if we are to ensure that our infrastructure is not an impediment to further economic growth.

We also need to consider issues of connectivity. The challenge rests not just with the Northern Ireland Assembly, but with the Treasury and other Departments here at Westminster. The hon. Member for East Antrim mentioned the fact that, for a long time, Northern Ireland was a driver for the UK economy. In my constituency, we had the largest shipyard anywhere in these islands and the world’s largest roadworks. We were not in any way regarded as peripheral because, at that time, connectivity was largely through ports, and we had an excellent port in Belfast. The situation has now changed and most of our exports go by plane. We are reliant on air transport. Heathrow is the main cargo hub for the UK and the main cargo export point for goods and services going from Northern Ireland. Unless we resolve the situation at Heathrow, no amount of reduction in corporation tax will encourage people to invest in Northern Ireland.

We need to retain our connectivity to London, and also through London and beyond to other business destinations so that we are not remote for those who wish to come and invest and do business in Northern Ireland. It is crucial that decisions about airport and runway capacity in the south-east are resolved, because it is a matter of importance for the country as a whole and for Northern Ireland in particular. Being on an island and off an island, we are absolutely reliant on air transport for our connectivity.

It would be remiss of me not to mention air passenger duty since I have repeatedly complained about it. We are double taxed with air passenger duty, which has an impact on our connectivity and on the cost of doing business. Although the problem needs to be addressed UK wide, it has a much greater impact on Northern Ireland than on any other region. We have no alternative way to make our way to London, to the main hub, other than to use air transport, and we are penalised for that because of the lack of through carriers. We have to pay air passenger duty twice: once to get to London and then onwards to whatever destination we take.

Another area of concern is brass plating, which the Bill tries to address. Northern Ireland does not want to become simply a front for companies that are doing business elsewhere and creating economic growth and employment elsewhere but benefiting from the low tax regime in Northern Ireland. There is no benefit to us or to the UK from that. We want to encourage companies that will set up their main operations in Northern Ireland and create employment and real economic growth. Those companies will not be the only ones to benefit; all of the firms that service those companies that pay the corporation tax will also potentially benefit from being able to attract those larger companies in. It is important that we deal with actual economic activity, and I welcome the fact that work has been done on that.

Another brass-plating issue of interest to me and to the hon. Member for Foyle (Mark Durkan) is international tax transparency. I do not want to stand over any system that would allow people from other regions to create a false front in Northern Ireland that would result in money being taken out of other economies in need of funds, whether they are in the third world or other parts of our own country. That is not good for international development, and it is important that there is tax transparency at the heart of the measure. We want real investment and real economic growth, and we want real jobs to be created as a result. I am glad that that has been acknowledged and considered in the Bill.

Something else that is required is skills. If we do not have the right skill set we will not be able to attract the quality jobs that we seek to attract, and it is hugely important that we do that. My colleague, Dr Stephen Farry, is doing that very effectively through the Department for Employment and Learning, and there is a mechanism that would allow a small levy—about 0.6%—to be placed on those companies that benefit from the corporation tax reduction. The levy could be ring-fenced to pay for skills investment. Companies could draw down some of that money for in-house training and partnership training with universities, and the remainder could be used for other skills investment. That should be a consideration in the way in which the Bill is structured. No one will want to benefit from our tax laws if they have to pay something towards investment in skills unless they intend to have employment and training as part of the work they do when they come to Northern Ireland. Those are the kind of added-value jobs that we need and want, and some form of skills levy would be helpful to avoid brass-plating and to support the Executive’s emphasis on skills investment and development.

Finally, the Chairman of the Select Committee on Northern Ireland Affairs, the hon. Member for Tewkesbury (Mr Robertson), discussed the importance of differentiation in Europe as a way of attracting new business to Northern Ireland. People come to Northern Ireland because they see it as a good stop-off point between, for example, the US, the south American countries and the European Union. They see us as a gateway to European markets. When we debate the European Union in Parliament let us not forget that many of those who locate their businesses in Belfast, Derry and other places do so because they see Northern Ireland as part of the EU and a good way to make those connections. We need to be careful when we talk about withdrawing from the EU—I have no problem with differentiation within the EU—as we need to be conscious of the impact that that would have, despite what we may do on tax regimes.

All those things are important. Some of them are in the gift of Westminster; some are in the gift of the Assembly. However, we have taken an important first step with this Second Reading. As we proceed with a detailed consideration of the Bill I trust that we can look at how we ensure that we experience the maximum benefit in Northern Ireland. I stress again that unless we have a stable, integrated future in Northern Ireland it will not be an attractive place for large businesses. When the due diligence is done, one of the most important considerations is stability. We need to create that stability as a starting point, and from there this measure will give us an opportunity to make prosperity part of the package that the peace process can deliver.

15:43

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Belfast East (Naomi Long). I should like to begin by saying that this measure is entirely the right thing for Northern Ireland. Those of us who serve on the Select Committee have all seen how hard it is to compete when a neighbour a short distance away can offer a much lower rate of corporation tax. I wholeheartedly support the notion that we should allow Northern Ireland to choose its own corporation tax rate, especially on trading profits. In fact, I would even support the principle that lower business taxes drive growth. Over the past five years in the UK, we have reduced our corporation tax rate from 28% to—in a couple of months’ time—20%, which is important in helping to drive growth in the whole country.

That leads me to my first concern. Part of the argument for making that reduction is that we recover money that we lose in corporation tax by attracting more investment: more companies make more money and pay more corporation tax as there are more profits. Even though corporation tax is set at a lower rate we begin to recoup some of the costs. With more employment, we would expect increases in income tax and PAYE. Greater economic activity will result in more VAT, and more property transactions will give rise to more stamp duty. Those are the key ways of recovering what is lost through lower corporation tax.

It is not entirely clear how much of those increased tax takes will go to Northern Ireland and how much will be kept by the UK as a whole. When the final deal is done and a calculation is made of by how much budgets are reduced, that net cost needs to be worked out to ensure that it is fair to Northern Ireland and fair to the rest of the UK. There will need to be a breakdown of the overall impact of behavioural change as a result of a lower tax rate in Northern Ireland, if that is what results. I assume we expect to see a rate of 12.5%, or perhaps a little lower to make it competitive.

We seem to be devolving taxes haphazardly, creating a mishmash. We ought to look forward a few years and ask, for all our taxes, “What should our tax system look like? What taxes will we devolve and to where? How can we best achieve a sustainable, sensible tax system as a result of that?” One way of doing that would be to set a federal income tax rate and a federal corporation tax rate that apply throughout the UK. Once those were set, each area could choose its own rate as well, so there could be a federal corporation tax rate of, say, 10% and Northern Ireland could choose 0% as its local rate, and England could choose a rate as well.

What we have in this Bill is a complex way of doing that for one area of the country. I accept the reason for doing that just for Northern Ireland initially, but if there is pressure from Scotland and Wales, this mishmash of a system will be hard to act on and it will be very unfair on England. How will we work out the rate that we want? With the devolution of corporation tax, I suspect that the easiest competition will be between Northern Ireland and the rest of the UK, because we have the same currency, much the same legal system, the same VAT system and the same income tax system. In fact, for almost any sensible business, the east midlands is a far more attractive place to do business than Northern Ireland. I would say that, because my constituency is there, but we have the right skills, the right location and all manner of advantages.

[Ian Swales]

Does the hon. Gentleman agree that the sort of business decisions we are talking about are long-term decisions, and if the tax system appears to be moving around wildly among countries year by year, companies will not use it because they will not be able to rely on a long-term future?

[Nigel Mills]

The hon. Gentleman is right. That is why we should look ahead and see what our tax system should look like. Nobody in the UK wants a business man with a business based in Amber Valley or Redcar to think, “I could save half my corporation tax by moving to Northern Ireland.” That may help Northern Ireland, but it will not help the mainland. It will not help UK plc to attract more inward investment. We want fair competition. I accept that competition is good and that if we get investment somewhere in the UK, that is better overall, but we want investment coming in from outside, not moving around within the UK.

As a matter of fairness, if parts of the UK are to compete on corporation tax, those parts should not vote on the rate elsewhere in the UK. If Northern Ireland wants to set its own corporation tax, let us let England, Wales and Scotland set ours. If we devolve it further, the same fairness should apply. People in my constituency should be able to say, “Yes, we are competing, but we can choose whether to compete or not.” I hope that before April 2017 some sort of mechanism is in place to ensure fairness. Devolving taxes without first settling that is dangerous in constitutional terms. I am not sure it would be tolerable for Scottish MPs, for example, to set their own income tax and then to set ours as well. I accept that that is probably more of a problem than corporation tax, but it is an example of the unfair tax system that we could end up with.

An excellent Library paper that runs through the research shows on page 13 that, looking at the behavioural response to a lower rate of corporation tax in Northern Ireland, even by year 4 we would see that profit shifting from the rest of the world into Northern Ireland would have an impact of £30 million a year, but that profit shifting from Great Britain to Northern Ireland would have an impact of £60 million a year. That is twice the impact of new foreign direct investment. Tax-motivated incorporation would have a potential impact of £45 million —even more than foreign direct investment into Northern Ireland. I hope that the measures in the Bill will reduce the likelihood of the latter possibility. The easiest way of competing will be to move around within a regime rather than try to attract investment into the UK that would not have come here in the first place.

That leads me to look at how cluttered some of these proposals will make the corporation tax system. This is not a simple set of things to understand. A company that has its tax base in Great Britain and Northern Ireland will have to work its way through some fairly complex situations. There were simpler options. We could have just had an allocation key that worked out one profit and then how much of it would be taxed in Northern Ireland and how much in the rest of the UK, based on employees and sales. It could have ended up a bit like the awful EU tax base that was thought up. However, within the UK, that might have worked, being easier to understand and removing some of the distortions of attempts at tax avoidance. Taxation based on sales is much harder to fix.

There are still some gaps in these proposals. It is absolutely right that we have stopped allowing finance companies to get the lower tax rate. Otherwise every large corporate would have had a finance company based in Belfast doing its finance for the rest of the UK and moving profit over there artificially. That would have been unacceptable.

How do we stop other things happening that we might not like? What about intellectual property planning? If I move all my brand names over to Northern Ireland, can I charge large royalties in the rest of the UK and artificially move profit in that way? That is not caught by the restrictions in the Bill. It is not moving jobs or creating real value; it is just moving assets around a regime and trying to get a tax advantage.

On the flipside, there are some wrinkles in how we have tackled the finance company exemption. Under the definitions in clause 17, I am not sure what happens in the case of a company trading in Northern Ireland that makes a lot of profit, ends up with some cash at the end of the year, and thinks, “Okay, I’ve got another important investment project in 18 months’ time, so perhaps I’ll lend this cash around to somewhere else in my group of companies and make a bit of interest income.” It is then engaging in a lending activity. Has that blown it out of the whole lower rate because it now has an excluded activity, or is only the interest taxed at the higher rate, and because it is a very small part of its activity, that is okay? I am not quite clear about how we tackle real, practical situations such as that.

I am not convinced that the situation for small and medium-sized companies is entirely fair. The hon. Member for East Antrim (Sammy Wilson), who is no longer here, said that some construction companies in Northern Ireland end up with lots of building work on the mainland because that is where the work has been. If, during the year, such a company gets a big contract on the mainland, it then has to track whether the profit from that becomes more than a quarter of its total activity. If it is 26% by the year end, it pays 20% corporation tax on the whole of its profits, whereas if it is 24% at the year end, it pays 10% on the whole of its profits.

I accept that for the vast majority of SMEs that do not trade on the mainland and operate just in Northern Ireland, that will be a very simple situation, and one small contract will not hurt. However, I suspect that SMEs trading in both areas will be in a worse position than a large company, because a large company that had 26% of its activity on the mainland would still get the lower rate for most of its profits, but a small company will lose it for most of its profits. Perhaps there could be a way of allowing an SME to elect to be in the large company regime if that better reflects its needs. Another option would be to have two separate companies and split their activities, but that does not strike me as a very easy situation. There are some issues that may lead to unintended complexities.

We need to think through exactly which activities we do not want to qualify for the lower rate. We have a new diverted profits tax coming, whereby if someone moves an activity that ought to be somewhere else, we will try to tax it at a higher rate than our UK standard rate. Under one of the provisions, someone who is being taxed at a rate of less than 80% of the UK rate will be caught. Clearly, Northern Ireland is likely to have a tax rate of less than 80% of the main UK rate. If a Northern Ireland company has an internet trading business or a mail order business in Belfast and takes careful steps to avoid having an establishment on the UK mainland, could that company be caught by the diverted profits tax, triggering a higher rate than if it was in the UK? How can we stop people artificially putting trading activity using very few employees into Belfast, rather than doing it on the mainland, to get the lower rate? I accept that no one wants the rate to apply to activity involving no employees, but I sense that certain activities that do not require much labour might be moved, which is not what we intend.

I welcome the principle of the Bill. I have some concerns about rushing it through now without thinking about how it affects the UK as a whole—we need to do that if we are to get a tax system that is sustainable in the long term—about how cluttered we are making our corporation tax system and about whether things in the Bill’s details might make the system work in a way that we do not want, but I suggest that we think through such issues in Committee.

15:55

[David Simpson (Upper Bann) (DUP)]

I thank the Government for keeping their part of the bargain in trying to push the Bill through the House before Dissolution.

I again pay tribute to the right hon. Member for North Shropshire (Mr Paterson), as I did in an intervention. He was very modest in what he said about his role. I understand that it was a team effort within the Government, but I must say that he was outstanding in the number of meetings he held with business organisations in my constituency, such as the manufacturing focus group and the chamber of commerce. He put across the case for devolving corporation tax very well, and all credit to him for his enthusiasm. He was also very enthusiastic about enterprise zones, as has been mentioned, and other parts of the different regions of the United Kingdom are starting to raise that whole issue.

The Chairman of the Northern Ireland Affairs Committee pointed out that we debated this matter and produced a report some time ago, and I remember what one of the economists said. People say that if someone brings 20 economists into one room and tries to get them to agree, they will find it very hard. My hon. Friend the Member for East Antrim (Sammy Wilson), who is an economist, is not in the Chamber, or I would certainly get a very smart response from him.

I asked one economist at what point between one and 10—given a clean sheet—he would put corporation tax, and he was quick to say that he would put it somewhere in the middle. We all agree that the measure is a great move for the future of Northern Ireland, but it is not a panacea or silver bullet, and we need to bring together a lot of things to make it work. The economist reckoned that other factors need to be looked at, including fast-track planning, which has been discussed, the whole planning structure, research and development, and education, which was also raised earlier. It has just been announced that we will get two new regional colleges—one in the town of Banbridge, and one in the Craigavon area—which will benefit my whole constituency. The colleges recently made a presentation about the number of courses and higher level apprenticeships that will be provided. As the hon. Member for Belfast East (Naomi Long) said, skills are vital for any organisation that comes to Northern Ireland, so there needs to be a skills base. A lot of elements therefore need to be brought together for the whole package to work.

Everyone in this debate has broadly welcomed the Bill, but it has been sensible of many of those who have spoken to put in caveats and not to make promises that we might not be able to keep in five or 10 years. The point was made that when companies decide to invest in other regions or sit down to write business plans, they do not plan for just six or 12 months, but for three, four or five years. We do not want to make rash promises, only for companies that plan to come into Northern Ireland to find, all of a sudden, that it does not work. Today we have the coalition Government, but things could change on 7 May. We might have another Government. Will they have the same principles and ideologies as this Government? It is therefore important that we do not make rash promises.

My constituency of Upper Bann is the second largest manufacturing base in the Province outside Belfast, with companies such as Moy Park, Almac and Thompson Aero Seating. It has a lot of good companies, such as bakeries and agri-food businesses. Many of those companies would benefit from the lowering of corporation tax. I declare an interest in the agri-food sector and refer to the Register of Members’ Financial Interests, because my family business would also benefit. The benefit will be felt across the constituency. At the worst economic times, unemployment in Upper Bann rose to 8.5% or 8.6%. As of last week, it was down to 5.2%. Even at the best of times, it never fell below 4% or 4.5%, so we are heading back to where we were in the good old days.

We need to encourage our young people to stay in the United Kingdom. The hon. Member for Foyle (Mark Durkan) made the point that every year we lose a campus to other countries. I still help young people on a regular basis to fill in forms and visas to go to Australia, New Zealand or China. We need to encourage young people to stay and protection needs to be put in place. We have heard about issues such as brass-plating. That needs to be definitive and there are a lot of issues that need to be teased out. That can be done as we go through the Bill over the next few weeks.

I broadly welcome the Bill. It will bring great benefits to Northern Ireland. It is important that every part of the United Kingdom and every country looks to its advantages over other countries. We have to look for the competitive edge. If this brings the competitive edge for Northern Ireland, that is good news, because we have sat alongside the Republic of Ireland, with its 12.5% rate, for many years. As was said earlier, throughout all the difficult economic times, with the Celtic tiger losing its buzz and all the rest of it, it still held on to the corporation tax rate. Even when the European Union threatened to take it away, the Republic of Ireland stood its ground and won the day. We need to continue with this proposal. I think there are good days ahead for Northern Ireland.

[Ian Paisley]

We were promised an economic bonanza after 1998. Whatever people’s interpretation of the Belfast agreement, there was no economic follow-through. It was like the ghost of Banquo—it was there, but it did not turn up. The ghost of economic benefit did not end up being delivered. This is the opportunity to deliver the economic benefit for Northern Ireland that has been absent for the past 15 years.

[David Simpson]

My hon. Friend is correct. This is an opportunity for Northern Ireland to deliver that economic benefit. We need to encourage not only businesses throughout the Province, but the next generation. I do not know about other MPs, but when I go to universities and schools in my area, people say, “What’s the point of staying in Northern Ireland? There’s nothing here for us. There’s no jobs; there’s no nothing.” We have to give them a reason to stay.

It is the role of Governments to create the environment and circumstances in which business can thrive and move forward. My hon. Friend is right that there is an opportunity to do that, and we need to grasp it, but we must do so in a balanced and measured way. We must not make false promises that may come back to bite us in the coming years.

16:05

[Ms Margaret Ritchie (South Down) (SDLP)]

Like other right hon. and hon. Members, I broadly welcome the devolution of the power to vary the Northern Ireland rate of corporation tax. I cast my mind back to 2006, when I was a Member of the Northern Ireland Assembly while it was a shadow Assembly. My hon. Friend the Member for Foyle (Mark Durkan), who was my party leader at the time, appointed me to an all-party committee dealing with building and growing the economy in Northern Ireland. We took evidence, in sessions spanning a six-month period, from a range of people, some of whom were pivotal in raising the issue of the Northern Ireland Executive and Assembly having the ability to set our own rate of corporation tax. Central among them were the late Sir George Quigley, and Mr Hewitt from the Economic Research Institute of Northern Ireland. From the research that we carried out, we found that one of the impediments to a prospective Northern Ireland Executive setting corporation tax was the Azores judgment. We had to consider how the principle that it established could be circumvented so that we could achieve that power.

It was agreed in the committee’s report that other incentives were required to pump-prime the local economy. Chief among them were incentives in how small and large-scale developments were dealt with in the planning process. We said that we needed to equip our young people with skills and expertise, and that we needed manufacturing and industry to locate in Northern Ireland. I represent a constituency that was outside the area where foreign direct investment was located, and we said that we needed the visits that are normally the precursor to such investment. We wanted to see a balanced approach to regional development in the location of manufacturing, business, the financial sector and new types of infrastructure, so that we could underpin and grow our economy. Those factors remain the same and are still important to growing our economy.

As the shadow Secretary of State indicated, we still have a youth unemployment level of about 19%, and we still have a high level of economic inactivity. Our education and further education sectors are therefore important in making a contribution to growing our economy. Above all that, as my hon. Friend the Member for Foyle and the hon. Member for Upper Bann (David Simpson) said, is the need to ensure that our young people stay in Northern Ireland, are educated there, gain their vocational training and academic qualifications there, and invest that training, knowledge and know-how in developing our economy. Nobody would disagree with that.

Other measures are required because while we are a public sector economy, tourism is also a principal economic driver in my constituency. I have talked to the Minister about this on several occasions, but I repeat my request for a reduction in VAT on tourism and tourism products, which I see as a UK measure. Such a reduction would pump-prime the sector and create the necessary jobs. The economic modelling for such a change was carried out by the Treasury, so the research is available.

We also have the evidence of the south of Ireland, which—notwithstanding its economic difficulties—has been able to keep its rate of VAT on tourism at 9%, compared with ours of 20%. Representing a border constituency in the north of Ireland, I have many constituents who are involved in tourism and other businesses and have to compete with that VAT rate. That is extremely difficult with mobile investment and people who live in the north but work in the south, and vice versa. Those issues must be addressed.

Another issue within the remit of the Department of Enterprise, Trade and Investment and BT is proper and adequate access to broadband. Preference should be given to business centres so that they have immediate access to superhighway broadband, which they need to help build small to medium-sized businesses. That should be a priority.

I have several questions about the Bill. No doubt the details will be teased out in amendments to the legislation, but I also wish to raise them now. The Bill is 87 pages long and I have no doubt that it was drafted well in advance of the outcome of the Stormont House agreement. Is the engagement on the details between the Northern Ireland Executive, especially the Finance Minister, and Treasury Ministers still ongoing, or was the examination of the detail of the Bill carried out by the cross-ministerial working party on corporation tax? Or was the work solely done by the Treasury? I would also like to know what discussions were held with Northern Ireland authorities about applying the EU definition of small and medium-sized enterprises. We need clarity about the discussions and the agreement that was reached about the 75% threshold to be applied to determine what constitutes a Northern Ireland regional enterprise. We need that clarified in case any traps or restrictions are buried in the detail of the Bill.

At the moment, our principal economic lever is public expenditure and we all know that we face budgetary challenges, whether in the broader UK or in the Northern Ireland context. We all need to be aware of what will confront us down the road. My questions also concern implementation and the cost to the block grant. While the rate will be set by the Northern Ireland Executive and Assembly, what modelling and analysis did the Treasury do on the impact on jobs and the cost to the block grant of differential potential rates? I find it hard to believe that such work has not been carried out: if it has, when was it carried out and can that analysis be made available in the Library and that information be communicated to Members?

As a result of undertaking research for this debate, I know that way back in February or March 2011 the Minister came to Lisburn and presented a Government consultation paper, which stated:

“In order to meet the fiscal autonomy condition, the NIE would need to bear the full fiscal consequences of changes in tax revenues resulting from a new Northern Ireland corporation tax rate. This means that Northern Ireland’s block grant would be adjusted to reflect the fiscal costs of a reduction in the rate of corporation tax.”

Has any modelling been done in that respect? What specific work has been done?

The Treasury paper suggests that critics of corporate tax devolution have pointed out that receipts from corporation tax are one of the most volatile categories of tax revenue. As the Institute for Fiscal Studies has observed, over time they vary substantially more than total receipts or national income, and replacing an element of the block grant with these revenues carries a considerable risk to the devolved Administration. Has modelling been done in that respect?

About four months ago, in October 2014, Her Majesty’s Revenue and Customs published more detailed estimates for the shares of UK taxes arising in England, Wales, Scotland and Northern Ireland. Those estimates suggested that Northern Ireland’s share of corporation tax revenues had declined in the past few years and is now at about 1.2% of UK onshore corporation tax receipts. To increase those receipts and ensure they are invested in our local economy and in the businesses the hon. Member for East Antrim (Sammy Wilson) talked about, does the Minister not agree that there is a need to ensure not only that there is a greater regionally balanced location of foreign and direct investment, but that existing businesses are sustained in the local economy?

The Treasury paper also looked at the potential long-term impact of a cut in corporation tax boosting profits and consumption, thus increasing receipts based on consumption, and indicated that risks would be attached. It stated that if the tax cut failed to attract as much investment as expected, the Northern Ireland Executive would need to make up the difference. I am conscious of the challenging budgetary difficulties. Similarly, the risk associated with profit shifting from the rest of the UK would lie with the Northern Ireland Executive. Has that possibility been investigated fully, and what is the current prevailing view of the Treasury and the Northern Ireland Office? Have fluctuations in tax revenues for a small corporate base been factored in?

Professor Trench, professor of politics at Ulster university, gave evidence to the Northern Ireland Affairs Committee in 2011. He stated then that,

“to comply with EU law, a substantial and irrevocable cut in the block grant will have to be made, based on present tax receipts.”

Has that perspective been considered and is it reflected in the proposed legislation?

The hon. Member for Belfast East (Naomi Long) and the hon. Member for East Antrim referred to the issue of brass-plating, which has been factored into the Bill. I would hope that whatever is factored in is vigorous and robust. Chapter 17 relates to businesses excluded from claiming the new tax rate, including those lending and making investments, those undertaking investment management and those engaged in reinsurance. In addition, any back-office activity is excluded. What is meant by back office? The Bill does not say and just gives the Treasury the power to define it. It is a pretty fair bet, however, that some of the most mobile activities in the UK, such as accounting, data processing and even many call centres, will be back-office activities and so excluded. Further clarification is needed in that area.

In welcoming the Bill, I must add that we intend to table amendments in Committee to reflect our various concerns. We want a Northern Ireland economy that continues to grow and ensures that young people who have emigrated can come back and invest in the local economy, and that those with academic, degree-level educations or vocational training can deploy their skills and expertise in our economy for the betterment of the people. The litmus test for the Bill will be whether it brings continual benefit to the local population.

In conclusion, I welcome the devolution of corporation tax. I hope that, along with other incentives, it brings significant benefit to the people of Northern Ireland; that our local economy grows; that our people stay; and that business is underpinned and promoted. I can think of two areas in my constituency, Kilkeel and Warrenpoint, with significant entrepreneurial skill and activity. One is a harbour importing and exporting and the other is a fishing port seeking proper port status, because it is now involved in an initiative to utilise its marine and engineering skills. I hope that the Bill, along with other incentives from other Departments here at Westminster and in the Northern Ireland Executive, will achieve that better deal for the people I represent.

16:21

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to speak in this debate, and I thank the Government for bringing the Bill before the House under the Stormont House agreement. Obviously, the DUP is in favour of the Bill. We have concerns about its delivery, but we are committed to the devolution of corporation tax. I thank the right hon. Member for North Shropshire (Mr Paterson) for his contribution. I understood it was his baby back when I entered the House. He always says it was a team effort, but certainly every conversation we ever had when he was Secretary of State was about corporation tax. It is good to see it being delivered; I am sure he is especially pleased.

The power to set our own rate of corporation tax could be a game changer for the economy, if done right, and could help to create thousands of jobs. My hon. Friend the Member for East Antrim (Sammy Wilson) said that 37,500 jobs could come out of it. I am not sure how accurate that figure is, but if that is the potential figure, there is clearly an opportunity here to do something significant, diminishing our reliance on the public sector and generating wealth for our citizens. For years now, we have faced difficult economic circumstances, with people forced to tighten their spending and unemployment rising, and this has the potential to deliver what we need.

I made it my business to speak to business men—mostly in my constituency—and gauge their opinion about the devolution of corporation tax, and there was a general feeling in favour. They were keen because they could see the benefits coming through to them, but they saw that it was a 10-year plan and that it might take some time to get to where we wanted to be, and they had concerns about how it would be delivered over that period. They also had concerns about the planning system in Northern Ireland—the hon. Member for South Down (Ms Ritchie) mentioned fast-track planning. We have to do something because the planning system is so slow and cumbersome it defies belief.

Although unemployment rates are better in Northern Ireland than in the Republic, we have always struggled to compete with the latter’s attractive corporation tax level, as the shadow Secretary of State pointed out earlier, and it is little wonder, given that its tax rate is 12.5%, compared to our 21%. The ability to set our own tax rate will make that a thing of the past and put us in a better place to compete with the Republic of Ireland, as well as with our Scottish, Welsh and English counterparts. Competition is vital for any economy and ours is no different, so naturally anything that will assist us is most welcome. Devolving corporation tax has the potential to do that.

Allowing us to set our own rate of corporation tax is supported by all five parties in Northern Ireland, as well as the parties in this place. Clearly the benefits are recognised by all. As the Secretary of State has said, it would provide a major incentive for domestic businesses to invest further in Northern Ireland and significantly increase foreign direct investment. That is what we want: real jobs for our people. Given that we share a land border with a jurisdiction with significantly lower corporation tax, this measure has the potential to create thousands of new jobs and stimulate growth in Northern Ireland’s private sector, leading to a stronger, more stable and more lucrative economy.

We have already witnessed change in the last five years in Northern Ireland. In fact, we have already seen a large number of foreign and domestic businesses opening and expanding into our Province. That is great, but we need more opportunities and better employment. We want to encourage more businesses to open up and enjoy the benefits and fantastic work opportunities that Northern Ireland has to offer. Belfast has been described as a small city with a big heart, and it certainly is the up and coming place to invest. That said, however, sometimes big businesses need that little bit of extra motivation. If a low corporation tax rate does not help them to make their minds up, I do not know what will. It would certainly put us on a much more even playing field with the Republic of Ireland, with which we share a land border.

I want to make a quick comment about connectivity and the importance of the air corridor between Heathrow and Belfast City and Belfast Aldergrove. We want to ensure that it is put in place in such a way that we can be part of growing the economy. Just last night, the talk on the news back home was about the new rail links between Belfast and Dublin—to increase their connectivity and, I would suggest, take it away from Northern Ireland. I am concerned that we need to match our neighbour when it comes to those things.

There is no doubt about the benefits that devolving corporation tax will bring, but there are several things we need to consider before its implementation. Fortunately, we have until 2017 to make this a reality. That gives us the time to ensure that when corporation tax is devolved, we have the necessary resources in place to take best advantage of it. My main aim is to see unemployment fall. I believe that the best way forward, coupled with lower corporation tax rates, is for the Department of Employment and Learning to develop a way for students to get real jobs. That might mean creating more apprenticeships, promoting particular skills and helping young people to get experience in the workplace through courses in schools and techs.

Our colleges are working to try to ensure that people are qualified, experienced and able to take up employment opportunities, but I sometimes think that the further education colleges and businesses—with the opportunities that will come off the back of this—need to work more closely together. I understand that we have a dearth of engineers in Northern Ireland. Again, something needs to be done about that. So many young constituents come to me with concerns about getting jobs or houses, because although they have hard-won degrees, diplomas and certificates, they cannot get the necessary experience. I have no doubt that if further education colleges and schools create policies to march alongside tax policies, including on corporation tax, we will see much lower unemployment rates among our young people. That has to be a priority.

I also want to see real reductions for businesses. The week before last, I was talking to a business man who runs a very successful company in my constituency, Mash Direct, which employs 170 people—I understand that the Secretary of State took the opportunity to visit the factory. The company produces simple but attractive foodstuffs and has increased its work force. However, he told me that it was cheaper for him to import vegetables rather than grow his own—he has his own fields round there and is also co-operative with the farmers in trying to ensure that the products he uses for his factory are grown locally. However, he can buy vegetables from south America for less than it costs to grow them in a field in Newtownards. That is ludicrous. Devolving corporation tax will help him to compete better, and that is an advantage. While being ever mindful of better rates for businesses, we need to ensure that there is something in place to protect those who have these issues.

The agri-food business is important in my constituency. Pritchitts, Willowbrook Foods and Rich Sauces are all companies that have thrived over the last few years, employing almost 1,000 people between them. We also have the Akin pharmaceutical industry. These are businesses that have grown over the last few years, and the change in corporation tax will help that growth to continue, which is their ambition, and to employ more people.

I have been approached by many business owners in my constituency, some of whom use their buildings and are delighted at the announcement on devolved tax power, while others are extremely concerned because they do not use their premises. There needs to be some sort of protection or exemption clause for such people. That needs to be considered in the next two years, because we cannot expect business owners to pay corporation tax on vacant properties; that would be unfair. Instead of promoting the economy and creating more jobs, it could have the reverse effect, particularly when Northern Ireland is made up of so many small and medium-sized enterprises—30,000 micro-businesses to be precise, which is 89% of our community. Although we want to encourage big business, we do not want to forget about those who account for such a large part of our economy.

Let me express one more concern that I feel needs to be addressed before implementation in 2017. This is not something that will be unique to Northern Ireland, as it has been raised across the United Kingdom, but I am referring to the issue of holding companies. The hon. Member for Amber Valley (Nigel Mills),who spoke in the diverted profits tax debate in Westminster Hall, asked me about this matter. The issue is clear: we do not want to see a brass plate on an office that is lying vacant; we want to see jobs. It is the jobs that grow the economy and bring in the wages, which then brings money to the Treasury through tax. That is what we want to see. This is an issue of great concern.

A company may come into the United Kingdom and open a holding company in Northern Ireland. This means that it could put any profits made elsewhere back into the Northern Ireland branch, saving on corporation tax. Concern about that was expressed in the Westminster Hall debate. Big US companies such as Starbucks, Google and Amazon have all been accused of tax dodging entirely or of paying considerably less than they should. What steps will be taken to ensure that this same practice does not happen with corporation tax in Northern Ireland?

Undoubtedly, I believe that the benefits outweigh any drawbacks, but in order fully to profit from this proposal, the issues I have raised need to be addressed. I am hopeful that, with this legislation, Northern Ireland can become even more successful and really begin to compete in the business sector on the world stage.

16:32

[Shabana Mahmood (Birmingham, Ladywood) (Lab)]

It is a pleasure to wind up this debate on behalf of the Opposition. We have had an interesting and, I think, high-quality debate. It is an important issue which has been the subject of many discussions over a number of years. I am particularly pleased that so many Members from across Northern Ireland contributed, and I am pleased, too, that, unlike in more recent outings when the Minister and I have been opposite each other on Treasury matters, this has been a slightly longer and meatier debate, not over so quickly. It is a reminder of the good old days when this Parliament was a little busier. That was welcome.

We heard from the former Secretary of State, the right hon. Member for North Shropshire (Mr Paterson), who I thought was right to point out the potentially significant benefits of the Bill, which we also acknowledge. As my hon. Friend the Member for Bury South (Mr Lewis), the shadow Secretary of State, said in his speech, perhaps the former Secretary of State did not quite hear that part of my hon. Friend’s remarks. We say simply that the devolution of corporation tax will require some difficult choices to be made to fulfil the conditionality envisaged in the Stormont House agreement and the Azores judgment. There is a trade-off. We acknowledge that the economic benefits of the change cannot be fully realised without additional changes, particularly investment in skills and infrastructure, to which I shall return a little later. We certainly acknowledge the potentially significant benefits for the people of Northern Ireland through corporation tax devolution.

The hon. Member for East Antrim (Sammy Wilson) was absolutely right to highlight the risk of brass-plating. We need to ensure that these measures have a substantive effect—and I am sure we will return to those issues in the Public Bill Committee.

The hon. Member for Tewkesbury (Mr Robertson), the Chair of the Select Committee on Northern Ireland Affairs, spoke, and his Select Committee has done a huge amount of work on this agenda. I pay tribute to it for that.

The hon. Member for Foyle (Mark Durkan) was right to say that the devolution of corporation tax was not a magic bullet, and to point out that the successes achieved by the Republic of Ireland—particularly from the mid-1990s onwards—had as much to do with higher education funding and investment as with a lower corporation tax rate.

I was pleased that the hon. Member for Redcar (Ian Swales) asked about transfer pricing and profit shifting, and I echo his questions to the Minister. I am sure that we will return to them in detail in Committee, but it would be helpful if the Minister set out some of the Government’s early thoughts about ways of ensuring that the Bill does not provide more opportunities for the exploitation of transfer-pricing and profit-shifting rules.

There was much talk of the dependence of the Northern Ireland economy on the public sector, but, as the hon. Member for Belfast East (Naomi Long) rightly observed, the private sector in Northern Ireland is also heavily dependent on public sector contracts. That is one of the systemic issues with which we shall need to get to grips if we are to achieve a true rebalancing of Northern Ireland’s economy.

The hon. Member for Amber Valley (Nigel Mills) highlighted some technical details to which I hope the Minister will return, probably in Committee rather than today. He spoke of the interplay between the behavioural change among businesses responding to what will potentially be a much lower corporation tax rate and other changes that the Government envisage, particularly in relation to the diverted profits tax.

The hon. Members for Upper Bann (David Simpson) and for South Down (Ms Ritchie) made powerful points about the importance of encouraging more young people in Northern Ireland to stay there, because they are the future of Northern Ireland. The hon. Member for Strangford (Jim Shannon) rounded off the debate very well by pointing out that, while businesses are very much in favour of the measure, we must ensure that the reform delivers for the whole of Northern Ireland and that the benefits are shared throughout the population.

As the shadow Secretary of State said, peace and stability in Northern Ireland are inextricably linked with the increased economic and social progress that Northern Ireland needs. There is an interdependence between the economy and the peace process. I think that there is consensus in the House that if the peace process is to thrive, Northern Ireland will need more private sector growth and investment as part of a long-term rebalancing of its economy. It has long been argued by some that devolution of corporation tax to Northern Ireland so that it can ultimately set a lower rate in order to compete with the Republic—given the sharing of a land border—would enable Northern Ireland’s economy to be rebalanced more quickly, and would lead to sustained economic growth.

Labour Members are committed to supporting measures that increase inward investment in Northern Ireland and support the rebalancing of its economy, and we acknowledge that the devolution of corporation tax could play an important role in the achievement of those objectives. However, as I said earlier, it will require a trade-off between corporation tax reductions and spending cuts. It is important for us to give proper consideration to the long-term as well as the short-term implications for Northern Ireland and for the United Kingdom as a whole. We agree that the 2017 timetable set out in the Stormont House agreement allows time for that consideration, and we will not oppose the Bill. We will co-operate with the Government to ensure that it can be scrutinised appropriately and dealt with speedily during the current Parliament.

The Bill will devolve the rate-setting power for corporation tax in Northern Ireland to the Northern Ireland Assembly for trading profits only, and subject to a commencement order. It will devolve the power to set a corporation tax rate, but will not devolve control of the base. The Northern Ireland rate would apply to all the trading profits of a company if that company was a micro, small or medium-sized enterprise, and if the company’s employee time and costs fell largely in Northern Ireland. In that context, “largely” is defined as at least 75%. In the case of large companies, the rate would apply only to profits that are attributable to a Northern Ireland trading presence. The Northern Ireland Assembly will not be able to set the rate for non-trading profits, such as income from property.

[Ian Paisley]

Earlier in the debate, I asked the Secretary of State if she had taken any advice or guidance about what level of corporation tax Northern Ireland should consider. Does the Opposition spokesman have any view on that? Indeed, is the current inquiry set up by the Labour party in Northern Ireland even considering that?

[Shabana Mahmood]

I am afraid that on this occasion I must give the hon. Gentleman a similar answer to that from the Secretary of State. This Bill is looking at the devolution of this power. It is not for me to say to the Northern Ireland Executive, or Northern Ireland politicians of any description, what that rate should be. Once this Bill passes and we hit the 2017 timetable, that will be a matter for the representatives in Northern Ireland and nobody else.

There are a number of issues, and they have been touched on by Members. We all need to consider them deeply as this progresses both through the House and in the further discussions that will take place as a result of the Stormont House agreement.

First, as has been said, the impact of the Azores decision is important. The devolution of corporation tax needs to be done in a way that ensures it is not caught by EU rules on state aid. In order to meet the third of the three conditions set out in that judgment regarding fiscal autonomy, the Northern Ireland Executive would need to bear the full fiscal consequences of changes in tax revenues resulting from a new corporation tax rate so the block grant would be adjusted to reflect the fiscal costs of a reduction in the corporation tax rate. That is an important issue, and we heard from the hon. Member for South Down about amendments she and her colleagues might want to introduce to address the impact and the modelling behind how some aspects of that would work in practice. There will be a trade-off with public spending cuts and some difficult choices will therefore have to be made, and it is important that those impacts are fully considered and thought through, particularly because, as I said earlier, even the private sector in Northern Ireland is highly dependent at this stage on Government contracts.

The £300 million adjustment that might be required is a burden that may well increase if Northern Ireland were to have a much lower corporation tax rate that then increased the cost and the offsetting from the block grant. The hon. Member for East Antrim asked some questions about the formula that will be imposed in order to calculate the forgone tax by the rest of the UK. It would be helpful to have some clarification from the Financial Secretary on how that formula will operate in practice. I am sure we will address the detail in Committee, but we would like an outline of his thinking now.

Conditionality is attached to the Stormont House agreement. The financial annex adds conditionality to the progress of this Bill, in order to ensure that any changes are fiscally sustainable, stating that there must be

“a clear commitment to put the Executive’s finances on a permanently sustainable footing for the future.”

The Secretary of State did not in her opening speech labour too much the issue of putting the Executive’s finances on a stable footing for the future. There is some detail in the financial annex to the agreement, but that is an important condition that has not necessarily been well ventilated in the debate we have had thus far. Again, however, I am sure we will return to that issue in Committee.

Many Members highlighted the fact that the headline rate of corporation tax is not a panacea. It does not in and of itself result automatically in economic growth, and it was only one of a number of reasons, as many commentators and academics have said, why the Republic of Ireland experienced its economic miracle from the mid-’90s onwards. None of us in this House should see it as a panacea. Investment in skills in particular is just as important, as is investment in infrastructure and, as Members have said, looking at planning rules. All these issues will be crucial. It would be a mistake to think that Northern Ireland’s economy will automatically rebalance just because it has a lower rate of corporation tax—a rate more on a par with that in the Republic of Ireland. That alone will not achieve what we all want, which is a thriving and growing Northern Ireland economy. Other changes will be needed, and it would be helpful to hear from the Financial Secretary the Government’s thinking on some of them.

We have talked a lot about corporation tax not being the only way to achieve economic rebalancing, but as the hon. Member for South Down pointed out, the Institute for Fiscal Studies said in its 2013 green budget that it is a tax which, over time, can vary substantially in revenue terms, and much more so than total receipts from national income. We will need to hear more about how the volatility of corporation tax might impact on the Northern Ireland economy, and particularly about any modelling the Treasury has done on its impact on Northern Ireland’s finances.

As I have said, we recognise that there are potential gains for the people of Northern Ireland from this measure. However, we want responsibly to consider and ventilate the risks it also poses, which we will carefully scrutinise as we progress. We will also carefully consider anti-avoidance measures, to ensure that the Bill does not simply become an opportunity for businesses to brass-plate and base themselves in Northern Ireland, with no other economic benefits for the people of Northern Ireland. I look forward to the debate in Committee.

16:46

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

We have had a helpful and wide-ranging debate on a Bill that will allow the Northern Ireland Assembly to set a different rate of corporation tax from the rest of the United Kingdom, and enable Northern Ireland to encourage genuine investment that will create jobs and growth. It will help rebalance the Northern Ireland economy away from dependence on the public sector, and I welcome the support it has received from all parts of the House. Representatives of six different political parties have spoken in support of it. That mirrors the support received beyond this Chamber—from businesses in Northern Ireland that have long argued for this reform, and we are delighted to have introduced it.

The debate has been relatively lengthy and many contributions were made. I am conscious that there is a further debate to follow, so I am a little constrained by time, but let me see if I can address most of the points that were raised.

I thank the shadow Secretary of State, the hon. Member for Bury South (Mr Lewis), and the hon. Member for Birmingham, Ladywood (Shabana Mahmood) for their support. I think it fair to say that Labour has been somewhat sceptical about devolution of corporation tax. The shadow Secretary of State challenged my right hon. Friend the Secretary of State on the question of when they expressed opposition to it. I am tempted to quote the right hon. Member for St Helens South and Whiston (Mr Woodward), who said at the 2011 Labour party conference that the proposal to cut corporation tax was “a huge gamble” that

“risks making a bad situation worse.”

He urged the then Secretary of State to

“think twice before he leaps.”

To be fair, such scepticism is consistent with Labour’s general position on corporation tax. Whereas the two parties in this Government have cut corporation tax in this country, and five parties in Northern Ireland want to cut corporation tax there, Labour wants to increase the rate across the UK. Whether it is comfortable positioning itself to the left of Sinn Fein on this matter I am really not sure, but that is where it is.

[Shabana Mahmood]

I hesitate, Madam Deputy Speaker, to stray too far from the terms of the Bill, but the Financial Secretary is well aware that our manifesto commitment is to raise the headline rate of corporation tax from 20% to 21% and to put every single penny of that money towards a cut and then a freeze in business rates, which will primarily benefit small and medium-sized businesses. Will he at least acknowledge that that is a business-friendly measure?

[Mr Gauke]

The sense of direction in increasing corporation tax would be a mistake. I will not detain the House for long on this matter, but I also note that Labour’s pledge is to have the lowest corporation tax rate in the G7, which would allow it to increase corporation tax to 26%. That would be a major reversal of the progress made by this Government. However, I am sure you would like me to return to the issue of Northern Ireland, Madam Deputy Speaker.

Let me add my tribute to those that have made to my right hon. Friend the Member for North Shropshire (Mr Paterson). Having worked with him in opposition and in government on this policy, I can testify to the vision, tenacity and infectious enthusiasm he has shown. He demonstrates, as does this Bill, what can be achieved by a Minister with his determination and vision, and he deserves much of the credit for the progress that has been made. He also rightly paid tribute to the current Secretary of State, who has demonstrated great skill in making progress on this matter. He put a lot of the momentum into the process, but it has also required her talents to bring us to this point.

The hon. Member for East Antrim (Sammy Wilson) made an excellent speech about the history of this progress. He and I have had many conversations and meetings on this matter. He described the progress by saying that we would go forward a bit and then back a bit, and that at times it was frustrating. I can tell him that I shared that experience, but he made a good case for the progress we have made. He also made an important point about the Republic of Ireland’s resistance to raising corporation tax at times when it faced great financial difficulties. That point was also made by my hon. Friend the Member for Tewkesbury (Mr Robertson), the Chair of the Northern Ireland Affairs Committee, who described how important it was to the Republic of Ireland to maintain low rates of corporation tax and to grow the private sector.

My hon. Friend made a couple of other points that I wish to address. He mentioned timing and said it would take a couple of years before this measure comes into effect. As has been said by a number of hon. Members, it is important that we set a sense of direction so that businesses can see where things are going in future years, but it takes some time to implement a change of this sort. Therefore, the 2017 timetable is as fast as is realistic. He also asked whether we should have the Committee stage on the Floor of the House or upstairs. That is largely a matter for the usual channels, but given that we want to make progress as quickly as possible and that a limited amount of time is left in this Parliament, it is right that we take every opportunity to make progress on this as quickly as we can. The fastest and easiest way of doing that is by holding the Committee stage, which will involve detailed scrutiny of some 87 pages of legislation, upstairs.

The hon. Member for Foyle (Mark Durkan) rightly made the point, as did a number of other hon. Members, that other issues will drive growth and this measure should not been seen as a silver bullet. He also said we should not create a new twilight zone where businesses and individuals can play the tax system to their benefit, and I will deal with that briefly in a moment. My hon. Friend the Member for Redcar (Ian Swales) made similar points about tax avoidance and also mentioned the impact of this measure on the UK more widely, and I will deal with that in a moment also.

The hon. Member for Belfast East (Naomi Long) made an excellent speech. A couple of points worth highlighting are the need for Northern Ireland to get its financial house in order and to have sustainable public finances, something that is well recognised, and the fact that political stability is important for providing the environment for economic growth in Northern Ireland. I agree with her on that.

My hon. Friend the Member for Amber Valley (Nigel Mills) brought his technical expertise to this debate. He raised a number of points that are probably best addressed in Committee. I do not know whether he was making an application to serve on that Committee, but he certainly raised a number of important points.

The hon. Member for Upper Bann (David Simpson) talked about grasping the opportunity to help economic growth in Northern Ireland. The hon. Member for South Down (Ms Ritchie) made a similar point. She also highlighted other matters, and talked about how to help the Northern Ireland economy. She asked about our engagement with the Northern Ireland Executive. I can assure her that, over the course of many years, there has been significant engagement, that the Northern Ireland Executive have been involved in discussions on the joint ministerial working group and the subsequent design process, and that we have kept the Northern Ireland Executive informed of progress in the design of legislation and taken their views into account when agreeing the final design. There have also been regular discussions at official level between the Executive, Her Majesty’s Revenue and Customs and the Treasury. I am grateful to the Executive for their co-operative approach at ministerial and official level, and that engagement is continuing.

To conclude the debate, the hon. Member for Strangford (Jim Shannon) also highlighted additional challenges that Northern Ireland faces, including improving the planning system and ensuring that the skills base and education system is working for Northern Ireland, and all of those were good points.

Let me pick up on a few of the issues to emerge from the debate. The most significant point, which was raised on a number of occasions, was ensuring that this is about real economic activity. This is not about profit shifting or a brass plate. I can assure the House that we very much share that view. This is not about finding a way in which companies can reduce their tax base through contrived or artificial arrangements, but about encouraging jobs and growth in Northern Ireland. We will ensure that HMRC has the capacity to deal with these matters. For example, when dealing with transfer pricing matters, HMRC will have a risk-based approach to ensure that the system works, so that we do not see the type of activity that so concerns Members.

[Mark Durkan]

On the subject of HMRC capacity, I know the Minister is talking mainly about its powers and where it is sited, but has any thought been given to the regional capacity that it will need in relation to these new discrete considerations that will apply in Northern Ireland, because that might lead to a revision of HMRC’s projection for its staff needs in Northern Ireland?

[Mr Gauke]

The important issue here—it was also a point raised by my hon. Friend the Member for Redcar—is ensuring that there is the capacity to deal with the transfer pricing issues. Transfer pricing is a highly skilled and specialised discipline within HMRC. It is important that the transfer pricing team has the capacity to deal with those matters. That is best done on a centralised basis rather than having people dispersed around the United Kingdom. The hon. Gentleman and I have had many conversations over a number of years on the issue of HMRC’s presence in Northern Ireland. Let me stress that this is a matter of ensuring that we have the right skills, that the customer relationship managers work closely with businesses and that there is a good understanding of how this differential rate will work and be applied.

It is worth pointing out that it will not be possible for companies to set up a brass plate to benefit from a lower rate in Northern Ireland. The rules require a permanent physical presence in Northern Ireland and, more fundamentally, a calculation of Northern Ireland’s trading profits based on the profits that the Northern Ireland activity would have made as a stand-alone entity. That separate enterprise approach coupled with the exclusion of investment profits from the Northern Ireland regime should ensure that common international tax avoidance arrangements cannot be replicated within the Northern Ireland regime. As a Government we have a proud record of progressing the international debate on the issue, and we are not going to allow an opportunity for abuse in our system.

On the block grant adjustment, the Stormont House agreement sets out that the block grant will be reduced to reflect the tax revenues forgone by the UK Government as a result of devolving tax powers. We will continue to work with the Northern Ireland Executive on the detailed mechanics to ensure that the Northern Ireland block grant is reduced appropriately. The reduction will depend on the rate that is set by the Northern Ireland Executive. To answer a point made by my hon. Friend the Member for Redcar, there are no particular restrictions on that. Conceivably, it could be a 0% rate, but that would have to be paid for and it would be expensive. An estimate of the cost to the Northern Ireland Executive of a 12.5% rate is in the region of £300 million by 2019-20, which is when the steady state will be in place. That will depend on a number of factors, not least the growth of the economy.

I am conscious of time and the fact that there is another debate to be had, but let me conclude by saying that there is a strong case for action in this area. The Northern Ireland economy is significantly more dependent on the public sector than the rest of the UK, with about 30% of workers employed there, compared with about 20% in the rest of the UK. The Northern Ireland corporation tax rate of 21% has to compete with the rate in the Republic of Ireland of 12.5%. If corporation tax is lowered in Northern Ireland, about 34,000 businesses in Northern Ireland stand to benefit, including 26,500 small and medium-sized enterprises.

The Northern Ireland Executive will have greater power to rebalance the economy towards a stronger private sector, boosting employment and growth. Northern Ireland will attract more investment and become more competitive, boosting the entire UK economy and the standard of living of people across Northern Ireland. The Bill is conditional on the Northern Ireland Executive continuing to work to balance Northern Ireland’s budget to ensure that people across the UK can benefit from the stronger economy and fairer society that this Government have been building. I hope that the House will give the Bill a Second Reading, and that we have the support of the whole House.

Question put and agreed to.

Bill accordingly read a second time.

Corporation Tax (Northern Ireland) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Corporation Tax (Northern Ireland) Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 12 February 2015.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed. —(Dr Thérèse Coffey.)

Question agreed to.

Corporation Tax (Northern Ireland) Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Corporation Tax (Northern Ireland) Bill, it is expedient to authorise:

(1) any increase in charges to corporation tax by virtue of a resolution made by the Northern Ireland Assembly setting the Northern Ireland rate of corporation tax, and

(2) any increase in charges to corporation tax by virtue of the Act. —(Dr Thérèse Coffey.)

Question agreed to.

Business without Debate

Tuesday 27th January 2015 Commons Chamber

INSURANCE BILL [Lords]

Motion made, and Question put forthwith (Standing Orders Nos. 59(3) and 90(5)), That the Bill be now read a Second time.—(Dr Thérèse Coffey.)

Question agreed to.

Bill accordingly read a Second time.

Motion made, and Question put forthwith (Standing Order No. 63(2)), That the Insurance Bill [Lords] be committed to a Committee of the whole House.—(Dr Thérèse Coffey.)

Question agreed to.

Delegated Legislation

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

Dangerous Drugs

That the draft Misuse of Drugs Act 1971 (Amendment) Order 2015, which was laid before this House on 17 December 2014, be approved. —(Dr Thérèse Coffey.)

Question agreed to.

Backbench Business

Tuesday 27th January 2015 Commons Chamber

Young People in Care

Tuesday 27th January 2015 Commons Chamber

17:04

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

I beg to move,

That this House notes the Second Report from the Education Committee, Into independence, not out of care: 16 plus care options, HC 259, and the Government’s response, HC 647; welcomes the progress made and the commitment to improve the care provided to these vulnerable young people shown in the Government’s response; regrets that the Government has not gone further by exploring with local authorities how to ban the use of bed-and-breakfast accommodation for this age group and by moving to inspect and regulate all accommodation provided to children in care; and calls on the Government to do all it can to improve the accommodation and care given to these young people.

The motion stands in my name and those of other members of the Education Committee, many of whom I see across the Chamber.

I am pleased to lead this debate and to have the opportunity to discuss our report, “Into independence, not out of care: 16 plus care options”. The reason we are here is that the issues considered in our report will have far-reaching consequences for some of the most vulnerable young people in our society. We were moved to inquire into this subject by our concern, raised during previous work on child protection, that the needs of older children in the care system were not being properly met. The horror stories we heard about children being placed in unsuitable and unsafe accommodation, often far from home, made it a matter of crucial importance for us to explore what could be done to improve the situation.

During the inquiry, we took evidence from charities and experts, from the Minister, whom it is a pleasure to see on the Front Bench, and from those closely involved in providing care services to young people but, as I think my colleagues will attest when they speak during the debate, the most important and powerful evidence we heard was from young people themselves who were in care or had previously been in care. We were grateful to those who were brave enough to come and speak to a bunch of MPs and speak about often troubling periods of their lives and about their experiences.

Our inquiry looked at the kinds of accommodation that are provided for young people aged 16 and 17 who are looked after by local authorities—young people still in care; the suitability, safety and regulatory nature of alternative accommodation; whether the “Staying Put” principle whereby young people are allowed to stay in their accommodation for a longer period should apply to those in residential children’s homes; and whether the provision of alternative accommodation should be extended to the age of 21. We made a series of recommendations in each of these areas, all of which are important and many of which were picked up by the Government response, which was published in October 2014. Others may wish to touch on some of those issues, such as “Staying Put” or ensuring that young people’s voices are heard in planning their care.

I hope the Minister will forgive me if I concentrate on two areas where we think the Government should have gone further towards making the changes that we want to see in order to deliver a vision which I know we share with the Government of improving care for these young people. In doing so, I stress the fact that as a Committee we do not doubt the Minister’s commitment to addressing the problems faced by older children in care, nor do I think that progress has not been made: it has.

For example, the new pupil premium plus has seen funding to support children in care at school increase by £1,000 per pupil. Children are covered as soon as they enter care and 10,000 more children in care now benefit, bringing the total to 50,000. The care leavers strategy that the Minister launched in late 2013, which encompasses action across a range of Departments, from the Department for Work and Pensions to housing to the Department for Business, Innovation and Skills, is giving care leavers a helping hand as they enter adult life. The Ofsted single inspection framework is doing a better job of drawing together data and insight into the lives of older young people and making sure that local authorities can be held to account for the provision that they give them. That is all good news.

Our disagreement today is over how fast we should now move towards tackling what my Committee sees as matters needing urgent attention: the regulation of accommodation provided to children in care, and the use of bed-and-breakfast accommodation for that age group. I shall start with bed and breakfasts. The Department for Education guidance says that bed-and-breakfast accommodation is not suitable.

One young person told us of being placed in a B and B as an emergency placement—I repeat, emergency placement—for three weeks. She was the only young person in the building and older residents would come knocking on her door asking her to join them in their rooms, which was an incredibly frightening experience. Imagine being that child, sitting behind the door, waiting for the next knock. For vulnerable young people, many of whom have self-esteem issues and who are desperate for love and attention, such an environment leaves them at the mercy of people who are keen to exploit their situation and weakness.

So why, we asked, is bed and breakfast still being used? We found that it is used mainly as emergency accommodation in cases where a young person needs shelter urgently and nothing else is available. At least, that is the reason we were given, although when we met young people as we travelled around the country we heard about people being kept there for a long time, such as the young lady I mentioned. It was argued that if the local authority did not have the option of using bed and breakfasts, then young people could be even worse off. In our report, we recommended that the Department consult local authorities in order to determine a reasonable time frame to allow them to build up capacity so that there could be a total ban on using B and Bs and they could follow the example of Wiltshire, for instance, which has built up a resource such that it does not need to use them. We also say that there should be a strengthened requirement for local authorities to commission sufficient emergency facilities.

In its response, the Department accepted our recommendation on temporary measures and asserted that there should be a limit of two working days on the time that a young person could spend in a B and B. That is welcome, but it still falls short of an outright ban. Many children enter B and B accommodation in an emergency on a Friday night, so the limit of two working days means that they could still be there on the Tuesday evening. The Government response said:

“We want to test further the arguments for and against the flexibility for local authorities to use B&B where it is the best way of meeting a young person’s needs. Over the coming months, the Department for Education will undertake work with stakeholders to better understand these issues.”

We welcome the seriousness with which the Government have taken this, but we do not think that is good enough. Young people are being failed now—as we speak—and no amount of stakeholder consultation will disguise that reality. I urge the Minister to set out what the DFE has learned from the consultation to date and when we can expect further action on this issue, with a view, in the opinion of my Committee, of moving towards an outright ban.

The other issue I want to raise is the regulation of “other arrangements” for looked-after 16 and 17-year-olds. Some Members unfamiliar with this area of policy many wonder what “other arrangements” are. They include placements in a family or domestic setting where the adults responsible for their care are not approved as foster carers; foyers, which are meant to offer integrated housing, learning and personal development services, and other kinds of supported accommodation; and placements in independent accommodation with “floating support” where housing support workers make regular visits—or are supposed to. Ofsted’s single inspection framework assesses the experiences and progress of care leavers through scrutinising a representative sample of 25 tracked cases. Individual properties or settings are not inspected. That would not be an acceptable approach towards other settings, and it should not be acceptable for the accommodation in which some of the most vulnerable, abused young people in our society are placed.

We therefore recommended that the DFE consult on a framework of individual regulatory oversight for all accommodation that falls within “other arrangements” to ensure suitability, while allowing for diversity of provision. Many will ask why, as a Conservative, I am so keen on regulation. I, and my Committee, think that children who are as vulnerable as these young people—they may have learned to have a very tough exterior, or a streetwise front, but are in fact deeply vulnerable—deserve to have their accommodation individually inspected to ensure that the injustice they have suffered so far in their lives is not compounded further by a failure of oversight by those in loco parentis, namely us.

Ministers said that they wanted to maintain what they described as the “flexibility” of current arrangements, emphasising that they will hold under-performing local authorities to account when poor practice is uncovered. However, that logic is not applied to the quality and safety of settings for children and young people across the rest of the DFE’s remit. If there were a consistent approach in saying that a sample approach delivers better outcomes, one would expect that to be found across the piece, but it is not. Childminders, foster carers, residential children’s homes, secure training centres, schools, sixth-form colleges and further education colleges—each of those is individually inspected. It cannot be right that we do not do the same for the accommodation of 16 and 17-year-olds who have had an extremely tough start in life. As a society, we owe them that.

I ask the Minister to think again, or at least to explain why he believes that a new regulatory framework will not lead to the improvements in quality that we have seen in other settings that are individually regulated by Ofsted. I know that he cares deeply in both a personal and a professional capacity about making improvements. I hope that I have fairly stated that I recognise that the Government and the Minister have made significant strides in improving outcomes for such young people. He has done a lot of great work, and I sincerely hope that he will now take further steps to ensure that young people on the cusp of leaving the care system get a fairer, safer start in life.

17:15

[Bill Esterson (Sefton Central) (Lab)]

It is a pleasure to follow the Chairman of the Education Committee, the hon. Member for Beverley and Holderness (Mr Stuart), who provided a very good summary and analysis of our report.

Like other Committee members, the hon. Gentleman will have heard from or met those from the Alliance for Children in Care and Care Leavers. They have given me a copy of their requests for inclusion in the manifestos of all parties. One of their points is that the average age at which young people leave home is 24; yet young people leave care at 18 and, sadly, it is often earlier—at 16 or 17—for the most vulnerable and disadvantaged children or young people in our society. As the Chairman of the Committee said very well, they are the group most in need of support, but we expect them to fend for themselves and to go into independent living.

The point about the difference in treatment at different ages and the way in which we, as supposed corporate parents, allow that to happen, says everything we need to know in summary, and the detail has now been published in our report. The life chances of children in care—whether in education, employment, relationships or housing—are all significantly lower than for other people in society. For example, many of the prison population were in care as children, and 60% of children in care have some kind of mental health problem.

The young people we met told us their stories, as do those who have met other Members at other times. Our report shows that leaving care is one of the key stages in their lives. It is very often a harsh cut-off date, whereas other young people usually have no arbitrary leaving date. Many young people go away and come back, so they leave home over a period; some parents would say that their young people never leave, as is sometimes their experience. However, that is not the case for this group of particularly vulnerable young people, so our recommendations are important.

Our chapter on “Staying Put” gives the figures for those who leave care as 16 and 17-year-olds, and for those who leave on their 18th birthday. A remarkably high number—in the thousands—leave care before they are 18, and many more do so on their 18th birthday, when they are no longer regarded as looked-after children. The questions we want to pose to Ministers and, for that matter, potential Ministers are: is everything being done to ensure that children do not have to leave care if they do not want to, and do local authorities and others apply pressure to get young people to leave? I have heard such a point more than once, and we refer to the financial pressures in our report’s conclusion, where we recognise the resource constraints in relation to the difficulty of extending “Staying Put” arrangements in residential homes.

One of the witnesses who gave evidence to the Committee was Ben Ashcroft, the author of “51 Moves”. He is involved in a campaign to extend residential care to the age of 21, which is as it should be. If as a society we have accepted that it is right for young people to stay in foster care until they are 21, it should be the same for those in residential care. As our report says:

“the young people in question have already experienced troubled and disrupted childhoods and are far too important for their welfare not to be prioritised.”

If we are serious about ensuring that support is available, we need to ensure that local authorities have the money. My council has lost more than 40% of its funding since 2010 and many other local authorities find themselves in that situation. If this Government or any future Government are serious about making a difference for these vulnerable young people and children, they, as well as local authorities, need to ensure that the resources are available. If that does not happen, we will continue to spend far more in later years on looking after the adults that the children and young people become, whether through the high cost of prison, the benefits system or mental health care.

If we are talking about finding extra money to fund the long-term solutions that our report suggests, has the time come to consider which Departments or budgets it will come from? The justice budget and the health budget are two possibilities, but the housing budget, the Department for Work and Pensions budget and the education budget also spring readily to mind.

As we heard from the young people we met and as other young people have told me, when young people leave care, they are often leaving a situation where everything is done for them, with little preparation for having to look after themselves. All too often, they have no concept of how to pay the rent or other bills, how to shop or cook, or how to get education or work. It is no wonder that so many of them end up struggling. A third of young people who leave care end up homeless between six and 24 months afterwards. That is a staggeringly high proportion.

[David Simpson (Upper Bann) (DUP)]

Does the hon. Gentleman agree that a percentage of young people leave care homes not because they are forced to do so, but because of difficulties that they experience in their lives? Such young people become vulnerable and can then be trafficked and cannot be found again.

[Bill Esterson]

The hon. Gentleman is absolutely right. He is talking about people who leave residential care. The Committee came across evidence of that during our inquiry on residential care and I suggest that he reads the report. It is worrying that society loses track of such a high number of young people.

In this inquiry, we found a clear need for action, whether by doing better with existing resources, providing extra resources or both.

[Mr Graham Stuart]

Further to the question from the hon. Member for Upper Bann (David Simpson), we recommended in this report that there should be greater awareness of the right of young people who leave care and get into difficulty to come back into care. The Government said that they would look into that more closely. Perhaps the Minister will reflect on that in his remarks and let us all know what progress has been made.

[Bill Esterson]

I thank the hon. Gentleman for making that point. He is absolutely right.

We made recommendations about better preparation for young people who are leaving care, including through the development of life skills. We highlighted a number of areas where support was crucial, based on the evidence that was presented to us.

The concept of instant adulthood has been raised with me. It describes the sudden change in the lives of people who have been very much looked after and who have had everything done for them and everything provided for them. It describes how corporate parenting is not working in the way we would expect for this group of young people. The concept of corporate parenting had been used as a way of identifying how we should look after such young people.

A point that has been made to me is that young people must value the support that they receive. It is not good enough for the authorities to describe what type of support should be available and who should provide it. Young people often have relationships with those they do not necessarily want supporting them, whether a social worker or somebody else they come across while they are in care. It is really important to listen to young people in deciding who is best placed to provide support for them. It is a matter of trust—I have heard that word mentioned a number of times.

[Tim Loughton (East Worthing and Shoreham) (Con)]

I refer the House to my entry in the Register of Members’ Financial Interests.

The hon. Gentleman is talking about the “Maintaining positive relationships” part of the Select Committee’s report, which I thought was interesting. It mentions how we can do better with personal advisers, but it also refers to sibling groups. Does he share my concern that a report issued today by the Family Rights Group shows that half of all sibling groups are split up in foster care? Does he think that more could be done, as those children leave care, to re-establish relationships with other family members that have been denied them in the care system? That could prove important in anchoring them and giving them stability, so that they can move into adulthood with trusted relatives.

[Bill Esterson]

I am extremely grateful to the hon. Gentleman for making that point. As an adoptive parent of a sibling group, some of whom are still in care, I know from experience that that is incredibly important to my own children. He hits the nail on the head—sibling groups should be kept together wherever possible, and every effort should be made to keep siblings in touch while they are in care and into adulthood. As he says, we touch on that in the report. Such relationships can really help young people as they leave care and move into adulthood. What came out strongly in the evidence that we took, and in the evidence that I got from elsewhere, was the importance of a young person having someone to advise and support them, whether it is a sibling group, a friend, a trusted professional adviser or the parent of a friend.

I have had some good information provided to me by Barnardo’s, with examples of what goes on. It says that there are a number of examples of good practice around the country. The Chairman of the Education Committee mentioned what goes on in Wiltshire, and I am aware of good practice by Barnardo’s in Merseyside, for example, where it provides support not just for care leavers but for other young people in the same age group.

Barnardo’s also gave me examples of nightstop, crash pads, supported lodgings and supported housing projects. Crash pads are short-term emergency supported lodgings. They are temporary forms of family-based accommodation, with placements lasting up to eight weeks. They provide specialist support to young people who need somewhere to live on a short-term basis.

Supported lodgings provide family-based support to vulnerable young people aged 16 to 25 who cannot live with their own family and are not yet ready for independent living. Young people are provided with places to live in the homes of local people, from whom they receive varying levels of practical and emotional support, enabling them to develop the confidence and capability to live independently. Young people normally stay in supported lodgings for up to two years, but they can also be used to provide shorter-term emergency housing.

Supported housing projects offer high levels of support to young people for up to two years, although some have a small number of emergency beds available at short notice for a few days at a time. They tend to house a group of young people with more complex needs, and they usually have 24/7 on-site support from staff.

I give those examples to address the point made by the Chairman of the Committee about emergency accommodation—what is sometimes called bed and breakfast. Some of those examples are from Barnardo’s and other providers. I hope that the Minister and shadow Minister will look at what is out there already, because if we are to provide the range of alternatives that our report calls for, we should learn from good practice and share and apply it, so that—in the shortest possible time—better opportunities are available for this group of young people. I hope that the Minister will take my comments on board and perhaps respond when he winds up the debate.

17:30

[Craig Whittaker (Calder Valley) (Con)]

As has already been said, our report made recommendations on bed-and-breakfast accommodation, on staying closer and on the regulation of all external accommodation—to name but a few. The recommendation I wish to discuss today is on the lack of “Staying Put” arrangements for the 9% of our young people—some would argue that they are the most vulnerable 9%—in residential care homes.

First, let me remind the House of some of statistics about these vulnerable young people, our nation’s 70,000 looked-after children. Everybody will surely agree that this country’s record in helping that most vulnerable group when they leave care has been nothing short of appalling in the past. Of the 7,000 19-year-olds who were in care at 16, 36% were not in education, employment or training and only 6% of all care leavers are in higher education, compared with 43% of their peers. Less than 26% of children in care obtain five good grades at GCSE, compared with more than 70% of their peers, and 23% of the adult population in our jails have had experience of the care system. Around a quarter of those living on the streets have a care background and care leavers are four or five times more likely to commit suicide. About 47% of looked-after children aged between five and 17 show signs of psychosocial adversity and psychiatric disorders, which is higher than the most disadvantaged children living in private households. Physical and mental problems also increase at the time of leaving care.

As we know—the Chairman of the Committee mentioned it in his speech—and to the Government’s huge credit, they have allowed young people who are fostered to remain with their carers until they are 21, if they wish, if their carers agree and if it is considered to be in their best interests. That is in an attempt to address the many serious challenges care leavers face. All young people in foster care are offered enhanced support up to the age of 21. For young people in foster care, that is one of the biggest and most fundamental changes to their support when they leave care, and it has been widely applauded as a significant change in the right direction for that group of young people.

The big scandal, however, is that the extension to foster placements excludes the 9% of young people in care who are in children’s homes. Those young people have a wide range of needs and challenges. What most have in common is that they are vulnerable. That vulnerability is exacerbated by the stigma attached to residential care among politicians, the public and, sadly, some in the social work profession. Ministers appear to see living in a family as the best option for children in care and the only setting in which children will thrive. That is not reflected by some social workers, who see children’s homes as the last resort, as a place for children who have failed family placements and as somewhere the more challenging young people can be placed. Many of the public see children’s homes as places where naughty children are sent. Historically that view was compounded by some local authorities who used children’s homes to accommodate their more challenging young people.

The Education Committee’s recommendation was that young people living in residential children’s homes should have the right to remain there beyond the age of 18, just as young people in foster care now have the right of staying put until the age of 21. We recommend that the Department for Education extends “Staying Put” to residential children’s homes.

Despite the evidence taken in our inquiry, the Government do not agree. They said that too many children’s homes are not of sufficient quality and that the immediate priority is to improve significantly the quality of residential care. To be fair to the Government, they are doing that. They said that the evidence for placing such a duty on supporting the “Staying Put” arrangements for young people in foster care is robust. We do not have the evidence for children’s homes, as they were not covered by the plans.

The Government said that there are a number of practical and legal issues we would need to consider and test out. There would be vulnerable adults living in homes with much younger vulnerable children—despite the fact that that happens in many households throughout Britain. In addition, a children’s home accommodating three care leaders and one child would technically no longer be a children’s home. The Government also mentioned money, and that has to be taken into consideration, particularly in these economic times.

None the less, the Department recognised that those challenges should not be viewed as insurmountable barriers. It said it was working in collaboration with charities to consider some of the issues associated with “Staying Put” and residential children’s homes. Natasha Finlayson, from the Who Cares? Trust, confirmed that that work was in progress. The Minister confirmed all that nearly a year ago, when I secured an Adjournment debate on this very issue.

In fact, a scoping report was requested from the Minister from a collaboration between the National Children’s Bureau, the Who Cares? Trust, Action for Children, Barnardo’s, Together Trust, the Centre for Child and Family Research, and Loughborough university. Their work was published only yesterday, after a year of working on the scoping exercise. A stakeholder workshop identified four different options for residential care “Staying Put” arrangements, which formed the basis of a consultation with young people. Overall, the scoping exercise showed that care leavers from residential homes would prefer to have options, rather than a one-size-fits-all approach.

[Tim Loughton]

My hon. Friend is making a good case for what is a very difficult solution for kids in residential care homes, but does he not recognise that the “Staying Put” exercise is largely staying put with carers, which is more easily achieved through foster care, for example? In residential homes, workers tend to move on. Indeed, the average stay in residential homes is rather short, so there is not that attachment. Would it therefore not be better to try to establish options, which he is now describing, that form links with foster carers and others to give a proper bonding and link with advice and support, which one does not get from an attachment to a building that is a residential care home? That is rather different to a foster care relationship, which the young person will have been in for many years in many cases.

[Craig Whittaker]

I thank my hon. Friend for that intervention. He raises some valuable points, particularly on the turnover of staff in residential homes. The point is that a lot of young people in residential homes have a stigma attached to them. Not only that, quite often a foster placement has broken down. One could argue quite easily that they are the more vulnerable of our children in care. That being the case, to turf them out by themselves at the age of 18, often with very little support, is not the way forward. That will not be the case for all young people in residential homes—of course not. Some will be robust enough to take that step. For those who choose to stay, we feel strongly that that option should be open.

[Bill Esterson]

One challenge in residential and in foster care of “Staying Put” is that it leaves fewer places for other children to enter the care system. Does the hon. Gentleman agree that one of the very big challenges in foster care is to find more foster carers, and in residential care, as the hon. Member for East Worthing and Shoreham (Tim Loughton) pointed out, it is to find staff who will stay long-term so that we have a more experienced, quality work force?

[Craig Whittaker]

Of course the hon. Gentleman has a point, but it does not make sense to allow young people in foster care to stay on until the age of 21, but exclude the 9% in residential care homes—the most vulnerable young people—particularly given that the 91% are arguably the ones clogging up the system.

The scoping exercise discussed four options, and the results were interesting: 25% of the young people preferred option 1—care leavers live in the same children’s home until they are 21; 13% preferred option 2—care leavers live in a separate building but in the same grounds as the children’s home; another 13% preferred option 3, which was like supported lodgings—care leavers live in a different house and need to be at least 16; and 25% preferred option 4, the staying close agenda—care leavers live independently in their own flat down the road or close to the children’s centre, and they have a key worker. It was clear from the scoping exercise that young children in residential homes would prefer those types of options.

The cost of extending those four options to all children—if we do it for one group, surely we must do it for all young people in care—would be about £75 million a year. It is not a small sum by any stretch of the imagination, but the cost of not giving any such option, particularly to residential care leavers, is many times that amount, and let us not forget the 23% who end up in our penal system, the cost of NEETs, drugs, crime, mental ill health, homelessness—to name just a few aspects.

The scoping exercise made several recommendations, and here are three of them: that the Department for Education develop plans for a new overarching duty of continuing wide-ranging support up to the age of 21 for all young people leaving care and, in doing so, draw on the learning of the Scottish reforms; that Ofsted work with stakeholders to clarify the ability of children’s homes to maintain registration when they routinely cater for young people over 18 and how children’s homes’ provision of accommodation and support for young people over 18 will impact on the inspections process; and that the Department for Education and the Department for Communities and Local Government review the option of extending regulation to a wider range of support and accommodation options for young people.

To summarise, may I ask the Minister when young people in residential homes can expect the Government to remove the discrimination and unfairness in the system and provide a range of options to all young people leaving care, as recommended by the scoping activity, and when he is likely to respond to that exercise?

17:43

[Alex Cunningham (Stockton North) (Lab)]

There could not be a more important subject for us to debate in relation to some of the most vulnerable young people in our society. Many will have found themselves homeless as a result of abuse, family breakdown, bereavement or other catastrophes in their lives, and, at a relatively young age, at the end of their childhood, they are cast into an adult world they are not necessarily prepared for.

The vast majority of professionals in local authorities do their best to meet the needs of this group of young people, but still far too many—some at just 16 years of age—are simply dumped somewhere, perhaps on a Friday night, and left to fend for themselves all weekend in a bed-and-breakfast establishment or unsuitable hostel because there is nowhere else for them to go. It is not good enough. I challenge Ministers, fellow Members, councillors and the professionals responsible for these young people to tell me whether they would be happy for their child, grandchild, niece or nephew to be treated as we treat many young people who need us to care for them—young people who feel abandoned and in great distress.

The presence in the Chamber of fellow members of the Select Committee on Education is testament to the importance of this subject, which was reflected in our report. The Committee identified a series of steps that we feel are needed to ensure that improvements occur, both in the preparation of young people as they move through to greater independence and in the stability and support available. As others have said, one of the core concerns, both of myself and other Committee members, relates specifically to the use of bed-and-breakfast accommodation for vulnerable young people at times of need. As the Chairman has said, statutory guidance makes it clear that care leavers should be placed only in suitable accommodation, meaning that it is safe, secure and located so as to allow them to take part in education, employment or training. However, the series of visits we undertook and the discussions we had with young people did little to confirm that that was happening universally and shone a light on the continued use of B and Bs for 16 and 17-year-olds, all too often for protracted periods—for instance, one person spoke of living in a B and B for two years. Little wonder that so many of them feel abandoned.

The hon. Member for Beverley and Holderness (Mr Stuart) talked about one young woman, and I am going to repeat the story, because what she told us that day in Ipswich really haunts me. When she spoke to members of the Committee, she told us about being placed in emergency accommodation—a B and B—for several weeks. It was a placement primarily for adults. She was the only young person, yet while taking refuge in the care of the state, she was subjected to older men braying on her door late at night and asking her to join them. That is not a situation I would wish on anybody, let alone a vulnerable young person. I hope that the young person hears that her story has been told at least twice tonight—who knows, maybe it will be told more times before this evening is over.

The statutory guidance that states that care leavers should be placed only in suitable accommodation also makes it clear that B and Bs are inappropriate for young people in care and should be used only in very particular circumstances. To be certain, those circumstances should amount to nothing short of an emergency situation; yet, troublingly, the use of B and Bs continues, with as many as 800 care leavers in England being placed in such accommodation in 2013-14 by their local authority. Far from being merely unsuitable, B and Bs often present an environment that feels unsafe and threatening to a young person. I would love to know how many of our directors of children’s services know for certain that the bed-and-breakfast establishments they use for 16 or 17-year-olds are as safe and secure as they would demand for a member of their own family.

Statistics from Barnardo’s, compiled following a series of freedom of information requests, reveal the extent to which many local authorities are failing to observe Government guidance to avoid the use of inappropriate emergency accommodation for young people leaving care. Despite guidance to the contrary, almost three quarters of local authorities in England continued to place care leavers in B and B accommodation during the last year, with 43% doing so repeatedly and an unacceptable 51% doing so for 28 days or more, despite B and Bs being described as emergency accommodation. We can and must work towards a future where their use is abolished altogether.

Accommodation of this sort, whether designed for short-term use or otherwise, fails to offer support to young people and does not allow them to move on and make progress with their lives. Worse still, placing vulnerable young people in such accommodation risks exposing them to a range of dangers and negative influences. I am clear that the use of B and Bs is avoidable, but if we are to achieve the right result for all our young people needing emergency care, more needs to be done, with authorities working co-operatively in their areas to ensure that suitable and safe accommodation is available. Government, too, have a role to play. As my hon. Friend the Member for Sefton Central (Bill Esterson) said, funding to local authorities has suffered huge cuts in recent years. I hope Ministers will look again at how they can guarantee every young care leaver a safe place to live when they need it.

The north-east highlights perfectly what can be achieved. Local authorities across the area have demonstrated that sensible policies in this area can produce positive results. Both Hartlepool council and Redcar and Cleveland council succeeded in placing 100% of care leavers aged 19 to 21 into suitable accommodation in 2014, while many other councils across the region achieved such outcomes in over 90% of cases. But there is still more to do, and we need to act to make sure that this progress is made sooner rather than later.

The local authority serving my own constituency, Stockton borough council, is a case in point. Last year, it achieved a success rate of 96% in placing leavers aged 19 to 21 into suitable accommodation, putting it in the top 10 of local authorities nationwide. That was not the case for a few, but that small number at least indicates that there were cases of genuine emergency. That said, I am pleased that those in charge of young people’s services are working alongside colleagues from housing to develop an initiative that will allow care leavers to be re-housed in close proximity to their former children’s homes—often on the same street, so that they can continue to benefit from the local support network that is available, preventing any sense of abandonment.

It is thinking like this that will see us making real improvements in this area. I remain in no doubt, and neither does our Select Committee, that bed-and-breakfast accommodation should be banned as soon as practically possible for young people, with proper inspection and regulatory oversight introduced to end the practice once and for all. I know it cannot be done overnight, but I would love the Minister to be bold and to fix a date for a ban to be introduced. Sadly, I already know that I will be disappointed, as the Minister has previously indicated that he has no intention of doing so.

I mentioned the effect of cuts and co-operative working, and emphasise that again. If we are to succeed in taking this step and bringing an end to a practice that so often puts young people at risk, national standards for proper emergency provisions need to be established, while local authorities need to have access to the necessary resources—whether it be through improved communication and working within local authorities, enhanced collaborative working between local authorities and organisations, or increased central funding. Indeed, we too often hear that local authority departments do not work closely enough together when providing accommodation options for vulnerable young people, and I am clear that that needs to be addressed.

Making the transition from care to independence is one of the most challenging periods for young people leaving care, especially for those who have had the most chaotic journeys through the care system. They need support and guidance in many aspects of their lives. It is therefore common sense that service providers communicate with each another, and it would be very interesting to see further consideration given to the sharing of budgets or joint commissioning of services in a similar way to that being examined in Stockton.

Often as a result of the lack of joined-up working, Barnardo’s has reported alarming findings, indicating that young people’s accommodation problems often get worse after their 18th birthday. In its “The cost of not caring” report, examples are given of councils placing care leavers in appropriate accommodation, fully funded by their children’s services, only for that to be withdrawn when they turn 18 and cease to be eligible for support.

Unprepared for the responsibility of paying their own rent and bills, and frequently lacking those all-important independent living skills, young people can find that their accommodation quickly becomes unaffordable as they no longer have the support they had previously relied on. Some on housing benefit find that they can no longer afford their rent, which children’s services departments had previously funded while they were still in care. That forces them into more affordable accommodation in alternative locations—invariably of lower quality. The new benefits regime introduced by the Government only adds to the challenges and misery these young people face.

All of that adds up to care leavers having an increased risk of homelessness, not only during the transition out of care, but over the longer term. Studies have highlighted worrying figures that over a fifth of homeless people have been in care as a child, while 16% of those facing additional complications on top of homelessness, such as mental health problems or substance issues, have previously been in local authority care and had, on average, left care aged just 17.

I often reflect on the fact that my two sons left home in their mid-20s after a life of support and stability, but that is seven or eight years older than the age at which we expect many young people leaving care to fend for themselves. They do not have the luxury of a family to fall back on. It is our responsibility as a nation to ensure that we do not abandon them. We hope to hear from the Minister how he is going to ensure that that is the case.

17:54

[Pat Glass (North West Durham) (Lab)]

I thank the Backbench Business Committee for making time for this important debate. As the Chairman of the Education Committee said, the report came out of an earlier inquiry in which we found that older children are neglected in the care system. I pay tribute to the Minister for the real interest he has taken in these areas and for the way in which he has tried—and often succeeded, I think—in bringing about improvements for this group of vulnerable children. There is no doubt that he cares about these young people, and it is in that spirit that I make my speech.

In my former life, I managed many areas of education that are closely linked to social care, child protection and safeguarding, but I was always careful to stay removed from managing those areas directly, arguing to myself that I did not have the necessary expertise, and that issues such as safeguarding and child protection were better left to those who had been trained to manage them. In reality, however, there was always a healthy dollop of fear in there as well: fear that some actions that I had caused to be taken, or had recommended, would result in further harm to a child who had already been harmed by those who should have cared for them the most.

Even as an MP, when I first entered Parliament, I tried not to become too closely involved in children’s social care, but, in practice, that has proved to be impossible. Along with my fellow members of the Education Committee, I felt that, given what appeared to be a lack of interest in the Department for Education, I had a duty to ensure that 50% of our time was spent on scrutinising and challenging Government policy on children’s social care. I recognise the Minister’s input, but it often seemed that he was a lone voice in a Department that is focused almost entirely on education.

When we discuss these matters, I like to put them in context. The United Kingdom probably has one of the best records in the western world when it comes to safeguarding and child protection: we are much better at it than most—not all, but most—European countries, and we have a far better record than the United States. Even in that context, however, we still do very poorly in some areas and in respect of some children.

I think that what shocked me the most during the Committee’s investigation of areas of social care and child protection were the findings of our short inquiry into 16-plus care options. We saw placements that we considered to be unsafe. Close as I am to this subject, I did not quite realise how difficult life is for these children, and how little support they are given by us—by, for instance, the Government, Parliament and local authorities. Like others, I listened in horror to the stories of young people leaving the care system about what had been done to them and how little support they had had. That comes on top of what we are now learning about what was done to young people— many of whom were living in the care system at the time—in places such as Rochdale, Oxford and Rotherham; and we know that many other cases have yet to become public.

One of my lasting worries following the inquiry is that, while the public are shocked and morally outraged when they hear stories about such places as Rotherham, the bottom line is that we—the Government, Parliament, MPs, local authority officers, the press and the public—simply do not care enough about the children involved. If we did, these things would not happen. It is easy to blame hapless, overworked officials who often work without structures, support or adequate resources, but we are all responsible for those children, and we do not, as a society, take our responsibilities for them seriously enough.

One child, a care leaver, said to me that not only should we be providing additional funding for the education of such children, but if every child who went into care at the age of 10 was given the vote, people like us would take what happened to them seriously. Because they do not have that leverage, I doubt whether things will change very much for them—even given the recent press coverage and the moral outrage—but I always try, at least, to travel in hope.

Two facts motivated our inquiry into 16-plus care options: the fact that “other arrangements” are unsuitable, and the fact that the current “Staying Put” policy is inequitable. My fellow Committee members and I call on the Minister to address three issues as a matter of urgency. First, we ask him to outlaw the use of bed-and-breakfast accommodation for 16-plus care leavers. We have heard all the arguments from the local authority officers, and even from the Minister himself, about the need for it as a provision of last resort and for emergency use only, but we believe that, while it remains an option, it will become the default provision in far too many cases. Local authorities can plan not to use bed and breakfast for this purpose. Some of them have put real effort and resources into doing something else, something better and, in the long run, something more cost-effective for those young people.

I remember exactly the same arguments being used when the Government of the day were pushing local authorities to provide full-time education for young people who had been excluded from school. At the time, local authorities were saying, “We can’t possibly do this, we need to be able to provide part-time education in emergencies,” but the fact is that the default position then was that most children who were excluded got less than 10 hours of education and many got none. It took a Secretary of State really to lose patience with local authorities and to make it illegal, and I am glad that he did. I am a great believer in the saying that we are never as swift as when we are chased, and I am absolutely sure that some local authorities still provide hours that are below the legal limit, but the vast majority got their act together and did some proper planning, and the situation is much better as a result. Now that the situation is very clear and we have outlawed providing less than full-time education for excluded children, those children have redress. If bad local authorities are not providing that education, there is redress, and there is also a role for Ofsted.

Secondly, we are calling on the Minister to regulate 16-plus care provision. I find it unbelievable that we have stronger regulations to cover the provision of dogs homes than we do for homes for children leaving care at 16. The Minister has argued that he does not want to drive the best providers out of the market with regulation, but that is simply not going to happen, because this is lucrative. It is so lucrative that hedge funds are getting into it, but I think it is fair to say that the bottom of this market, as the Committee has seen, is not merely inadequate—that is a huge understatement—but dangerous, and it is unsafe. It puts children who are at risk—the most vulnerable of our children—at greater risk and we simply cannot allow that to continue.

[Mr Graham Stuart]

The hon. Lady is making a powerful speech. Does she share my concern that in a market of supported accommodation, where there is no real and effective regulation, entirely unqualified people can sit there supposedly supporting some of the most vulnerable young people? When we were doing our inquiry, we heard of such people sitting boarded up in their office while the young people were rioting outside. That is the situation we are putting some young people in by failing to regulate these individuals.

[Pat Glass]

I absolutely agree and we did see some of that when we went on visits across the country.

Finally, we are calling on the Minister to extend “Staying Put” to all young people in care. It is great—and I again have to pay tribute to the Minister—that young people in foster care can remain beyond the age of 18, but in many respects those young people are the ones who are the least vulnerable and who arguably have the best outcomes, and it is now time to do the same for the others.

We are talking about a surprisingly small number of children each year. It has been said that £75 million is the sum required to deliver this. We should contrast that with the £2 billion overspend on the academies and free schools programme. If the Department can spend that virtually without comment, surely it can find the money to provide this desperately needed safety and security for this group of young people, if those young people want it—I am not saying they have to have it.

We are pleased that the Government have taken forward many of our recommendations and we ask the Minister to look again at the rest, as they are necessary steps to ensure that there are improvements in providing stability and support for young people as they move to greater independence.

18:00

[Ann Coffey (Stockport) (Lab)]

I congratulate the hon. Member for Beverley and Holderness (Mr Stuart) and the members of the Select Committee on Education on their excellent report into care provision for young people over 16, and I particularly welcome the opportunity they gave to young people to speak to them directly. It is also a great privilege to follow my hon. Friend the Member for North West Durham (Pat Glass), who made a powerful speech. It was very moving to listen to her acknowledgment of the importance of social care in giving educational opportunities to young people. The two are not separate; one is very dependent on the other. If a child or young person is emotionally damaged, it is very difficult to educate that child.

Children in care are three times more likely to run away than other young people, with an estimated 10,000 going missing every year. The Missing Persons Bureau reports that running-away incidents of children aged between 15 and 17 make up the biggest number in the missing persons statistics. Some 45,000 incidents relating to this group were recorded in 36 police forces in 2012-13. The vulnerability of such children because of their age and the nature of the accommodation in which they are placed may offer an explanation for that high incidence. I have no breakdown of the number of over-16s in this statistic. However, the Children’s Society reports that a significant percentage of its advocacy cases with care leavers focus on the accommodation needs of the young person, because children feel that they are forced to leave too early or that they are not offered the right type of accommodation, or because they are placed outside the boundaries of their authorities and there are disputes about who should provide support.

As the Education Committee highlighted, not all accommodation for care leavers is of good quality or suitable for young people. Examples provided to me by the Children’s Society include young people living in fear of being robbed by other tenants, young women at risk of suicide living in an all-male house with other young people who are known to be involved in drug dealing, young vulnerable women who are regularly being placed in accommodation targeted by individuals seeking to exploit vulnerable young people, and accommodation provided in areas with high crime rates.

We know that 22% of looked-after 16 and 17-year-olds live in neither residential homes nor foster care, but in what is termed “other arrangements”. Unlike foster and residential care, these places are not regulated under the Care Standards Act 2000 and as a result will not be inspected by Ofsted. Accommodation provided is often of poor quality and not safe for young people, and yet it is not inspected. The examples the Education Committee gave provide strong evidence that these are common, not isolated, situations. The Committee rightly said that such accommodation needs to be regulated and inspected properly. Care provision for 16 to 17-year-olds should be registered and inspected. The Government said it would be very expensive to introduce a regulatory framework—both for Government and for providers—and that it was better to maintain the flexibility of the current arrangements.

Last year, the Government introduced new regulations requiring a safety check to be carried out before a children’s home could be registered. The June 2012 inquiry by the all-party parliamentary group for looked after children and care leavers, and the all-party parliamentary group for runaway and missing children and adults, identified the high proportion of children being placed away from their local area—sometimes hundreds of miles away—in locations where there was also a high number of registered sex offenders. The new safety checks will ensure that the home is in a safe environment that will not increase the risk of sexual exploitation for already vulnerable children.

However, children’s vulnerability to sexual exploitation does not stop when they reach 16, and nor does our responsibility to ensure that they are in a safe environment. As the Education Committee report shows, children over 16 are being placed in a variety of provision. That is all the more reason to require a safety check, just as one is required of children’s homes, to ensure that the accommodation that such children are being placed in is safe. If the Government are not willing to consider regulating to require accommodation for over 16-year-olds to be registered and inspected in the same way as that for children under 16, I hope the Minister will consider introducing a requirement for a basic safety check. That would ensure that consultation takes place with the police, and that young people are not placed in environments where they are exposed to harm.

Where vulnerable children are placed in supported accommodation, they are often not reported missing and are not always offered the return home interviews that all missing children are entitled to when they go missing. That means that we do not know what is happening to them and what harm they have been exposed to. Sometimes, those children do not return and nobody knows what happens to them. One reason is that those employed to provide them with support do not have relevant training on their vulnerabilities, or do not know what help they are entitled to advocate on their behalf, as the Chairman of the Education Committee pointed out. Although the law states that someone is a child until they are 18, we often treat children aged 16 to 17 as adults and force them to fend for themselves. We then often blame them if they do not take care of themselves properly and fall prey to sexual predators.

Recently, I visited a girl living in a secure unit who had been sexually abused from an early age and had started to take drugs regularly. This was the fourth time she had been placed in a secure unit because of going missing and the sexual exploitation she has suffered while missing. As the head of the unit said to me, the secure unit could offer only temporary refuge. She strongly expressed her concern about what would happen to the girl—and others like her—when she turned 16 because of the lack of quality provision available. It could be argued that 16 to 17-year-olds are the most unprotected of all children in Britain. We are asking many of them to fend for themselves; we would not ask our own children to do that.

I congratulate the Minister on introducing the “Staying Put” scheme, recognising that young people in care often need extra support beyond 18. However, as has been said, it throws into stark contrast the poor level of provision for other children in the care system after 16 who have not been placed in foster homes. The Minister has demonstrated his huge commitment to improving the lives of children in care, and has brought in new regulations and guidance to drive up standards.

The all-party group on runaway and missing children and adults is holding a round table meeting next week, on 2 February, to discuss with practitioners and experts how support can be improved for 16 and 17-year-olds, including those in care. We are particularly looking at the position of children and young people who go missing, because we are concerned that the risk to them is not fully recognised. We will be exploring what 16 and 17-year-olds are running away from and what they are running to, the factors that lead to them going missing and the risks to which they are being exposed when they go missing. I hope this will add to our understanding of how we can better support the most vulnerable of those 16 and 17-year-olds.

18:11

[Jim Shannon (Strangford) (DUP)]

First, I thank the hon. Member for Beverley and Holderness (Mr Stuart) for introducing the debate and the report. I also thank all those involved in producing it, because it contains many good and helpful points. It has been a pleasure to listen to all the Members who have spoken so far. They have all spoken with passion, interest and a real, earnest endeavour on behalf of young people, and it is good to hear the House united in that.

Ensuring that our young people, particularly those who are vulnerable, have somewhere to call home—somewhere that is important to them—is vital. I have no doubt in my mind that every child is entitled to a hot meal, a warm home and, most importantly, a loving home—that seems natural and fair. In fact, to me it is a basic human right. As the report states, not every child has that, and we need to work extra hard to give those children who, for whatever reason, do not have a permanent home with their parents a home they can call their own. That is why I am pleased to make a contribution here. A number of charities actively help to do just that, including Action for Children, Citizens Advice and Bridging the Gap, to name just a few.

Young people leaving care are among the most vulnerable groups in society, so it is little wonder that there needs to be adequate provision in place, not just for when young people are in care, but to help them when they leave. Each Member who has spoken, particularly the hon. Member for Stockport (Ann Coffey), has made that point clearly.

Some of the statistics about young people in care are truly worrying. They are three times more likely to be cautioned or convicted of an offence; they are four times more likely to have a mental health disorder; they are five times less likely to achieve five good GCSEs; they are eight times more likely to be excluded from school and less likely to go to university; and finally, one in five homeless people are care leavers. Those horrifying statistics make us think about those in society whom we have a responsibility to assist.

The fact that one in five care leavers end up living on the streets is undoubtedly a direct result of academic underachievement, criminal records and/or mental health conditions, all of which stem from a disrupted upbringing. That is why we need to do more to create stable home environments as quickly as possible after problems arise. Our main aim is to ensure that young people have a roof over their head. We do not want them to be continually moving around as if they were playing a game of musical chairs or as if they were just a piece of the furniture. We must promote stability, although I do understand that that is not always possible. We must also do our absolute best to work with the charities and other organisations to get young people into care and long-term homes. When the Minister responds to this debate, perhaps he could tell me what discussions he has had with the charities that work at the coalface, as they understand the issues involved.

The options available to young people in care include fostering, adoption, family short breaks and residential care, all of which ensure that young people have some form of accommodation. The greatest issue facing young people is not necessarily while they are in care, but after they leave care. That concern has been expressed in every contribution so far.

[Lisa Nandy (Wigan) (Lab)]

I am grateful to the hon. Gentleman for giving way and to the Education Committee for producing this important report. It is more than a decade since I worked with Hammersmith and Fulham council to phase out the use of bed-and-breakfast accommodation for vulnerable 16 and 17-year-olds, including care leavers. Given our special and unique responsibility to these young people who rely on the state to keep them safe, and the fact that councils such as Hammersmith and Fulham showed over a decade ago that it could be done, surely the time has come to outlaw the use of bed-and-breakfast accommodation for these young people. Does the hon. Gentleman agree that such accommodation is entirely unsuitable?

[Jim Shannon]

I thank the hon. Lady for her contribution. Earlier, I said that I was surprised that she was not here at the start of the debate, because I know that she has a real, deep interest in this subject. I am pleased to see her here now, and I agree wholeheartedly with what she said, and I am sure that that applies to everyone else in the Chamber. It is always good to exchange ideas.

In Northern Ireland, a public consultation was held in 2012 to decipher the best way forward for young adults living in supported accommodation. Ten key principles were developed and they are now used by charities and organisations in Northern Ireland for those in care and those leaving care. They are dignity and respect, independence, rights, equality and diversity, choice, fulfilment, safeguarding, privacy, confidentiality and partnership. A variety of options are available for those who leave care, and they include supported lodgings and private rented or social housing.

Young people may wish to remain with foster families or return to their birth parents, but the options available to those over 18 who want to move on can be limited. Has the Minister had any discussion with John O’Dowd, the Minister for Education in the Northern Ireland Assembly, about the report we compiled in Northern Ireland? The figures for young people in care working and having adequate academic achievements need to be better. Supported lodgings are an option for young people but, depending on where they live, they may not be available to them. The option that is used the most in Northern Ireland is social housing, but that young person can fall between two stools. No one seems to grasp the problem, and it becomes very frustrating.

Although charities such as Action for Children do fantastic work and try to give young people in care and those who leave care the best opportunities and homes available, we need to do more. We must do all we can to reduce the number of people living on the streets, and to help young people in care to reach their academic potential. That means that they would be in a better position to get jobs and set up homes in the future. We should consider setting up some sort of support system in schools and further education colleges aimed specifically at helping young people in care to get the skills and qualifications that they need for the future.

I strongly believe that family is the cornerstone of society. I am not necessarily talking about birth family. Family means providing care, support and love. It comes in many forms and it is up to us to ensure that young people in care, our most vulnerable young people, get the support and stability they need at home, which will give them the best possible chance to reach their academic potential.

Finally, I say well done to the Education Committee for producing this report, which highlights all the issues. I look forward to hearing the Minister’s response.

18:19

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

I congratulate the Chairman and members of the Education Committee, many of whom have spoken today, on the report, which is a model of the well-argued, thought-provoking body of work that we have come to rely on from the Select Committee system. It has proved helpful in focusing attention on the types of accommodation available to young people aged 16 and over who are cared for by local authorities—a population of about 14,000, representing about 20% of the total population of looked-after children,

The Children Act 1989 requires that young people aged 16 and over should be given a personal adviser to help them to progress to independence. That involves helping them to make choices, and ensuring that their pathway plan and review actually happen, and that the plan includes the skills needed for independent living. The Select Committee cites the children’s rights director as saying that almost half—49%—of care leavers thought that they had been badly or very badly prepared for independent life. Key deficiencies include a lack of basic skills such as cooking and financial management.

The report made me wonder whether there is too much focus on the post of personal adviser, and not enough on the task. Foster carers and other significant adults should principally perform those tasks, as they are the people with whom the young person already has an important relationship. I know that the Minister, too, has reflected on that. I was struck during a recent visit to Hackney’s fostering unit by the impressive work that it does, and its use of social pedagogy as a tool for development. The Minister is on the record as saying that the personal adviser is a function, rather than a specifically appointed person, and that there is nothing in the regulations or guidance to stop local authorities using resources such as foster carers or people who work in children’s homes as personal advisers.

[Lisa Nandy]

I am grateful for my hon. Friend’s generosity in giving way, especially as I could not be here for the start of the debate. I was interested in his use of the word “relationship”. Does he agree that a key point about the system that we have constructed for children in care is that often it does not see or value those crucial relationships in young people’s lives? At the time when they most need them the system often drives a coach and horses through them. Does he agree that if we were serious about helping children, sustaining them through the hardest period in their life, we would restructure the system so that it could see, support and value those relationships with key trusted adults, whoever they are?

[Steve McCabe]

That is exactly the point. We should concentrate on continuity and relationships. At times we are sidetracked by posts and appointments.

I want to move on to local authorities, whose responsibilities change when a young person turns 18. Too many people think that local authorities interpret that change as meaning that their responsibilities diminish, despite the fact that they have a continuing obligation to those young people until the age of 21, or 25 for those still in education and training. As we have heard several times, the Minister has recently extended the previous Government’s pilots to create a new obligation or arrangement for staying put in foster care until the age of 21. Like others, I think that that is a welcome measure, although I urge him to look at authorities that are trying to avoid paying foster rates, arguing that such arrangements are in fact board and lodging provision. I have recently been made aware that that is happening in one or two places, and the Minister will agree that that is certainly not what he had in mind.

I welcome the part of the Government’s response to the report which says that they believe that fewer young people should leave care before the age of 18 unless there are exceptional circumstances. In his reply, can the Minister say a little more about what practical steps the Government will take to translate this belief into reality? Despite personal advisers and strengthened guidance, the Committee found that young people are often given neither a choice of placement nor the opportunity to voice a preference. The Coram Group, an excellent organisation, said in its evidence:

“The young person’s views are frequently not adequately considered and advocacy support is vital to ensure this happens”.

An independent advocate is a statutory requirement, yet it is not a service that is always offered or that enough young people are made aware of.

The Government say in their response that they have given the Children’s Commissioner a new power to provide advice and assistance to individual children in receipt of social care services and to make representations on behalf of care leavers. Am I right in thinking that the commissioner has no real new powers? Is the Minister satisfied that the power to make representations is a sufficient new power for the Children’s Commissioner? The Government argue that they have strengthened the guidance on pathway planning and point to the fact that directors of children’s services are now required to sign off the arrangements for any 16 or 17-year-old leaving care. However, as we have heard from a number of speakers today, the evidence suggests that the pathway plans are weak, and one glaring omission is the failure to consider maintaining positive relationships with siblings and other people thought to be important in the young person’s life.

My hon. Friends the Members for Stockton North (Alex Cunningham) and for Stockport (Ann Coffey) both drew attention to the impact that this can have, particularly when it is almost ignored in the planning arrangements. Like others, I wonder how we can expect young people to develop into normal, well-adjusted adults if we deny them the opportunities that we take for granted for our own children and many others. I welcome the addition to the guidance on the pathway plans in this respect and I trust that the Minister will continue to focus on this area in the months ahead.

One of the inevitable results of the “Staying Put” initiative is that, as we heard, it has raised the question of those in residential care and the related issue of staying close. There appears to be a perception in some local authorities that their responsibilities decrease when a child reaches 16. That is certainly the sense among young people who feel that 16 is the cut-off point when they are required to leave care. This came across in the evidence that the Committee took. I am not sure about the equality aspect of “Staying Put” for non-foster care. I do not know whether it would withstand a legal challenge. From his previous incarnation the Minister might be much more familiar with how the law would deal with that. Aside from that, my own view is that 16 is the age for most young people to set out on their own. Like the hon. Member for Calder Valley (Craig Whittaker) I attended a recent meeting of the all-party group for looked-after children, where many of those said that even at the age of 18 they did not feel that they were ready to move on.

I know that this is a difficult matter for many people. I have some doubts about whether it is realistic for someone to continue in a children’s home to the age of 21 or beyond, although I am rather sceptical of the validity of some of the counter-arguments. Particularly on safeguarding, I tend to agree with the Every Child Leaving Care Matters group, which said that it is difficult

“to see how a young person who is settled in a children’s home and enjoys positive relationships with staff and peers should suddenly become a safeguarding risk at 18 when they never were before.”

I am keen that the Government set to work as soon as possible on addressing this matter. We have heard about some of the work involving the National Children’s Bureau, the Who Cares? Trust, Barnardo’s and others. Will the Minister tell us how much money from the innovation programme has gone into that work to date, and what time scale he is considering for further proposals indicating his plans for staying close and “Staying Put”?

[Mr Graham Stuart]

The hon. Gentleman says that he has misgivings about the extension and that some of the arguments are bogus or weak. What are his concerns? As a Committee, we made these proposals in a cross-party spirit in the hope that parties such as his would adopt them and put them in their manifestos. Why will he not be making that recommendation to his party’s manifesto group?

[Steve McCabe]

I said that I had some doubts. The hon. Member for Calder Valley said that the difference is that there is not necessarily the same stability with regard to children’s homes. The situation is not guaranteed in the same way. Fostering arrangements, by definition, tend to be stable. The turnover of staff and other children at a children’s home means that the situation may not be the same. That is my major reservation.

[Mr Stuart]

The idea of staying put, wherever it is, is that it is suitable for all concerned. The aim is not to impose it on anybody. Like our recommendation on extending care services to the age of 25 for those who are not looking for a job or training, it is there if people want it, and if it is not appropriate, there is no suggestion that it should have to happen.

[Steve McCabe]

I entirely accept the point that the Committee Chairman is making. The hon. Member for Calder Valley said that there may well be options. My point is simply that the situation is not directly comparable. I am minded that we look at this carefully. We cannot say that children in foster care get the benefit of “Staying Put” until the age of 21 and children in children’s homes are completely disregarded. That would not be acceptable, and I do not think that anyone is saying that. I am simply suggesting that the situation may be slightly different.

I want to take up the Committee’s point about the problems of making full-time education and training central to continuing support until the age of 25. We were all rather encouraged when the Minister said in Committee that he intended to rewrite the guidance so that it would be sufficiently clear that he was concerned about those who were in danger of falling through the net. So far, the rewritten guidance does not appear to have achieved that. Surely the real issue is that it is too easy for those we refer to as NEETs— not in education, employment or training—to disappear. Unless directors of children’s services and others are under a specific obligation to track and monitor these young people, there is every danger that they will fall by the wayside.

I want to turn to “other arrangements”. As we have heard, the Committee was very concerned about accommodation that it felt was not of an acceptable standard and might fail the statutory guidance tests of being suitable for the child in the light of his or her needs, including health needs, and of the responsible authority having satisfied itself as to the character and suitability of the landlord. I acknowledge that the YMCA said in evidence to the Committee that some local authorities provide a decent variety of accommodation, and I do not dismiss the fact that there are examples of success out there. However, Ofsted found significant variations in the quality and sufficiency of accommodation for care leavers. The Who Cares? Trust has also reported examples of unsafe and unsuitable accommodation. I will not go over them all, as they have been mentioned by other speakers, but they include people being threatened or assaulted; living with those with drink and drugs problems; and having dirty accommodation infested with bedbugs and cockroaches. The British Association of Social Workers has said that it is

“firmly of the view that the government needs to apply regulatory duties to all accommodation providers who accommodate looked after children in order that they are appropriately safeguarded and the provision meets acceptable standards.”

I noticed that the report highlights an interesting dilemma on regulation. It is fair to point out that one witness warned of the risk that if regulation is too onerous it will stifle creativity in support arrangements and inhibit independence projects. I was interested in Catch22’s suggestion for a national standards framework, which, if I have read the report accurately, the Committee appears to have liked. I am not sure that the Government’s proposals go anything like far enough, and I urge the Minister to reflect again on that point. About 3,000 young people are covered by other arrangements, and that is an awful lot of lives at risk.

[Bill Esterson]

On what my hon. Friend is saying about our recommendation for a framework of individual regulatory oversight, I confirm that we recommended that the DFE consult on setting one up. Does he agree that that is a sensible way forward?

[Steve McCabe]

I would welcome that, and I urge the Minister to think again.

Finally, there is general consensus that bed-and-breakfast accommodation is unacceptable and that a deadline must be set for phasing it out altogether, although I acknowledge that that cannot happen until more work has been done on developing alternatives. I welcome the fact that the Minister has set a maximum of two days for the time a child can spend in a bed and breakfast. How will that guideline be monitored, because that will be the first test of whether it is having any impact?

I must say that I am disappointed that the Minister does not seem to have accepted the need to set a date by which the use of bed and breakfasts must be phased out. I welcome the decision to collect more data on the use of this arrangement, although I am not clear why he did not accept the suggestion that the Department simply mirror the current arrangement for housing authorities to report to the Department for Communities and Local Government. It seems to me that that is a tried and tested system, so it would make sense and be quite helpful to repeat it.

Will the Minister say when the Department will commence work with stakeholders to understand the issues better, as was mentioned in the Government response? When can we expect to see substantial progress? The use of bed and breakfasts for vulnerable young people who need care must rank alongside other great housing scandals of the past, such as those highlighted by the drama “Cathy Come Home”. I do not accept that it has a continuing place in the plans to care for vulnerable young people.

I again thank the Committee for its excellent report and the Minister for the Government response, but I feel that there is more to do before we can be satisfied that the arrangements for children over the age of 16—for whom we, the state, are responsible—are adequately cared for.

18:39

[The Parliamentary Under-Secretary of State for Education (Mr Edward Timpson)]

I thank the Chairman of the Education Committee, my hon. Friend the Member for Beverley and Holderness (Mr Stuart), who secured this important debate. I also reiterate my gratitude to his Committee and its members for their continued interest in our collective efforts to improve the lives of children in and leaving care—a group of young people who are among the most vulnerable in our society and who have not always received the support that they need to overcome the difficulties they often face in making a successful transition to adulthood.

Before dealing with the specific points that have been raised by hon. Members in the Select Committee report and in the thoughtful contributions today, I will take a few moments to set out the wider work of the Government on our commitment to improve the lives of care leavers. As the Chairman of the Select Committee fairly set out, since 2010, we have put in place a series of measures that mean that young people who leave care receive more help than ever before. In 2013, we published the first cross-Government care leavers strategy, which illustrates the priority that the Government give to improving the lives of care leavers. It includes measures to improve care leavers’ access to education, training and employment; help to access appropriate benefits and health support; and extra support for care leavers who have unfortunately ended up in the criminal justice system. Many of those measures cut across departmental budgets.

The strategy was preceded by a number of important changes that were designed to improve the level of support that care leavers receive from their local council. We have made it clear in statutory guidance that all care leavers should receive support from a personal adviser up to the age of 21, or 25 if they are in education or returning to education, or if they have a desire to do so. We have introduced bursaries for those who are participating in further or higher education. We have pushed all local authorities to provide a setting up home allowance of at least £2,000. We have been responsible for the introduction of more than 54,000 junior individual savings accounts for children in care. We have made it easier for care leavers to access their social care records. I am pleased to report that the vast majority of local authorities have signed up to delivering the care leavers charter.

Since launching the care leavers strategy, we have continued to look at further ways to support care leavers. Most notably, we have introduced the “Staying Put” duty, which will allow thousands of children in foster placements to remain with their foster carers until the age of 21. We are providing local councils with more than £40 million over three years to implement the new duty. I will return to that later.

We have strengthened the Ofsted inspection framework so that it includes a specific judgment on the quality of care leavers’ services. As Ofsted told the Education Committee:

“The quality and suitability of accommodation for care leavers contributes significantly to the judgement that inspectors make on the experiences and outcomes of care leavers.”

As the hon. Member for Sefton Central (Bill Esterson) and my hon. Friend the Member for Calder Valley (Craig Whittaker) said, care leavers often have difficulties accessing mental health support when they need it. We are determined to address that problem and have announced the creation of the children and young people’s mental health and well-being taskforce to consider what changes are needed to improve outcomes for children and young people with mental health difficulties. Crucially, that work will include a focus on the needs of vulnerable groups, including those who have been in the care system.

[Bill Esterson]

I know that the Minister is aware of the shortage of CAMHS workers. He will appreciate that unless that is addressed, it will be difficult for him to live up to what he has just pledged. What work is he doing with colleagues at the Department of Health to ensure that there is an increase in the number of staff who are available to deliver what he has promised?

[Mr Timpson]

As is often the case, the strange dissection of responsibilities across Government means that ministerial responsibility for CAMHS resides elsewhere in the Department, but the Under-Secretary of State for Education, my hon. Friend the Member for East Surrey (Mr Gyimah) works directly with the Department of Health, through the taskforce, to look at what resources are required. In recent weeks, it has been announced that further money has been made available to improve the services that are available to children who have mental health problems.

Every party in the House recognises that the mental health services that are on offer to children, particularly those who are in care, on the edge of care or leaving care, are simply not good enough. That is why we need a fundamental review of how we commission, deliver and review the progress of children and young people who should have access to those services. We have made some significant changes to how we approach special educational needs—there is joint commissioning, and we are looking at a system that can be used from birth to 25—and we can learn a lot of lessons from that in how we deal with mental health services, particularly for children in care and care leavers.

As part of our commitment to improving services for care leavers, we have funded a number of projects designed to stimulate new and innovative approaches. For example, we have given funding to the Care Leavers Foundation to run the New Belongings project, in which care leavers play a central role by helping to identify barriers and find solutions to improve services in nine local authorities. I am pleased to tell the House that we will provide further funding to extend the New Belongings project. The second phase will be rolled out shortly and will involve embedding progress in those nine councils. It will also extend the project to more local authorities. We will also continue to fund the From Care2Work programme, which helps care leavers to get a foot in the door with some of our major employers, providing work experience, apprenticeships and employment opportunities. It is only right that we record the progress that has been made in recent years, but as the debate has shown, we clearly still have some way to go before every care leaver will be getting the support they need.

I turn to the specific issues that have been raised in the Education Committee report and by hon. Members today, beginning with the difficult but important issue of bed-and-breakfast accommodation. I agree with all Members, led by the Chair of the Education Committee, who have said that bed-and-breakfast accommodation is not suitable for care leavers. That is, of course, what the law says. However, as I said in our response to the Committee’s report, we do not think an outright ban is the right approach. We are not a lone voice—the chief social worker for children and families has said:

“A total ban on bed and breakfast restricts the ability of professionals to exercise their judgement in making best interest decisions about young people’s safety and welfare.”

The charity Catch22 has said:

“The reality is that there is a need for emergency, crash-pad accommodation for a very distressed young person who is in an urgent situation and needs accommodation. An outright ban could deny them access to much needed support in an emergency.”

That position is supported by the Association of Directors of Children’s Services and by the Local Government Association. The Care Leavers Foundation has said that it

“reluctantly concedes that permitting use of B&B in emergency situations is probably a necessary caveat, as there may be circumstances where in the absence of a B&B option a care leaver could potentially be at risk of street homelessness or being warehoused in a hostel.”

As I indicated to the Education Committee, in light of those concerns we want to test further the practical implications for local authorities if a total ban were introduced. We have started that process and are continuing to talk to relevant parties such as the independent reviewing officers group, Barnardo’s, Catch22, the Care Leavers Foundation, homelessness charities and others to better understand the issue. I know that the hon. Member for Strangford (Jim Shannon) raised that point.

We know that there are some excellent examples, which hon. Members have noted today. The hon. Member for Stockton North (Alex Cunningham) mentioned Hartlepool and other parts of the north-east, and Wiltshire has also managed to find ways to provide suitable accommodation without needing to resort to bed and breakfast, so it can be done. I should add that the Department for Communities and Local Government has provided £1.9 million to support local authorities in developing sustainable solutions to stop the unlawful use of bed and breakfast for families and children. The seven funded councils have achieved and sustained a 96% reduction in the number of households with children in bed and breakfast for longer than six weeks.

[Alex Cunningham]

I do not want to tease the Minister, but if a large number of authorities across the country can achieve a 100% reduction, the best practice is out there and authorities know how it can be done. Is it not time just to say, “Do it”?

[Mr Timpson]

Of course we want every local authority to do it, and the more that we can help them achieve that the better, but we have to consider the practicalities of a ban, bearing in mind the mixed views about how it could be implemented and the emergency situations in which bed and breakfast might be required. We must also ensure that local authorities that are falling short understand how ending the use of bed and breakfast can be achieved, and that is one purpose of the innovation programme—to spread good practice so that places such as Wiltshire and Hartlepool do not hold a secret but can impart their knowledge successfully across the country.

I can confirm that, following the Committee’s report, we have further strengthened our statutory guidance to make it clear that for 16 and 17-year-olds emergency placements in B and B should be used only in exceptional circumstances and be limited to no more than two working days. I will write to all directors of children’s services shortly on a range of matters relating to children in care and care leavers, and I will bring to their attention in that correspondence the amended guidance on bed and breakfast. It may be a good opportunity to let them know about the good practice in other parts of the country.

On 31 March, we will receive data collected on the accommodation of 19, 20 and 21-year-olds and whether it was deemed suitable, including a breakdown on bed and breakfast. For the first time next year we will collect data on 17 and 18-year-olds too, and that will help us to establish the impact of the strengthened statutory guidance on bed and breakfast. I return to the arguments made by the chief social worker and the central premise that if we have a high-quality professional body making sound decisions and backed by tailored support, no care leaver need be put in unsuitable accommodation.

[Mr Graham Stuart]

The Minister said that data are collected on 19 and 20-year-olds and next year they will be collected on 17 and 18-year-olds. What is the situation for 16-year-olds?

[Mr Timpson]

I anticipated that I might be asked that question and, in his usual manner, the Chairman of the Committee has established my exact thoughts. I am told that, for technical reasons, we cannot collect data until after the age of 16 as young people are still in care before that point, but we intend to refine the data when we receive them to establish whether any 16-year-olds are in bed and breakfast. The data are collected on the young person’s birthday as opposed to at financial year end. They cannot be collected on their 16th birthday so we have to wait until their 17th birthday. We will look at how we can retrospectively analyse the data and establish how many 16-year-olds have been in bed-and-breakfast accommodation during that year. If we can refine the data in the future, we will look to do so.

Several hon. Members raised the issue of alternative accommodation. It is right that all forms of alternative accommodation—bed and breakfast, supported lodgings, foyers and so on—should provide care leavers with a safe and secure place to live. Clear legal duties require that children are placed only in accommodation that meets their needs. Ofsted, through its new single inspection framework, monitors local authorities’ performance in supporting care leavers in the round, including the quality of accommodation provided. Care leavers have access to a personal adviser who can advocate on their behalf and challenge decisions by the local authority if, for example, they believe that the accommodation provided is unsuitable.

We are considering whether further external oversight is needed of the decisions that local authorities make. I am not persuaded, having listened carefully to hon. Members, that we need to establish a new inspection regime in order to achieve our aims, and others share that view. The chief social worker, Isabelle Trowler, has said that regulating all alternative accommodation would severely limit placement choice and the ability of professionals to use their discretion. Social workers should be visiting placements on a regular basis to ensure that the accommodation remains suitable for the individual. Most critically, we already have checks and balances in place.

As I have said, Ofsted inspects the quality of support provided to care leavers as part of the single inspection framework, and independent reviewing officers consider the decisions made about a child and would, of course, be expected to raise any concerns about unsuitable accommodation placements. We need to trust and support professionals to make sound judgments in the best interests of the child, rather than creating further bureaucratic processes. Local areas already have a clear duty to ensure that children are placed only in accommodation that meets their needs and, as mentioned, we already have checks and balances in the system to ensure that the best interests of the child are met.

[Alex Cunningham]

The Minister will recollect the story that the Chair and I shared about the young woman in extremely unsuitable accommodation. She was there for some time, with men braying at the door trying to gain entry. If the current inspection regime is not stopping that sort of thing, what will the Minister do to ensure that it does not happen again in future?

[Mr Timpson]

Clearly the situation that the hon. Gentleman describes is totally unacceptable, and we would not wish it on any young person. The statutory guidance makes it clear what checks local authorities have to make before they commission any alternative accommodation place.

The hon. Member for Birmingham, Selly Oak (Steve McCabe) referred to the view of Catch22 that any universal approach to regulation on quality assurance would face considerable challenges. It may also stifle the creativity and support arrangements needed to allow young people to practise their independence skills. Ofsted was not convinced that stronger regulation of a complex and varied sector would address the uneven quality of care and support for young children. I take very seriously the point raised by the hon. Member for Stockport (Ann Coffey) about safety checks and ensuring that those charged with the care and protection of children and young children make every effort to place them where they are safe and secure. The DFE statutory guidance could not be clearer:

“Young people should only be placed in accommodation where they receive high quality support which meets the needs set out in their care plan. Where local authorities use unregulated supported accommodation for young people aged 16 and 17, they should ensure that all providers are vetted and approved to the standards they require.”

That is being achieved by local authorities such as Hertfordshire, which uses a clear framework of quality assurance to assess provision before placement.

I understand the desire of hon. Members to be confident that all possible avenues have been explored fully to help to improve placement decisions on alternative accommodation for care leavers, as well as the accountability and oversight surrounding those decisions. To that end, I intend to commission a piece of work in the Department to look carefully at other arrangements to establish in more detail the veracity and likely consequences of taking a different approach, as proposed by the Committee, together with other potential options.

“Staying Put” was mentioned by a number of hon. Members, particularly my hon. Friend the Member for Calder Valley (Craig Whittaker). The “Staying Put” duty, which we introduced last year, is giving more young people the opportunity to remain in a stable and secure family setting beyond the age of 18. The hon. Member for Birmingham, Selly Oak wanted to know how the implementation was going. I will happily write to him with the details, as time prevents me from going into detail at this stage.

Some Members would like to see the extension of the Staying Put principle to those in residential care settings. As they may be aware, we are continuing to work with the NCB, the Who Cares? Trust and others to explore how that might work, and providing funding from the innovation programme to test a model of “Staying Put” for those in residential care. That is with North Yorkshire county council, to the tune of £2 million, under its No Wrong Door project. That will work with about 700 young people and, importantly, ensure that if young care leavers up to the age of 21 need it, they will be able to use that intensive period of extra support through the hub linked to their independent living.

Early feedback from children in care suggests that, while the majority of young people in residential care would like to have some kind of “Staying Put” arrangement, a single model of “Staying Put” would not be suitable—a view I think endorsed by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton). I will of course consider carefully the scoping study and its recommendations. I have only just received that advice and cannot comment further at this stage. We commissioned that important work and I look forward to considering it in the next few weeks.

I am aware that my hon. Friend the Member for Beverley and Holderness will want to say a few words at the end of the debate, so in conclusion, I once again thank hon. Members for demonstrating that they, like me, care deeply about what happens to children who have been in the care of the state. It would be good if we could widen the field of Members at these debates beyond those present, so they too could demonstrate their commitment. The Government have worked hard to put children in care and care leavers at the heart of our efforts to improve the lives of some of the most disadvantaged and vulnerable in our society. We have taken a series of important steps to achieve just that, but I accept there is still more to do. I, and the Government, remain fully committed to giving children in and leaving care the support and future they deserve.

18:58

[Mr Graham Stuart]

The Minister should not have feared my words so much that he needed to limit them quite so strictly.

One thing we should say at the end of this Parliament is that there has been a significant advance in this Parliament, against a pretty tough economic backdrop, to improve material outcomes for some of the most vulnerable children in care. That is something we should be proud of. Casting aside my impartial Select Committee hat, as a Conservative politician I have to say that, as part of this coalition Government, that is significant. Regardless of who wins the election in May, I hope we can take that forward and that we have a Minister in place as committed as this one to ensuring that we do more to look after young people whose life chances we know are horribly stunted by their time in care. We have a duty to act as their parents. We should give them the care, consideration and extended support that we would give to our own children, because the children in care are our children. We have the same responsibility to them.

Question put and agreed to.

Resolved,

That this House notes the Second Report from the Education Committee, Into independence, not out of care: 16 plus care options, HC 259, and the Government’s response, HC 647; welcomes the progress made and the commitment to improve the care provided to these vulnerable young people shown in the Government’s response; regrets that the Government has not gone further by exploring with local authorities how to ban the use of bed and breakfast accommodation for this age group and by moving to inspect and regulate all accommodation provided to children in care; and calls on the Government to do all it can to improve the accommodation and care given to these young people.

Durham Free School

Tuesday 27th January 2015 Commons Chamber

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

19:00

[Roberta Blackman-Woods (City of Durham) (Lab)]

I am grateful to you, Mr Speaker, for giving me the opportunity to hold this debate, which, in my opinion, is much needed, given local anxiety about the situation of Durham free school and the strong interest in its future.

I begin by expressing great sympathy for the parents and children facing this most unfortunate set of circumstances, but I called the debate to put in the public domain factual information about why the school is facing an announcement by the Secretary of State of her intention to withdraw its funding. Members will know that I have had concerns about the free school for some time, partly because it has been so difficult to get accurate information about it and its funding. However, even I was surprised by the response from the Secretary of State to my question last Monday. I thank her and the Minister for the honesty and decisiveness of her response.

[Alex Cunningham (Stockton North) (Lab)]

This report is probably the worst I have ever seen during my years in education. I have been inundated by e-mails from parents who still think it is a great school, that there have been inappropriate conversations with children and that there is some sort of political agenda, yet a Conservative Secretary of State has taken the decision to close a school that is part of the Government’s flagship policy. Does my hon. Friend think that the inspectors could get it so badly wrong in such circumstances?

[Roberta Blackman-Woods]

My hon. Friend raises an interesting point. As I will say later, the decision has been made not just on the basis of the Ofsted inspection, but in the light of other information.

To date, 18 parents have written to me about the school, and an additional 25 with no direct knowledge of the school have also written about the proposed closure, requesting that the decision be reversed. Nearly all these letters concentrate on challenging very selective aspects of the Ofsted report. A handful of parents have also written to say that the school should be closed in the light of the Ofsted report and to urge that their voices be heard too.

Information I have obtained from the Education Funding Agency and elsewhere indicates that a thorough analysis and evaluation of the school has taken place. As I suspect most people now know, the Department was alerted to problems at the free school by a whistleblower, which prompted the inspections due to take place early in 2015 to be brought forward to November 2014. The EFA inspection was comprehensive and included representatives from the EFA, the office of the schools commissioner, the Department and the due diligence unit, as well as the free schools section.

The inspection findings underpinned the financial notice to improve that the school received in December, with a time scale for it to reply by 19 December 2014. The notice chronicled failure not only in financial management, but in other aspects of governance, and prompted a request from the schools commissioner to the Secretary of State for an Ofsted inspection. This, too, was carried out in November 2014. The Ofsted report chronicled failure at every level and showed the school to be inadequate in every category, including in leadership and management; behaviour and safety of pupils; and quality of teaching and pupil achievement. It found that students’ achievement was weak; that leaders, including governors, did not have high enough expectations; that governors placed too much emphasis on religious credentials when recruiting staff; that teaching was inadequate over time; that teachers’ assessment of student work was inaccurate; that the behaviour of some students led to unsafe situations; that leaders, including governors, had inaccurate views of the quality of teaching and students’ achievements; and that targets for achievement were set too low. That is in great contrast to what I think the parents believed the school would deliver. In 2012, the head teacher said that it would be a

“unique secondary school providing a high quality of education in a close-knit”

scaring—[Interruption]—or rather, a close-knit “caring school environment.” Indeed, it appears to have gone from being caring to scaring for some of those young people.

As my hon. Friend the Member for Stockton North (Alex Cunningham) has said, it is unusual for a school to receive such a negative report. To put that in context, as of 31 October 2014, the proportion of all schools judged good or outstanding by Ofsted at the most recent inspection had reached 81%. That compares with 70% for free schools. Even so, it is highly unusual to get a school rated as inadequate across all its categories. The report would be worrying for any school and community, but, coupled with the detailed report from the Education Funding Agency, it is obvious why the Secretary of State would consider issuing a notice to close the school. It appears to be based not on any one aspect of the school’s weakness, but on the combined picture of mismanagement and poor quality education observed and inspected thoroughly by the EFA, the Department and Ofsted. I am aware of no evidence to date that these inspections were not in any way suitably robust or conducted in a way that they should not have been.

[Alex Cunningham]

Tomorrow the chief executive of Ofsted is due to appear before the Select Committee on Education. Parents will want us to hold him to account for the decisions made at Durham and in Sunderland, where just last week Grindon Hall free school was also put into special measures. Does my hon. Friend think there are any particular challenges we should be laying at his door tomorrow?

[Roberta Blackman-Woods]

It is important that the chief executive of Ofsted establishes very clearly that the inspections were carried out in a suitable way and following the correct guidance, and therefore that there should be public confidence in their outcomes, because I know that a number of colleagues have received letters from a variety of people calling into question the veracity of the Ofsted inspection.

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

As my hon. Friend will know, Grindon Hall Christian school is in my constituency. Following on from the intervention by our hon. Friend the Member for Stockton North (Alex Cunningham), I would like to ask her, on behalf of the hundreds of parents who have written to me, whether she agrees that Ofsted has questions to answer about the inspection, to ensure that the public can have confidence in Ofsted, which is something that the parents who have written to me do not have.

[Roberta Blackman-Woods]

It is important that we maintain confidence in Ofsted, which I hope will get—as I am sure it will—challenging questions from the Select Committee tomorrow. Again, I hope that Ofsted is able robustly to defend the way in which it carried out these inspections.

Clearly a number of parents are very upset and want the school to stay open. I genuinely sympathise with them, but given the inadequate rating, I am not clear on what grounds it can do so.

[Sir Gerald Howarth (Aldershot) (Con)]

I am most grateful to the hon. Lady for her courtesy in giving way again. The chairman of the governors has written to a number of us, including me, to say that they feel that the Ofsted report was grossly unfair. One of the things Ofsted said in that report was that

“RE is a narrow study of the Bible,”

when in fact it took up only 5% of the time. The school feels—along with many parents, as she obviously understands—that it has been seriously badly treated by Ofsted, which has asked inappropriate questions of young people. I hope that she and the Committee will be able to hold Ofsted to account tomorrow.

[Roberta Blackman-Woods]

That is a very interesting intervention given that I started the debate by asking for information about the decision to be in the public domain. I understand that the decision taken by the Secretary of State was based not only on the Ofsted report, but on the detailed assessment carried out late last year by the Education Funding Agency and representatives from the Department for Education and the free school unit. I know that the school is concerned about aspects of the Ofsted inspection, but there are many more aspects of that inspection that need to be taken into consideration. Given the inadequate rating, I am not clear on what grounds the school can challenge, but I understand that it has until next Tuesday to set out its case.

In addition to being clear about the extensive nature of the information on which the decision to remove the school’s funding was based, I want to see what lessons can be learned from this sorry saga, whether or not the school remains open. First, I am totally unclear about why this school was given approval to start up in the first place in a city that has good quality schools and surplus places. Community acceptance of the free school was not helped by the fact that this new school of 30 pupils was expected to be set up on the site of a school that had just closed down because it was not considered to be financially viable with 400 pupils. Numbers at the free school remained low, even though as soon as it was established the local authority was obliged to inform parents in the area that it was their nearest school, and that if they wanted free school transport they would have to send their children to that school—they did not have a choice.

[Mr Kevan Jones (North Durham) (Lab)]

I am grateful to my hon. Friend and parliamentary neighbour for giving way. Does she agree that another scandalous aspect is that millions of pounds of taxpayers’ money has been sunk into a school in an area, as she rightly says, of surplus places, where other local schools, such as the excellent St Leonard’s, which serves both her and my constituency, are crying out for resources? Is it not a scandal that just last Saturday this school was spending taxpayers’ money on a half-page advert in The Northern Echo? Is that a good use of public money?

[Roberta Blackman-Woods]

My hon. Friend reiterates a point that I have made many times. I have been greatly concerned about the amount of money the school has received, how it has been spent and the impact of that on other schools in the community.

Secondly, on lessons learned, how much money has the school received so far and has any analysis been made of how that money could have been better spent to assist local schools, especially as they had to accommodate the 400 children from the closed school with no additional resources? Why did the Department think it was better to support a free school for the few rather than invest in the planned academy, which would have supported many more children?

One of the first things the then Secretary of State, the right hon. Member for Surrey Heath (Michael Gove), did on the election of the current Government was to cancel the academy for Durham city that was very much needed locally and that was supposed to raise standards for the school that closed. This is particularly concerning in the light of findings by the National Audit Office that

“the primary factor in decision making has been opening schools at pace, rather than maximising value for money”.

Surely it was wrong to put ideology before evidence-based education policy.

The shadow Secretary of State picked up on that in highlighting the deficiencies now emerging from the Swedish system, which saw a radical expansion of free schools, accounting for a quarter of all pupils by 2013. This seems to have come at a great cost for those pupils, as Sweden saw a massive drop in standards during this period. In 2003, Sweden was ranked 17th in the global league table for mathematics; now it is ranked 38th. I hope that the Department is keeping a good check on what is happening to overall standards for schools such as Durham free school.

I regret the accusation that some of us are turning this into a political issue. That is not the case. I want a rational debate about the school’s future. When parents approached me in 2011-12 for support to set up the free school, I did what I think was the right thing and pointed them to the Department so that they could get the information and support they needed. I do not know whether that happened in practice. What I do know is that when things go wrong, we need decisive action. I know that the local authority is trying to work with the school and with parents by offering alternative places. It is interesting that we always expect local authorities to step in and sort out problems; perhaps we should consider giving them a much bigger role in the management of all schools.

The main thing that I wanted to do this evening was put my concerns on record. I look forward to hearing what the Minister will say about how they will be addressed, but I hope that, before he speaks, I can crave the indulgence of the House and allow my hon. Friend the Member for North West Durham (Pat Glass) a few minutes in which to comment on the issue from the point of view of the Education Committee.

19:15

[Pat Glass (North West Durham) (Lab)]

I shall speak very briefly. My main purpose is to thank the Secretary of State and the Minister for the decisive and swift action that they have taken in this case.

I have been raising issues relating to Durham free school with the Department for Education, and with its former Secretary of State, for several years, both in the Education Committee and in the Chamber. I find it disappointing that the former Secretary of State chose not to take action, and that, until very recently, he was praising a school which—let us not forget—has failed and has been found to be inadequate in every respect, including safeguarding. That is why I am so grateful for the swift action that has—finally—been taken.

I consistently raised the financial and educational questions that surrounded the opening of a free school in a city where there was already a sufficiency of both surplus places and good and outstanding schools. I said many times, “You cannot spit in Durham city without hitting an outstanding school.” There were surplus places in that city, and I could not understand the reasoning behind the setting up of another school. I also consistently raised the fact that the school had never been more than half full in years 7 and 8, that the cost per pupil was therefore in excess of £80,000, and that applications to Durham county council for places in other schools from the parents of existing pupils had been regular and even excessive since the day on which the free school had opened in September 2013.

However, my real concerns—I raised them with the Secretary of State in, I think, November, which is why I think that progress has been swift—related to staffing at the school. There are good teachers there who will find it difficult to secure alternative employment, and I am sorry for that. However, as a former senior education officer in the north-east, I was aware that there were very high levels of teachers working at Durham free school that I knew had already undergone competency procedures with other local authorities. A head teacher in the region told me that the school had become a haven for every crap teacher in the north-east. I am sorry if that is unparliamentary language, but that was what he said.

I am concerned about the £4 million that the school has cost in 15 months. I am concerned about the negative impact that the school has had not only on its own intake, but on all the other schools in the City of Durham. I remind Members that it was judged to be inadequate in every respect. Those children have lost 15 months of their education that they will never get back, and for that reason I am extremely grateful for the actions that the Minister has taken. This has gone on for too long, and I am pleased that he has pulled the funding agreement to ensure that it goes on no longer.

19:18

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

I congratulate the hon. Member for City of Durham (Roberta Blackman-Woods) on securing this important debate. I know that, as a Member of Parliament and as a governor at Durham Johnston school, she is a passionate advocate for education in her constituency, and I also know that she has been concerned about Durham free school for some time.

We all agree that every parent should be able to choose a good local school for their child, and we are committed to giving parents a genuine choice between high-quality schools. Pupils and parents are let down when local schools are not of the highest quality, and we must act quickly and decisively when schools fail. That is precisely what we have done in the case of Durham free school.

There are currently 255 open free schools. Of those that have been inspected, more than two thirds have been rated good or outstanding and nearly a quarter have been rated outstanding, just three years after the first free school opened its doors to pupils. More than 100 free schools are in the pre-opening phase, and are due to open in 2015 and beyond. Once full, all open and approved free schools will provide 200,000 pupil places. Free schools have introduced new ideas and approaches to the school system. Schools such as Dixons Trinity academy in Bradford, Harris primary free school, Peckham, and Perry Beeches in Birmingham have been ranked outstanding by Ofsted less than two years after opening. They also give parents and local people a say in the type of education they want for their children, and they are helping to raise academic standards. Free schools also bring diversity into the system. Charities, universities, businesses, and teachers and parents have all opened free schools, and they are having a positive impact on the educational landscape.

[Mr Kevan Jones]

The Minister mentions choice. In Durham there is choice. There is the very good St Leonard’s Catholic school, there is a choice of very good secondary schools, and a good proposal was put forward for an academy backed by the local FE college. This Government cancelled that. We should have added to the choice, instead of taking the ideological step of introducing this free school, which was not needed in the area.

[Mr Gibb]

The hon. Gentleman says that, but the local community in Bowburn says differently, and that is why it got together and formed a committee to open the free school.

Prior to opening, all free schools undergo a rigorous assessment and Durham free school was no exception, but the real test of a school’s effectiveness comes when the school is open. The leadership and governance of the school must be strong. The standard of education must be high and sustainable to realise the promises made as the school prepared to open. A key strength of the free schools programme is that we can act swiftly and decisively where we find schools that are not performing well. We closed Discovery new school within six months of an Ofsted monitoring inspection showing that insufficient progress was being made. Since then we have reviewed our funding agreements with proposers, improving our ability to act without delay.

The Government have a zero-tolerance approach to under-performance in our schools, which is why the Secretary of State took the decision last week to issue a notice of her intention to terminate Durham free school’s funding agreement just three months after receiving notification of the initial concerns.

[Alex Cunningham]

I welcome that decisive action, but Durham free school was receiving its bursary services from Grindon Hall Christian school, which itself has just been found to be in special measures. What measures will the Minister take to make sure all these free schools and academies—and everything else, for that matter—have appropriate financial systems and support and that we do not have one poor school trying to provide services to another?

[Mr Gibb]

We want collaboration between schools as part of a school-led autonomous system, but we now have very strong financial controls through the Education Funding Agency, and they are stronger in academies than any maintained school, with annual reports that are audited and very detailed academy financial handbooks that academies have to adhere to.

Durham free school is a mixed 11-19 secondary school with a Christian ethos. It has an overall capacity of 630. It opened in September 2013 with 31 pupils. It currently has 92 year 7 and 8 pupils on roll, out of 120 available places.

[Roberta Blackman-Woods]

What assessment was made before the school was opened of its ability to meet the numbers that would be required to make it a good and stable school going forward? It has consistently failed to attract the numbers of students that would be necessary, so we have had a situation of, first, 30 children in one year and then the combined two years of 90 children in a school that was built to cater for 700 or 800 students.

[Mr Gibb]

It is a common feature of free schools that they do not often fill their places in the first year, but they generally increase their numbers in their second and third years. That is what we expected to happen with this school, but of course it did not happen because of the problems identified by the Ofsted report.

The vision of Durham free school came from a community who wanted a local secondary school for their children in the Bowburn area, south-east of Durham. Closures of schools in the south and south-east of Durham had left people concerned about the distances that their children were required to travel to school.

Before they are allowed to open, free school proposers receive a significant period of support and challenge from departmental officials. As with all free schools, the initial Durham free school proposal was assessed against rigorous published criteria, including a compelling vision and ethos, a detailed education plan, strong governance arrangements, robust evidence of demand, and clear financial plans. The proposers then enter a pre-opening period where groups such as the proposers of Durham free school are supported by officials and education advisers as they develop their governance and education plans, recruit pupils, consult the local community and work towards signing a funding agreement with the Department.

We make it clear that we expect to see a strong governing body to ensure that the governors have both the skills and the experience to deliver high academic standards. At the point of opening, the Durham free school governing body consisted of an existing head teacher, a retired head teacher and a number of highly qualified professionals. A strong and effective governing body is a crucial element in the success of any educational institution. In this case, we were satisfied that the governance structure had the capability to deliver an outstanding education to its pupils.

The school had 31 pupils for 60 places at opening, as the hon. Lady said. That is undoubtedly below the level we would have wished for, but new schools can take time to establish their reputation and build up their roll. The school opened on a temporary site in Gilesgate—just spitting distance from where I lived during my three years at Durham university—because of the difficulties in finding a permanent site in the trust’s preferred location.

The trust was able to demonstrate that the school could be viable in the first year of opening due to the way in which school funding is allocated in Durham. It is not uncommon for free schools to increase pupil recruitment significantly during the first year of opening and whilst in a temporary site. Our experience of the free schools programme is that schools often recruit far better in year 2, which was the case at both Rimon Jewish school and Harpenden free school, where recruitment in year 2 was almost 30% more than in year 1.

The proposer group also produced a detailed education plan which demonstrated a clear and coherent vision, focusing not only on academic success but on transforming the local area and increasing the aspirations of all its pupils. At the time of opening, Ministers agreed that the educational plan, together with a secured temporary site and the intention of finding a permanent site in Bowburn, made a strong case to proceed to opening the school.

The school opened in September 2013, and early indications from the Department’s education adviser were that it had made a positive start in delivering the education plan and was making good use of other local schools. Disappointingly, that positive start was not sustained. The recent Ofsted report clearly states that pupil aspiration is low and is not challenged by the school leadership. It shows that teaching is inadequate and consequently that pupil achievement is weak. The school has a number of other significant issues, which is why the Secretary of State took the difficult decision to issue the trust with a notice of our intention to terminate the funding agreement. I would like to address some of those issues today.

The school’s temporary location on the site of the former Gilesgate school in Durham was not the preferred location. Extensive site searches have been undertaken in the trust’s area of choice in Bowburn, which, as the hon. Lady will know, is largely made up of agricultural and residential land. We have already seen that many free schools can offer high quality education in sites that were not their original choice, and that that has not affected the quality of education, so we do not accept that as a reason for the poor judgments given in the Ofsted report.

The school has since received per-pupil funding at the same rate as all other state-funded schools in the local authority and, as a new school, received an additional £196,000 to defray the additional set-up costs and overheads while pupil numbers were growing. The Department spent £303,000 in capital funding, a large proportion of which was spent on construction, furniture, fittings, other equipment and ICT.

[Roberta Blackman-Woods]

It has been extraordinarily difficult to get information about the total funding the school has obtained over the two years of its existence. How can I easily get that information?

[Mr Gibb]

I am very happy to supply the hon. Lady with that information. Revenue and capital, in additional to the per-pupil funding, amounts to about £840,000, but I will write to her with the precise figure.

The Department received a number of worrying allegations about Durham free school’s governance in October 2014, 13 months after it opened. We acted swiftly to investigate the claims. The Education Funding Agency undertook an urgent review in November, which identified serious breaches of the academies financial handbook. Those included concerns about the governing body, the completion of Disclosure and Barring Service checks, and the robustness of the school’s financial management. As a consequence, the school was issued with a financial notice to improve on 24 November, and the Secretary of State asked Ofsted to conduct a no-notice section 5 inspection, which took place in November.

We acted swiftly, and the hon. Lady will know that we take action whenever we see underperformance in our schools system.

Question put and agreed to.

19:30

House adjourned.

Westminster Hall

Tuesday 27th January 2015 Westminster Hall

Tuesday 27 January 2015

[Mr Philip Hollobone in the Chair]

Employment in Wales

Tuesday 27th January 2015 Westminster Hall

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

09:30

[Mr Philip Hollobone (in the Chair)]

Bore da! This important debate, with Wales’s finest in attendance, is ably led by Chris Ruane.

[Chris Ruane (Vale of Clwyd) (Lab)]

Thank you for that great introduction, Mr Hollobone. Bore da! Sut wyt ti y bore ’ma?

I will speak primarily about my constituency and north Wales, but I am sure that there will be interventions and speeches by Members from elsewhere in Wales—although not from any Government Members, because no Conservative or Liberal Democrat Back Benchers are present—[Interruption.] No, here they come. Better late than never.

I will focus on five areas: the quality of jobs in the UK and Wales; the impact of cuts on jobs and employment in Wales—not only the current cuts, but the proposed future ones highlighted by the Chancellor in his autumn statement; the rebalancing of a local economy highly dependent on the public sector; the possible impact if we pulled out of the European Union on job prospects in north Wales especially; and the impact of capital projects on jobs.

On the face of it, employment in north Wales seems healthy, but scratch below the surface and we see a different picture. Wages in the UK have decreased by £1,600 per annum over the past five years. There has been a shift from secure, long-term employment to short-term, zero-hours, part-time working.

Two years ago, the national press highlighted Denbighshire as having the highest level of zero-hours contracts in the UK, although the local authority disputed the figures. Nevertheless, the whole of the UK has suffered from the steep rise in the use of zero-hours contracts. The public sector has had a pay freeze at only 1%, which in real terms amounts to a cut, while the impact on ordinary workers of the casualised employment promoted by the Government is stark. Families cannot plan for their summer holidays, as they might usually do in January, because people do not know whether they will still be in employment in six months’ time.

[Ian Lucas (Wrexham) (Lab)]

Is my hon. Friend aware that Office for National Statistics figures indicate that, in the past year alone in Wrexham, the median wage fell by 7.4%? That is the impact of the Government’s policies on individuals in my constituency.

[Chris Ruane]

I thank my hon. Friend for his intervention —the freeze or cut in the public sector has been bad for workers and families in my constituency as well. Parents cannot even plan to pick up their children the following day or week because of zero-hours contracts, which bring no stability or security. Families do not even want to go in for mortgages, because they are not sure about employment in a year’s time, so they are forced to stay in private rented accommodation.

The net impact on families is a hit on their well-being and mental health, which is so unnecessary. Nor is it only the private sector that is extending the use of zero-hours contracts; the public sector is increasingly being hollowed out by the outsourcing of functions that councils used to do in-house to the private sector, the past masters in the use of zero-hours contracts. At the same time, Tory MPs and the press vilify public sector workers for having “gold-plated pensions”, saying they are mollycoddled and cosseted.

The real situation could not be further from the truth. I speak for the 4,500 public sector workers who work for Denbighshire county council and the 4,500 who work for ysbyty Glan Clwyd—teachers, nurses, doctors, social workers, care workers, all doing their best in difficult times. Workers in secure jobs are being forced to become self-employed and to take a hit on their hard-won rights on holiday pay, sick pay, redundancy, and maternity and paternity pay. The rise in the number of self-employed has not resulted in an army of Richard Bransons, Alan Sugars or Nicola Horlicks; it has resulted in workers being thrown from security into insecurity.

[Guto Bebb (Aberconwy) (Con)]

I have listened to the hon. Gentleman with interest, but the way in which he just described self-employment is a disgrace to any politician in north Wales. In my constituency, which has the highest percentage of self-employed people in north Wales, such individuals are making a real difference, creating not only a job for themselves, but jobs in the wider economy. The hon. Gentleman should applaud them, not imply that self-employment is a dark option forced on them by the Government.

[Chris Ruane]

The hon. Gentleman totally misrepresents me. I am not talking about those small business people who want to go into business or about entrepreneurs, whom I applaud; I am talking about people who were in secure employment but were told, “We’re sacking you now—you can go and get a job in the private sector, which will take away all your rights.” They have been forced into self-employment. Those are the self-employed whom I am talking about. I pay tribute to the Federation of Small Businesses, especially the FSB in north Wales, and I will come on to the CBI in a moment.

The net effect of all that uncertainty, low pay and zero-hours contracts in my constituency is that, according to the citizens advice bureaux, the Vale of Clwyd has the highest level of insolvencies in the whole UK and the highest percentage of people seeking debt advice through the CAB. That is the legacy of five years of Tory rule.

[Wayne David (Caerphilly) (Lab)]

My hon. Friend has referred to parts of his constituency that are desperately poor; as he knows, parts of my constituency are also very poor. Does he agree that what has really made the difference in pushing down living standards for many people has been the extremely harsh and unfair so-called welfare reforms?

[Chris Ruane]

Absolutely. I agree with my hon. Friend entirely, and the point has been ably illustrated by my hon. Friend the Member for Alyn and Deeside (Mark Tami). When a person has invested tens of thousands of pounds in installing disability access into their council house, where is the sense in forcing them out of it into private sector accommodation, which must then have disability access added? The previous place will not necessarily be used by a disabled person. It makes absolutely no sense.

We have reached the point where even the CBI is telling the Government that they have got it wrong and that workers need a decent wage and job security. John Cridland said in The Observer on Sunday:

“I am not sure this would have been natural territory for us five years ago.

I have been banging on for a year about higher earnings growth. I have been doing that in part because it is a sensible part of economic rebalancing to have sustainable consumption. It is important that low-paid workers are able to play their part as active consumers”.

He also talked about

“inequality having reached a point where it is not acceptable from a moral point of view and that, in a commercial sense, it’s bad for business.”

That is the head of the CBI. He did not think that five years ago, when Labour was in power; he thinks it now, at the end of five years of Tory rule. The loss of £1,600 from each worker’s pocket has had a negative impact on consumption, demand and profits. That comes from the top.

[Ian Lucas]

Another crucial impact has been from the Tory VAT increase, which takes money directly out of consumers’ pockets—[Interruption.] I am sorry that the Government Members are so upset by my saying that, but my constituents are upset about money out of their pockets going straight to the Treasury rather than our high streets.

[Chris Ruane]

Absolutely. When Labour reduced VAT, that had a positive effect. All the economic indicators from 2008 to 2010 were going upwards; in June 2010, they started to go down. [Interruption.] The hon. Member for Aberconwy (Guto Bebb) might laugh, but he does not know his economics.

John Cridland added:

“I am particularly interested in the escalator that takes people who are unemployed or low-paid on to better-paid work. Something has gone wrong with it. There are two or three missing steps in the middle.”

The missing steps to which he refers will not be provided by zero-hours contracts, the minimum wage with no prospect of progression and cutbacks in skills and training.

[Susan Elan Jones (Clwyd South) (Lab)]

I am grateful to my hon. Friend for making an insightful, thoughtful and comprehensive speech. Does he agree that another theme related to this issue is instability? Several years ago, I read some of the writings of the Centre for Social Justice, an institution that many people see as tending to favour Conservative thinking, although not exclusively. I was interested that one thing the centre spoke about was how insecurity affects family life. Does he agree that when zero-hours contracts are not a matter of genuine choice and flexibility, they really contribute to insecurity? If we are serious about enhancing family life and stability we have to tackle that.

[Chris Ruane]

I agree entirely. The impact on mental health and well-being can only be detrimental.

Going back to the CBI, I pay tribute to John Cridland. He has made a brave intervention on this matter and I hope the Conservatives heed his wise words.

The next aspect I will look at is the impact of public sector cuts, especially cuts to local government. I have the statistics from the House of Commons Library. English local authorities have had cuts of up to 43%: Kingston upon Thames, Bournemouth, West Berkshire and Brighton and Hove have all had cuts of 43%. Those cuts to local government come from this Tory central Government.

[Guto Bebb]

Will the hon. Gentleman give way?

[Chris Ruane]

No, the hon. Gentleman has had one bite of the cherry.

The cuts that English local authorities have experienced are more than decimation. The same research says that the Welsh Government have largely protected Welsh local authorities from those cuts over the past five years. According to that research, in my own county of Denbighshire there has been an increase in funding of 3% from the Labour Welsh Government. That protection has now ceased, however, as the Welsh Government feel the full impact of a £1.7 billion loss to their budget because of the Tories here in Westminster.

[Wayne David]

Does my hon. Friend agree that the situation is bad now, but if, God forbid, the Conservative party should win a majority at the next election, things will be a lot worse? We will be back to 1930s levels of public expenditure.

[Chris Ruane]

My hon. Friend predicts the next part of my speech.

[Guto Bebb]

Will the hon. Gentleman give way?

[Chris Ruane]

No!

Welsh local authorities are implementing cuts that in my county will see the closure of the pest control department, the ending of help with school uniforms for low-income families and the loss of jobs for those who help children with psychological problems. I do not blame the local authorities—not the officers, and not even the Tory councillors. The finger of blame has to point at those at the top of this Conservative Government, who decided that, of all the departments in the UK, local government should have the biggest cuts. They planned for 27% but have implemented 43%.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The hon. Gentleman is making a typically impassioned attack on the austerity policies of the Conservative party, and I agree with a lot of what he says. Will he explain why he and his colleagues voted for the Tory austerity charter only two weeks ago?

[Chris Ruane]

Cuts have to be made, but the tempo, pace and degree of cuts, and the ideology behind them, are the key issues. These are cuts for cuts’ sake, because the Conservative party believes in a low percentage expenditure of GDP on the public sector—an issue I will come to in a moment.

[Hywel Williams (Arfon) (PC)]

I am sorry, but does that not sound like trying to be a little bit pregnant?

[Chris Ruane]

I am not sure whether the hon. Gentleman has ever experienced that state in his time in Parliament. I am saying that the cuts proposed by my party—indeed, his party has had to make cuts in Gwynedd—are not ideological. They have been practical cuts. The Conservative party wants to introduce cuts for ideological reasons. It wants to cut back the state and sees the public sector and the state as bad. I do not perceive them in that way.

In the autumn statement, the Chancellor said that he wants to see the percentage spent by the state come down to 35% of GDP. His own creation, the Office for Budget Responsibility, said that, if he did that, public sector spending would be at its lowest since the 1930s, before the establishment of the national health service—we spend £115 billion on the NHS, yet the Chancellor wants to take us back to the 1930s. His vision for the UK economy and our society is “The Road to Wigan Pier” and “Love on the Dole”. It is not a vision I share, or one that the Labour party shares; I dare say Plaid Cymru does not share that vision either. It is a dark, bleak vision, offering no hope. The British public, especially in those areas that rely on public sector jobs, will reject the Chancellor’s vision.

Although one faced the effects of recession and the other the effects of war, Franklin D. Roosevelt’s Government of the 1930s and the Labour Government of the 1940s knew that investment and capital projects were the key to recovery and growth. The Labour Welsh Government are heeding the lessons of history and have implemented a huge capital building programme in the Vale of Clwyd. They have invested £100 million in refurbishing ysbyty Glan Clwyd. In partnership with Denbighshire county council, they are investing £70 million in refurbishing and rebuilding schools.

I will graphically illustrate the difference in approach between the Welsh Government and this Government in just one town in my constituency—my home town of Rhyl. The Prime Minister stood at the Dispatch Box and said that the town of Rhyl had been neglected by the Labour Welsh Government and the local authority. While he was speaking those words, he was closing down the Army recruitment centre in John street in Rhyl, which opened in 1914, and was closed in 2014 by the Tories; while he was speaking at the Dispatch Box, he was also closing down Rhyl county court and the tax office in Rhyl, and relocating the Crown post office from Rhyl.

Compare and contrast that with the investment that has come to my home town of Rhyl from the Welsh Government. There is a £10 million new harbour, a £22 million new community hospital, opening in 2017, and £28 million is being spent on replacing the old houses of multiple occupation with decent family accommodation. As we speak, £25 million is being spent on a new high school and £12 million on new flood defences in Rhyl. Now tell me who is neglecting Rhyl.

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

The hon. Gentleman needs to be careful about using examples that are tantamount to disingenuous. As far as Army recruitment centres are concerned, I know that he knows that the closures are nothing to do with resource, but to do with different recruitment procedures that are more effective in the 21st century. I would be grateful if he were careful about that.

[Chris Ruane]

The hon. Gentleman may have a point, as the Government have cut back the number of members of the armed forces dramatically; but I see a closure as a closure.

Last Thursday, I met Jane Hutt, the brilliant Welsh Finance Minister who is masterminding much of the investment that I have mentioned. We met at Rhyl high school, which as I said is undergoing a £25 million rebuild. The contractors, Willmott Dixon, said that 60% of the investment will be spent within a 30-mile radius of Rhyl. The jobs, training and growth from that investment will be multiplied many times over because of local procurement. The Labour Welsh Government are playing a vital role in ensuring that my constituency is able to withstand the ravages of Tory cuts.

In Vale of Clwyd and, indeed, in the neighbouring constituency Clwyd West—it is interesting that the right hon. Member for Clwyd West (Mr Jones) is not here today—there is a huge percentage of public sector workers; 37% of the workers in those two constituencies work in the public sector. What will happen when we have these huge cuts? We know what has happened in the past. In the early 1980s, Shotton steelworks closed, and 7,000 jobs were lost in one day—the biggest lay-off in British industrial history—with no help or intervention from the Tories.

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

I am sorry to intervene on my hon. Friend when he is making that important point, but may I just correct him? Over 8,000 jobs were lost on that day, and the area still shows the effects of that devastating loss of jobs—still the largest single loss of jobs at a single plant on a single day in the UK.

[Chris Ruane]

I thank my hon. Friend for that, and I accept his correction.

The Government in the 1980s gave no support. There was no compassion and no thought. Areas were almost punished for being Labour. I have repeatedly asked Tory Ministers, from the Chancellor to the Secretary of State for Wales, what measures are in place to help the rebalancing between the public and private sectors in areas with large numbers of public sector workers. In one constituency, which is, I think, in Edinburgh, 78% of the workers are in the public sector, but there is no help from this cold-hearted Conservative Government.

Finally, I turn to Europe. Shotton was rescued by the rise of Airbus. The factory has 7,000 workers and 600 apprentices, and there are 70,000 jobs in the supply chain—it is one of the biggest factories in western Europe. This is a joint European venture, which includes Spain, Germany and France; it is a living example of how co-operation is better than confrontation. However, those jobs will go if we pull out of Europe, as Tory Back Benchers—I am sure there are a few out there now—want us to. There would be massive job losses at not just Airbus, but Toyota and other foreign inward investment businesses, which have said they will leave Britain if it pulls out of the EU.

In St Asaph, in my constituency, work is being done on the Extremely Large Telescope—a £2 billion project to put the biggest telescope the world has ever seen in the Atacama desert in Chile. The lenses alone will be £200 million. I hope they will be made in my constituency, but there is no chance that that will happen, with the high-tech, highly skilled jobs that the project would bring, if we pull out of the EU.

[Mark Tami]

My hon. Friend is correct about Airbus. Does he agree that such companies have choices? They do not have to invest in the UK. Airbus is an example of a good partnership, but, equally, the factories in Germany, France and Spain want the wing work we have in this country, and further investment in the Broughton plant would be in doubt if we were outside Europe.

[Chris Ruane]

Absolutely. The Conservative element of the Government thinks we can pull out of Europe, where we do about 40% of our trade, and stick two fingers up to it, and that everything will be the same afterwards—that that trade and co-operation will carry on. That will not be the case. Europe will punish us. It does not want us to pull out; it wants us to be included. We are 60 million people out of 6 billion—1% of the world’s population. If we pull away from Europe, our voice will be miniscule. We are part of the biggest trading bloc in the world’s history.

[Simon Hart]

Will the hon. Gentleman give way?

[Chris Ruane]

No. I will finish on that note.

[Several hon. Members]

rose—

[Mr Philip Hollobone (in the Chair)]

Order. We will hear from Mr Ruane at the end of the debate, because it is a Back-Bench debate, and he will have between three and five minutes to sum up. I will call the Front Benchers no later than 10.35 am, but it might be before that. Before that, the order of speakers will be Government, Opposition, Government, Opposition.

09:49

[Guto Bebb (Aberconwy) (Con)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I turned up to the debate thinking that we would at least have a reasonable discussion of the facts, but what we actually heard was a pre-election rant from the hon. Member for Vale of Clwyd (Chris Ruane). That is a real shame because, outside the Chamber, he is often thoughtful and constructive; in the Chamber, however, he becomes blatantly partisan and can see good only within the confines of the Labour party in Wales.

Listening to the hon. Gentleman reeling off the record of significant investment in his constituency, one wonders whether there really is a shortage of money in the Welsh Assembly. If there is, that is probably because the money has been spent in Vale of Clwyd. If nothing else, therefore, we will have to compliment him on his ability to lobby his political colleagues in Cardiff.

The title of the debate is “Employment in Wales”, and any politician who takes themselves seriously should at least acknowledge that the employment figures in Wales are most encouraging.

[Chris Ruane]

Will the hon. Gentleman give way?

[Guto Bebb]

No, I do not think I will—I shall retaliate in kind. The hon. Gentleman had his opportunity.

[Mark Tami]

Will the hon. Gentleman give way to me?

[Guto Bebb]

Of course.

[Mark Tami]

Does the hon. Gentleman not agree that, even if we do accept that more jobs are coming in, we are also losing jobs? A few days ago, we had the announcement that 120 jobs were going at the Shotton paper mill. Although I welcome all jobs, replacing those quality, highly skilled jobs with minimum wage jobs is not the same thing.

[Guto Bebb]

I accept entirely that we would be disappointed to see job losses in any part of Wales. I know full well how the north Wales economy works, and a number of people who work in the hon. Gentleman’s constituency live in mine. People travel to work down the A55 corridor, whether that is from east to west or west to east. Even though the road makes that difficult, I often meet people who work in Chester or in Alyn and Deeside when I am out canvassing. I accept that any job lost is a concern, but it is important to remember that although the Labour party has been highlighting the doom and gloom, and saying that Wales will never recover from public sector job cuts, the number of jobs created in the private sector in Wales has far exceeded the number lost in the public sector.

In that respect, we need to respond to the slur made by the hon. Member for Vale of Clwyd regarding Government Members’ attitude towards public sector workers. I have never heard a Government Member criticise anybody who works in the public sector. The one simple point we have made is that we need to have fairness between those who work in the public sector and the majority—even in Wales—who work in the private sector. Do public sector workers have gold-plated pensions? No, they do not in terms of what they get out of their pensions, but in comparison with the situation for somebody in my constituency who is self-employed, “gold-plated” is a fair description. The changes the Government have brought in simply move the balance of pension contributions slightly from the taxpayer to the recipients of the significant pensions in the public sector. The Government’s changes on pensions are to be applauded because they have ensured that we retain a degree of support for those who opt to serve in the public sector, and that support is well beyond what is available to those who work in the private sector.

The hon. Gentleman should remember a simple point: even on trade union figures, the average public sector pension is about £8,000, and that is equivalent to a pension pot of roughly £120,000. If Labour Members do care about people in Wales, they should be aware that the average pension pot for somebody in the private sector in Wales is £30,000. Even the trade union figures still imply that people in the public sector have a fund that is four times more than that of somebody in the private sector, but I see no concern among Labour Members about the situation faced by the vast majority of Welsh workers.

It is important to highlight that Labour Members have said time and time again that there is concern about youth unemployment. What we have seen, however, is that there is a difference between what happens when Labour is in power and what Labour thinks happens when it is in power. In my constituency, for example, youth unemployment has fallen by almost 50% since 2010. That fantastic achievement is the result of this Government’s attitude that people are better off in work than not working. Under the previous Government, youth unemployment went up and the benefits system picked up the strain. Nobody who is young should be on benefits; they should be able to be trained and to get work, and that is exactly what we are seeing in Aberconwy as a result of the Government’s changes.

[Susan Elan Jones]

It is interesting that the hon. Gentleman is posing as Mr Egalitarian between the public and private sectors. Is he not part of a Government party that spent millions of pounds of our money contesting a court case so that bankers in this country could get extra bonuses? Where does that put him? We are not talking about the difference between the public and private sectors when it comes to ordinary jobs in north Wales, but about a Government who act fundamentally against the interests of people in north Wales when they take such actions.

[Guto Bebb]

I am constantly amazed at Labour Members’ hatred of the entrepreneurial spirit. The simple fact of the matter is that we need a successful economy to pay for the public services we need. The Labour party has always believed that money derives from thin air; it does not understand how the economy actually works. To have a strong health service, we need a strong economy. To have employment growth, we need a strong economy. To have a strong economy, we need a strong entrepreneurial spirit. This Government understand that simple fact; the Labour party clearly does not.

The key issue we need to look at is employment rates. Employment rates in Wales are notoriously low by UK standards, but they are going in the right direction. I was interested to note from the debate pack that the hon. Member for Vale of Clwyd once tabled a question requesting employment figures for north Wales constituencies. Remarkably, in comparison with the glory days of the Labour Government, the employment numbers for all of them are higher than they were when Labour was in power. We hear rhetoric from the Opposition, but when they are in power we always see failure. Everyone in UK politics knows that not once has a failed Labour Administration left government with unemployment lower than it was when they came to power. That has always been true—[Interruption.] The hon. Member for Pontypridd (Owen Smith) suggests that that is an old chestnut, but he knows that where there is unemployment, there are Labour Members. The eight constituencies represented by the Conservative party in Wales have a lower unemployment rate than the Welsh average. Suffice it to say, the areas of hard-core unemployment are typically represented by the Labour party, which despises enterprise and is not willing to recognise the work that the self-employed do. Labour Members say that they will change things, but vote for exactly the same fiscal position as the Government.

[Owen Smith (Pontypridd) (Lab)]

Will the hon. Gentleman give way?

[Guto Bebb]

I will not give way to the hon. Gentleman, but I will ask him a question. We heard of a litany of cuts that are unacceptable to the hon. Member for Vale of Glamorgan—[Hon. Members: “Vale of Clwyd.”] I apologise. I would not have expected any such nonsense from the Minister, my hon. Friend the Member for Vale of Glamorgan (Alun Cairns).

The hon. Member for Vale of Clwyd gave a litany of complaints about cuts, but I want the shadow Secretary of State to tell us which of the cuts Labour would reverse, because I understand that the Labour party is conducting a zero-sum spending review. That means that there will be no additional spending, and that any cuts that are reversed will be achieved by making cuts to another area of activity. We have been told that local government cuts were the wrong decision—the hon. Member for Vale of Clwyd made that very clear—so where, in the zero-sum spending review, would be the right place to cut to make right the local government cuts that he believes were too great?

Alternatively, is all that we are getting from Labour rhetoric? The truth is that when there was a vote last week on spending plans for the forthcoming Parliament, the official Opposition—fair play to them—recognised the reality and voted to support the Chancellor’s view that £30 billion of additional cuts are needed. Labour Members can claim to represent people who are typically of the view that they have been served by that party, but all their rhetoric is trumped by the reality of their support for the Government changing the economy in the right way.

We should be proud of our record on employment and the re-emergence of entrepreneurial spirit in north Wales. We need a continuity of purpose. The dead hand of Labour has damaged Wales time and again and should not be allowed to derail the economic recovery, which is giving hope of full employment in Wales for the first time in a generation.

10:03

[Hywel Williams (Arfon) (PC)]

I congratulate the hon. Member for Vale of Clwyd (Chris Ruane) on securing this important debate. I will begin with a timely reminder to the hon. Member for Aberconwy (Guto Bebb); he is slightly behind the wave on the matter of cuts. The Prime Minister, on Radio 4 this morning, called them not cuts but adjustments—but of course, both sides are signed up to those adjustments.

I want to consider some of the more interesting facts of the matter, as opposed to engaging in rhetoric such as we have heard this morning. A key element in respect of employment in Wales is the balance between the public and private sectors. That is extremely important in my constituency, and in Vale of Clwyd, Aberconwy and other constituencies. A key element of the Government’s austerity strategy is that public sector expenditure cuts will be rebalanced by growth in private sector employment. What has happened and, in particular, how far has Wales succeeded compared with the rest of the UK?

The financial crisis broke in 2008 and the immediate impact was seen in the sharp drop in employment in the private sector in the following year to September 2009. There were 60,000 fewer people employed by the private sector in Wales in the year to September 2009 compared with a year earlier. Since bottoming-out in 2009, private sector employment in Wales has steadily increased and is now slightly higher than in 2008, with an increase of 1%. I am, by the way, using figures from the Office for National Statistics. That 1% compares poorly with the figure for the UK as a whole, which is 12%. We have done comparatively badly. Had private sector employment in Wales tracked that of the UK since 2009—the low point—and had we performed as well as the rest of the UK, there would have been an additional 43,000 people in private sector employment in Wales by September 2014. That is a criticism of the UK Government’s macro-economic policy, but also of the performance of the Welsh Labour Government in Cardiff.

If employment in the public sector in Wales had shown the same rate of decline as in the UK between 2010 and 2014, an additional 12,000 jobs would have been lost. The Welsh Labour Government have protected public sector employment, which is a good thing, and it has been more resilient than in the UK as a whole, but the figures are significant for the Government’s contention that cutting public sector employment leads to growth in the private sector. If Wales had tracked the UK since the Conservative-Lib Dem Government came to office in 2010, there would have been an additional 41,000 in employment in Wales by September 2014.

[Jonathan Edwards]

My hon. Friend is giving a forensic analysis of the employment situation across the UK and in Wales in particular. Is not private sector employment growth geographically lopsided, located very much in the south-east, with the other nations and regions of the UK lagging behind? There has not been the geographical and sectoral rebalancing of the economy promised in 2010.

[Hywel Williams]

My hon. Friend makes an interesting point. We have such a geographical imbalance in Wales, in relation to not only the number of jobs, but their quality, as the hon. Member for Vale of Clwyd pointed out. We have seasonal and low-quality jobs—some part-time and some on zero-hours contracts. My hon. Friend’s remarks have several implications.

In the case of Wales, therefore, the figures show scant evidence that austerity has worked either to rebalance the employment mix between the private and public sectors or to increase total employment. The data on the balance between the public and private sectors need to be treated with caution, because of the effects of reclassification. That political sleight of hand has frequently been used in the debate on the issue. For the UK, the proportion employed in the public sector has fallen from 20.4% in 2008 to 17.7% in 2014. In Wales, the proportion has declined from 25.8% to 23.9%. That is a smaller drop, and of course there is a much larger public sector in Wales.

We in Plaid Cymru were concerned about whether growth in private sector employment would be achieved for the UK, and particularly for Wales, because of its greater dependency on the public sector and the fragility of its private sector. After four and a half years, and with an election pending, the statistics are interesting, but we must be careful because, for example, the ONS reclassified staff of RBS and Lloyds Banking Group from the private sector to the public sector in 2008, and that represented 225,000 workers. Royal Mail staff went from the public to private sector following privatisation in the fourth quarter of 2013, while further education staff in England were reclassified to the private sector. In a later twist, employees at Lloyds Banking Group have been reclassified to the private sector, as the share of private sector ownership of Lloyds has grown.

The total private sector year-on-year decline of 6% in Wales compares unfavourably with the corresponding fall of 4% across the UK as a whole. Since the trough in 2009, private sector employment in Wales has steadily increased, as I said, but that compares poorly with the UK, where private sector employment has grown by a massive 1.7 million jobs. As I said, public sector employment in Wales has declined, while private sector employment has risen slightly, but in the UK, the situation is a good deal better. The conclusion that one has to reach is that had private sector employment in Wales tracked that of the UK since 2009, an additional 43,000 people would have been in private sector employment in Wales. Public sector employment in Wales has been quite resilient, which has been a good thing.

Let us have a quick look at the unemployment figures. If the unemployment rate in Wales was the same as that of the UK, 10,000 more people would be in work. In Wales, the figure for those who are economically active is 74%, whereas it is 78% for the UK as a whole, so we also have a problem with economic inactivity. That is well known, but the point is the number of people involved. It is equivalent to 67,000 fewer people of working age in Wales either being in employment or seeking work, and that shows the size of the problem that we face. Of those economically inactive people, 120,000 would like work. We therefore have people who are looking for work, which suggests to me and other observers that the measures in place to encourage those who are economically inactive into work just are not working properly. That is the challenge facing Wales—not only reducing the unemployment rate, but raising the rate of economic activity to the UK level and ensuring that the quality of the jobs is right for Wales.

There is scant evidence that austerity has worked for Wales, either from the viewpoint of rebalancing the employment mix between the private and public sectors, or by growing total employment. A great deal needs to be done, and we are looking in vain to the two main London parties for action.

10:12

[Simon Hart (Carmarthen West and South Pembrokeshire) (Con)]

I came into the Chamber at half-past 9 naively hoping for 90 minutes of informed debate, rational argument and, to be honest, a bit of peace and quiet, so I was not really planning to speak, but the hon. Member for Vale of Clwyd (Chris Ruane), who opened the debate, has driven me into an uncharacteristic state of fury and indignation. I hope that people will forgive me if I try to paint a more positive picture of the Wales that I know rather than getting involved in the constant negative talking down of a success story, which seemed to be the main theme of the hon. Gentleman’s speech.

I was also expecting more than we got, which was a series of contradictions. We were told that the wicked coalition was responsible for starving Wales of money, yet in the same breath the hon. Gentleman listed a whole range of ways in which investment has been made available to Rhyl in his area, presumably as a consequence of not only Welsh Government intervention, but the underpinning strength of the UK economy.

[Chris Ruane]

Will the hon. Gentleman give way?

[Simon Hart]

Let me make it clear early on that I probably will not give way to the hon. Gentleman, unless I have a sudden attack of good will. That does not mean that I will not give way to anyone, but I will not be persuaded to do so just yet.

We also heard the contradiction of the hon. Gentleman condemning the coalition’s spending proposals in almost the same week that his party voted in favour of them. Is it any wonder that we question the economic literacy of his case when the shadow Chancellor of the Exchequer—perhaps the hon. Gentleman will have some comments to make about this—told us not long ago that interest rates would go up when in fact they have done down, that inflation would go up when in fact it has gone down, that fuel prices would go up when in fact they have gone down, and that unemployment would go up when in fact it has gone down? Is it any wonder that when the hon. Gentleman starts pontificating about a gloomy prognosis for Wales, we take it with a pretty big pinch of salt?

[Guto Bebb]

Does my hon. Friend agree that there is a danger to the good name of politics in general when Members complain about cuts as they make impassioned speeches, yet vote for them in the House of Commons?

[Simon Hart]

My hon. Friend makes a good point. Sometimes we think that we can get away with saying things in the Chamber because we seem to think that we exist in a bubble and that people are not watching, or listening to and examining the words that we say, whereas in fact, of course, the opposite is the case. That leads me quite neatly to a point that I wanted to make: there is ideology at play here. The Conservative ideology is that we tackle poverty through the creation of jobs and opportunity, yet we heard this morning the Labour ideology that poverty should be tackled simply by swelling the welfare state. If the former is an ideology, I am pretty happy to go along with it, as the route out of poverty is obviously through the creation of jobs. A proper welfare state looks after people who need assistance, not those who simply choose to use it as a lifestyle choice. That is an important ideology, so if an accusation is being pointed at me, I will happily plead guilty to it.

I am offended every time I hear people describe certain jobs in my constituency as somehow unimportant and not proper jobs. I can tell hon. Members that no one feels more patronised than those working in my constituency, whether in agriculture, tourism or engineering, or in a multitude of small and medium-sized businesses, when they hear people from the Labour party describing their jobs as somehow unimportant, unrewarding or unreal. Those jobs are the absolute opposite of those things—they are important.

I remember only too well taking home my first pay packet when I had my first job, which would probably have been described as low-paid, irrelevant and unimportant by one or two Opposition Members. To me, it was the opposite of that. That was the most important moment of my life. The money for that job may not have been as much as I might have got elsewhere, the hours may not have been very special and the terms of my employment may not have been particularly good by today’s standards, but I did not half appreciate it and it put me on the road to a decent work ethic and a hard-working life. That was all because someone gave me the chance to do the job. No one talked down my job in those days, and I do not think that we should talk down people’s jobs today, either.

As we approach the election, it seems to me that Labour’s electoral fortunes depend on fear and failure. It seems that the more fear and failure there is, the more electoral opportunity there is for the Labour party. I find it quite offensive that we should go into an election with one party almost promoting fear and failure as a means to success at the ballot box, and I think that that will reflect badly on it come May.

I put down a challenge to the hon. Member for Vale of Clwyd, so I will take an intervention now if he wants to make one. He condemned pretty well everyone, it seemed, for this country’s economic direction, strategy and success, yet the voters’ attitude seems to suggest that there is precious little confidence in his own party leader in terms of the economic future of the country. Opinion polls clearly show more confidence in the Cameron leadership of the country, in terms of its economic direction, than the Miliband leadership. Perhaps the hon. Gentleman would like to comment on the confidence that he has in his own leader in terms of economic competence and the future of the country.

[Chris Ruane]

The point that I want to make is about the hon. Gentleman’s argument that I was too negative about the economy. Given the rosy picture that he has painted, I think that he is too complacent about the economy. People outside the House do not believe him. The people out there who have suffered a £1,600 loss in their pockets do not believe him.

[Simon Hart]

I am glad that I took that intervention because the hon. Gentleman completely misrepresents my view. No Conservative Member and no colleague in Plaid Cymru or in the Liberal Democrat party—indeed, no politician, candidate or Government—has a monopoly on brilliant ideas, wisdom or compassion. It is crazy to suggest otherwise. I am well aware that there are significant difficulties in my own constituency, which is why I have organised five jobs fairs since I have been a Member. That is why I spend most of my working day trying to resolve such hardships and to point people in the right direction on future job prospects. That is why I deal every day, as we all do, with difficulties when things go wrong.

It is wrong to suggest that we live in a bubble of complacency and that the future is gloomy. The distinction that I am trying to make is that there are plenty of success stories in Wales of which we should be proud. Plenty of indicators suggest that we are pointing in the right direction. I absolutely accept that we are halfway along the road to success. Nobody is suggesting that we have got there and nobody is suggesting that it will not be a hard crawl from here to our destination. What we are suggesting is that to alter the course now would damage the prospects of not only people who are working their way back into employment, but those who already have a secure job.

[Wayne David]

Is the hon. Gentleman happy that so many of his constituents who have recently found employment are on extremely low wages?

[Simon Hart]

I find that question extraordinary. It is like asking whether I am happy with an outbreak of incurable disease. Of course I am not.

[Wayne David]

So what is the hon. Gentleman going to do about it?

[Simon Hart]

What I am trying to do is to be part of an economic policy that creates greater opportunity, higher wages and better long-term prospects for families and individuals in my area. That is what I am driving towards. It is wrong to suggest that I could sit back and feel content if even a single person in my constituency was unemployed for avoidable reasons. I would be upset and disappointed, and I would strive to help them back into employment. The same is true of anybody on an unsustainable wage. The point I am trying to make is that the direction of travel—I hate that expression, so please forgive me for using it—is correct.

I could point the hon. Member for Vale of Clwyd to numerous people in my constituency who have been able to make the transition from the gloomy position that he describes into a more prosperous world with better pay, better conditions and a better job. That is a consequence of confidence among UK, European and global companies, which are investing in our area, and it might not have happened under a different form of economic leadership. That is the point that I am trying to make. Of course we are not there yet—we are some years away—but I think we are on the right path to that kind of success story, which was lacking from the hon. Gentleman’s speech.

10:22

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

It is a pleasure to serve under your chairmanship, Mr Hollobone, and to follow the hon. Member for Carmarthen West and South Pembrokeshire (Simon Hart). We nearly ran into each other this morning when we were on our daily jog.

Only a fool would not welcome the news that there are 4,000 more people in work this year than there were last year. Even though Wales has the lowest employment rate of any region in Britain, at 68.7%, anybody gaining work can be only a good thing. However, the number of long-term benefit claimants and long-term unemployed remain stubbornly high. It seems that we cannot talk about employment in Wales without mentioning the elephant in the room, which is welfare reform.

For too long our welfare system has been broken. It teaches the wrong values, rewards the wrong choices and hurts those whom it should help. We must offer people on welfare education, training, child care and all the things they need to get back to work. We need to offer them opportunity, but at the same time we must demand responsibility. We know that no one wants to change the system more than those who are trapped in it, such as the single mother who came to see me recently in a surgery in Islwyn who has to work part time because she simply cannot afford to go full time. More than 70,000 people in Wales feel the same way.

We have to end welfare as a way of life and make it a path to independence and dignity. The problem is that the terms of the debate are all wrong and too partisan. Knock on any door in any constituency in Wales, and if it is answered by someone who is in long-term work, they will attack those whom they term “benefit scroungers” and people who make benefits a way of life. The coalition and the Opposition are locked in a battle over the merits of their respective approaches to tackling long-term unemployment. The coalition has set a limit on the annual increases in the majority of benefits; for tax credits it is 1% over the next three years. Only today in an interview, the Prime Minister set out the battle lines when he said that the Tories will reduce the welfare cap to £23,000 if they are elected in May. In fact, he said that that would be the first piece of legislation for any future Conservative Government.

[Hywel Williams]

The Prime Minister has also said that he wants to cut the welfare bill by £10 billion or £11 billion over the next five years. The hon. Gentleman’s colleagues signed up to the welfare measures last week. Does he support that level of cuts over the next five years?

[Chris Evans]

There we go again. I have a lot of time for the hon. Gentleman, but I have just said that we need to change the terms of the debate. The debate is once again about the various approaches, but we are missing the wider picture. Every time that we talk about welfare reform, it becomes about hitting various groups in society. The major problem is not benefit scroungers, but the simple fact that thanks to globalisation—a good thing that is creating more opportunities than ever before for people in Wales, young and old—the labour market has changed beyond all recognition. As we have heard, the recent growth in jobs has been at either the very top or the very bottom. That means low pay at the bottom and high pay at the top, but those in the middle are finding themselves forced out due to what we could call a hollowing out of the labour market. When those people lose their jobs, they encounter tremendous barriers to getting back into work, which forces many families into poverty, and that process will only quicken as the years go on.

We must be honest about the fact that despite attempt after attempt, welfare reform, in all its guises, has failed. Long-term unemployment remains stubbornly high and there are still long-term benefit claimants. At the same time, we carry on debating the belief that there are welfare scroungers abusing the system, but I believe that we need to change the terms of the debate. Policy Exchange recently came up with a programme with three planks that merits further consideration. We need to build self-sufficiency in the welfare system. In the UK as a whole, 60% of households receive more in benefits than they pay in tax, so they are net recipients of state support. That is, in part, the result of the tax credits introduced under the previous Labour Government which, in an attempt to tackle low pay and to eradicate relative income poverty for children, began to support families earning as much as £50,000 a year. Poverty came down, but the problems remain.

There is still a general presumption in the welfare system that the solution to low pay and poverty is to redistribute income through cash benefits. I emphasise that doing so simply subsidises low pay, leads to low wages for recipients and does nothing to encourage progression and self-sufficiency. Future reforms must be built around the principle that income should come from work, not benefits, but that will require reforms to the scope of benefits while ensuring that family earnings increase along with the living wage. There needs to be more support for those who seek to increase their income, but that is sadly lacking from this Government.

We need to build a system on the principle of “something for something”. Although it is important to build a system that encourages self-sufficiency, we must recognise that some families will fall on hard times. Companies will close; that is the way of life and the way of the economy, no matter who is in government. In such times, the welfare system should support people and recognise the contributions that they have already made. The current welfare system does not reflect such contributions. Strengthening the contributory principle through a system of welfare accounts that sit on top of universal credit, which can be drawn down in periods of need, should be a key plank of a “something for something” system that all parts of society believe to be fair.

Employment support is the most controversial part of the system—it is the biggest bugbear in my constituency. The state must get better at helping people to move back to work through a modern system of employment support, and that must begin with an acceptance that Jobcentre Plus has not been effective for some years. Although 75% of jobseeker’s allowance claimants move off benefits within six months, only about half of them are still in work eight months later, while a third are claiming benefits again. The goal should be to support claimants into substantial long-term employment and that should be delivered by providing targeted support for jobseekers not after six months, but from day one of their employment claim.

We should also look at examples such as that in Australia with regard to building and improving the Work programme. That is particularly relevant for groups furthest away from the labour market that currently face being parked without support and still face a real risk of benefit sanctions. Those groups need a new support system that ensures that they have help for the very real difficulties that they face, and that view was backed up by a National Audit Office report on the Work programme in July 2014, which stated:

“The Programme has…not improved performance for harder-to-help groups compared to previous schemes. The Department designed the Programme to help participants whose barriers to employment mean that it is more difficult for them to move into employment. However performance has been similar to previous initiatives and falls well short of the Department’s and bidders’ expectations. Prime contractors have reduced what they plan to spend on the hardest-to-help, with support for these participants lower than for those with better employment prospects.”

We need reforms that build on the three principles that I mentioned to make the welfare state more effective, efficient and fair. That would rebuild support for the welfare state around the principles upon which it was founded by Beveridge all those years ago and ensure that all families receive the support they need to increase their earnings and reduce their reliance on the state. At the same time, it would ensure that those in need get the support they require. As we face the general election, those three principles should be the terms of the new debate on welfare reform.

[Mr Philip Hollobone (in the Chair)]

If the Front-Bench spokesmen take 12 minutes each, we should have enough time for Mr Ruane to speak at the end of the debate.

10:30

[Owen Smith (Pontypridd) (Lab)]

It is a great pleasure to serve under your chairmanship for the first or second time, Mr Hollobone. I congratulate my great and hon. Friend the Member for Vale of Clwyd (Chris Ruane) on securing this vital debate and on the clarity and passion with which he laid out his case.

This has been a very good debate so far. It has been slightly ill-tempered on occasion, but we have heard an excellent speech from my hon. Friend the Member for Islwyn (Chris Evans) and excellent interventions from my hon. Friends the Members for Caerphilly (Wayne David), for Clwyd South (Susan Elan Jones), for Wrexham (Ian Lucas) and for Alyn and Deeside (Mark Tami). We have also heard equally passionate, albeit slightly misguided, speeches from the hon. Members for Carmarthen West and South Pembrokeshire (Simon Hart), for Aberconwy (Guto Bebb) and for Arfon (Hywel Williams).

I wanted to respond personally to this debate, not only because it was secured by my hon. Friend the Member for Vale of Clwyd but because work and employment are at the heart of our debate in this Parliament, our politics and our economy. The success of working people, what they do with their time and how they exchange their finite time for reward, are, of course, at the heart of not only our economy in Wales but all economies.

Our growth, productivity and dynamism are reliant not on innovation, entrepreneurialism or capital investment—all words that one often hears from Ministers of all Governments—but on the sweat from people’s brows. Hard work and hard graft underpin our economy, and they are key to a successful and stable society. More than an economic driver, work is the key to people’s dignity, security and, indeed, identity. In Wales we know that more than in many other parts of the UK. In Wales, whether it has been colliers and quarrymen, women working in service or people working in steelworks or on the land, our work has been how we have defined ourselves.

[Jessica Morden (Newport East) (Lab)]

Does my hon. Friend agree that what has been ignored by Conservative Members throughout this debate—yes, there is a welcome rise in the number of people in work—is the huge rise in the number of people in temporary employment and the lack of full-time jobs? Underemployment affects 70,000 people in Wales, and a similar number are on zero-hours contracts. The Conservative party is ignoring just how precarious the employment situation is for many people who do not have a guaranteed income.

[Owen Smith]

I agree. That has been the yawning hole at the heart of what we have heard so far from Conservative Members, and I suspect it will not be filled by the Minister. In the past, our work has defined us in Wales, and work is in danger of defining us once more as a low-wage, low-security economy. That is becoming the reality of the world of work for people in Wales, which frankly is not good enough.

I do not expect the Minister to recognise that picture, and I am sure he will talk to us in a moment about the recovery and the extra jobs that his Government have created, but unfortunately the facts do not bear out his arguments or the arguments of the hon. Member for Aberconwy because the statistics are relatively clear. Despite all the rhetoric, the truth is that in May 2010, when the last Labour Government left office, there were in total 1,471,000 economically active people in Wales. Today, on the latest numbers, there are 1,471,000 economically active people in Wales. That is the reality. We have not seen a surge in new jobs in Wales; we have seen a displacement of jobs, often from the public sector to the private sector and absolutely from more secure, more stable, better paying jobs to worse jobs.

The other statistics are even more damning. In Wales, according to the Office for National Statistics labour force survey, the number of economically inactive people has gone up from 989,000 to 1,039,000; the economic activity rate has gone down as a percentage; the employment rate has remained absolutely static at 54.4%; and the economic inactivity rate has gone up from 40.2% to 41.4%, which is in part a reflection of the offsetting effects of public sector job losses in Wales over the period. Some 351,000 people were employed in the public sector at the beginning of the Government’s term; the figure is now 315,000. That is a reduction of 36,000, part of the 1 million public sector jobs that have been lost.

That is the truth of the headline statistics, but let us look a little deeper at the nature of the jobs that people are currently enjoying. There are perhaps more jobs in the private sector, but the truth is that productivity in Wales and in Britain is down; corporate and personal tax receipts in Wales and in Britain are down; investment in Wales and in Britain is down; and consumption in Wales has flatlined.

My hon. Friend the Member for Vale of Clwyd made the point earlier in relation to the respected leader of the CBI, John Cridland, who says that, if we have a low-wage economy with increasing numbers of people who are unable to pay for white goods or even basic services, we will have lower consumption, less productivity and less growth in Britain. Those are the basic economic facts in Wales, and the reason for that is simple: the Conservative party set out to create and—let us give it its due—has succeeded in creating a low-wage, low-security economy in Wales and in the rest of the UK. That has been the Conservative party’s objective—greater flexibility but, unfortunately, at the expense of working people.

It is a reality that wages are down on average by £1,600 per family over this Parliament. It is also a reality that Wales already has the lowest disposable incomes of any part of the UK—just £14,623 versus an average in England of £17,066. The Conservatives have succeeded in overseeing a shift in the nature of our employment from a relatively secure, better paid work force to a less secure, worse paid work force. The facts do not lie. Total temporary employment across Wales has increased by 28%, and in the same period the number of people on permanent contracts in Wales has decreased by 25,000, more than 2%.

There is a direct transfer of people from being full-time employees to effectively being part-time employees. Some of those people are calculated and recorded as FTEs, but that is because of the nature of their zero-hours contracts. There are 300,000 people in Wales on less than a living wage, and far too many of those people—more than 40,000—are currently on zero-hours contracts, which have been the great explosion and change in our economy. That shift from permanent, properly contracted work, in which people have rights to maternity pay, paternity pay and sick leave, towards a low-wage, insecure, zero-hours-driven culture is unparalleled in any other period of modern economic history.

I will give one illustration, involving a young woman in my constituency whom I met a fortnight ago. She is 17, just about to turn 18, and she works in a local pizza restaurant. She goes in to work at 10 o’clock, when she is expected to be there. She has no guarantee of how many hours she will work that day: it might be six, eight or two. The nature of her contract is such that she can be laid off by the company for a period of its choosing during her working day if demand in the pizza restaurant drops below a certain level. She cannot afford to go home and wait for the company to call her to bring her back in, so she sits in the back room of the pizza restaurant for up to four or five hours in the middle of the day, waiting for the volume of customers to pick up later in the evening so she can be taken on.

It is an utter scandal that that sort of practice is going on in Britain—and not just occasionally; it is becoming the norm, just as minimum-wage jobs in Britain are becoming the norm, not the exception. The minimum wage in this country is becoming a ceiling on wages, not a safety net. Governments of all colours must recognise that, and the fact that we must do something about it.

[Jonathan Edwards]

I agree with everything that the hon. Gentleman is saying about the situation in Wales. It is true not least of the care sector in Carmarthenshire, where the Labour council has privatised social care by outsourcing it to private contractors, and many workers are in the same scenario. They are not paid for travelling between calls, so in very rural areas, such as some parts of Carmarthenshire, they can travel for half an hour and not be paid for that working time.

During the recent passage of the Social Services and Well-being (Wales) Bill in the National Assembly, Plaid Cymru tried to deal with that situation by outlawing zero-hours contracts in the social care sector. Can the hon. Gentleman explain why the Labour Government in Wales refused to support that amendment?

[Owen Smith]

As the hon. Gentleman will know, the situation is far more complex than he allows, although I will say straightforwardly that I do not believe that we should have 15-minute calls. One of the areas on which we will absolutely need to concentrate when Labour wins in May is the care sector, in which women are exploited all the time. More than 60% of the women in Gower, Ogmore and the Vale of Glamorgan who work part-time contracts, many of them zero-hours, are paid less than the living wage. That is the truth for many people in this country.

Equally, House of Commons figures show that areas of Wales, including the Rhondda and Dwyfor Meirionnydd, account for the nearly 40% rise under this Government in people shifting into working for the minimum wage or less than the living wage. Those are sea changes in the nature of the economy experienced by working people. Not all those changes started under this Government; we must be honest about that—the stagnation in wages started around 2007-08—but the unprecedented pace of change and the shift to low-wage, high-insecurity work has been exacerbated and compounded under this Government. In my view, that is scandalous.

The Welsh Labour Government have done their best to mitigate those trends. Initiatives such as Jobs Growth Wales have created 12,000 job opportunities for people in Wales, and tuition fees have been capped in order to hold open the door to advancement and social mobility through education. The Welsh Government have stood up for the lowest-paid workers against this Government—by maintaining the Agricultural Wages Board, for instance.

However, the truth is that we still have a significant problem in Wales, and it will take a Government in Westminster with the right policies—and, frankly, the right ideology—to change that. That is what we will see in this country when the Labour party wins in May: a rise in the minimum wage, intervention in our markets to freeze consumer prices for people suffering under high energy bills and the backing of small business through a reduction in tax cuts to large corporations and an increase in benefit to smaller companies.

Crucially, we will deal with zero-hours contracts and scrap the bedroom tax, which perniciously affects the most vulnerable in our society. That is the sort of Government programme that we need to deal with the issues in Wales. It is not what I anticipate we will hear from the Minister, which is why I hope we will see a Labour Government preside over Glamorgan, as well as the rest of Wales, come 8 May.

10:45

[The Parliamentary Under-Secretary of State for Wales (Alun Cairns)]

It is a privilege to serve under your chairmanship, Mr Hollobone. I congratulate the hon. Member for Vale of Clwyd (Chris Ruane) on securing this important debate. We have heard a range of contributions. It was certainly interesting to hear that of the hon. Member for Vale of Clwyd, although of course my hon. Friend the Member for Aberconwy (Guto Bebb) highlighted the impact of the dead hand of Labour on the Vale of Clwyd and every other constituency. He also reminded us that Labour signed up to the public spending commitments set out by the Government for the forthcoming years; whenever the Opposition criticise this Administration’s cuts, they must demonstrate which they would make instead of ours.

The hon. Member for Arfon (Hywel Williams) highlighted the fragility of the private sector in Wales. I challenge some of the points that he made about that fragility, as the private sector is thriving in terms of creating employment, but the greater stability and security that we can offer such businesses will allow the sector to be more robust than ever. My hon. Friend the Member for Carmarthen West and South Pembrokeshire (Simon Hart) highlighted a host of contradictions made by some Opposition Members and discussed Labour’s tactic to grow wealth by swelling the welfare state, which is clearly economically illiterate and does not stack up. My hon. Friend was absolutely right.

The hon. Member for Islwyn (Chris Evans) focused on welfare reform, and seemed to complain about the benefit cap of £23,000 proposed this morning by the Prime Minister. I remind him that many people in Wales who work hard day in and day out do not earn that much salary. If he does not support a £23,000 benefit cap, the money saved by such a cap would need to be found in cuts elsewhere, which I hope Labour will outline.

The hon. Member for Pontypridd (Owen Smith) covered a range of issues. He seemed to suggest that public sector jobs were good and private sector jobs were bad, which I absolutely reject. He also highlighted the issue of zero-hours contracts. The Government are tackling the abuse of zero-hours contracts, but I remind the hon. Gentleman that the Labour party itself, and even Labour MPs, use zero-hours contracts. He rightly focused on the living wage and minimum wage. We encourage as many employers as possible to live up to the living wage, but I point out that a number of Labour-run local authorities in Wales do not pay the living wage, and I encourage Labour Members to consider that within their budget plans and affordability measures.

The hon. Gentleman closed on the minimum wage and said that the Labour Government would increase it; I think that the latest policy to which they are committing is £8 an hour. However, a Labour former Cabinet member has highlighted how unambitious that is; even under past projections, by 2020 it will not buy much. If historical increases in the minimum wage were projected forward, they would go well beyond that. In reality, Labour is talking about cutting the minimum wage for hard-working people.

[Guto Bebb]

Although I aspire for people to be paid more than the minimum wage, it is important when we discuss it not to forget that many of those on the minimum wage pay significantly less tax as a direct result of this Government’s policies to ensure that people keep more of the money that they earn.

[Alun Cairns]

I am grateful to my hon. Friend for making an extremely important and valid point. Some of the data and statistics highlighted by Opposition Members were somewhat selective, and we need to take the totality of Government changes into account; doing so highlights the progress that has been made.

It is also important to remember the context in which this debate is taking place. We need to remember that when Labour came to power in 1997, Wales was not the poorest part of the United Kingdom. Since then, sadly, there has been a complete shift in culture. That is simply illustrated: in a population of 3 million, there are 200,000 people in Wales who have never worked. The Government needed to act. We were simply not prepared to allow the previous trends to continue, whereby, sadly, the economy of Wales was being compared to those of Romania and Bulgaria; whereby parts of Wales were blighted with worklessness; and whereby a third of the working-age populations of some communities were claiming out-of-work benefits.

We have taken key steps to deal with that legacy of worklessness and a welfare system that encouraged dependency. As a Government, we have put in place a long-term economic plan to deal with the situation that we inherited—in 2010, Wales was, sadly, the poorest part of the UK. That fact will always come back to haunt Opposition Members. They talk about wealth, prosperity and growth, but they left Wales as the poorest part of the UK, despite receiving in 1997 an economy that meant Wales was not the poorest part of the UK.

We developed a plan to stabilise the country’s economy, to deal with years of financial mismanagement under the last Labour Government and to get the people of Wales and Britain back to work. That long-term economic plan is paying dividends. It surprises me that during the last hour or so I have listened to Opposition Members playing down the progress of the labour market in their constituencies.

For example, in the hon. Member for Vale of Clwyd’s constituency, unemployment more than doubled between 2005 and 2010; there was a rise of 105% under the last Administration. Since 2010, unemployment in Vale of Clwyd has dropped by a third. Surely he welcomes that as a positive outcome.

[Chris Ruane]

What about since 1997?

[Alun Cairns]

The hon. Gentleman points back to 1997, but I can speak only about the time since 2010, when this Administration came to power. However, I remind him of what I said before: in 1997, Wales was not the poorest part of the UK but, sadly, by 2010 it was. That happened under both a Labour UK Government and a Labour Welsh Assembly Government. Thirteen years of Labour Administrations in Wales between 1997 and 2010 left Wales as the poorest part of the UK.

On a positive note, I hope that the hon. Gentleman welcomes the fall in unemployment in his constituency since this Administration came to power. The picture is similar for youth unemployment in the Vale of Clywd; it went up by 82% under Labour, but since 2010 it has come down by a third. Why does he not recognise the positive steps that the Government have taken in that regard, and why is he not congratulating the businesses in his constituency that are creating these jobs and employment opportunities for his constituents?

It was a privilege to visit Clogau Gold in the hon. Gentleman’s constituency just a short time ago. It is expanding, exporting, and creating wealth and employment locally in the Vale of Clywd. I regret how the hon. Gentleman is talking down his own area; that is hardly creating the mood to attract investment and to encourage companies such as Clogau Gold to continue to spend money on investing, exporting and creating yet more wealth.

[Jonathan Edwards]

The Minister talks of the “long-term economic plan”, but have not the deficit reduction targets of his Government been missed by a country mile? One of the major reasons for that is that the jobs being created are low-wage in nature, which means they do not generate the revenues the Treasury was expecting.

[Alun Cairns]

The hon. Gentleman makes an important point; we need to recognise the context in terms of deficit reduction. Given that we had been so over-dependent on the eurozone as our export market and that the eurozone went into near-meltdown, naturally that hit the Welsh economy disproportionately harder than we would have liked. That is why the long-term economic plan aims at growing exports, such as those of Clogau Gold in the hon. Member for Vale of Clwyd’s constituency, well beyond Europe—to the middle east, to the far east and to the fast-developing economies of Brazil, Russia, India and China. Excellent progress has been made in that regard.

Would I have liked the deficit to have been cut further? Of course I would. However, the process is about achieving a balance between reducing the deficit and creating wealth and employment. The Government’s record is positive in that respect. We need to remember that last year the UK was the fastest growing economy in the G7, and that Wales is the second fastest growing part of the UK. We are absolutely up there at the top; we need to recognise and celebrate that, rather than hearing the arguments that we have heard from Opposition Members. It is in their interests to talk Wales down, creating more dependency and trying to create a sort of depth of Labour voters to look to Labour for help rather than looking to the private sector for wealth as well as opportunity creation and generation.

Overall, the picture throughout the whole of Wales is positive, just as it is in the Vale of Clwyd. I could highlight more statistics about north Wales and the south Wales valleys, but the reality is that long-term unemployment is falling and the Work programme is having a major effect. Jobs Growth Wales has a part to play, but we must remember that the independent assessment of Jobs Growth Wales highlighted that 73% of the people who found jobs through it would have found jobs elsewhere.

Let us pool our ideas and resources, to try to get people off welfare and into work through the positive culture of cutting tax, growing the economy and reducing unemployment, in exactly the way that the Government have done.

10:56

[Chris Ruane]

I am grateful, Mr Hollobone, for the opportunity to speak again.

I will respond to a few points that Conservative Members made. Virtually every Conservative speaker today spoke only about cuts, but the balanced approach to rebalancing the economy means talking about cuts and growth. From 2008, all the indicators up to 2010 were going in a positive direction; when this Government got in, they all went in a negative direction. The cuts are ideological, because the Conservatives believe in cuts. They want a small state; they do not recognise the value of the public sector.

The hon. Member for Aberconwy (Guto Bebb) again used divisive language about public sector pensions and private sector pensions, saying that private sector pensions were minimal. Who was it that promoted and encouraged the mis-selling of pensions to the private sector? It was the Conservative Government of the ’80s and ’90s. Why not raise the private sector pensions up to the level of public sector pensions? Why does the law of the lowest common denominator have to apply?

The Minister mentioned the number of people in Wales who have never worked. We had jobs—quality jobs—in Wales, in the steelworks and the mines, but what happened? Those workers were laid off and put on the dole. Then, when the dole queues started to rise, the Conservative Government in the 1980s and 1990s got worried. They altered the figures for calculating statistics 30 times, and they encouraged those proud miners to get off the dole and go on to incapacity benefit, in order to park up those workers—and, indeed, whole communities —for decades to come. After someone spends six months on the dole or incapacity benefit, something changes inside them; they lose their confidence. That is what happened in those communities. No help was put in place for those proud miners; they were just cut adrift, as political punishment for what they had done.

The Minister talks about the success of job creation in Wales under his Government. He mentioned Jobs Growth Wales briefly towards the end of his speech, but let me remind him that Jobs Growth Wales is responsible for an extra 400 young people in my constituency being employed. Also, there is European funding in my constituency, which I secured for my county of Denbighshire and the county of Conwy in 2000. We have had a quarter of a billion pounds worth of investment in my constituency, and the same in Conwy as well, as a result of that European funding. But what will happen to the remainder of that funding if the Government have their way and pull out of the EU? These are big issues for the electorate to face in the months to come and on 7 May, and I hope that they look carefully at our record and that of this Conservative Government. If they do, they will realise which box to put their x in.

[Mr Philip Hollobone (in the Chair)]

I thank all Members who took part in this important debate on Wales. If they are not staying for the next important debate, I ask them to leave Westminster Hall quickly and quietly, because it is time to get all aboard for a train services debate.

London Bridge Station (Redevelopment)

Tuesday 27th January 2015 Westminster Hall

11:00

[Heidi Alexander (Lewisham East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I thank you and the rail Minister for allowing my hon. Friends the Members for Lewisham West and Penge (Jim Dowd) and for Eltham (Clive Efford) to participate in the debate. I also thank the Minister for organising the session that we had with Network Rail and Southeastern last week—perhaps I should call it a grilling—which was much appreciated. I expect that she will have some idea of my concerns, but I am pleased to have the opportunity to put them on record.

The rebuild of London Bridge station is long overdue. It is a poor relation of King’s Cross, Paddington and Waterloo, but no less busy. I fully support the redevelopment of the station, but I am concerned about the impact of the latest phase of works on rail services and passenger experiences. I know there has been mayhem on Southern routes—my hon. Friend the Member for Lewisham West and Penge might speak about that—but I will focus my remarks on the Southeastern network, given its importance to my constituency.

The new timetable, which has been introduced as a result of the 18-month closure of four platforms at London Bridge, has caused havoc. With no Charing Cross trains stopping at the station, many Cannon Street services have been dangerously overcrowded. There have been reports of fights at stations on lines into London Bridge because people simply cannot get on to a train. The remaining operational platforms at the station have seen scenes of utter chaos due to the volume of people and last-minute platform alterations. What has always been a poor and overcrowded service is now abysmal and yet, as with every year, fares have gone up. How that can be justified when some people cannot even get on a train is beyond me. In my constituency, many trains are full when they arrive at stations and people are paying for a service that they can barely access.

What can be done and what do I want the Government to do? Commuters in south-east London are crying out for longer trains and better communication from the train operating companies. If we cannot find a way to ease the current problems, the Minister will need to look carefully at next year’s annual fare hike and ask herself whether it is acceptable. At the most basic level, we need extra carriages on the Cannon Street services. Those should not be pinched from other overcrowded services, but if any reasonable adjustment can be made, that should happen. Given that, on the Southeastern network, only Cannon Street services will stop at London Bridge for the next 18 months, every rush hour train into Cannon Street should be a 12-car train.

If we cannot get extra carriages immediately, we will desperately need the old Thameslink rolling stock when it becomes available towards the end of the year. Will the Minister guarantee that those old Thameslink carriages will end up on Southeastern services? Is it true that the current plan is to use the Thameslink carriages for services between Manchester and Liverpool? Will she review that, as well as looking at what can be done to source extra carriages in the interim?

Southeastern also needs another communications drive. Rather than waiting for frustrated passengers to work out alternative routes for themselves, a big communications effort is needed that prompts people into changing their journey patterns. It should set out all alternative travel options and ticketing arrangements.

[Gareth Johnson (Dartford) (Con)]

I congratulate the hon. Lady on again securing a debate on rail transport in the south-east. She will agree that the redevelopment is a welcome investment in the infrastructure of our railways that will ultimately benefit her constituents and mine. I am pleased that she mentions communication. Does she agree that communication during this work is crucial? Southeastern has to get that right, but communication is something at which Southeastern has often failed in the past.

[Heidi Alexander]

I share the hon. Gentleman’s view. This is difficult, to be fair to Southeastern, but we need to find a way of raising awareness of the other tube and bus routes that people can use to travel to and from the London Bridge area. If extra buses are needed on some of those routes, they should be delivered. Transport for London has laid on extra buses for the No. 21 route from Lewisham, but is there a case for some express services from south-east London into London Bridge further to ease some of the overcrowding?

The past few weeks have reinforced my constituents’ long-held view that annual fare hikes are not justified. Will the Minister expect Southeastern customers to pay more for their travel next year, too? If the services continue to be abysmal, is it not reasonable to consider freezing Southeastern fares next January to reflect the huge inconvenience that so many are experiencing? The current compensation scheme for delays on Southeastern is almost meaningless to my constituents, as whether or not a train is on time is irrelevant if people cannot get on it.

I could say much more, but I am conscious that my hon. Friends wish to speak, so I will draw my remarks to a close. More capacity and better communication could help to ease the pressures on the Southeastern network. If that is not possible, fair and reasonable compensation should be considered. I look forward to the Minister’s response.

[Several hon. Members]

rose—

[Mr Philip Hollobone (in the Chair)]

Order. I call Clive Efford, the second in the trio of south-east London’s finest.

11:06

[Clive Efford (Eltham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hollobone. I congratulate my hon. Friend the Member for Lewisham East (Heidi Alexander) on securing this important debate and thank the Minister for organising Thursday’s meeting with Southeastern and Network Rail, which gave us an opportunity to get some answers to questions following the timetable changes. I met Network Rail on 10 December to talk about the arrangements. I was also in contact with Southeastern, and its representatives were due to attend that meeting, but unfortunately did not turn up. Some of the things I feared have come to the fore, but I would like to draw the Minister’s attention to the customer satisfaction survey that was published today. It shows that Southeastern has the worst customer satisfaction of the train operating companies, and that survey was carried out before the changes.

My constituents who want to go to London Bridge, especially from Mottingham and New Eltham, are finding the Cannon Street trains to be dangerously overcrowded. It is clear that there was no plan for the extra demand for those trains. They are the only trains stopping at London Bridge, but there was no plan to make them longer to increase capacity. Will the Minister tell us what will be done in the short term to address the serious overcrowding on those trains? Overcrowding is also being experienced by those who are forced to go to Waterloo East and then try to travel back to London Bridge on the London underground. Southeastern seems to have taken the view that if it sits this out, passengers will be forced to find other forms of transport. My constituents have told me that they are getting off at Lewisham, which is becoming very overcrowded. British Transport police have to be at the station because the situation is becoming dangerous. Passengers are starting to use the docklands light railway as an alternative route. It is shocking that the approach seems to be to force passengers to go elsewhere. That is just not good enough. Southeastern has not planned for the capacity that is necessary to enable passengers to get to London Bridge and continue their journeys.

What will be done in the short term? Like my hon. Friend, I want to find out what will happen about the Thameslink trains, because we know that we need them. There should have been 12-car trains on our network from January last year, but Southeastern has failed to address the problem.

I shall make what will be my final point, because I know my hon. Friend the Member for Lewisham West and Penge (Jim Dowd) wants to speak. In response to this morning’s survey results, Mr Statham, the managing director of Southeastern, said:

“Over the next three years we’re investing more than £70m in the things that our passengers tell us are important to them. This investment will enable us to provide better information to our passengers”—

that is fine—

“improve the interior and cleanliness of our trains”—

that is excellent—

“refresh the look of our stations and provide extra staff to deliver more face-to-face customer service.”

That is all wonderful, but if passengers cannot get on the damn trains, what is the point? There is nothing in that statement about increased capacity, extra carriages or 12-car trains, which we have been promised by two successive Governments. The issue is capacity. Southeastern is not addressing the problem, so we want to hear from the Minister what she will do about it.

11:10

[Jim Dowd (Lewisham West and Penge) (Lab)]

I will be as brief as possible, although given the volume of material that I have received from constituents about this subject, I could take up the rest of the morning, let alone five minutes. I thank my hon. Friend the Member for Lewisham East (Heidi Alexander) for sharing her time with us. The issue is critical for all of us in south-east London. As she suggested, I will concentrate on Southern services.

Rail transport throughout south-east London is particularly important. Of all 32 London boroughs, including the City of London, Lewisham has the highest proportion of residents who work outside their borough, so all public transport, and rail in particular, is evidently important to them. Transport is critical to the well-being of residents and the community at large.

Our recent experience includes the shambles that is London Bridge station and Southern rail generally, even predating this disruption. Network Rail states on its website that there are two types of disruption at London Bridge: “planned disruption” and “unplanned disruption”. I am not sure where the overlap lies, but the fact of the matter is that the travelling public pay the price and suffer the consequences.

Like my colleagues, I thank the Minister for her involvement and interest, right back to our immediate return after Christmas, and for organising last week’s meeting. I very much look forward to speaking to Southern Railway on Monday afternoon. Southern’s performance—certainly subsequent to 5 January, but previously as well—has been lamentable and shameful. It predates the problem with the Thameslink work at London Bridge by a number of months.

When deciding what to say in the few moments that I have, I thought that I could do no better than to repeat what some of my constituents have told me. A resident of Penge said of London Bridge station:

“The works taking place there caused constant delays and cancellations last year, and so far this year the station has pretty much ground to a halt.”

A resident of Forest Hill said that on the evening of 5 January they

“left London Bridge in tears having been crushed by the crowds being kettled into a small part of the concourse. Half empty trains left with us not being allowed access to them by Network Rail staff.”

The impact on services into London Bridge is reflected in the impact on services out for people travelling south. One constituent said on 7 January:

“Today the 8am, 8.30 and 9.30 trains were cancelled”

between Brockley and Streatham Hill, with

“no excuses at all so I and my fellow passengers have no idea what the problem was. I really feel it’s just not good enough and I was told today that it’s going to be like this until 2018.”

Another constituent from Penge said:

“We’re only a week or so into the ‘works’ so I guess we need to see how it settles down but it’s apparent at this stage that the train companies, Southern, Southeastern, Thameslink and Overground have not planned adequately for these changes and made additional capacity available.”

That is the point that my hon. Friends the Members for Lewisham East and for Eltham (Clive Efford) were making about the rebuilding of London Bridge.

I speak as someone who started to commute into London Bridge station more than 50 years ago to get to my school at Stamford street, between Waterloo and Blackfriars road, so I know it well from the days of steam, amazingly enough—I am probably alone in the Chamber in remembering that. Even though there were southern electric services at London Bridge, steam trains still ran. It has always been a Cinderella station without the kind of impact of the other stations mentioned by my hon. Friend the Member for Lewisham East, but it is a critical one. Those pictures of people walking across London bridge to get to the City are almost invariably of people coming from London Bridge station. It is a vital interchange and artery, but at the moment it is completely and utterly clogged up.

As I said, the problems with Southern trains predate the work that is going on. A constituent who lives a few doors from my constituency office carried out a survey of 19 journeys between 7 June and 1 August last year on services from Forest Hill to London Bridge. Seven of those 19 trains were on time, while the other 12 were between three minutes and 44 minutes late, and that is for a journey that should take only 16 minutes. That has been the standard for quite a long time now.

[Dr Matthew Offord (Hendon) (Con)]

I am grateful for the passion that Opposition Members are expressing on behalf of their constituents, which I share. Although there have been problems at London Bridge, I am pleased to say that, through the Thameslink programme, regular updates and communications have been received by the train operating companies. Does the hon. Gentleman agree that those companies need to improve their communications during this difficult time?

[Jim Dowd]

Indeed I do, but while communications are one thing, people want to rely on performance. If trains are running properly and with enough capacity, they do not need explanations. Communication is needed when things go wrong, and they are going wrong far too often via London Bridge. There is much else that I am tempted to say, but I have gone beyond the time that we agreed, so I will leave it there.

[Mr Philip Hollobone (in the Chair)]

There is only a slight delay on the line, Mr Dowd, so I would not worry too much.

11:15

[The Parliamentary Under-Secretary of State for Transport (Claire Perry)]

It is a pleasure to have your train-related interventions from the Chair, Mr Hollobone.

I congratulate the hon. Member for Lewisham East (Heidi Alexander) on securing this important debate. I also thank the hon. Members for Eltham (Clive Efford) and for Lewisham West and Penge (Jim Dowd) and my hon. Friends the Members for Dartford (Gareth Johnson) and for Hendon (Dr Offord) for participating. I also thank the participants in the important performance summit we held last week, at which MPs from across the House were able to quiz the Southeastern management team and Network Rail, and air concerns on behalf of their constituents. The Minister of State, Ministry of Justice, the right hon. Member for Bermondsey and Old Southwark (Simon Hughes), in whose constituency London Bridge station lies, has written to me with his concerns; he is attending an engagement to mark Holocaust memorial day and apologises for not being here.

As my final bit of preamble, I will say that I really welcome this debate and all interactions I have with hon. Members on the issue. The tone of these discussions is not ideological and we are not debating ownership of the railways; we are trying to work out how to get the best possible service from the current structure and investment. All of us are clear that it is passengers who matter on the railways. We are not moving boxes or units of capacity, but people, who are trying to get to work or get home to see their families. For me, it is vital that their interests are at the heart of this essential improvement work and, indeed, all investments in the railways.

As we all know—the hon. Member for Lewisham West and Penge alluded to this—we face two problems. One is decades of under-investment in many parts of our network, and in particular, in vital transport infrastructure such as London Bridge station. The other problem, if we can call it that, is the extraordinary growth in passenger numbers right across the country that has happened since privatisation. As the hon. Gentleman will know from his long history of using London Bridge, passengers have faced an almost 200-year-old station, with tangled access tracks and problems getting in and out. It is the poor relation to the other great London terminals, yet has some of the busiest platforms and intersections in Europe.

I think all Members welcome the decision to proceed with such vital investment even when economic times were tough. The £800 million invested at London Bridge, and the wider investment of almost £5 billion across the Thameslink network, will unblock the vital north-south bottleneck for our constituents. That investment will also deliver longer trains to provide more frequent and reliable services across London and the south-east.

The prize for London Bridge, in 2018, will be a world-class station that handles more trains, with 60% more capacity and all platforms accessible from the wonderful concourse we have heard about. I am told that the development is the most complex set of works ever undertaken on an operating station in the UK. In my view, it was the right decision to keep the station open during the works, given that 56 million people use it each year.

With such a mammoth engineering undertaking, some disruption is inevitable, but that disruption must be minimised for passengers, who must be kept in the loop as to what is happening. No one could say that either aim has been achieved for London Bridge users in the past few weeks, so what is happening? As we heard last week, there are some long-term service changes that were well known and, to pick up the point made by my hon. Friend the Member for Hendon, reasonably well publicised. Thameslink services are being diverted and Southeastern services to Charing Cross will run through until August 2016. When the Charing Cross services resume calling at London Bridge, the Cannon Street services will stop calling until 2018.

During those planned changes, everything has to be done to ensure that passengers know about the changes for their destinations. One part of that is to ensure that passengers can use their tickets on alternative routes. I am pleased that we have negotiated a £25 million deal with Transport for London to enable that. The hon. Member for Lewisham East made the sensible suggestion of running more express buses to try to offer a joined-up solution to serve passengers. I will certainly discuss that idea with TfL.

Another element it is vital to address is crowding at stations and on trains. I am aware that, as the hon. Member for Lewisham West and Penge said, there has been dangerous overcrowding on platforms 1 and 2 at London Bridge. That is being addressed right now. Southeastern and Network Rail are freeing up space for passengers, trying to move them more dynamically along the platforms and providing additional “next train” indicators so that people do not lump together in one place before surging at once to get on a train.

At Lewisham station, in the constituency of the hon. Member for Lewisham East, Southeastern and Network Rail are also making changes to mitigate the crowding at peak times as people move between the Cannon Street and Charing Cross services. They are extending public announcement systems along the length of the platforms so that people can hear what is happening, putting up extra passenger information screens and generally trying to help passengers to get the information they need so that they can move smoothly through the station. That work is under way, and it will be complete by February. Additionally, the operators are moving existing retail units and British Transport police accommodation to make more space for passengers, and that work will be complete by July.

The key, however, is for the operator and Network Rail to put in place a timetable that delivers capacity and space when people need them. Since 12 January, a new timetable has been in place across the Southeastern network, and that includes the changes at Charing Cross. The timetable has been designed to maintain journey opportunities. To answer the point from the hon. Member for Eltham, there was planning regarding the likely changes in the timetable, and there were capacity increases for the services being put on to Cannon Street.

What is happening, however, is that passengers are still working out the best way to make their journeys, and the situation is very fluid. We know, anecdotally, that Charing Cross services are quieter than anticipated and that Cannon Street services are very busy. Southeastern says it is operating the maximum number of trains per hour into and out of Cannon Street at peak times, and there is no space for extra services, but it has put in longer trains, providing higher capacity into Cannon Street, with 8,000 additional spaces in the morning peak and 13,000 in the evening peak.

[Heidi Alexander]

What percentage of the trains into Cannon Street in the rush hour are formed of 12 cars?

[Claire Perry]

I will find out for the hon. Lady and let her know.

I am told by Southeastern that all its rolling stock is in passenger service—that goes back to the hon. Lady’s point about potential new capacity. Lengthening services into Cannon Street would therefore require a reduction in the number of carriages on other routes—for example, services to Charing Cross or Victoria. That is possible, but I should emphasise that today is the 12th working day since the new timetable started. Every day, passengers are changing their journeys. The operators have asked—I think this is sensible—for a month to review what the passenger flow looks like, so that timetabling and service lengths can, potentially, be amended.

[Clive Efford]

The Minister will have heard at our meeting on Thursday that Southeastern said it had shifted around some of the carriages, taking them from some services and adding them to others. However, my constituents feel—I certainly feel the same as a user of the trains—that those carriages have gone to the longer-haul services, where people pay higher prices for their season tickets. Services from places such as Dartford through places such as Eltham and New Eltham are the ones that have suffered. Those services are not sufficient, and my constituents cannot get on them, particularly when they are going home in the evenings. We need extra carriages; we do not need Southeastern just to shuffle them around.

[Claire Perry]

I assure the hon. Gentleman that I and my officials are in constant contact with the operator, and we are encouraging it to do whatever it needs to with the rolling stock to try to alleviate the crowding that is happening as service patterns change. I would hate to think, if there is excess crowding on shorter journeys, that the management was not fully aware of it and not working actively to alleviate it.

Let me briefly mention the point about new rolling stock. The hon. Member for Lewisham East is right that there is potential in the next couple of years for some rolling stock. I have checked, and about 100 class 377 units provide capacity for approximately an additional 10,000 passengers. She is right that some are already committed to go to other parts of the country—that is the way, as she knows, the cascade system works—but the stock is potentially available to come on to the franchise. We have asked Southeastern to consider all available opportunities to look at this, demonstrate the business case and really push on trying to get the additional capacity. I agree with all hon. Members that that is something we would need to do over the medium term.

[Heidi Alexander]

This is really the key issue because it is essential, given all the disruption, that there is, if people will pardon the pun, some light at the end of the tunnel in the form of longer trains. What proportion of that Thameslink rolling stock has not been allocated to other parts of the country and is still up for grabs?

[Claire Perry]

I do not know and I am not sure—I will need to check whether the information is commercially confidential—but, like the hon. Lady and other hon. Members present, I share the aspiration to reward commuters. As the hon. Member for Eltham pointed out, today we have the results of the passenger satisfaction survey. Commuters are clearly very unhappy with the services they are getting. These people are going to and from work and paying for season tickets to do so. They expect a better service.

May I touch on the point about fares that the hon. Member for Lewisham East made?

[Jim Dowd]

Will the Minister give way?

[Claire Perry]

If the hon. Gentleman will forgive me, I want to make this point, because it is important. The hon. Member for Lewisham East will be aware that, until recently, fares on this franchise were rather inflation busting and measures of up to RPI plus 3 plus flex were permitted. That has been scrapped, so now passengers on this franchise, like passengers right across the country, are benefiting from this Government’s decision to freeze fares in real terms—RPI plus zero for last year and this year—and to scrap the flex, which meant that additional fares could also go up by 2%. [Interruption.] The hon. Lady says that that is not enough, but it was a bold decision to take, particularly at a time when family budgets are stretched.

I will make a quick comment, if the hon. Member for Lewisham West and Penge will allow me, about Southern, because I know it is important for his constituency. Southern’s performance currently is inexcusable, and I will make that point, as I expect other hon. Members to make it, at the performance summit we are holding next week. Network Rail’s infrastructure problems are causing many of the difficulties with the timetable along the line. I expect Network Rail and Southern to sort that out as soon as possible.

Let me make a couple of general points in conclusion. We have to learn lessons, because we are continuing to do this work at London Bridge until 2018. It is vital that whatever went wrong after Christmas—not enough communication and not enough modelling of the platform flows—is addressed, because we will be asking a lot from passengers. Let me put on the record my thanks to passengers for their tolerance at a time of great disruption. We are very aware that we are disrupting people’s lives, but the prize is a much better service and a station that is much more fit for purpose.

I am grateful to the hon. Members in the Chamber and others across the House for ensuring that all parties involved in the reinvention of London Bridge remain really aware of passenger concerns. My officials are in daily contact with Southeastern and Southern. We are all focused on the need to minimise inconvenience and maximise communication to passengers. There are constraints on what we can do, and there are years of work ahead, but I am determined that the unprecedented investment that we are making right across the country will be seen and felt as benefits for passengers as soon as possible.

[Heidi Alexander]

On the services that will run on the Thameslink route once the work at London Bridge has been completed, can the Minister guarantee that the lines out to south-east London that run through Lewisham and onwards will have extra capacity—longer trains?

[Claire Perry]

I will double-check the timing of that; it is part of the Thameslink programme. It is an addition, as the hon. Lady knows, to bring more rolling stock and longer trains right across the network, but I will check.

[Jim Dowd]

This is the point that I wanted to make. The Minister will be aware that Southern has cancelled all the peak-hour evening services from London Bridge to West Croydon and is encouraging people to use Overground instead. Actually, it is encouraging them to go on to Norwood Junction and then go back to the station that they originally wanted to get to. That is now causing severe overcrowding on the Overground service, so will she look into it?

[Claire Perry]

The hon. Gentleman is aware that that is a temporary reduction in the service, designed to let the new timetable, which is more disruptive for Southern operations rather than Southeastern, bed in. The hope is that those services will be restored as soon as possible. I am very aware of the concerns.

Let me put it on the record that all of us realise that many people at London Bridge station are working very hard on a daily basis to deal with the disruption. These are people on the front line—operational staff. We would all like to pass on our thanks to everyone out there who is trying to maximise convenience for passengers.

[Mr Philip Hollobone (in the Chair)]

The debate has come in a few seconds early, so it will be my job to suspend the sitting until half-past 2 this afternoon.

11:30

Sitting suspended.

Commonwealth Immigration and Visas

Tuesday 27th January 2015 Westminster Hall

[Mr Peter Bone in the Chair]

14:30

[Andrew Rosindell (Romford) (Con)]

I am delighted to be able to introduce the debate. There is no doubt that immigration is a sensitive and often controversial subject. I am pleased to have the opportunity to discuss ways in which we might reshape our immigration system so that we have control not only over the numbers coming into the United Kingdom, but over the nature of those individuals wishing to work, study and make our country their home.

To be absolutely clear, I am not advocating an increase in immigration. I am, however, seeking to establish ways in which we can have better immigration. What do I mean by better immigration? I am referring to the re-establishment of the United Kingdom’s ability to be selective about who enters and settles in our country and the ability to favour immigration from countries with which Britain enjoys long-standing cultural and historical links, where English is the common language and with which we share values and principles, the rule of law, and common judicial and parliamentary systems. I am of course talking about the countries of the Commonwealth of nations, most notably the 15 realms with which we have an even closer bond and shared constitutional link in Her Majesty the Queen, who remains as much their Head of State as she does ours.

In spite of those special ties, since our accession to what was known at the time as the Common Market, Britain appears to have discarded the potential for trade, immigration and co-operation with the Commonwealth to accommodate the new European political union, which dominates so much of how we are governed today. It is time for a radical rethink.

Our immigration system is in need of complete reform and the British people are demanding change. Indeed, the time has surely come to enforce a total overhaul of the way we operate immigration in the United Kingdom, but we can do so only if a British Government, elected by the British people, can decide what British immigration policy is. We have a broken immigration system—a system in which we have neglected the possibility of positive immigration from our wider Commonwealth family to accommodate uncontrolled and indiscriminate immigration from within the EU. As a result, for example, over the past 13 years immigration from Australia and New Zealand—two nations with which we have a shared history and culture like no other, expect perhaps for Canada—has almost halved, whereas immigration from EU continues to rise at a rapid pace.

The members of the Commonwealth network of nations and territories are not part of the EU, apart from Malta, Cyprus and Gibraltar, so they have been the losers as our UK Government have sought to reduce immigration. Meanwhile, the citizens of any country that happens to have been accepted into the EU can freely enter our country without restriction.

Immigration has always been a feature of Britain’s social and economic development, over many centuries, and it has been without doubt overwhelmingly positive, with the vast majority coming to our country to work and contribute as hard-working people. It must surely be, however, the absolute right of every nation—especially a country the size of the United Kingdom, where there have to be limits—to control its own national borders and to determine its own immigration policy. With free movement from the EU, though, we have given up that right.

[Mr Henry Bellingham (North West Norfolk) (Con)]

My hon. Friend is making some strong points. He mentioned the 15 dominions in which the Queen is still Head of State. Does he agree that because those countries have decided to keep the Queen as Head of State, their citizens should be afforded certain privileges on arrival at our ports of entry? It is ridiculous that they are confined by those barriers that accommodate the rest of the world. Those people should have special privileges afforded to them.

[Andrew Rosindell]

My hon. Friend is absolutely correct. When he was a Minister in the Foreign and Commonwealth Office, he was a champion of Her Majesty’s realms and territories. I feel that it is shameful that subjects of Her Majesty arriving at Heathrow airport are treated as if they were from any other country in the world. There are no special privileges, nothing whatever, and that is wrong. It is time for us to look at things afresh. He will recall my 2012 United Kingdom Borders Bill, which highlighted this very issue and asked the Government to take action, which, sadly, they have not done so far. I will come back to that.

The truth is that, if we are serious about restoring control of immigration and widening the base of potential future migrants to our country so that our friends from the Commonwealth may again have opportunities to live and work in this country, the EU doctrine of free movement without any control or restriction whatever must end. That would not prevent the UK from agreeing bilateral reciprocal arrangements with other EU nations, or indeed from continuing to accept EU citizens who met the criteria decided by Her Majesty’s Government and who came here, as the vast majority do, to work and contribute to the economy of our nation. Britain would, however, have the opportunity to set the rules in so far as who did and did not come in. Those from Her Majesty’s realms and territories and from the wider Commonwealth would have the greater opportunities that are reserved now only for citizens of the EU.

Surely it makes sense to establish a system with substance and purpose—one that continues to allow the brightest and best from Europe to come to Britain, but no longer alienates or excludes those from places around the world with which Britain has enjoyed much longer and closer historical links. Being a subject from one of Her Majesty’s realms or being from a Commonwealth nation should count for something when looking to visit, work, study or live in the United Kingdom. At the moment, it appears to count for little. That is our fault and we should not be proud of it.

The Commonwealth is an underutilised resource for the United Kingdom. It offers vast opportunities outside the uncertainty, stagnation and turbulence that we have endured over the past decade.

[Jeremy Lefroy (Stafford) (Con)]

It is a pleasure to serve under your chairmanship, Mr Bone. Does my hon. Friend also agree that the Commonwealth is increasingly becoming a successful organisation that people want to join? In recent years, Mozambique and Rwanda have joined, and Burundi is very much knocking on the door and would like to enter.

[Andrew Rosindell]

Once again, my hon. Friend is absolutely correct. The Commonwealth is an organisation of the future. For a time, the FCO tended to feel that the Commonwealth was no longer relevant and that we should focus entirely on the EU, but the world has changed. Our historical, traditional links with the Commonwealth of nations can provide a way forward for Britain, so he is completely correct. Thus, not only are former colonies wanting to be part of the Commonwealth, but countries that have never had any link with the British Crown, such as Rwanda, Mozambique and Cameroon, want to join, which shows that the Commonwealth has a great future. We, as the United Kingdom, need to do more to harness the Commonwealth and make it stronger if we are to succeed in making it as relevant to our future as it has been to our past.

For so many years, British foreign policy has failed to grasp that concept, preferring to shun our traditional ties and place most of our eggs in the EU basket. Now that it is clear that trade with the wider world is becoming more important by the day, it is imperative that we change course and grasp the opportunities that the nations of the Commonwealth represent.

[Alok Sharma (Reading West) (Con)]

My hon. Friend is a great champion of the Commonwealth and those from the Commonwealth who reside in the UK. He talks about the Commonwealth’s great past and future. Does he agree that the Government have done a lot to foster trade links with other Commonwealth countries? We have seen our bilateral trade with India grow significantly. What more does he think this Government or future Governments can do to ensure that that trade increases significantly over the next decade?

[Andrew Rosindell]

My hon. Friend is completely correct that this Government have done more than any other in my memory to make the Commonwealth more significant and to develop trade and co-operation with it, but we can go only so far because, as he will know, as a nation we can sign up to trade deals with countries only via the EU—again, the EU is a block to us utilising our Commonwealth network for trade and co-operation.

Until we have a new relationship with our neighbours on the continent—one that is less of a political union—and again have the freedom to agree trade agreements, deals and immigration arrangements, we can go only so far, however positive the Conservative-led Government have been in this respect. We need to alter our relationship with the EU to allow us the freedom to develop greater trade with the Commonwealth.

[Alok Sharma]

Does my hon. Friend then feel that if we are going to renegotiate our relationship with the EU, we should have similar discussions in parallel with some Commonwealth countries, particularly on trade, to see what sort of relationship we can come up with and what the British people prefer?

[Andrew Rosindell]

My hon. Friend makes an excellent point. As a vice-chairman of the Conservative party, he does good work with Commonwealth countries, and I commend his enthusiasm. We need to decide for ourselves, as a nation, what we want to do not only with Europe but with the rest of the world. Part of that process should perhaps be to consult our Commonwealth friends on how our relationship can be developed in tandem with a renegotiated arrangement with the European Union. They are two sides of the same coin. We all want trade and co-operation with Europe, and good immigration from Europe as well, but sadly we have gone down that road to the exclusion of developing all those things with our Commonwealth friends. A reconfiguration is well overdue.

The UK has the largest Commonwealth diaspora in the world and many people in all our constituencies come from a Commonwealth background or have Commonwealth ancestry, yet it is much harder for someone to come to the United Kingdom if they are a citizen of the Commonwealth than if they are a citizen of an EU member state. Britain needs a renewed sense of balance, fairness and opportunity in our immigration and visa regime.

The Prime Minister has a difficult task. Having pledged to cut net immigration numbers, he has discovered that although he can reduce immigration from the Commonwealth and wider world, he is unable, under current treaty obligations, to reduce it from the European Union. That means that the only policy lever left open to him is a reduction in immigration from outside the EU—meaning, of course, the Commonwealth. The Minister will understand that that has created unintended consequences for Commonwealth nationals. For that reason, I call on her to lead a significant review of Government immigration policy and to establish a system that works for the United Kingdom, not one that is imposed on us and over which we have no ultimate control.

Apart from the restoration of British control over immigration, which would require a fundamental change in our relationship with the European Union, there are many other things that could be done in the meantime gradually to rebuild our partnership with the Commonwealth and, most especially, Her Majesty’s realms. Here are some ideas to get the Minister started. First, we should look at the UK’s tier 5 youth mobility visa. With over 60% of the Commonwealth population under the age of 30, that visa is of fundamental importance. Before 2008, the UK had a youth visa that included all Commonwealth nations and allowed any young person in the Commonwealth the chance to apply to visit and work in the United Kingdom for two years. After 2008 that visa was reformed and only four nations were granted such access: Australia, Canada, Japan and New Zealand. The scheme has now been extended to Monaco, South Korea, Taiwan and Hong Kong.

I would like the Government to consider a more Commonwealth-oriented view when looking at extending the youth visa. Working towards restoring Commonwealth countries to the visa would make young people see the Commonwealth as something of value rather than an abstraction. Importantly, the youth visa is based on reciprocal quotas—the numbers of young Britons leaving the UK should balance the number of people entering, thereby keeping net migration stable. Equally, the visa’s very nature is transient; it is not a route to remain. The changes that I propose would rejuvenate the UK’s Commonwealth policy, repair relations and replenish our soft power, so I urge the Minister strongly to consider such a plan.

The second policy proposal is the creation of a Commonwealth concession for tourist and business visitor visas. Citizens of 21 Commonwealth nations need a tourist visa to visit the UK, while citizens of 50 need a business visitor visa. Both visas, which last for six months, cost £83. That fee is perceived as making it more difficult for many Commonwealth citizens to enter the UK for tourism or business. A Commonwealth concession, set at the discretion of the Home Office, would go a long way towards building UK-Commonwealth relations.

Whatever their reason for visiting, Commonwealth tourists are important contributors to the UK economy. Commonwealth Exchange is a think-tank that promotes the trading, educational and strategic potential of the Commonwealth in the UK, and I am proud to serve on its advisory board. It has highlighted that official figures for visitors from a number of Commonwealth nations, and for those visitors’ average spends, nearly match, or else equal or even surpass, the figures for Chinese tourist visitors. There is certainly a strong economic case for increased Commonwealth tourist and business visitor visas, which I hope the Minister will also consider.

However, I put forward that idea against the backdrop of a preoccupation with Chinese tourists, the most recent demonstration of which was the Chancellor’s announcement that the Treasury will refund the first 25,000 visas for Chinese visitors between 2015 and 2017—Chinese visitors, but not Commonwealth ones. That policy is wrong-headed, especially at a time when the Foreign Affairs Committee, of which I am a member, has been refused entry to Hong Kong by China. We should not be awarding China free UK visas when it refuses entry to democratically elected parliamentarians and is not acting in the spirit of the joint declaration. Does the Minister agree that there are Commonwealth nations that are far more deserving of favourable visa policies?

In addition, it has been reported to me that the British Bangladeshi community has experienced unnecessary delays, lack of communication and inefficiency in the processing of visa applications, among other things, since the visa section was transferred from Bangladesh to New Delhi. Two years ago, the Prime Minister and I attended the British curry awards, which were founded by Enam Ali MBE. Some of the guests who were invited to that event could not obtain their visas in time. A similar thing happened at last year’s world travel market event in London, when several business delegates could not attend because of the delay in processing their visa applications at the New Delhi office. I hope that the Minister will look at that matter because Britain is losing business and good people who want to come to our country for legitimate reasons are being preventing from doing so.

[Mr Bellingham]

Does my hon. Friend agree that we need an explanation from the Minister about the hub-and-spoke visa issuing system? Certainly in Africa, a number of smaller Commonwealth countries are now spokes and have to feed through to hubs such as Accra, Pretoria or Nairobi. It is obviously incredibly important that that system is as efficient as possible so that people from smaller Commonwealth countries who want to come to this country to trade, for a holiday or to do business have their visas dealt with as quickly as possible.

[Andrew Rosindell]

My hon. Friend makes an important point. We have all heard of concerns in that respect. The creation of hubs in various parts of the world, which are not as accessible for people, has clearly been a cost-cutting measure by the FCO, but the system makes life very difficult for people who need to get visas quickly so that they can come to our country. I hope that the Home Office, together with the FCO, will try to find a more efficient way of dealing with the problems that we are speaking about.

The question of business visas is equally important. Commonwealth countries often share our language and have a similar business culture, with similar legal systems based on the common law. The Commonwealth has key developed and emerging economies, so it makes economic and political sense to place a high value on business visits through a Commonwealth concession. That is another idea for the Minister to take back to her Department.

I draw hon. Members’ attention to the United Kingdom Borders Bill, which I introduced in the House in 2012. Although the Bill did not progress to Second Reading, there was enormous support for the principles contained in it. The idea that there should be more accessibility for citizens from Her Majesty’s realms received widespread support from several political parties. Following the Bill’s presentation, I received many messages of support from across the UK and the wider Commonwealth. I sincerely believe that we must not fall into the trap of underestimating the significance of such a relatively simple change. It is a travesty that citizens from Australia, Canada, New Zealand and Jamaica, together with those from all Her Majesty’s realms, have to queue up in the foreign nationals channel at London Heathrow airport and other points of entry into the United Kingdom while citizens from EU countries that have never had any historical connection to the Crown or the United Kingdom are allowed to enter alongside British citizens simply by virtue of their EU membership.

Since introducing my Bill, I have become aware of the SmartGate scheme in Australia and New Zealand, which allows for a separate queue for nationals from Australia, New Zealand, Singapore, the UK and the US. That shows that a similar procedure could be adopted in the UK in the context of the Commonwealth realm, thus illustrating powerfully the renewed value of being a subject of Her Majesty’s realms. Interestingly, a citizen of the UK, as a realm, would also have the chance to choose which airport queue they wanted to go through. It could be the EU/EEA/Switzerland queue, or one for Commonwealth realms. It would be nice to have that choice because we are, of course, part of both. I might be pre-empting the Minister by saying that the UK has made it easier for Australians, New Zealanders and Canadians to visit the UK through the registered traveller scheme, but although that policy is welcome, its scope is too limited, and we could and should do better.

If the Government wanted to be bolder, they could consider the London Mayor’s proposals for bilateral mobility zones between economically developed Commonwealth nations—they are now dubbed “Boris bilaterals”. Commonwealth Exchange has found that that could work on a similar premise as the trans-Tasman travel arrangement, which exists between Australia and New Zealand. That might prove difficult, but I am aware that such a proposal has support from the New Zealand Prime Minster and the tacit backing of Tony Abbott’s Government in Australia. The UK holds the key to advance such a policy, so will the Minister undertake to examine the proposition and make a statement?

I would like the Minister to answer several key questions. Will she meet me and a delegation from Commonwealth Exchange to discuss Commonwealth immigration and visas in greater detail? What assessment has been made of the tier 5 youth mobility visa, and which nations is her Department looking at adding? Will she update the House on visa developments with Jamaica and South Africa, as those nations have had tourist visa restrictions for 11 and five years respectively? Will her Department consider ways to create a Commonwealth concession for the tourist and business visitor visas? Will she conduct a feasibility study for a pilot of a Commonwealth realm airport queue or smart gate at Heathrow and Gatwick? Has she made an assessment of the London Mayor’s labour mobility zone between Australia and New Zealand, and will she make a statement?

I believe that Britain has focused for far too long on the European Union, which I believe is distracting us from the rest of the world and the opportunities that lie beyond the shores of Europe. In 1973, we in this country turned our back on our Commonwealth cousins, which was the most short-sighted act carried out by any British Government in my lifetime. Let us begin to end that cold shoulder treatment in 2015. I hope that my hon. Friend the Minister will be the one to lead that change of direction.

In 2010, the Government said that they were putting the “C” back into the FCO, but only with a concerted effort across Departments, and particularly the Department for Business, Innovation and Skills and the Home Office, will the UK be able to state proudly that it has Commonwealth policies fit for the 21st century. We must remove ourselves from the unhelpful and unfounded mindset that association with the Commonwealth is nothing more than reminiscing about Britain’s colonial past and instead recognise that there are huge economic, cultural and diplomatic opportunities that are today being missed. That short-sightedness has done nothing to help our country or the countries of the Commonwealth, and we must move on from it once and for all. Let us begin today.

14:57

[Jeremy Lefroy (Stafford) (Con)]

I congratulate my hon. Friend the Member for Romford (Andrew Rosindell) on his powerful speech and on bringing the subject before the House. I shall make a few remarks on visas, starting with visitors visas, but want to preface that by underlining the importance of the Commonwealth, which my hon. Friend and other contributors have rightly emphasised.

The population of the Commonwealth far outweighs that of the EU and one Commonwealth nation alone, India, has a bigger population than the countries of the EU put together. Economic development in Commonwealth countries—not only the fantastic growth in India, but the substantial growth in many countries in sub-Saharan Africa and in Asia—has shown that the Commonwealth is, as my hon. Friend said, the place of the future. That is why countries have been queuing up to join. I am talking about countries that did not have a particular historical connection with the United Kingdom, such as Rwanda and Mozambique, which are already part of it, and Cameroon. Part of that country was under British administration, part under German, and at one time, after the first world war, part was under French administration. Burundi is also seeking to join the Commonwealth, and I believe that other countries have expressed interest.

It is therefore vital that we maintain, and indeed enhance, the links with Commonwealth countries. That is not only about history; it is about business opportunities. For instance, in Tanzania—I refer Members to my business interests in Tanzania, which are in the Register of Members’ Financial Interests—the United Kingdom is the single biggest investor and trading partner. These days, we tend to think that China has taken over everywhere in Africa, but that is not the case at all. In many countries, the United Kingdom is still a major trading partner and investor, and it is, indeed, growing in importance in those countries.

On the issue of visitor visas, a few months ago, a Tanzanian lady, Rhodi Samwell, was invited to the United Kingdom on an extremely important mission. She works for the Anglican diocese of Mara on female genital mutilation, and she is building a safe house in the area for women and girls who do not wish to be subjected to that practice. The House has debated this issue many times in the past year, and I know the Minister is keenly concerned about it.

At my invitation, Rhodi Samwell was coming to this country, and indeed to the House, to talk to the all-party group on Tanzania about her work, but she could not get a visa. Her application, which was processed in Pretoria, was refused. Only after a large number of Members of the House and the other place wrote to those involved and pressed her case was she finally able to come here on a visa.

This lady was in full-time, secure employment with the Anglican diocese of Mara. She had the backing of the Tanzania Development Trust, the Britain-Tanzania Society and many other reputable organisations, which bore witness to the fact that she would be supported while she was here and that she was planning to return. Indeed, the very reason she was coming here was to help to enable her to return home to fulfil her dream of setting up a safe house for women and girls. However, the United Kingdom was unable to issue her with a visa without pressure from Members of Parliament and without volunteers across the country putting in a great deal of time and effort. That does the United Kingdom’s reputation no good.

I am glad to say that, ultimately, Rhodi Samwell was able to come here, and she gave an excellent talk in the House of Commons, alongside my right hon. Friend the Member for Hornsey and Wood Green (Lynne Featherstone), who was then an International Development Minister. We were delighted to see her. She gave talks all across the country. As a result of her visit, the remaining money needed to build the safe house was collected— indeed, school children in my constituency also contributed. The safe house is now in operation, and more than 100 girls and women have found help there.

That is just one instance, but I have heard of many others from right hon. and hon. Members in both Houses. People are doing fantastic work for non-governmental organisations or charities, and we want to hear from them first hand. They are invited here, and they will be fully provided for, but the only obstacle is a visa. Most of the time, these are people from Commonwealth countries.

The second issue I want to bring up is business visas. It is vital that visas are made available quickly and easily for those with whom we wish to do business. Before coming to this place, I travelled to Tanzania and other countries fairly frequently on business. As a British citizen, I could send my passport, together with the necessary documents, to the Tanzanian high commission in London, and sometimes I would receive my business visa back within three days. However, Tanzanian business people, who are often running businesses that are far bigger and of far more significance to the United Kingdom economy than that which I ran, sometimes find it incredibly difficult to get visas. That cannot help our trade with Tanzania or, indeed, with other countries.

Finally, there is the issue of family. The Commonwealth of nations is a family of nations, but it also contains family members of people in pretty much every constituency in the House. Surely it is important that we facilitate family visits that are done in the proper way—where it is clearly shown that these are not visits to seek long-term admission to the country, but family visits to see nephews, nieces, grandparents or grandchildren. That is all about humanity.

In those three areas—visits from charities and non-governmental organisations, visits for businesses and visits for family—it is surely possible to organise things in such a way that the cost is reasonable and that applications are dealt with in a matter of days or weeks, rather than the months we sometimes hear about.

I want to give a final example from my own experience to show what things can be like. My son was born in Nairobi about 25 years ago this month. We took the birth certificate and one or two other documents to the British high commission there, and we were issued with a British passport pretty much over the counter. A constituent, whose grandchild was born in Kenya last year, went through the same process, albeit with one or two complications. However, those complications should not have resulted in it taking several months for that child to be issued with a passport. Surely, things should have gone forwards after 25 years, not backwards, particularly with the access we now have to technology, but it seems that things were a lot easier 25 years ago.

15:06

[Mr David Hanson (Delyn) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Bone. I thank the hon. Members for Romford (Andrew Rosindell) and for Stafford (Jeremy Lefroy) for their contributions on this important subject, which is worthy of discussion with the Minister today.

The subject of the debate is the Commonwealth and visas, and it is important that we begin, as the hon. Member for Romford did, by recognising the crucial importance of the Commonwealth to the history of the United Kingdom and our close ties with countries across the Commonwealth.

Yesterday was Australia day. Today, we celebrate the 70th anniversary of the liberation of Auschwitz; the second world war saw members of armed forces from across the Commonwealth join soldiers from the United Kingdom in the fight against fascism. Last year, we celebrated the start of the first world war. My grandfather, who was from the Lancashire area, fought his first battle in March 1915—almost 100 years ago—alongside thousands of Indian troops at Neuve Chapelle.

We have a long history with the Commonwealth, which we need to celebrate and recognise. As a member of the executive of the Commonwealth Parliamentary Association for five years now, I know how important that link is and how valued our parliamentary democracy is by the 53 nations of the Commonwealth across the world.

As the hon. Member for Romford said, what is important is not just historical ties, parliamentary democracy or the history of empire translated into a modern partnership. The Commonwealth is also a crucial economic driver, which we need to look outwards to. I have been to Australia on holiday, and I have been to New Zealand with the Commonwealth Parliamentary Association. What struck me on both occasions was that those countries are beginning to look towards the east, because that is where their market is. We need to look at how we can cement and develop our ties in a strong, effective way.

With a combined population of 2.3 billion people, the Commonwealth is a significant market, and there are significant transferable skills that we may want to work with and develop. As the hon. Gentleman also said, there is also the potential for export, tourism, business, family and education links, and we should look at how we can facilitate and build on those, while maintaining the integrity and strength of our borders. The hon. Member for Romford took the route I expected—of querying why we are cosying up to Europe while partly shutting the door on our historical Commonwealth links. My view of the European Union is slightly different from his. He can speak for himself, but I recognise that we are still part of a family of nations in Europe, and have historical ties to a range of those. Portugal is our oldest ally, for example, never mind the other countries that we have worked with.

I mentioned that, 100 years ago next month, my grandfather was fighting in the trenches of France with Indian soldiers, against Germans. He would be happy today that we are part of a family of nations in Europe as well as the Commonwealth. Relatives of mine who lost their relatives in the second world war, when the Commonwealth fought side by side with us, would also welcome our present economic partnership with Europe, in addition to the fact that we look out to the wider world. The hon. Member for Romford raised conflicts in talking about tightening our relations with Europe and relaxing them with the Commonwealth, but I do not share his view. I think there is potential in both areas.

[Andrew Rosindell]

The right hon. Gentleman made the point that we are in an economic partnership with the European Union, but we are not. We are in a political union, and that is different from a simple economic partnership. If we were in an economic partnership alone, we could do other things with the rest of the world, including the Commonwealth. The fact that we are in a political union and not the economic partnership that was the original intention—or certainly the British people’s original intention—prevents us from doing more with the Commonwealth. Does the right hon. Gentleman accept that point?

[Mr Hanson]

We have a large trading partnership with Europe and political union through the European Parliament and other agencies in Europe, and I do not have a problem with that. We will disagree on this issue.

We also have the potential for economic growth in Europe. The biggest employer in my constituency is a company that makes the planes that will probably take the hon. Member for Romford to Australia: Airbus. They are made by Britain, France, Germany and Spain, and free movement means that French people work in north Wales, and north Walians work in France, making the biggest plane in the world and our biggest export. That is a positive. The second and third biggest employers in my constituency are the car manufacturers Toyota and Vauxhall, and they are probably in that area for access to the European market.

There are big issues to debate, but perhaps not today, because I want to focus on how to encourage more aspiration and partnership in the Commonwealth without throwing out a valuable partnership in Europe. I am interested in where the hon. Member for Romford thinks the 1.6 million Britons currently living in France, Germany, Spain and Italy would go if we suddenly closed our borders to people from those countries. I would welcome his thoughts on that—another day, perhaps.

In preparation for the debate I looked at the Commonwealth Exchange report, which is valuable for this Government and future Governments as a way of generating discussion and positive suggestions about how to attain the hon. Gentleman’s objectives. It suggests the restoration of the youth mobility visa, and considers the idea of Commonwealth concessions for tourist and business visas. We have heard the case for “Boris bilaterals”; I would not necessarily call them that, but there is potential to examine the idea in detail. The idea of a Commonwealth component to exceptional talent visas is worth considering; another important contribution would be to think about how to make it easier for business people throughout the Commonwealth to get business visas to come to this country.

The hon. Gentleman did not focus much on post-study work visas, but they are also important. Representations have been made to the Opposition about them from people who want to come to the United Kingdom to study and then to work here for a short period afterwards—particularly those who have been sponsored. All those things are worth exploring and reviewing.

As the potential Minister in 12 weeks’ time, I am particularly drawn to the idea of the youth mobility visa. It could be very positive. If young people between the ages of 18 and 30 come to the United Kingdom and contribute to the economy and to life here, they should, after leaving to become chief executives of companies throughout the world, always remember the importance of the UK in their development. That is very important. It is worth looking at the idea of annually reviewing the case for returning more Commonwealth nations to the approved youth mobility list, and expanding it. We also need to think about how, with the immigration department, to improve our use of technology to achieve greater transparency, so that the public can be better informed on the matters in question.

The Commonwealth Exchange report makes it clear that visitors from Nigeria, South Africa and India are more significant contributors to the UK economy than Chinese tourists, because of relatives, business and historical ties. We make efforts to attract visitors from China to the UK, and we should make significant efforts to make the visa application process simple for people from the historic Commonwealth countries.

I challenge the assertion that we could drop the visa price. I do not say it cannot be done, but I should be interested in a proper review of the costings by the hon. Member for Romford or the Home Office. We need to know whether that uncosted proposal would generate a sufficient increase in visitors to offset the loss of income. Costings are important, and the hon. Gentleman would expect no less of me if I were to make such a proposal.

The hon. Member for Stafford made a cogent point about making it clear that it is easy to get business visas. It is important that people who want to invest here, or in whose countries we invest, and who do business with us, should be able to get their visas approved speedily. It is worth thinking about extending the idea of a faster track for visas for regular visitors to the UK. Business demands better, and we should not turn the best and brightest away. We need to review the matter, as part of a range of measures that we have been considering.

I still think that the central problem faced by the hon. Member for Romford is the Prime Minister’s net migration target. The Prime Minister said at the last general election that he would get migration down to the tens of thousands; to try to achieve that—which he has failed to do—he has had to consider making it more difficult for people from outside the EU to come to the United Kingdom. The target has been missed. The Government have said it will not be met. We should consider calibrating it.

For example, under a future Labour Government I would not want students to be part of the net migration target. The hon. Gentleman made the strong point that students who come here, who have historically included those from Australia, New Zealand, India, Pakistan, African countries and the wide range of Commonwealth countries, do so because we have some of the best universities in the world, and because they feel a historic affinity to the United Kingdom and want to be educated and to work here. The net migration target has caused great difficulties in that market, particularly in India and Pakistan but also elsewhere in the Commonwealth.

With some general tweaks in policy, even without the measures that the hon. Gentleman has proposed, we could and should make it easier for people to come to the United Kingdom to study and to learn. We need a general overhaul of a policy that is damaging the United Kingdom’s £18 billion-a-year university industry. That is particularly important because people who come to study in the United Kingdom do not simply learn about and enjoy our country and receive the best education; they will, at some point in their lives, be senior doctors, senior business people and world leaders who will do business with this country.

I happened to see in the Evening Standard that 200 Australian paramedics landed in London yesterday, having been recruited from Sydney, Adelaide, Melbourne and Brisbane for the London Ambulance Service. That shows that, for reasons that are not only historical but practical, we must look outwards to the rest of the world and to the Commonwealth. I support measures to manage migration in the interests of the United Kingdom, and if that means Australian medics, Indian students or Tanzanian business people, that has to be good. The positive contribution that such people make is sometimes lost in the ever-present debate about immigration issues.

[Andrew Rosindell]

I do not think that anybody in this room would disagree with what the shadow Minister is saying. The crux of the matter is that Australians have to jump through lots of hoops to be allowed into the country, but those from EU countries do not jump through any hoops; they can just walk in. Surely he can see the unfairness in how the system has developed.

We have discarded opportunities with countries with which we have the most in common and the closest connections historically. Successive Governments have made it harder and harder for citizens of the Commonwealth, and particularly those of the realms, to come into this country. At the same time, anyone from any country that happens to join the EU can just walk in unrestricted. Surely he can see that that is an unfair situation and that we need to redress that balance.

[Mr Hanson]

That is one of the conundrums of membership of the European Union. It goes with the club. However, there are probably as many Australians in the United Kingdom now as there are Greeks. We are not talking about two sides of a coin; we can look outwards to the world while recognising our responsibilities in the European Union. That is a wider debate, and I appreciate that the hon. Gentleman has focused us on a narrower issue.

I want to give the Minister the opportunity to contribute to the debate, so I will draw my remarks to a close. We must look seriously at possible solutions. I am attracted to some, and I am not attracted to others. In particular, I am not attracted to separate airport queues, as the hon. Member for Romford has proposed. The key message that I take from the debate—in the spirit of friendship, I hope that it is one that I can share with the hon. Gentleman—is that we should look at how to make it easier for businesses, students and tourists to come to the United Kingdom as part of managed migration. We need to know not only when they come, but when they go. We need to know that they are coming here for the reasons that they have given, and we need to encourage historic ties to ensure that we grow our economy for tourists, businesses and students.

I still think it is important—here the hon. Gentleman and I may part company—that we are part of the European Union and part of free movement within the European Union. Although we can apply certain restrictions on benefits such as child benefit and working tax credits, we still have free movement, which allows Britons to work and live in France and Germany, and allows Poles, Italians and others to work in Britain and elsewhere. That is part of the deal, but we should not close our eyes to the wider world.

15:24

[The Parliamentary Under-Secretary of State for the Home Department (Karen Bradley)]

It is a pleasure to serve under your chairmanship, Mr Bone. I congratulate my hon. Friend the Member for Romford (Andrew Rosindell) on securing a debate on this important matter, not least because it gives me a welcome opportunity to provide an update on the progress we have made.

The right hon. Member for Delyn (Mr Hanson) spoke about the links that we have with the Commonwealth, particularly through world war one. On Holocaust memorial day, we should remember the links we need to have across the world. If we understand each other’s way of life, we will see that we all want the same things and we will maintain peace. The Commonwealth and the EU both have an important role to play in that respect. I hate to do this to the right hon. Gentleman, whom I respect enormously, but I am sure that he meant to say “commemorate” rather than “celebrate” world war one. I am sure that the record will be corrected accordingly, because I know that he would not have wished to give a false impression.

I will endeavour to address all the questions that my hon. Friend the Member for Romford has raised. In answer to his first question, which was a request for a meeting, I am happy to agree and I hope that it can be organised shortly.

There is much to be gained from promoting the trade, educational and strategic capabilities of the Commonwealth, and we are doing a lot of work on that. My hon. Friend the Member for Reading West (Alok Sharma) talked about the work that the Government have done to forge links with Commonwealth countries, particularly, in his case, India. I pay tribute to him for his excellent work in, for example, leading trade delegations to ensure that we maximise those opportunities. Businesses in all our constituencies benefit from trade with Europe and with Commonwealth partners. That is incredibly important and should not be forgotten.

I believe that our offer to students to stay in the UK after their studies is an excellent example of the work that we are doing. I will talk later about some of the things we do with students to ensure that Commonwealth students benefit. The building of links with the Commonwealth should never be to the detriment of the security of our borders. As the Minister with responsibility for modern slavery, I am particularly concerned about that. I will talk about how the Commonwealth can assist us in the important work of tackling modern slavery and human trafficking. I know that you have spent many years working on that area, Mr Bone, and I bow to your considerable expertise.

The UK is committed to the Commonwealth and to our relationships with all member states. The Minister of State, Foreign and Commonwealth Office, my right hon. Friend the Member for East Devon (Mr Swire), who has responsibility for the Commonwealth, has championed the UK’s relationship with the organisation, which we value greatly as a symbol of democratic values and prosperity.

The Commonwealth is unique in having a young, vibrant population of more than 2 billion people, nearly half of whom, as my hon. Friend the Member for Stafford (Jeremy Lefroy) pointed out, are in India. It spans every inhabited continent. It is far more than simply a grouping of Governments, and we see potential in its future. That is why we continue to invest so much in the Commonwealth and we want to welcome people from right across it to the UK. There is much that we can do together to further the development of our countries, whether in education, health or trade, and we should take advantage of our shared values to enable us to do so. It is difficult to think of another organisation that brings together the representatives of 53 diverse sovereign states from each and every continent, and that gives each one, large or small, an equal voice in global affairs.

My hon. Friend also mentioned the attractiveness of membership of the Commonwealth. He is absolutely right, and it is incumbent on us all to send out the clear message that membership is a wonderful privilege and that we want to encourage countries to come forward and join with that diverse and exciting group of sovereign states.

Business and trade are areas in which the Commonwealth has great potential. Intra-Commonwealth trade in goods is already worth some £300 billion, built on our inherent advantages of a common language, shared legal principles and a commitment to inherent values and rights. Those advantages provide solid foundations for doing business, and they create a platform for trade, investment, development and, in turn, prosperity. That leads to what we call the Commonwealth effect, which studies suggest is worth between 20% and 50% in trade advantage.

The United Kingdom has a growing economy and a proud history of tolerance and acceptance of those who genuinely need our protection. It is, therefore, no surprise that we are an attractive destination. With that, however, we face particular challenges on all forms of immigration. My hon. Friend the Member for Romford introduced the debate by saying that immigration is a sensitive issue. He is right, but, despite those challenges, we are making significant progress on ensuring that our immigration system works in the national interest. He talked about a broken immigration system, but I do not believe that we have a broken immigration system today. We inherited a broken system of open-door immigration, and the right hon. Member for Delyn was a member of a Government who had an open immigration policy, but this Government have taken significant steps—I will address some of the steps we have taken—to address the important issues of EU and non-EU immigration.

[Andrew Rosindell]

To clarify, I spoke about a broken immigration system, but I commend what the Government are doing to change the shambles that we inherited five years ago. The system is broken in the sense that we have no power to control immigration from the EU. Whoever is in power after the election, no one can decide who comes in from the EU because we have given away that power. In that sense, the system is broken. We have failed to reduce immigration overall, which we promised to do, because we cannot control immigration from Europe; we can control only immigration from outside Europe. That is why I said the system is broken.

[Karen Bradley]

I understand my hon. Friend’s point, and he will forgive me if I indicated that I understood it differently. The Government have taken significant steps to address that matter, and if we form the next Government, as I fully intend—I apologise to the right hon. Member for Delyn, but I fully intend to be sitting in this seat in 12 weeks’ time—the excellent measures that the Prime Minister set out in his speech close to my constituency in Staffordshire just before Christmas will enable us to take even further steps to ensure that free movement within the EU comes with responsibilities and that we do not have free movement of criminals, which I particularly care about, or for welfare benefits. There is agreement on both sides of the House that access to welfare payments for non-UK nationals should not come without the responsibility of having contributed to the system.

The immigration system plays a strong part in supporting growth and meeting the needs of UK businesses. Migrant workers can fill skills gaps in our labour market and help to boost our economy. However, as the economic recovery continues, we are clear that employers should look first to recruit people who are already in the UK and are already UK nationals.

The Government are aware of the Commonwealth Exchange report “How to Solve a Problem like a Visa”—I commend the Commonwealth Exchange for its engaging title—and we are working with other Commonwealth countries to consider options to improve migration opportunities within the Commonwealth. Although the UK is happy to work with and consider ideas proposed by Commonwealth partners, the UK maintains that immigration and visa controls are a matter for the UK Government. It is important to remind the House—I know this has been mentioned already—that citizens of the majority of Commonwealth countries, 31 out of 53, do not require a visit visa to come to the UK.

My hon. Friend the Member for Romford made the point that visas are an effective tool for the UK in reducing illegal immigration, tackling organised crime and protecting national security. The visit visa regime is an important tool in reducing the national security threat to the UK, allowing us to intervene in a number of ways before someone arrives in the country. We can prevent someone from coming to the UK by refusing a visa or, where appropriate, we can allow travel while setting up an operational response when someone in whom we are interested arrives in the UK. The information provided in the application process also allows us to identify links about which we would not otherwise have known. The backflow of data can be vital to new investigations, and the security and intelligence agencies require a biometric visa regime for all visa nationals.

Visas have a role to play in reducing crime. We can use the application to check whether someone is known to international partners, and we can check a range of databases to see whether someone has a criminal background here in the UK.

Finally, the process helps to tackle illegal immigration. The visa process enables us to check whether the applicant has a genuine reason for coming to the UK and enough money to support themselves. The use of biometrics enables us to lock an individual securely to their identity so that we know who we are dealing with.

As the Minister with responsibility for serious and organised crime, I know it is incredibly important that we keep in mind the security of British nationals with regard to foreign offenders. Commonwealth countries feature in the top 10 nationalities of foreign national offenders and, sadly, the top two nationalities are Commonwealth countries: Jamaica and Nigeria. We are working closely with those countries to ensure that we have upstream work to deal with foreign national offending so that it does not hit our streets, but I want to ensure that people in Romford, Stafford, Staffordshire Moorlands, Delyn, Tamworth and Wellingborough can walk the streets knowing that foreign national offenders are not coming to the UK without our knowledge. We should all recognise that that is incredibly important.

Economic factors are a big part of the decision on whether to impose a visa on a country, as they can be a big pull factor on illegal migration. Nevertheless, because of the traditional ties that we have with the Commonwealth, the UK is arguably more generous in that regard. Eighteen of the 31 Commonwealth countries with visa-free access to the UK, which is more than half, are classed as developing nations by the World Bank, which shows that there is occasionally a different approach to Commonwealth countries. The EU economies, in contrast, are more on the same economic level as the UK, with the majority being in the world’s 50 richest countries based on gross national income per capita per year. Economic criteria are one area of assessment for countries that want EU membership under the accession criteria.

I always think of immigration as being like the movement of air: it moves from high pressure to low. Wind is created when high pressure moves to fill a low-pressure gap. If we consider that high pressure for immigration is poverty, lack of opportunity and lack of education and that countries such as the UK represent low-pressure areas where there are opportunities, jobs and the potential to achieve wealth, it is understandable why people want to move from one to the other. Our job is to ensure that, when we look at the movement of people, we do not get to the point where, continuing the analogy, the low pressure in the UK becomes the high pressure that means we are overburdened—that is a strange analogy, but I hope it makes sense. I like to perceive immigration as being like the movement of air around the world.

Even within the EU, as the Prime Minister has made clear, disparities in income per head, as well as disparities in labour markets and work opportunities, create incentives for migration—let us remember that in the past four and a half years the UK has created more jobs than the rest of the EU put together. That is why the Government have started a debate within Europe on future accessions, such as linking freedom of movement to relative wealth and, of course, limiting the access of EU nationals to welfare and other services.

Visa regimes for some Commonwealth countries are an effective tool for the UK in reducing illegal immigration, tackling organised crime and protecting national security. The visa process enables us to check whether an applicant has a genuine reason for coming to the UK and enough money to support themselves. We take our duty to protect the public extremely seriously and, where foreign national offenders commit serious crimes in the UK, it is right that they are brought to justice and removed from the UK at the earliest opportunity. Since April 2010, we have removed more than 22,000 foreign national offenders. Where a Commonwealth national commits an offence in the UK, we will pursue deportation, unless they were resident in the UK before the commencement of the Immigration Act 1971. Visa regimes are an important part of the UK’s immigration system, which is fair to British citizens and legitimate migrants, and tough on those who flout the rules.

The UK has a flexible policy for visitors that enables people to come for a range of purposes. Work is under way to streamline the policy further and consolidate the routes that will make the system even more accessible and provide greater flexibility. I acknowledge, however, that obtaining a visit visa for the UK is an inconvenience for some, which is why the UK has invested heavily in ensuring that applying for a UK visa is as easy as possible.

My hon. Friend the Member for Stafford spoke about a specific visa case, although I cannot comment on the individual circumstances of that case. It is important that Members of Parliament always raise such cases because, no matter how good the system, there will always be the odd occasion when something does not quite work as it should. I am glad that the lady in question was able to visit the UK, and that my hon. Friend could help her in that regard.

We have upgraded our entire network of visa application centres to increase capacity. We have made our processes less bureaucratic, and we ensure fast turn-around times and offer appointments out of working hours. We have extended our three-to-five-day priority service, which is now available in more than 100 countries, and we have introduced a passport pass-back service in a number of countries so that customers can retain their passport while their UK visa application is being processed. A new super-priority 24-hour visa service, building on the popularity of the three-to-five-day service, has been introduced in India and China and will be extended to New York, Abu Dhabi, Dubai, Manila, Istanbul, Bangkok and Pretoria by April 2015.

My hon. Friend the Member for North West Norfolk (Mr Bellingham) mentioned the hub-and-spoke model for visa applications. We have more than 300 visa application points around the world, connected to a network of decision-making hubs. They are in similar places to the ones I just mentioned: Beijing, Manila, Abu Dhabi, Shanghai, New Delhi, Riyadh, New York, Istanbul, Chennai, Bangkok, Mumbai and Pretoria.

The next generation of the outsourced visa project has delivered the next set of outsourcing contracts for the visa application process, including biometric enrolment, courier services and interviewing facilitation. The new contracts have allowed us to increase the number of application points globally, offer improved customer services including increased access to premium priority services and deliver efficiencies in the visa application process. To increase access to our visa services overseas, we have considered how best to support our operation and our customers, including by extending opening hours in some locations and trialling new “user pays” services in developing markets.

[Jeremy Lefroy]

As for all such important new projects, will the Minister undertake to get a bit of customer feedback, particularly from Members of Parliament, to whom constituents often come as a matter of last resort when, for instance, a business partner, relative or non-governmental organisation worker whom they are supporting has spent weeks or even months trying unsuccessfully to get a visa? Will she consider collecting information from colleagues and seeing how the system can be improved? Clearly, if this is a new system, we will want to ensure that it works as efficiently as possible.

[Karen Bradley]

I assure my hon. Friend that we in the Home Office take seriously all comments and feedback from fellow Members of Parliament on all aspects of our work. He makes an important point about ensuring that we take seriously our colleagues’ feedback when their constituents experience new systems, because that feedback gives us on-the-ground evidence about what is happening and how it is working. I welcome comments from all Members about how the system affects their constituents and those constituents’ families. I have said that all the changes are working, and I hope that we have proved that they are. They provide greater flexibility and choice, and we know that they have been welcomed by many travellers and tour operators.

On longer stays, the UK views the Commonwealth as an important partner in helping the UK to grow. A number of routes are open to Commonwealth citizens who want to work in the UK. There are further provisions specifically for Commonwealth citizens, such as the UK ancestry route. My hon. Friend said that the Commonwealth was a family, and he is right. When I visited Pakistan last year, it was extraordinary how familiar it looked, given how Pakistani culture has become so commonplace within UK culture. The furnishings, the look and the things that we talked about—cricket, for instance—are common across the Commonwealth. In fact, during my visit to Islamabad, I do not think I met anybody who did not have family in Britain.

The UK ancestry route is for Commonwealth citizens with a UK-born grandparent who intend to work in the UK. Applicants do not need to come for a specific job and are not restricted to graduate-level occupations. They may be accompanied by dependants and can apply for indefinite leave to remain after five years’ residence. In 2013, a total of 4,100 UK ancestry visas were issued, including 1,600 to Australians, 500 to Canadians, 1,000 to New Zealanders and 870 to South Africans.

My hon. Friend the Member for Romford mentioned the UK’s youth mobility scheme which, as he rightly said, operates in eight countries, three of which are Commonwealth countries: Australia, Canada and New Zealand. It enables young people to come to the UK for up to two years to experience UK culture. The UK is happy to engage in discussions with any country meeting the YMS eligibility criteria, which include presenting a low immigration risk to the UK, having satisfactory returns arrangements and offering a reciprocal arrangement for young UK nationals. My message to those countries is, “Please come forward and talk to us.” We are open to talking to countries that want to be part of the arrangement to see whether the eligibility requirements and reciprocal arrangements can be put in place to enable young people from the UK and Commonwealth countries to enjoy each other’s culture by living in each other’s countries.

The right hon. Member for Delyn wanted to remove students from the immigration target. That might seem like a quick fix for reducing immigration levels, but it is important that we understand how many students are here in Britain and ensure that they are leaving, as we will be able to do much more effectively when exit checks are introduced this spring, because we know that the student visa route was being exploited. This Government have clamped down on nearly 800 bogus colleges, slashed 45,000 visas from the further education route and cut family visas by nearly one third since we came to power. Our reforms have reduced net migration from outside the EU and, importantly, ensured that our higher and further education systems are not being abused. I caution the right hon. Gentleman against removing student numbers from the net migration figures. Although that might give a short-term boost to the figures, it would not enable the Government to manage the situation, thus leaving the potential for that important route to be abused, as has been the case in the past.

We have an excellent offer for students to stay in the UK after their studies. In April 2012 we closed the old tier 1 post-study work route, which gave two years’ unconditional access to the UK labour market, allowing many students to stay on in low-skilled work. We have replaced it with a more selective system. Graduates who get a graduate job that pays a graduate-level salary can stay in the UK, and there is no limit on their numbers. Also, we have created a scheme for graduate entrepreneurs and doubled the number of places on it to 2,000, as well as creating a new visa for graduates wishing to undertake a corporate internship or professional training related to their degree.

We are continuing to ensure that the scheme for the exceptionally talented attracts those who are already internationally recognised at the highest level as world leaders in their particular field, or who have already demonstrated exceptional promise. We wish to encourage more take-up of that route, and we are working with the endorsing bodies to do so, but the number of places available—1,000—is a limit, not a target. We wish to attract exceptional talent, wherever it comes from.

On 1 December 2014, the UK introduced new “transit without a visa” provisions that make it easier and clearer to transit through the UK. Commonwealth citizens who hold valid exemption documents, including visas for Australia, New Zealand, Canada and the US, which is a close partner, although it is not in the Commonwealth, can transit through the UK without a visa, regardless of where they are travelling. The UK has also reduced the cost of the direct airside transit visa to £30, making it cheaper than the Schengen alternative for the citizens of the 21 Commonwealth countries who need to apply for one.

Also, after a successful pilot, on 17 November last year we launched our new registered traveller scheme. The scheme permits approved members who undergo advanced security checks access to our e-passport gates at Heathrow and Gatwick, or the option to use the EEA queue at Heathrow or a special RT lane at Gatwick, expediting their clearance through the border. The scheme is open only to a select number of countries but, crucially, travellers from Canada, Australia and New Zealand who are aged 18 or over, meet the criteria for the scheme and travel to the UK at least four times a year are eligible to apply. Applicants pay an average membership fee of £50, and since the scheme’s formal launch in November, more than 5,000 regular travellers, almost a quarter of whom come from Canada, Australia and New Zealand, have been approved to join it. Keeping the UK’s borders secure is our priority but, at the same time, we want to welcome legitimate visitors and trade that contribute to the UK economy and to show that we value our links with other countries. Using the latest technology helps us to do both, and the scheme is proving popular with regular travellers.

My hon. Friends the Members for North West Norfolk and for Romford talked about separate entry as a possibility for Commonwealth citizens, or for citizens of those Commonwealth realm countries for which Her Majesty the Queen is Head of State. Any policy or operational decision to create an additional line for Commonwealth nationals at ports must be taken with due regard to the wider operational impact—the likelihood of placing an additional burden on port operators—and the impact on other passengers. That is key to ensuring that any benefits to a limited number of individuals are not outweighed by a negative impact on border security operations more generally by constraining UK Border Force’s flexibility to respond dynamically to fluctuations in passenger flow.

Having visited UK Border Force and seen its work, I can say that there is very careful management of the lines at the borders. We have a registered traveller scheme that enables people who have gone through pre-clearance to go through e-gates, which is the quickest and easiest way to access the UK, and such people include those from Australia, Canada and New Zealand. However, having a separate route for those travellers from Commonwealth countries who do not have registered traveller status would, in many cases, hamper UK Border Force’s ability to deal with fluctuations in arrival flows.

Let me give an example of that. If a flight arrives from Jamaica, it would be highly likely that many of its passengers will be UK nationals who have visited Jamaica, but many other passengers would be Jamaican nationals. Due to the prevalence of foreign national offenders from Jamaica, we need to check those people and ensure that they go through the proper immigration and border gates, as would be the case for people coming from places such as Albania, or perhaps south-east Asia. We want to ensure that those travellers have the right security checks at the border. It would create a problem if we had a separate Commonwealth gate when all the passengers being dealt with had arrived from Commonwealth countries, meaning that there was only a limited number of gates through which those passengers could pass although there were many other gates available for passengers whose flights had not yet arrived.

To give UK Border Force the flexibility it needs, if it felt that it would be appropriate to have specific gates in operation to help its staff, that would be entirely down to the Border Force itself. However, we should not try to restrict it, given how its staff have to manage flows of arriving passengers. It does not want to keep people waiting for longer than the 40-minute target that we have set.

[Andrew Rosindell]

The Minister seems to be saying that people from countries in which the Queen is Head of State—the realms—must go through security checks that are perhaps more stringent than those for an EU citizen. I find that strange, because Australia, New Zealand, and Jamaica, which she mentioned, are countries that have fought for King, Queen and country and stood behind us. They have the Queen as their Head of State, yet we treat people from those countries differently from individuals from European countries with which we have had this new partnership for only a few years—since they joined the EU. I understand why people in the Commonwealth countries feel that we have let them down badly over this issue. Surely this should be about not just operational convenience, but our cousins throughout the world with whom we have so much in common and to whom we owe so much.

[Karen Bradley]

I thank my hon. Friend for his comments, but perhaps I can clarify the situation. This is about having information and knowledge about people who come into the UK to ensure that they will not hurt our citizens. Within the EU, there are information exchanges for criminal records, such as the European criminal records information system, and data are available about criminals’ past activities. As the Minister with responsibility for serious and organised crime, I am determined that we have that same level of information exchange with other countries. Actually, I would like that same level of information exchange across the world.

I have attended meetings with Caribbean Community countries in which I have encouraged them to adopt the kind of criminal information exchange that we have in the EU. If they had that, we could start to have some certainty about how we deal with people travelling to the UK from those countries because we would then have any relevant information about criminals’ past activities.

This process is about the practicalities of how we ensure that people coming into this country are not coming here to do us harm, but so long as we do not have such information about travellers from certain countries—I do not wish to single out Jamaica, but it is the largest source country for foreign national offenders—we must put the security of the British people before anything else. However, if countries meet the eligibility criteria for the registered traveller scheme, travellers from those countries are welcome to join that scheme, as travellers from Australia, New Zealand and Canada have already done, which means that they can access the e-gates that are available to people from members of the European economic area.

Having seen the e-gates in action, I know that they are a good tool for finding any EEA national who is marked as being wanted, a criminal and so on, meaning that UK Border Force can stop them at the border and go through the necessary checks. We are stopping many EEA nationals who try to come through the border via e-gates because those e-gates have great technology that allows digital information to be used to find criminals.

[Andrew Rosindell]

The Minister is absolutely right that the security of the British people has to come first and that we need to know who is coming into our country. If people have a propensity to commit crimes, of course we need to take action to prevent them from coming in. However, does she understand that if someone is a New Zealander, a Jamaican, or from another one of these countries with such close links with the UK, the system might come across as slightly offensive because it suggests that we are worried about criminals coming from in Canada, and that while we can have arrangements with Slovakia and Portugal, we cannot have those same arrangements with New Zealand, Canada and the Bahamas, for example? Surely we can find a way to deal with this situation. She seems to be saying that she is not against the idea in principle, but that it is just a question of getting the practicalities right. Is that the case?

[Karen Bradley]

I thank my hon. Friend for his comments. I do not want to dwell on this issue for too long, because we are running out of time and I would like to cover modern slavery, but I reiterate that an enhanced criminal information exchange is available to us with regard to EU nationals, and that provides information over and above that which we have about non-EU nationals. I want to reach a point at which we have such exchange of criminal information across the board, because that would be a very good thing to keep all of us safe. While we do not have that, however, I am not prepared to put the security of the British people at risk by opening our borders in a way that might create a problem. I hope that he understands that point.

Let me conclude by saying something about the work that we are doing on modern slavery, which we all agree is an international problem. We are committed to working with other countries to prevent individuals from being exploited. Commonwealth countries are often source countries for modern slavery, so we are committed to working with them to tackle the problem. The modern slavery strategy, which was published on 29 November, commits us to raising the profile of modern slavery through the institutions of the Commonwealth and the EU, and to working with partner Governments to implement positive changes in law and practices. It also commits us to identify annually between 20 and 25 priority countries, which will include a number of Commonwealth countries.

Through our links with the Commonwealth and civic organisations such as Rotary, we are trying to ensure that we have on-the-ground information so that we can tackle this issue upstream, so that people are not trafficked and do not become victims of slavery in the UK, and so that we can deal with slavery on the ground. The UK Government are committed to stamping out that abhorrent crime by building on our strong track record in supporting victims and fighting perpetrators. Promoting links with the Commonwealth should not be to the detriment of maintaining the security of our borders, which is what allows us to tackle problems such as modern slavery.

Let me reiterate our commitment to the Commonwealth. We want to welcome citizens from across the Commonwealth to the UK. Britain is open for business. We welcome legitimate students, tourists, business people and others who want to come to this country to contribute. The changes that we have put in place ensure that Britain remains an attractive destination while maintaining the security of our borders. Britain is a place that people want to visit so that they can work hard, study, and enjoy our historic buildings and beautiful countryside.

British Nationals in Goa

Tuesday 27th January 2015 Westminster Hall

[Mr Philip Hollobone in the Chair]

15:59

[Tim Loughton (East Worthing and Shoreham) (Con)]

I am grateful for the opportunity to raise a slightly obscure and rather distant subject. It is, however, a subject that has the potential to ruin the parents of one of my constituents and apparently affects many hundreds of western expatriates who have also invested in property in Goa. I am delighted that the Minister is responding to the debate in the absence of the Minister of State, my right hon. Friend the Member for East Devon (Mr Swire), who I know is abroad.

Many other Members have been involved in this issue and frustrated at the lack of action by Indian and Goan Government officials when some fairly blatant corrupt practices are at work. That is why I am raising the issue and putting it firmly on the radar. I hope that something will come from it.

I want to give a brief background on this particular case, which came to me from my constituent. Just over 13 years ago, Mr Leslie Medcroft and his wife purchased a hotel in Canacona, Goa. They were at pains to ensure—they had done extensive research—that they complied with all the rules and regulations. They complied with the money laundering laws. The funds came from legitimate sources and banks in the UK. They complied with all the residency conditions, which can be strict, and bought the business through a local company that was properly registered. They were buying an investment in an ongoing hotel business, with appropriate Government of Goa licences. They paid all the taxes due and had all the licences that were needed. Those licences were kept up over many years as they ran that hotel business.

Subsequently, it was claimed that the property had been purchased illegally because, among other things, the area was designated for agricultural usage, but no evidence for that was produced. In contrast, my constituent’s parents produced a forest of documentation to show that everything had been complied with and that the purchase and the running of the business were entirely proper and above board.

A couple of years ago, they became the subject of an investigation by the enforcement directorate. The ruling given on 12 February 2013—almost two years ago—by Mr Lotlikar, the deputy director of the enforcement directorate, was that the property of the Hotel Oceanic should be confiscated. He claimed that it had not been properly acquired, despite all the evidence produced to the contrary. My constituent’s parents understandably appealed the decision, but had a long wait, which caused them huge stress. They had given up their life savings and their jobs in the UK to start the business in India and spend their retirement years there.

Eventually, on 26 August 2014, my constituent’s parents received a letter stating that their appeal hearing was at last to be held on 22 August—four days before they received the letter. Fortunately, the advocate they had retained in Goa saw a copy of the letter in time to attend the appeal hearing. That was quite coincidental; his office happens to be next door to the enforcement directorate. The appeal hearing was further postponed to 4 September 2014.

On 2 September, the company accountant acting for Mr and Mrs Medcroft was approached by the special director of appeals in Mumbai, who said he would make a judgment in their favour if they gave him 10 lakh rupees. That is 1 million rupees, which equates to £10,800. There is a certain irony, not missed here, that the origin of the word “lakh” in the Indian numbering system is the amount of money that can be stuffed into a small suitcase, as no doubt those proceeds would have been, had they been forthcoming. It would appear that the request was made for the money not to be paid to the court, the legal system or a Government department, but directly into the pocket of said official. It was a thinly veiled threat that failure to comply with the demand for a bribe would result in a ruling against Mr and Mrs Medcroft and, ultimately, their property being confiscated.

My constituent’s parents were left in something of a dilemma, as we can imagine. Should they pay up, perhaps then getting recognition that they own the property they knew they already owned and had bought legitimately, and thereby condone corruption? Alternatively, should they pay up and risk the case not actually being resolved? As we know, blackmailers usually come back for more. Would they be charged as participants in corrupt practices for ostensibly bribing an Indian official? Should they not pay up and risk the confiscation that has been looming over them for some years? Whichever way we look at it, it appears that they cannot win.

My constituent’s parents were unable to raise the amount of money in the short term in any case, so they did not really have a choice: they did not pay the money. They were also unable to return to India—they were in the UK at the time, renewing their visas—before 17 September, but the appeal went ahead in their absence. The ruling from that appeal was that the argument they put forward was incomplete, despite their having provided comprehensive documentation in support. A further hearing date was set for 26 September, and they were subsequently told that on top of the bribe, they might have to pay an additional sum of £6,000.

“Where does it end?” you may well ask, Mr Hollobone. The case went to a further hearing and the presiding judge, Ajit Kumar, the additional income tax commissioner, very much expected my constituent’s parents to pay. In the absence of that, he deferred a ruling and apparently threatened to have them arrested in the meantime. Tape recordings of that conversation were taken as evidence. They were advised by their advocate that this process will go on indefinitely until they pay up and that they will have constant doubt and worry overhanging their business.

My constituent’s parents have invested their life savings. They were running a legitimate business that helps the Goan economy—tourism, in particular, on which Goa greatly depends. They have had to spend a lot of their money on lawyers, accountants and other professionals, first to ensure that they acquired the business legitimately and maintained all the licences and secondly to maintain their innocence against corrupt officials. If this case goes against them and their hotel is confiscated, they face ruin and a great deal more stress. They would probably have to return to the UK.

I gather, however, that my constituent’s parents are not an isolated case, and that is why I am raising the issue today. The hon. Member for Birmingham, Edgbaston (Ms Stuart) wanted to be here today, but she is receiving an honorary doctorate from the university of Birmingham—I am delighted to point that out, as she wanted me to. She was approached by some of her constituents who were lecturers. They took early retirement and invested through a direct foreign investment channel in a dilapidated old colonial mansion on the coast in southern Goa in 2005. They spent a fortune renovating it. It was originally set up as a business to cater for convalescing foreigners undergoing medical and dental treatment.

The project was successful and has become a general guesthouse business. In 2009, on having acquired the business, the hon. Lady’s constituents were summoned to Panjim to give assurances, initially on money laundering. In 2011, they received notices from the enforcement directorate claiming that they had illegally purchased agricultural land and that their business was illegitimate—similar circumstances to the case against my constituent’s parents. Yet they had documents to prove categorically that the land they had acquired was in a settlement zone, was listed in the Portuguese book of descriptions in 1905 as an urban dwelling and has absolutely no history of crop growth. Clearly, the charge of agricultural usage is entirely bogus. The business is properly owned by an Indian private limited company, regarded as resident in India for the purposes of FEMA, the Foreign Exchange Management Act 1999. It complies with all the regulations, but the parents of my constituent are facing a lengthy and costly court action and the threat of confiscation.

Only today, I received an e-mail from a member of the British nationals’ working party in Goa, who has been dealing with a number of other expats in similar situations. She told me that in the past two years she has been working on a number of cases and has knowledge of four in which confiscation orders have already been served on people. In one case, a confiscation order has been issued against a British couple aged 80 and 77 in relation to their studio flat. Another confiscation order was issued two years ago against a single British woman in her 70s who owns a small flat in a purpose-built complex in north Goa.

In addition, hundreds of British subjects have been prevented from registering their properties in Goa, having previously fulfilled the requisite legal processes, primarily because of restrictions on visas. In some cases, that has led to criminality and harm against foreigners when they have tried to obtain the properties, causing loss of investment. Some cases have involved extreme violence. Other people affected include those who came together to invest in Indian tourism and who have been prevented from trading due to altered interpretations of the law and, in tandem, prevented from registering their properties.

The problem seems to be quite widespread, with a number of British expats suffering such consequences. It has been suggested that there are in excess of 300 similar cases that we know about. Huge stress is being caused to people who legitimately went out to invest in businesses in Goa. In most cases, they are not wealthy, but have invested their life savings. The situation is proving to be a nice little earner for the Government in Goa, and various Government officials are pretty brazen in demanding money to make the problem, which is of their making, supposedly go away. We seem to have the Goan equivalent of the mafia.

It is surely entirely inappropriate for a fast-growing democracy such as India, which attracts, and needs to attract, large amounts of foreign investment as an important UK trading partner, to allow such practices to go on under its nose. The Indian Government should be keen to find out what is going on and to intervene. In the past few months, however, I have written to the Indian law Minister, Shri Ravi Shankar Prasad, and to the Chief Minister of Goa, Shri Manohar Parrikar. The latter responded and diverted my attention instead to Dr Rajan Katoch, the director of the enforcement directorate, who has also not responded. I have written to the Minister of Finance, Arun Jaitley, who is responsible for the tax commissioners, including the judge Ajit Kumar who I mentioned earlier.

I also wrote to the high commissioner in London, His Excellency Ranjan Mathai, no fewer than three times, and chased up with several calls and e-mails. I had no reply until yesterday—after I had secured this debate, coincidentally. The response came from the first consular secretary to the high commissioner, Mr P. K. Patel, and merely stated:

“You will appreciate that the High Commission cannot intervene in administrative judicial proceedings in India. If your constituent’s parents are aggrieved by Directorate of Enforcement actions, they may seek appropriate legal redressal of their grievances.”

They have been trying that, and they have not been getting anywhere. Clearly, they will not get anywhere with the high commission in London either, which is a great pity.

The British high commission in Delhi is aware of the problem and the Business Secretary, on a visit to the Indian subcontinent, raised it with Ministers. A high commission official has been dealing with British cases, but cannot get individually involved in them. I was also able to collar the British high commissioner James Bevan when he was about to appear before the Foreign Affairs Committee on 15 October. He has been helpful and entirely sympathetic, saying that the high commission is aware of the problem. Action needs to happen, however, and things cannot be allowed to go on unchecked.

The Government need to use their good offices to impress on their Indian counterparts that that sort of practice does the reputation of Goa and India at large no service at all. It stands in the way of legitimate investment. It would be a great problem if that investment were deterred by obviously corrupt practices.

I hope that the Minister will be able to give assurances today, to my constituent’s parents and to the affected constituents of other hon. Members, that this matter will be looked into properly and further pressure will be brought to bear on the Indian Government. I also hope that His Excellency the high commissioner to London is listening intently; I am sure he would not want such practices to besmirch the reputation of the Indian Government. They are clearly doing so at the moment.

[Mr Philip Hollobone (in the Chair)]

I commend the hon. Gentleman on the interesting way in which he has presented this complex and important case. To respond, we have a Minister who is responsible for about half the world, I think.

16:15

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Tobias Ellwood)]

Unfortunately, I am not specifically responsible for India and I begin by extending apologies that the Minister of State, my right hon. Friend the Member for East Devon (Mr Swire), is unable to reply to the debate. I know that he is aware of the issue, whether or not he is not able to watch the debate on the internet, and he will certainly want to follow the matter up with my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton).

I thank my hon. Friend for initiating the debate. He has been and remains an advocate for British nationals facing difficulties in property disputes in India. As hon. Members will be aware, until 2007—my hon. Friend alluded to this—the rules governing purchases of property by foreigners in Goa were open to misinterpretation. Many foreign buyers fell prey to unscrupulous lawyers and property developers who took advantage of the ambiguity of the laws.

Although the purchases of properties were made in good faith by foreign buyers, in 2008, the Indian enforcement directorate served notices to about 400 foreigners who had been found to have violated foreign exchange and immigration regulations. Simultaneously, the Goa Government sent a notice to all registrars instructing them to close the registry to foreigners. There are about 750 British property owners in Goa, many of whom have been under investigation for six years and are still unable to register ownership of their properties or to sell legally.

Our policy on dealing with property disputes worldwide is clear: we cannot get involved in private disputes, as we are in no position to judge the facts of the cases and have no overseas jurisdiction to resolve such matters. It is the responsibility of the Indian authorities to regulate property laws and Her Majesty’s Government have no authority to intervene in matters concerning domestic legislation. We do not become involved in individual cases, nor do we take steps to recover any capital outlay in individual property deals that might have gone wrong.

That said, we do consider raising systemic issues by lobbying national and local Governments. I reassure the House that we take this matter seriously, as my hon. Friend can attest. We are assisting groups of British nationals who have been genuinely cheated by lobbying the Indian Government to seek settlement or a reasonable solution. I am pleased to say that, through our sustained lobbying of a range of interlocutors, the Indian enforcement directorate has cleared for registration a number of cases involving British nationals. The high commissioner in New Delhi and the deputy high commissioner for western India have discussed with the former Goa Chief Minister the problems faced by groups of British property owners and asked that the cases be considered carefully. The Chief Minister was receptive to finding a solution to the problems faced by British nationals and as a result set up a special committee to assess all outstanding cases.

In addition, during a meeting with the deputy high commissioner just last week, the new Chief Minister renewed the Goa Government’s commitment to finding a resolution to the issue. Consular officials regularly meet with all local authorities—the enforcement directorate, the property committee and the state registrar—that are assessing the cases of British nationals.

The authorities do not want to confiscate property and will act sympathetically where possible, especially where it is obvious someone has made Goa their permanent home, or when dealing with sick or elderly owners. However, they have made it clear that they cannot ignore cases where individuals have built properties on agricultural land or wilfully flouted rules on transferring funds or on visa regulations. We recognise that position.

In January 2013, we encouraged British property owners in Goa to start a working group. They have undertaken to lobby on individual cases, and we have facilitated meetings between them, the Chief Minister and local authorities, with some success.

[Tim Loughton]

I am grateful for what the Minister has said thus far, and I entirely appreciate, as the Foreign Office has told me, that it cannot involve itself in individual cases. However, could we not do more where there is systematic or systemic abuse, as he mentioned? We are talking about British citizens being denied justice. The rulings against them are not specifically saying what they have done and then proving it; they are constantly saying there is not enough information, so the case is deferred and deferred. In the meantime, money is, effectively, being demanded with menaces. If such corruption were happening in the United Kingdom, on the part of British officials dealing with Indian nationals, we would absolutely want to do something about it and to liaise with the Indian authorities.

[Mr Ellwood]

I will certainly relay that to the Minister of State. Perhaps I can put him on the spot in his absence and suggest that he and my hon. Friend meet so that, rather than the issue lying dormant after the debate, we can move the process forward.

Consular staff are dealing with the property issue at a wider policy level, engaging with the Goa Government and local authorities directly, and that must fit in with what my hon. Friend said about the difference between taking a systemic approach and looking at individual cases. That approach, which I hope will be joined up, has been effective, with approximately 40 cases being cleared of investigation over the last year. However, as has been reiterated today, many more outstanding cases need to be looked at.

We are aware of corruption allegations against local authorities in Goa. However, the matter must be dealt with by the Indian authorities. We have always advised British nationals to report corruption complaints to the Indian law enforcement system.

Although there has been some progress, I recognise that the issue continues to cause distress to British nationals. We will continue to lobby the Goa Government and local authorities on systemic issues relating to expatriate property disputes and to work with those who have been affected to find an appropriate solution.

[Mr Philip Hollobone (in the Chair)]

I shall now suspend the sitting until 4.30 pm or until the next Minister arrives. I thank all those who took part in this important debate.

16:23

Sitting suspended.

SportsDirect (USC Dundonald)

Tuesday 27th January 2015 Westminster Hall

16:28

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

It is good to see you in the Chair, Mr Hollobone, and the Minister in her place. Of course, Mr Hollobone, you and I served in the same police force for 10 years, and I think that you still serve in the police, so it is good to see you here—after this debate, we might need your services.

I would like to make a few remarks by way of background to the reason why I asked for the debate. This year is the celebration of the 800th anniversary of the sealing of Magna Carta, one provision of which was that no free man should unreasonably be deprived of his livelihood. I am speaking on behalf of 245 workers in my constituency who question whether they are treated as free men and women.

USC is a clothing distribution company providing goods to retail distribution outlets. It opened in 1989 in Edinburgh. The company was worth £43 million by 2004, when it was purchased by Sir Tom Hunter, a constituent of mine, but it went into administration in 2008, after which 43 of the 58 stores were bought by Sir Tom. That happened through something called pre-packaged administration, whereby a deal is struck to sell parts of the business before it is put into administration, minimising losses and cherry-picking the most profitable part of the business. At the time, MPs, through the Commons Select Committee on Business and Enterprise, raised serious concerns about that practice. In particular, the hon. Member for Mid Worcestershire (Sir Peter Luff) said:

“The principle of administration is sound but you’ve got to make sure that the administration process is working in a way that doesn’t disadvantage people and impose other costs on the economy”.

In 2011, SportsDirect bought 80% of USC, and it completed the purchase of the remaining 20% in 2012. In 2013, SportsDirect bought the company Republic—more of that later—out of administration and merged it with USC. USC’s headquarters have long been in Dundonald in central Ayrshire. On 28 December last year, 245 people —79 permanent employees and 166 agency or zero- hours contract workers—were employed at the Dundonald site.

On Wednesday 7 January, senior managers arrived at the site early in the morning and informed staff that the business was not making money and was going into administration, and that all the stock would be removed to SportsDirect’s central depot in Shirebrook. There then followed a pantomime: staff were not told that they were being made redundant and were asked, would you believe, to assist with the removal of the goods. I am told that some 100 journeys were made by heavy goods vehicles between then and when the process was completed, on Sunday 11 January.

It is not clear whether USC/SportsDirect’s actions were initiated by the companies themselves or as a result of creditors, a clothing company called Diesel, seeking a winding-up order because of unpaid bills, to which USC/SportsDirect responded by moving the company towards administration, presumably resulting in Diesel joining the list of creditors that would have to wait for payment. I have heard it said that there was a one-week delay in the court process, which I am told means that the timetable followed by the company is even further out of kilter with what staff were told at the time. I seek clarification from the Minister on that point.

No information was given to staff about the future of Dundonald and their jobs until Wednesday 14 January, when Philip Norvell from Gallaghers dismissed all the staff, telling them that they would not receive any money at all from SportsDirect and that anything owed to them would have to be claimed from the Government via the administrator.

On Friday 16 January, Republic, a wholly-owned subsidiary company of SportsDirect, bought the USC business, apart from the Dundonald warehouse and operation, from the administrators. At the same time, billionaire Mike Ashley is well known for his love of football—he owns Newcastle United—and his company, the very same SportsDirect, has just bought a 26% stake in Rangers Retail Ltd, in return for £10 million of credit, adding to his previous 49% stake and making a total of 75%. Rangers football club gets a very small percentage of the profits from that retail activity. The worrying thing is that that is very much the pattern that he adopted in buying USC: he built up a majority stake in stages before finally assuming control of the company.

Of course, there are rules governing the ownership of football clubs, especially as there have been some notorious multiple owners such as the pensions robber Robert Maxwell. There must be a question whether Ashley’s activities are a precursor to a greater involvement in Rangers football club itself. Is it right for an individual to have a serious financial stake in more than one side? Is this man more than just a shareholder? Has he become the banker of the club?

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Does the hon. Gentleman feel, as I do, that the behaviour of Mike Ashley is damaging to him, and that the contrast between his wealth and the way the workers were treated is appalling?

[Mr Donohoe]

I am coming to that, but he does not care a damn. That is clear, given what I am about to say.

The USC Dundonald situation is a murky affair. It leaves unanswered a lot of questions about the way some businesses are allowed to operate. For instance, did Diesel seek a winding-up notice on USC as a result of unpaid bills, as claimed in some reports? That is an answer that I need this afternoon. If so, what alternative courses of action were considered by SportsDirect—such as, for example, paying the bill to its loyal workers at Dundonald? Was USC/SportsDirect’s action in seeking administration a response to the claim made by Diesel or was it initiated by the company separately? Was there a delay in the timetable for granting administration and, if so, what was the impact on the work force and the potential timetables for redundancy and required consultation on both redundancy and business plans? Was that brought to the notice of the Department for Business, Innovation and Skills? What will the cost to the public purse be of supporting the 245 people who are out of work without back pay, holiday or redundancy payments and who have bonuses of as much as £12,000 outstanding?

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

I congratulate my hon. Friend on obtaining the debate. He is working hard on the issue, and he knows that many of my constituents were also employed in the business, and have lost their jobs because of this debacle. Yet again, a company in Ayrshire has behaved disgracefully —my hon. Friend knows what happened with the former coalfield sites. Is there a need to look at the way companies are allowed to do such things, treating employees so despicably, and to hold them accountable?

[Mr Donohoe]

I am grateful to my hon. Friend, whose constituency neighbours mine, as does that of my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson). I thank them for their support. I do not see any difference between the cases referred to, which is why there is a need to examine the law to protect workers in such circumstances. It is blatantly obvious that that does not happen now.

How long is it likely to take for the employees to receive payments from the administrators? Will employees get 100% of the money due to them? I doubt it. What sanctions can be imposed on the company for failing to consult employees about the future of their roles at the Dundonald site, or about redundancy? Given that all the companies in the exercise are owned by SportsDirect, is not it just a scam to let SportsDirect off its financial responsibilities to a less successful part of Ashley’s estimated £3.3 billion fortune?

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

I thank my hon. Friend for securing the debate; people in my constituency are, as he mentioned, also affected. Does he agree that it is particularly disgraceful that everything he described was happening over Christmas and the new year, when it was almost impossible for employees to get the advice and support they needed, which they might have been able to get in other circumstances?

[Mr Donohoe]

I agree with my hon. Friend wholeheartedly. I spent most of the Christmas period attempting to contact the company, and I was treated with total and absolute contempt.

[Mr Jim Cunningham (Coventry South) (Lab)]

I congratulate my hon. Friend on getting the debate. We had a similar one last Thursday, about City Link. He has spoken about changes to the law, and with City Link the pattern was the same. Workers were told over the Christmas holiday period that their jobs had gone. More than 1,000 men contracted to it could not take their jobs, because of the law. We have been pressing the Minister on those points. This is very similar.

[Mr Donohoe]

I am grateful to my hon. Friend for that intervention. The Scottish Affairs Committee is about to call that company to book, or has already done so, and has approached me to ask whether to call Mr Ashley to the Committee for what he has done to the company for which he is responsible. Do we agree with the BBC’s 2009 quote from a self-confessed asset stripper that the law in such circumstances is a pirates’ charter? I wonder whether that description could apply to Mr Ashley.

Has the Magna Carta principle that no citizen should unreasonably be deprived of their livelihood been breached by Mike Ashley and SportsDirect? Given how he has behaved on the issue, is Ashley, SportsDirect’s supremo, a fit and proper person to buy shares and give loans to Glasgow Rangers football club, and to appoint his men to the board? Should not the Scottish Football Association look more closely at this person’s credentials for involvement in a team that is not just a business venture, but a Scottish—indeed, a UK—institution? His track record, particularly his treatment of USC workers, shows that he has scant regard for anything but balancing the books and maximising profits, even if loyal staff are thrown on the scrap heap as a result.

[Mr Iain McKenzie (Inverclyde) (Lab)]

I congratulate my hon. Friend on securing this important debate. Does he agree that it is wholly worrying that someone of Mr Ashley’s background, employment and business practice is moving into the highly delicate area of Scottish football, especially with a football team that is having difficulties at the moment?

[Mr Donohoe]

I agree. Glasgow Rangers is an institution, and some 25% of the population of Scotland follow that team. It is wrong that that individual should be allowed anywhere close to the team. As I will request of the Minister in a moment, I hope that the SFA gets to the bottom of this and does not allow him further into the club’s business.

Will the Minister set up an inquiry into the affairs of Mike Ashley in relation to the USC Dundonald situation affecting my constituents and his interest in Glasgow Rangers? Such a move would be welcome to the former employees of USC Dundonald and, I am sure, to the great bulk of Glasgow Rangers supporters. We need to bring some transparency to the affairs of Mike Ashley and of Glasgow Rangers. I look forward to the Minister’s response.

16:42

[The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson)]

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing this timely but unfortunately necessary debate. I do not think that any of us wish the situation to be as it is—particularly those who have, sadly, lost their jobs.

The concerns about the events leading up to and surrounding USC’s failure, particularly some of the allegations made about the company’s treatment of its creditors and employees, are valid and genuine, and I assure the hon. Gentleman that they are shared across the House. It is important that answers are found. As with any company failure, it is important to establish the facts of the case: what occurred in the lead-up to the administration of USC, the reasons for the failure and whether the company has been a victim of circumstance, as sometimes happens with companies, or whether the conduct of its directors has fallen below the standards that we rightly and reasonably expect. Those standards include treating creditors and employees of the company fairly and in accordance with the law.

Based on the information that we have been given, USC’s administration seems to have been due to the company’s failure to pay its rent and suppliers when they came due. On the specific questions asked by the hon. Gentleman about the winding-up orders and so on, I understand that, according to the administrators, a statutory demand had been issued to USC by a key supplier on 17 December 2014, payable by 31 December. That would have allowed the creditor to seek a winding-up order if the debt was not paid. On 6 January, the company gave notice of entering administration, and it did so on 13 January, but I am not aware that a petition for a winding-up order was made.

[Mr Donohoe]

As a local MP, the Minister knows something about Glasgow Rangers, but she might not know as much about USC. Is there an urgent need for a change in the law if, on the one hand, a creditor can seek a winding-up notice and, on the other hand, the company can frustrate that by making an application to the courts for administration?

[Jo Swinson]

This case raises many questions. We are making several changes to insolvency law, and particularly to the pre-pack regime, where there are particular concerns. The hon. Gentleman is right to say that I have some familiarity with Glasgow Rangers—indeed, Murray park, their training ground, is in my constituency. I confess that I am not a football fan, but my late grandfather was a very proud and longstanding season ticket holder and supporter of Rangers. He enjoyed many trips to matches on the supporters’ bus.

We all have to think about the context. USC was not just a small company on its own; it was just one part of a large retail group. The events are particularly concerning in that context.

[Mr MacNeil]

Given what the Minister is saying, does she feel that USC, and perhaps Mike Ashley, too, have been guilty of using loopholes to get round certain situations and to create part of these problems quite deliberately? Could employment law be tightened so that workers are not victims, as they have been in this case?

[Jo Swinson]

There are a couple of different issues within that question. We will need to wait to see the specific facts that come out of the investigation. Obviously, the administrators will provide information to the Insolvency Service, and they have to file a report within six months, although the general practice is to file such reports much more quickly. Indeed, we will be shortening that time to three months.

On whether there are loopholes, action has been taken on the pre-packs issue, which I will address in a moment. The hon. Gentleman is absolutely right that employment law is not negotiable. Employment law is not something that is optional or that a company can decide to take or leave; it is the law, and it needs to be followed. Enforcement is particularly important. A range of issues have been raised, including some of the issues surrounding zero-hours contracts, which I will also address.

One of the key questions is why USC, which was wholly owned by SportsDirect, was allowed to reach the point at which its key suppliers and landlords were not just threatening but taking enforcement action. SportsDirect purchased USC’s business through another company, Republic. We have been told that USC’s key suppliers have been left out of pocket, so it seems odd that they would continue to supply Republic. There are, therefore, a lot of unanswered questions.

The law is clear that employees should be consulted where 20 or more people are being made redundant at the same establishment, and it can be a criminal offence to fail to notify the Secretary of State of proposed redundancies. Tribunals can make protective awards where employees are not properly consulted.

[Mr Donohoe]

Will the Minister and her Department do that through the criminal courts in this case?

[Jo Swinson]

I am not going to give the hon. Gentleman that assurance in the Chamber today, but I reiterate that we will be looking very carefully at all the facts that emerge and at the picture created from the information that comes from the administrators. There is a wide range of both investigation and enforcement powers, and it is important that they are used wherever it is found that companies have not behaved properly, and particularly when directors have not behaved properly.

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

The Minister refers to wanting to look at the issue very closely without giving any commitments in this Chamber. Will she also give a commitment to refer Glasgow Rangers football club, and the potential issues there, to the sports Minister—particularly in respect of the constituency issue that has been raised?

[Jo Swinson]

I will happily talk to the sports Minister about those issues, and obviously there are specific issues for the Scottish Football Association to consider. Insolvency Service investigators are already in contact with the joint administrators of USC. That is at an early stage because the administration is fairly new, which affects the information that can be provided, but there is a legal duty to provide a confidential return to the Secretary of State about the directors’ conduct. Although the administrators’ view about that is certainly relevant, ultimately their assessment of whether there are grounds for disqualification is based on the Insolvency Service’s independent view and conclusions.

Directors can be disqualified for anything between two and 15 years. It is also worth noting that, in addition to director disqualification proceedings, the Insolvency Service can exercise its powers to investigate any UK company where it suspects misconduct. We are making it easier for disqualification proceedings to be brought where other laws have been broken—it is currently possible, but we want to make it crystal clear that it should be easier. Measures in the Small Business, Enterprise and Employment Bill explicitly state that, in deciding whether someone should be disqualified, the criteria that courts will be required to consider will be extended to include breaches of legislation. That could include health and safety law, immigration law or employment law.

[Sandra Osborne]

I have been listening to what the Minister has said. In my constituency, directors walked away from coal mines leaving £140 million of damage. I have been pursuing that matter with the insolvency people for two years and nothing has happened, so she will forgive me if I am slightly cynical about what she is saying.

[Jo Swinson]

I will be happy to look into the specific issues that the hon. Lady raises. Although the powers already exist, we recognise that making it more explicit that breaches of law can be considered in the disqualification process will make such cases easier. That is why we are changing the law. I will happily look separately at the specific case that she is pursuing.

I turn now to pre-packaged administrations, or pre-packs. They have been discussed in this House on many occasions, because there are understandable concerns about them. In a pre-pack, the sale of the viable parts of an insolvent company’s business is arranged before the administration starts and concludes shortly after the administrator is appointed. In the case we are debating, the administration has allowed the majority of the business, including more than 600 jobs across the UK, to be transferred to the purchaser, Republic, although unfortunately another 84 employees have lost their jobs.

It is important that we establish whether the pre-pack represented a necessary step to save an insolvent business, or if, as has been suggested, it was an abuse of the insolvency process. I reassure hon. Members that officials are looking at that as a matter of urgency. The changes that we are making, following the review of pre-packs by Teresa Graham, will mean that by spring there will be new checks and balances on pre-pack administrations where the sale is to a connected party, so that there is independent evaluation of whether that party is a viable business with a viable underlying business model that will not simply run into the same problems as the business in administration; there will also be evaluation of whether the sale represents the best value.

[Mr Donohoe]

May I ask to be kept posted, within reason, on anything that happens in the Department and whatever action or otherwise is taken by BIS?

[Jo Swinson]

I happily give that assurance. Obviously, certain elements remain confidential because of specific legislative requirements, but I am happy to keep the hon. Gentleman updated on the issue.

I will touch on the important matter of the employees and support for them, before coming to some of the specific issues raised about Mike Ashley. Obviously, whenever people are made redundant, support is crucial. That is why the Jobcentre Plus rapid response service is available and can provide everything from information to help with job search, identifying skills gaps and, ultimately, training to update skills or learn new ones to ensure that people can move back into employment. That is particularly important for those individuals.

In terms of redundancy payments, employees are guaranteed to receive their wages and other payments owed, subject to certain limits. That money comes from the national insurance fund.

[Cathy Jamieson]

Will the Minister say something about the position of those who are on zero-hours contracts and the particular difficulties that they will face?

[Jo Swinson]

I will certainly come to that issue. The redundancy payments service has begun processing claims—I understand something in the region of 30 claims have already been put in. It aims to pay 80% within three weeks of receiving the claim form and 93% within six weeks of receipt of the form.

Obviously, within the group of people who have been made redundant, there is a mix of those who were on fixed-hours permanent contracts and those who were on zero-hours contracts. However, it would not be accurate to say that somebody on a zero-hours contract has no right to a redundancy payment. The calculation for the payment tends to be made on the basis of an average of, I think, the 12-week period running up to when they were made redundant. I hope that will provide some reassurance to the hon. Lady’s constituents who may find themselves in that position. Guidance on redundancy pay for any employer affected is available on gov.uk.

Hon. Members have raised significant concerns about the behaviour of Mike Ashley, and I share those concerns. He seems determined to show that rules are for other people. We know that he bought nearly 10% of Rangers football club, and in doing so rather skirted the edges of the SFA’s rules on owning two clubs. Despite being blocked by the SFA from increasing his shareholding further, he appears to be looking to expand his influence. The rules that prevent the same person from owning two clubs are there for a good reason: to prevent conflicts of interest and to safeguard the integrity of the sport.

We are talking about a man who, according to media reports, forced through a £200 million bonus scheme at SportsDirect and subsequently withdrew his own participation amid speculation that he introduced the scheme simply to show his investors who was in charge. Some 90% of SportsDirect employees are reported to have zero-hours contracts, so they would not be eligible for the scheme. At least one worker was allegedly told that a zero-hours contract meant that she would not receive holiday pay. I cannot emphasise enough that that is against employment law.

There are serious questions to be answered about USC and many of its practices. I have outlined that the Insolvency Service has the power to receive information from the administrators and to investigate any company that it believes has questions to answer. I welcome the suggestion that Select Committees may also wish to ask questions.

I believe that zero-hours contracts have a place in a flexible labour market, but they are not a substitute for proper business planning. I fail to understand how a retailer can get away with employing the majority of its staff—up to 90% of the work force of 20,000 at SportsDirect—on zero-hours contracts. Apparently, SportsDirect operates some 420 stores, but it has a permanent work force of perhaps only a couple of thousand people. I do not see how a retailer can reliably open its stores every day if the workers on zero-hours contracts genuinely have the power to say that they will not take any given shift. A zero-hours contract should mean that the employer is free to offer work or not to offer work, and the employee is free to accept or decline that work.

I am at a loss to see how such use of zero-hours contracts can be deemed to be in any way responsible, and I think there are even questions about whether it is in line with employment law. Certainly, exclusivity clauses, which must be part of the way in which SportsDirect operates zero-hours contracts, will soon not be legal in such contracts as a result of the action we are taking in the Small Business, Enterprise and Employment Bill, and rightly so. Using zero-hours contracts to fill the gaps by requiring people to turn up for work but not giving them guaranteed hours is not a responsible use of such contracts.

Cases have been brought against SportsDirect by people such as Zahera Gabriel-Abraham. That case was settled out of court, but some of the media reports were concerning. The Guardian reported that

“the retailer will have to make clear in job adverts, contracts and staff rooms that it does not guarantee work, sick pay or holiday pay”.

I do not believe that that is the full story, because it is not for an employer to decide whether their employees get sick pay or holiday pay; it cannot simply opt workers out of their statutory rights. One of the barristers from Leigh Day summed it up well:

“Zero hours workers are not second class workers. They have the right to be treated fairly and with respect. They have the right to take holidays and to be paid when they take them. They have the right to statutory sick pay. They have a right to request guaranteed hours. Sports Direct will now have to make that crystal clear to staff.”

I hope that the reports do not suggest that those staff have not been getting sick pay, holiday pay or their other statutory rights. I encourage anyone at SportsDirect or anywhere else who thinks that they have not been receiving their proper rights to contact ACAS or the pay and work rights helpline on 0800 917 2368. Breaking employment law is absolutely unacceptable, and compliance will be properly enforced.

There are certainly questions to be answered about the matters in the USC administration and pre-pack sale, and the Insolvency Service will be looking at the information that it has received. The hon. Member for Central Ayrshire asked a wide variety of questions, and I appreciate that time is short—

[Mr Donohoe]

Will the Minister write to me?

[Jo Swinson]

I will happily write to the hon. Gentleman in full to pick up on any points that I have not addressed, and I will write further to keep him updated. I thank him for giving us the opportunity to debate these important issues.

Question put and agreed to.

16:59

Sitting adjourned.

Written Statements

Tuesday 27th January 2015 Written Statements

Tuesday 27 January 2015

ECOFIN

Tuesday 27th January 2015 Written Statements

[The Chancellor of the Exchequer (Mr George Osborne)]

A meeting of the Economic and Financial Affairs Council will be held in Brussels on 27 January 2015. Ministers are due to discuss the following items:

Investment plan for Europe

The Commission will present its proposal on the European fund for strategic investment, a key element of the investment plan for Europe, followed by a first exchange of views.

Current legislative proposals

The Council will receive an update from the presidency on ongoing work on financial services dossiers.

Presentation of the presidency work programme

The new Latvian presidency will present to Council its six-month work programme in the ECOFIN area.

Presentation of the Commission work programme

The new Commission will present its work programme for 2015, focusing on the economic and financial agenda.

Economic governance

The Council will hold an exchange of views on two Commission communications on economic governance: first, on the economic governance review and secondly, on clarifying the existing flexibility in the stability and growth pact.

Preparation of the G20 meeting of Finance Ministers and governors on 9-10 February 2015 in Istanbul

The Council will adopt terms of reference in view of the G20 meeting of Finance Ministers and governors in February in Istanbul.

[HCWS225]

Committee on Radioactive Waste Management

Tuesday 27th January 2015 Written Statements

[The Minister for Business and Enterprise (Matthew Hancock)]

My noble Friend the Under-Secretary of State for Energy and Climate Change (Baroness Verma) has made the following written ministerial statement today.

Triennial reviews are part of the Government’s commitment to ensuring that non-departmental public bodies continue to have regular independent challenge.

The review will examine whether there is a continuing need for CoRWM’s function and its form and whether it should continue to exist at arm’s length from Government.

If there is evidence of a continued need for the body, the review will also examine whether CoRWM’s control and governance arrangements continue to meet the recognised principles of good corporate governance.

I will inform the House of the outcome of the review when it is completed.

[HCWS222]

Non-lethal Equipment: Jordanian Armed Forces

Tuesday 27th January 2015 Written Statements

[The Secretary of State for Foreign and Commonwealth Affairs (Mr Philip Hammond)]

I have today laid a departmental minute proposing the gifting of non-lethal equipment to the Jordanian armed forces.

My right hon. Friend the former Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague) informed the House on 6 March 2013, Official Report, column 961, that he intended to provide additional non-lethal equipment to the Syrian opposition in order to help save lives. He then laid a departmental minute on 15 April 2013 and issued a written ministerial statement, Official Report, column 16WS, containing details of that gift which included, among other equipment, five 4x4 vehicles with ballistic protection. The equipment was due to be donated to the Syrian opposition National Coalition’s Assistance Coordination Unit based in Turkey. Although we have been able to deliver some of the equipment, regrettably, we have been unable to deliver the five 4x4 vehicles as planned.

There are two reasons for this:

1—only the US government and United Nations have been granted permission by the Turkish Government to use such vehicles in Turkey; and

2—the Assistance Coordination Unit (ACU) was not a registered entity at the time and therefore the ACU would have only been permitted to store and use the vehicles within Syria.

Our assessment is that delivering the vehicles to Syria carries too much of a risk of them ending up in the wrong hands. For example, on 7 December 2013 the Islamic Front raided the Syrian Military Council’s headquarters in Bab al-Hawa and took some of their equipment. We therefore now consider that the best option is to gift the vehicles to the Jordanian armed forces (JAF). The JAF would use them in their efforts to manage current insecurity on their border with Syria, including cross-border smuggling activity. This option represents the least risk of the vehicles falling into the wrong hands and is most cost-effective to the taxpayer given that the vehicles are already stored in Jordan.

This gift has been scrutinised to ensure that the provision of this equipment is consistent with export controls and complies with our international obligations. Recipients have been carefully selected to prevent equipment being given to those involved in extremist activities or human rights violations.

The value of these vehicles is £386,375.70 which will be met by the Government’s conflict pool fund.

The Treasury has approved the proposal in principle. If, during the period of 14 parliamentary sitting days beginning on the date on which this minute was laid before the House of Commons, a Member signifies an objection by giving notice of a parliamentary question or a motion relating to the minute, or by otherwise raising the matter in the House, final approval of the gift will be withheld pending an examination of the objection.

[HCWS224]

House of Commons Governance

Tuesday 27th January 2015 Written Statements

[John Thurso]

(Representing the House of Commons Commission): On 22 January the House of Commons agreed a motion supporting the recommendations in the report of the Select Committee on House of Commons Governance. The House of Commons Commission held an additional meeting on 26 January to ensure a speedy start to implementation of the Committee’s recommendations.

At its meeting, the Commission agreed a specification for the position of Clerk of the House that incorporates the job description set out in annex A to the Governance Committee’s report. The Commission also agreed a recruitment process in line with the Committee’s recommendations. Details will be published in the brief for candidates when the recruitment is launched. The intention is that the recruitment process should be completed before the dissolution of Parliament on 30 March.

The Commission has also taken two other initial decisions:

It has agreed that implementation of the Committee’s recommendations will assume no change to the membership of the Members Estimate Committee (option “A” in paragraph 152 of the Committee’s report).

It has agreed to write to the House Committee to propose a first joint meeting of the Commission and the House Committee in October 2015. This will provide time for the Commission to be established in its new form and for an appointment to the new post of Director General of the House of Commons. (See paragraph 128 of the committee’s report.)

The Commission is next meeting on 9 February when, among other matters, it expects to consider the job specification and recruitment process for the position of Director General of the House of Commons.

[HCWS223]

Holocaust Commission

Tuesday 27th January 2015 Written Statements

[The Prime Minister (Mr David Cameron)]

Today I am publishing the report of the Holocaust Commission and copies of the report have been placed in the Libraries of both Houses.

On this poignant Holocaust memorial day, 70 years on from the liberation of Auschwitz, “Britain’s Promise to Remember” sets out the steps this country will take to ensure that the memory of the Holocaust is preserved and its lessons are never forgotten.

The Commission’s work was informed by a call for evidence which received nearly 2,500 responses. This included one of the largest ever gatherings of British Holocaust survivors at Wembley stadium; a youth essay competition with more than 700 entries; and a wide range of consultation events and meetings, including at the White House and United Nations.

The Commission found widespread dissatisfaction with the existing Holocaust memorial in Hyde park, which was felt to be hidden out of sight and offer no context, information or opportunity to learn more. The strength of feeling on this was very clear, particularly from many of Britain’s Holocaust survivors.

The Commission drew on emerging findings from the world’s largest study of young people’s knowledge and understanding of the Holocaust—conducted by UCL’s Institute of Education. This found that the majority of our young people do not know some of the most fundamental facts that explain how and why the Holocaust happened, even after studying it at school. The Commission also reported inadequate support for regional projects, compounded by a lack of long-term funding for Holocaust education. And it identified the urgent need for the recording and appropriate preservation of the testimony of survivors and liberators.

So the Commission made four main recommendations. First, Britain should have a striking and prominent new national memorial in central London, to make a bold statement about the importance our country places on preserving the memory of the Holocaust and to stand as a permanent affirmation of the values of our society.

Second, there should be a world-class learning centre to accompany the national memorial. This would be a must-see destination that would draw on the latest technology to engage and inspire vast numbers of visitors. The new learning centre would also bring together a nationwide network of Holocaust organisations and support head teachers to champion Holocaust education throughout the country.

Third, there should be an endowment fund to secure the long-term future of Holocaust education for ever. This would cover the running costs of the learning centre and also support Holocaust education around the country, including through local projects and travelling exhibitions.

Fourth, the Commission recommends an urgent programme to complete the task of recording and preserving the first-hand testimony of British Holocaust survivors and liberators. The Commission proposes a new independent body to deliver all these recommendations and wants to see testimony work completed this year, the creation of the national memorial in 2016-17, and the learning centre within the next Parliament.

With the support of the Deputy Prime Minister and the Leader of the Opposition I am accepting these recommendations. I am today setting up the United Kingdom Holocaust Memorial Foundation, under the leadership of Sir Peter Bazalgette, to get on with this urgent work. In support of this, and to kick-start a society-wide fundraising effort, the Government will commit £50 million towards the delivery of the new national memorial, learning centre and endowment fund.

I would like to express my thanks to Mick Davis and to all the Commissioners— including the Parliamentary Secretary to the Treasury, my right hon. Friend the Member for Surrey Heath (Michael Gove), the right hon. Member for Morley and Outwood (Ed Balls) and the Minister of State, Ministry of Justice, the right hon. Member for Bermondsey and Old Southwark (Simon Hughes) who have given this work the cross-party status it so profoundly deserves.

Today we stand together—whatever our faith, whatever our creed, whatever our politics. We stand in remembrance of those who were murdered in the darkest hour of human history. We stand in admiration of what our Holocaust survivors have given to our country. And we stand united in our resolve to fight prejudice and discrimination in all its forms.

We will keep Britain’s promise to remember. Today, tomorrow and for every generation to come.

The Holocaust Commission report can be viewed online at: http://www.parliament.uk/writtenstatements

[HCWS226]

Grand Committee

Tuesday 27th January 2015 Grand Committee

Tuesday, 27 January 2015.

Arrangement of Business

Tuesday 27th January 2015 Grand Committee

Announcement

15:30

[The Deputy Chairman of Committees (Lord Skelmersdale) (Con)]

My Lords, the Grand Committee is in session. If there is a Division in the House, the Committee will adjourn for 10 minutes.

Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

15:30

Moved by

[Baroness Verma]

That the Grand Committee do consider the Justification Decision (Generation of Electricity by the UK ABWR Nuclear Reactor) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, on 11 December I laid before the House a draft statutory instrument containing the decision of my right honourable friend the Secretary of State for Energy and Climate Change, as justifying authority under the Justification of Practices Involving Ionising Radiation Regulations 2004, that the generation of electricity from the nuclear reactor design known as the UK ABWR—the UK advanced boiling water reactor—is justified. Regulatory justification is one of the regulatory steps which are necessary before new nuclear power stations can be built in the UK. It is based on the recommendations of the International Commission on Radiological Protection which are used around the world as the basis for radiological protection.

These recommendations form the basis of the Euratom basic safety standards directive, which requires member states to ensure that, before any new practice involving ionising radiation—such as a new design of nuclear reactor—can be introduced, it must first undergo a high-level assessment to determine whether its economic, social or other benefits outweigh the health detriment that it may cause. The requirements were implemented into UK law by the 2004 regulations, which provide that a decision on whether to justify a new practice should be taken by the justifying authority—in this case, my right honourable friend the Secretary of State.

The decision follows two public consultations by my department. There was first a consultation on an application from the Nuclear Industry Association for justification of the UK ABWR. Following that, the department last year published a second consultation on a proposed decision that the UK ABWR should be justified. After considering the responses to these consultations, we announced on 11 December our decision that the UK ABWR was justified. Copies of documents setting out detailed reasons for the decision have been deposited in the Library of the House.

In summary, we see a clear need for the generation of electricity by the UK ABWR because of the contribution that it can make through increased security of energy supplies and reduced carbon emissions. One UK ABWR will be able to produce 1,350 megawatts of electrical power for a high proportion of its operating lifespan of 60 years—enough electricity to power 2.5 million homes. Nuclear power has long been a significant source of low-carbon energy and it can continue to contribute to our energy mix. Energy companies are investing significantly in the prospect of new nuclear power stations, including Hitachi-GE Nuclear Energy Ltd and Horizon Nuclear Power, which are proposing to build two UK ABWRs at each of the two new nuclear power stations at Wylfa in Anglesey and Oldbury in Gloucestershire.

Beyond direct investment and employment from new nuclear power stations, we can benefit through the development of a globally competitive nuclear supply chain and an improvement in the quality of the UK’s skilled workforce. Against these benefits, there is the potential for detriment, but this potential is small, well understood and guarded against by an established regulatory regime. The radiation dose which members of the public would receive from the normal operation of a UK ABWR on an annual basis would be below detectable risk levels in the context of overall radiation exposure, including medical procedures and background radiation. The safety features of the designs and the regulatory regime, which sets limits on the release of radiation and monitors compliance, will ensure that emissions will be minimised. The risk of health detriment is therefore very low.

Justification decisions apply to the management and disposal of radioactive waste that new nuclear power stations will produce, as well as to their operation. In making our decisions, we are satisfied that the regulatory regime will limit the risk of health detriment from waste management and disposal to very low levels. We are also satisfied that there is a robust process in place to identify a suitable site for a geological disposal facility and are confident that a site will be identified and that a GDF will be built. We also concluded that the possible environmental detriments arising from new nuclear power stations are likely to be avoided or adequately mitigated by the licensing and planning regime.

We considered the risk of detriments arising from an accident or terrorist incident. Such possible detriments already exist, and the risk of such incidents should be seen in the context of the regulatory regime, which is intended to prevent accidents and protect against terrorist attack. We are confident in the regulatory regimes for the safety and security of civil nuclear installations and materials in the UK, and consider that the likelihood of an accident or other incident giving rise to a release of radioactive material is very small.

We have therefore concluded that the significant potential benefits outweigh the potential detriments, and that the generation of electricity by the UK ABWR should be justified. I commend the regulations to the Committee.

[Baroness Worthington (Lab)]

My Lords, I am grateful to the Minister for introducing these regulations. Obviously, we support the regulations and we see that greater diversity in reactor designs in the UK will be a good thing. We generally support the building of new reactors at the site in Wylfa and believe that it is important for the UK to continue to keep its nuclear capabilities and capacity as we move towards decarbonising our electricity system.

My comment on the process, however, is perhaps more general. This process, which we are required to undertake under Euratom to justify activities involving non-ionising radiation under the 2004 regulations, means that we treat nuclear infrastructure in a very different way from other risks that exist in society. I have a question about what the Government think is the right way forward in terms of balancing risk, when it comes to assessing the role that nuclear power can play as we go forward. My reason for asking is that we have a particular regime for ionising radiation; however, as the noble Baroness pointed out, radiation is a naturally occurring phenomenon and background radiation levels differ greatly around the country.

There is probably now a need for a national conversation about risk and how we deal with it. In this case, nuclear power seems to be being singled out for treatment that is not necessarily commensurate with the scale of risk. I say that because, in aggregate, US climate scientist James Hansen often points out that nuclear has a massively beneficial impact on health in terms of lives saved from avoiding air pollution. That is just one example of the advantages of nuclear power when it is used sustainably and safely. There is a need for a public discourse about our perception of risk, particularly, as in other sectors of the economy we have nowhere near as tight regulation on activities that pose threats to human health. I include among them vehicle emissions and air pollution more generally, and the use of chemicals in our environment, particularly those which have the potential to disrupt endocrine systems. The list is a long one, but in this case we seem to have developed an incredibly detailed system which has a regulatory burden attached to it.

I would simply ask this: do the Government think that we should have a conversation about this, and if so, how would we go about it? As we weigh up the costs of mitigating climate change going forward, it is important that we have a thorough and detailed understanding of the relative risks. On nuclear, my sense is that we need to look at the issue again.

[Baroness Verma]

I am extremely grateful to the noble Baroness for her support for the draft regulations, and of course I agree with her that the sector by its very nature is heavily regulated, and rightly so in order to build confidence. I also agree that the discussions need to be much fuller and more informed, and of course I hope that we will take the opportunity to open that debate going forward. However, perhaps we need to wait until after May to begin so that it can be fully informed by all sides. I accept that what we do not want to do is single out a sector which is helping us to meet our carbon targets. We should not overly prescribe for one sector as against others. Given that, we need to ensure that there is confidence, trust and transparency in the system, so it is right that, until we have had that debate, we should continue in this vein. I am pleased that the noble Baroness has expressed her support and I commend the regulations to the Committee.

Motion agreed.

Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

15:42

Moved by

[Baroness Verma]

That the Grand Committee do consider the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)]

My Lords, I am pleased to open the debate on the amendment regulations on the renewable heat incentive scheme. There are a number of amendments to cover today to both the domestic and the non-domestic RHI. These are the Renewable Heat Incentive Scheme (Amendment) Regulations 2015, the Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015 and the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Before I explain the details of the amendments, I would like to update noble Lords on the progress of the RHI. The RHI is a key part of achieving the Government’s vision of the future of heating in the UK: a future with secure supplies of low-carbon and renewable heat at affordable prices. The scheme first opened in November 2011 to the non-domestic sector. Since its launch, some 7,000 installations have been accredited under the scheme. So far, the scheme has paid for 2 terawatt hours of generated renewable heat. In April last year, the scheme was opened to the domestic market and we have seen more than 20,000 accreditations since its launch. Across the two schemes, we anticipate that the RHI could support over 7 terawatt hours of renewable heat in 2015-16. The RHI supports a diverse range of technologies, but currently we are seeing the highest deployment from biomass.

The year 2014 was a busy one for the RHI scheme. I have already mentioned the launch of the domestic scheme. We introduced amendments in May 2014 to make the non-domestic scheme easier to access, more efficient and open to additional renewable technologies. We also conducted a review of the non-domestic scheme from which some of the changes I will be introducing today have evolved. We continue to evaluate the scheme to ensure both that it incentivises uptake and that scheme administration is effective and efficient. We also published our consultation and response on the review of the biomethane injection to grid tariff.

To recognise the importance of innovation and technology development, we gathered evidence to assess the case for new technologies, or innovations to existing technologies, being included in the RHI. Following this, we have now published our guidance setting out the evidence requirements for considering new technologies. We have listened to stakeholder concerns about investment certainty for large-scale renewable plants. In December last year, we published a position paper on the introduction of tariff guarantees for the non-domestic scheme. These plants can take a considerable time to come online and can be affected by the lack of a guarantee on the tariff that will be available when they complete. The published position paper sets out what the policy may look like if the work is continued in the next Parliament.

15:45

I now come to the proposed regulatory amendments before us today. These proposed regulations introduce a number of improvements to the non-domestic and domestic schemes. Biomass has seen the highest deployment of all renewable technologies across the scheme. Around 99% of the heat generated in the non-domestic scheme comes from biomass, biogas and biomethane. For the domestic scheme, around 48% of heat is generated by biomass installations.

Sustainability is of great importance to us. The biomass sustainability regulations we are proposing will ensure that we deliver significant greenhouse gas savings from this technology and protect our environment, at both a global and local level. We are introducing some of the toughest sustainability criteria in the world under the RHI. This will ensure that the UK continues to take a leading and robust role in developing the market for sustainable biomass. The biomass sustainability criteria will apply to current and future participants in both the domestic and non-domestic RHI schemes. It will affect users of solid biomass and biogas and biomethane injection participants who create their fuel from solid biomass.

The first biomass sustainability requirement is a minimum greenhouse gas emissions saving for all biomass supported by the scheme. This will allow biomass used in the RHI to continue to make an important contribution to our national carbon targets. Scheme participants will be required to demonstrate that the lifecycle greenhouse gas emissions of any biomass used do not exceed 34.8 grams of CO₂ equivalent per megajoule of heat generated or biomethane injected. This limit is designed to ensure that, compared to the average emissions from fossil fuels used in the EU to generate heat, biomass supported by the RHI will deliver a 60% greenhouse gas emissions saving.

The second biomass sustainability requirement is the introduction of land criteria for solid biomass. For wood fuel, this means demonstrating that the feedstock comes from sustainably managed forests or other sustainable sources. In order to provide a close fit to existing forestry management practices, we will require participants to demonstrate that their wood fuel is consistent with the UK timber procurements standard. For non-wood fuel biomass, the land criteria correspond to those set out under the EU renewable energy directive for transport biofuels and bioliquids. These consist of restrictions on the use of biomass sourced from land with high biodiversity or high carbon stock value such as primary forest, peat-land or wetland.

To help implement the adoption of these new sustainability criteria for small-scale users of biomass, we have sponsored the creation of a biomass suppliers list. The list was launched to wood fuel and short-rotation coppice suppliers in April 2014. The BSL has been publicly accessible since September last year and provides an easy, free at the point of use, light-touch method for participants to comply with the sustainability criteria. The regulations allow for the creation of other biomass suppliers lists, subject to Secretary of State approval. We hope the industry will use this flexibility to take the lead in demonstrating the sustainability of their businesses.

Participants will either have to buy their biomass from the BSL, register as self-suppliers or provide their own evidence that their fuel is sustainable. In all circumstances, participants will need to provide an annual declaration to the scheme administrator, Ofgem, and demonstrate how they are meeting their biomass sustainability requirements. The draft regulations set out that participants must meet these mandatory requirements from October 2015. The time between now and October will help provide sufficient lead-in time for participants, biomass producers and traders to understand the requirements and develop plans to demonstrate compliance.

The biomass sustainability requirements are both ambitious and will deliver significant benefits from the biomass supported. We consider this is achievable and will represent a vital step in ensuring the long-term future for biomass as a heating technology in the UK.

Biomethane injection to grid has been supported since the launch of the scheme and is a key contributor to the uptake of renewable heat. A review of the tariff was announced in February 2014 in response to market intelligence and updated evidence on planned new biomethane plants with much higher capacities than the scheme originally envisaged. The review looked at whether the existing support based on a 1 megawatt waste plant was still appropriate for much larger plants that may benefit from economies of scale.

Following consultation and analysis of detailed evidence from market participants, we intend to introduce a tiered tariff structure based on three tiers. This was the preferred option for those who responded to the consultation. Biomethane injection to grid plants will receive 7.5 pence per kilowatt hour for the first 40,000 megawatt hours injected; 4.4 pence for the next 40,000 megawatt hours; and 3.4 pence for any subsequent biomethane injected in a 12-month period from the date of registration.

When compared to alternative options, such as banding where support is based on capacity size, a tiered tariff is less likely to lead to unintended consequences such as gaming. It is also simpler to administer as payments will be determined on the volume of gas injected rather than asking for installations to determine a system capacity. The new tariff will be applied to biomethane injection to grid plants registered from the date when the implementing regulations come into force. The new tariffs will ensure the biomethane market remains sustainable and better value for money for the taxpayer by making sure that large plants are not overcompensated while also providing the right level of support to incentivise the uptake of smaller plants.

As part of the routine budget management controls for the RHI scheme, we announced in November last year a 10% tariff reduction to the current biomethane tariff, which took effect on 1 January 2015. We have built into the draft regulations protection for the new biomethane tariffs from any tariff reduction as a result of the budget management mechanism. The earliest point at which these new tariffs could be reduced is 1 July this year. This should provide stakeholders with a period of tariff stability following the introduction of tiering.

We have improved our support for combined heat and power plants. Stakeholders asked us to provide them with greater flexibility in the eligibility rules. The CHP rules are now flexible enough to allow a combination of different fuels to be used to generate heat and feed the same CHP unit. This could be both fossil fuel and renewable, so CHP operators can make a phased switch to renewable heat avoiding plant downtime and reducing the need to commit to a large financial outlay at the outset.

We are introducing a suite of changes which will provide greater efficiency and improve the application experience for consumers. These will also give Ofgem greater flexibility in how certain requirements are met, reducing some of the current scheme complexity and improving the accreditation process. For example, the requirement to confirm that biomass boilers are designed to burn biomass as their primary source of fuel will no longer be needed as this can be evidenced from the air quality criteria and the incoming biomass sustainability requirements.

Ofgem currently has powers to apply sanctions if a participant is failing or has failed to comply with the scheme requirements. We are introducing changes which clarify where sanctions can be applied in some circumstances: for example, if incorrect information was provided when applying to the scheme which would have affected the eligibility of the installation.

Amendments to the domestic RHI will introduce a number of general scheme improvements to drive uptake of the scheme and several minor amendments and clarifications. These minor amendments have been introduced based on experiences and feedback since the domestic RHI was launched.

The scheme currently requires all applicants to have a Green Deal assessment. This provides information about efficiency measures suitable for their homes. For social landlords, who are already required to meet minimum energy efficiency levels under the decent homes standard, the requirement of a Green Deal assessment does not provide them with any supplementary information on energy efficiency measures. With a larger number of properties, a Green Deal assessment for each property is a potential barrier to installing a renewable heat technology. This change will remove the need for social landlords to complete a Green Deal assessment when applying to the scheme. They will still require an energy performance certificate that is less than two years old for each property, so that RHI payments can be calculated and to confirm that the scheme’s minimum energy efficiency requirements have been met. This amendment will remove a significant barrier to uptake of the scheme for social landlords.

The scheme will be amended to include two additional subsets of technologies which were part of our original policy intent. The draft regulations allow cooker stoves and high-temperature heat pumps to be eligible technologies. The inclusion of high-temperature heat pumps will open up the scheme to potential applicants whose properties may not be suitable for other eligible technologies. Updated microgeneration certification scheme standards will help to demonstrate that high-temperature heat pumps can meet the scheme’s minimum energy efficiency requirements. The amendment to include cooker stoves as an eligible technology will correct an unintended consequence where stoves with a primary heating and hot water function were originally excluded from the scheme. Both the non-domestic and domestic amendments will update the regulatory provisions setting out the current MCS standards to ensure that installations which have to comply with the standards will be eligible for the RHI scheme.

A number of minor amendments will provide further clarification to the scheme requirements. For example, we have clarified that houses with more than one building such as a separate office, annexe or outbuilding are eligible for the domestic scheme. RHI support will however be paid for only the main dwelling.

These amendment regulations are focused on changes to both the non-domestic and the domestic RHI scheme. Biomass sustainability will be introduced to both aspects of the scheme. This will help us to work towards achieving our Government’s goal to deliver significant reductions in greenhouse gas emissions. Biomethane will be an important contributor to renewable heat. The changes that I have outlined today will ensure that the biomethane market remains sustainable and offers good value for money to the taxpayer.

By introducing new eligible products this will diversify the scheme and provide a wider technology choice and mix to help increase uptake of the scheme. Our continuing work to evaluate and engage with stakeholders for feedback on the scheme has resulted in several scheme improvements. These will provide greater clarity and improve the application experience for consumers. I commend these regulations to the Committee.

15:59

[Lord Teverson (LD)]

My Lords, I very much welcome the Minister’s statement and her description of these schemes. When talking of trying to decarbonise power and energy in this country, we always think first of electricity but heating is very important particularly at this time in January—although my wood stove at home was a great comfort to me over the weekend, the solar thermal supply for the shower was perhaps not quite as good. These are really important technologies and it is good that we are continuing to modify these schemes.

I should like to put a couple of general questions to the Minister and then one specific question. I particularly welcome the greater emphasis on the sustainability of biomass, and I do so for two reasons. One is obviously that the sustainability of sources is very important in its own right. The second is that biomass is attracting a lot of criticism from a number of areas—maybe some of it rightly but perhaps some of it not so rightly—and it is very important that biomass’s image and reputation are kept strong and that it remains part of our renewable energy sources in the UK. Only by ensuring that we meet the sustainability criteria will we be able to do that.

One thing that we know—the Minister started to explain this quite broadly—is that, with biomass in particular, the supply chains are global. Much of the supply for some of the very large applications in the UK comes from across the Atlantic and maybe from even further afield—on the other side of the Pacific and from other parts of North America. When those supply chains are as long as they are, how do we know that the sustainability requirements are really met? Do we ever inspect them, or do we just rely on companies to do that? I ask that because I know from other areas of industry that things such as the sustainable forests code have been abused in the past. We know that relatively easy supply chains for food within Europe have not always been as good as they should be, even when the purchasing companies, such as the supermarket chains, have some of the tightest controls—or we thought that they had. I would be interested in hearing the Minister’s comments on that.

Secondly, I have a question relating to the European single market. If businesses want to purchase through other European Union countries, how is this legislation compatible with a single market if we have different standards in the UK? I assume that this has been got over, but I would be interested in understanding how that works.

A more specific question, on which I am not necessarily expecting an answer from the Minister today, relates to CHP. I understand from the Renewable Heat Incentive Scheme (Amendment) Regulations 2015 that, quite rightly, plants established before 4 December 2013 cannot claim back RHI because they were established before this type of scheme started. I understand that entirely. Where a CHP plant is added on to a CHP facility, particularly an AD one, that would be eligible for claiming RHI, but I understand that if that plant was built before 4 December 2013 and the CHP was then added on, it would not be eligible. That is a change of policy, as outlined by DECC following one of the earlier consultations. I know that that has affected certain plants and investment decisions, and I welcome that. As we all know, CHP is a very important late innovation in the UK and we wish to copy our European counterparts due to the success of those sorts of schemes in the past. If the Minister is able to answer that now or in correspondence, I shall be very grateful.

I very much welcome the evolution of this scheme, which I regularly remind people does not affect consumer prices for heat and has no effect on increasing energy prices.

[Baroness Worthington (Lab)]

My Lords, I, too, am grateful to the Minister for talking us through these regulations and for presenting a very clear and informative case for them. I have a number of questions relating to the regulations.

I notice that in the debate in the House of Commons, where these SIs were discussed previously, the Minister responding was a little loath to answer general questions about how the RHI is delivering against its targets. Specifically, when questions were asked about the budget, including the budget going forward, no clear answer came back. I therefore begin by reiterating those general questions to the Minister. Could she tell us when we might expect an update on how the RHI is doing in relation to where we need to be to hit our targets? Could she also give us a sense of when we might hear about how we are going in terms of the budget? Are we underspent or near to an overspend, and what are the budget projections going forward?

On the regulations, we certainly welcome, like the noble Lord, Lord Teverson, the introduction of sustainability criteria for biomass. It is a good idea, and it is very important that we restore the reputation of sustainable biomass. It is very easy to have one rotten apple in the barrel taint the perception of the whole system. It is important that we have transparent and robust information about sustainability and requirements on suppliers to meet those standards.

However, there is a point at which this ever increasing pressure to incorporate every single element of carbon emissions upstream on biomass is unique. It is not something that we do in other fuel supply chains. For example, gas is in the headlines a lot at the moment, and we hear debate about fracked gas versus LNG and versus gas coming from Russia, all of which have a different carbon intensity and carbon footprint, but that fuel supply chain is almost ignored and is not paid the same degree of attention. I understand why, but would just question when we might start to see a slightly more equal handling of fuel supply chains across the piece. Biomass certainly has a role to play in decarbonisation, but it should not be singled out. We ought to apply equal and fair treatment to all fuels, if we are going to pursue this very detailed accounting of upstream emissions.

I certainly welcome the list of suppliers and the department’s attempts to try to simplify this for both end-users and suppliers to ensure that the industry can get off to a good start.

I am also encouraged to hear from the Minister that she believes that biomethane injection to grid could be an important contributor to our renewable heat targets, but I am just curious to know to what extent biomethane is delivering. I imagine that we are now introducing tiered tariffs because there has been a relatively good uptake. What does the department now believe the potential for biomethane is? It would be very helpful to have it as the percentage of the total demand for renewable heat and gases, just so that we can get a sense of how we are doing and what the potential is. We expect that the RHI will uncover information about this market which, as has been said elsewhere, is a world first in terms of creating an open and widely applicable subsidy scheme for renewable heat. We would expect it to deliver quite interesting findings in terms of the least-cost options for decarbonisation. We simply have some curiosity as to where we see biomethane injection as we progress towards our targets.

We support the new powers to cause payments to be stopped and the interventions that are now possible. We have said this before in debates on the RHI. We remain concerned, and hope that the Government share our concern, that we must not see abuses of the RHI. We cannot afford negative headlines in the press about subsidies being abused or any wrongdoing, so it is important that the enforcement and sanctions parts of this intervention are got right. Why were these powers not originally included in the proposals? I am glad that they are there now, but I question why we had not thought through the need to do this earlier. I reiterate that I hope everyone in the department is fully aware of the need to ensure that, even if we take a slightly light-touch regulatory approach, we are very vigilant in ensuring that there is no potential for misuse of the funds, which are public funds in this case, not bill payers’ funds.

I have a question about the overall way we are going to move forward on the RHI. As we have seen from today’s discussions, this is now quite a complex policy area which has many triggers within it, including digressions and abilities to change different levels and to move technologies and bands. During the passage of the Infrastructure Bill through this House, an amendment was introduced by the Government that removed the need for an affirmative resolution for changes to some important parts of the RHI. At the time, I asked the Minister whether it would apply to tariffs and budgets applied to different technologies and whether it was appropriate. I am grateful to the Minister for writing to me on 17 November to confirm that moving from the affirmative resolution procedure to the negative resolution procedure would apply to tariffs for technologies. I reiterate my concern. I do not fully understand why it should be felt necessary to remove this part of the process which allows us to comment on statutory instruments and changes to statutory instruments. In her letter, the Minister said that it was to enable the Government to act quickly, but this is not a particularly slow process. It is an important part of the democratic process that ensures that we get proper scrutiny and an opportunity to question changes. It reassures the industry that due process will be applied to changes which will substantially affect plans for investment.

So again I ask: what is the real rationale for removing this important process? Perhaps it is for no other reason than that we will have fewer of these conversations, and that would be a great shame because I enjoy talking about the RHI. As the noble Lord, Lord Teverson, said, it is refreshing to be talking about something other than power when it comes to energy. I think we should maintain full scrutiny of these changes. This is a complex policy area, but it is an important one that we need to get right.

I am also slightly not reassured by the Minister’s statement that the Government will continue to “engage” properly with industry. I would like to hear a bit more about what engage properly with industry that means. I say that in the context of experience where, for example, on feed-in tariffs for solar, we saw very hastily introduced changes that were not properly consulted, and a great deal of bad feeling was created. If a change to the way we consider these SIs leads to anything like that in this market, it would be a great shame.

I would welcome the Minister’s comments on why we are moving away from the affirmative resolution procedure and, if they continue to pursue the negative resolution procedure, what the Government will do to ensure that they are properly listening to industry and engaging. Other than that, I am happy to support the regulations.

[Baroness Verma]

My Lords, I am extremely grateful to my noble friend Lord Teverson and the noble Baroness, Lady Worthington, for their support for the regulations. They have raised a number of questions. I shall endeavour to answer as many as I can, but if I miss out on any question, I shall write to them.

16:15

My noble friend asked what measures we can use when we are trading at global level to ensure that the sustainability criteria remain at the heart of our trade. The UK Government have been a strong supporter of the UN-REDD+ mechanism. The processes that that entails enable us to keep on track of our global trading. My noble friend is right that we need to ensure that, as stringent as we are, our partners remain equally stringent. I reassure him and the Committee that the UK takes the process of trading very seriously, and we have been a leading advocate in ensuring that we are strong supporters of seeing UN-REDD+ being enforced and utilised at the very top.

My noble friend also asked whether the legislation is legally compatible with businesses being able to purchase biomass in the single market. The biomass sustainability criteria have been notified under the technical standards directive, so we do not think that the requirements will restrict trade, but in any case they are justified, as my noble friend rightly points out, for environmental protection purposes.

My noble friend also asked whether a CHP plant built before 2013 that has another facility added to it would be eligible to claim for RHI. In order to ensure value for money, of course it is necessary for an AD plant to be new. This policy will remain the same under the new regulations, so there has been no change. It continues in the same vein.

The noble Baroness asked whether we were meeting our targets. The Government are committed to meeting their ambitious renewables targets. We are committed to increasing the use of renewable energy by 2020 and we are on track to meet the 2013-14 interim target of 5.4% of final energy consumption from renewables. We have always stated very clearly that we want to see it from a wide range of renewables and not be focused on any one particular sector.

The noble Baroness also asked why powers of enforcement were not originally included. These changes are minor amendments to reflect experiences since the scheme was introduced and to make sure that Ofgem has all the powers that it needs and that those powers are clear.

The noble Baroness also spoke about the negative and affirmative procedures. The department undertakes formal and informal consultations with industry bodies and individuals. This is a very technical area. Sometimes, we need to make swift amendments to protect the value-for-money argument and ensure that there is technical delivery that is not hindered by process.

The noble Baroness also asked what DECC believes is the future of biomethane as we progress towards our targets. Overall, we expect the RHI to deliver between 5.2 terawatt hours and 7.4 terawatt hours by the end of 2015-16. We expect between 20 terawatt hours and 50 terawatt hours for the scheme by 2020-21. But it would be better for me to write to the noble Baroness because the answer is not as full as I would like it to be for her and for my noble friend.

The noble Baroness also asked when we will see the equal handling of fuel supplies across the scheme. The biomass sustainability criteria in the RHI apply to biomass, biogas, biomethane and bioliquids. Biomethane and bioliquids are not supported by the RHI, but where they are supported in electricity or transport, they are subject to the mandatory requirements of the renewable energy directive.

[Baroness Worthington]

Perhaps I did not articulate my question clearly enough. What I was asking about was not equal treatment within the RHI, but equal treatment across the energy sector. Why do we take a full “well to wheel” approach or a full lifecycle approach to biomass, but not to fossil fuels which, let us be honest, are inherently less sustainable? We do not treat them equally with biomass. My point was a broader one than simply about the RHI.

[Baroness Verma]

I am extremely grateful to the noble Baroness for that clarification, and clearly I failed to recognise the question as she originally put it. I think that the response needs to be made in a fuller, more formal letter to her. These are detailed criteria going forward, and of course what I cannot do is look retrospectively at the energy sources we have already.

Going forward with the schemes that we have control over today, we need to make sure that they are as sustainable and environmentally friendly as they possibly can be. Where we may have had trade-offs in the past, we want to ensure that those are now reduced to a minimum so that we can look not only at value for money for the consumer, but also that we play an active role in environmental protection, which is absolutely right.

I suspect that I have missed a number of questions, but since inspiration is not coming from behind me at this moment, I must assume that we will write.

I shall conclude by saying to the noble Baroness and to my noble friend that the contributions made by these schemes rightly should be reviewed regularly so that we can ensure that we are achieving the best value that we can offer to consumers without burdening the new sector itself. We also need to listen carefully to those in the sector to ensure that we do not inadvertently put up barriers that hinder their progress. We want to see newer technologies entering the marketplace, so a balance needs to be struck between reducing support when a technology matures and no longer needs so much support and encouraging the emerging ones. The noble Baroness mentioned the solar industry. Frankly, that is now seen as a mature part of the sector which needs less support, and rightly so.

In thanking both noble Lords for their support, I commend these regulations to the Committee.

Motion agreed.

Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

16:23

Moved by

[Baroness Verma]

That the Grand Committee do consider the Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

16:23

Moved by

[Baroness Verma]

That the Grand Committee do consider the Renewable Heat Incentive Scheme and Domestic Renewable Heat Incentive Scheme (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

16:24

Moved by

[Baroness Williams of Trafford]

That the Grand Committee do consider the Protection of Freedoms Act 2012 (Code of Practice for Powers of Entry and Description of Relevant Persons) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[Baroness Williams of Trafford (Con)]

My Lords, the Government recognise the importance of respecting human rights and are committed to preserving the rights of individuals in their homes and businesses not to undergo unnecessary intrusion. The Government have consistently made very clear their intention that public authorities should have fewer powers to enter people’s homes and that the privacy and rights of home owners and businesses should be protected and strengthened wherever possible. It is essential that powers of entry, as with any enforcement power, achieve the right balance between the need to enforce the law and ensure public protection, and providing sufficient safeguards and rights for the individual.

Powers of entry are statutory powers for a person to enter land or other premises for a specific purpose. Such powers are important tools that facilitate the protection of the public from harm, enable the effective investigation of offences and allow for the necessary enforcement of regulations. It is sometimes necessary to enter premises. However, we recognise that doing so can place burdens on businesses and individuals, and we have therefore sought to correct this.

The Protection of Freedoms Act 2012 introduced a number of measures to rationalise the more than 1,200 powers of entry that were available in statute. The Act required Ministers who have responsibility for powers of entry to, for the first time, examine those powers together, consider whether they were still necessary and proportionate and, crucially, consider whether they contained sufficient safeguards. Reports laid before Parliament in November last year proposed significant reform. The Act also provided for the introduction of a code of practice containing guidance about powers of entry and associated powers.

Following the review of existing powers of entry, this order provides for such a code of practice to come into force on 6 April this year. The order also describes those who will be covered by the term “relevant person” for the purposes of entry to premises. Subject to certain exceptions, this will mean that, in future, any person exercising a power of entry will be obliged to have regard to the new code. The two exceptions to the definition of “relevant person” are that, first, the person concerned is exercising a devolved power of entry and, secondly, that the exercise of the particular power of entry is subject to a separate statutory code of practice.

The relevant code of practice to which this order relates was first published last December. It provides guidance and sets out considerations that apply before, during and after the exercise of powers of entry—for example, that an occupier needs to be provided with written notice at least 48 hours before entry and that reasonable efforts should be made to obtain the informed consent of the occupier.

Of course, many of the considerations set out in the code already exist in statute in relation to certain powers of entry. It is therefore important that the code of practice does not override existing provisions and introduce unwelcome complication. The purpose of the code is simply to provide for a minimum level of safeguards to be applied broadly across powers of entry and to increase the consistency and transparency with which they are exercised. Where particular safeguards already exist in statute, the code will not alter or replace them.

Under the recent review, we proposed significant reform to existing powers of entry under statute. This code seeks to build on that reform and ensure that all entry to premises is exercised in a more proportionate and less intrusive manner, while upholding effective enforcement where necessary. I beg to move.

[Lord Rosser (Lab)]

My Lords, I thank the Minister for explaining the purpose of and background to this order. The Explanatory Memorandum indicates that the Secretary of State has been obliged to prepare a code of practice containing guidance about the exercise of powers of entry under, I believe, Section 47 of the Protection of Freedoms Act 2012.

Why does it appear to have taken a quite considerable period of time to produce the code? The public consultation took place over some six weeks at the beginning of 2013, and it does not appear that the Government were exactly overwhelmed with responses, since there were apparently just 28. What has been happening since the beginning of March last year? Could the Minister also say who was consulted on the code? The 2012 Act places a requirement on the Secretary of State to consult various people in the course of preparing the code of practice and in relation to the description of “relevant persons”.

16:30

Paragraph 8 of the Explanatory Memorandum refers to government departments, operational and enforcement bodies, businesses that exercise powers of entry and the Association of Licensed Multiple Retailers being consulted, but this code also covers powers of entry into domestic dwellings, for example. How, and to what extent, was consultation carried out with home owners and other private citizens?

The Explanatory Memorandum refers to the review of existing powers of entry identifying 1,237 separate examples. Are all those 1,237 existing cases or examples now covered by this code? Have any of those 1,237 separate powers identified subsequently been abolished on the grounds that, on reflection, they were no longer deemed necessary or appropriate?

During the consultation that took place, which seems to have been mainly, although not exclusively, with those exercising the powers of entry rather than those on the receiving end of such powers, did any organisations or authorities currently exercising power of entry argue that the terms of the code of practice would make the operation of their powers of entry less effective or efficient in any way than is currently the case, and if so, in what regard?

A power of entry is by its very nature an intrusive device. I note that there will be an internal review of the working of the code of practice after five years. Why was five years chosen? What will happen if issues with the new code come to light early on? Will they have to wait for the end of the five-year period to be considered and addressed?

Although powers of entry and associated powers can be important in protecting the public from harm and in enabling effective investigations leading to the necessary enforcement of regulations, it is imperative that relevant persons are aware of the standards that should be met in exercising powers of entry. It is also important that there should be transparency in this area of activity in order to minimise, as far as possible and practicable, the impact of entry and intrusion into homes and businesses. We welcome the code of practice and the greater consistency of approach to the exercise of the power of entry and associated powers which it is designed to deliver, as well as the safeguards which the code contains. I hope the Minister will be able to give me a response to the points I have raised, either now or subsequently, but we support the order.

[Baroness Williams of Trafford]

My Lords, I thank the noble Lord, Lord Rosser, for his contribution and hope that I can satisfy him on some if not all of the questions that he asked.

The review of all existing powers of entry identified more than 1,200 such powers. The noble Lord, Lord Rosser, asked why it took so long. I suppose the answer is, in part, that there were more than 1,200 separate powers, exercised in a very broad range of circumstances, and the review was therefore quite a considerable and complex task. It was really the first time that the Government considered these powers of entry as a whole rather than in parts. Although it took a while, I hope the noble Lord is satisfied about why it did. The important thing is that the review was carried out.

[Lord Rosser]

I certainly do not wish to pursue this point in great detail, but the consultation on the draft code of practice finished at the beginning of 2013, so presumably the draft code of practice reflected the 1,237 separate powers and how they could be brought together into a draft code of practice to produce greater conformity and consistency. What I cannot understand is why, the consultation on the draft code of practice having ended early in 2013, it has now taken so long for us to be considering the code of practice in its final form.

[Baroness Williams of Trafford]

My Lords, I appreciate the point that the noble Lord makes. The consultation was completed in 2013, but the issue is complex. I assume that the Government had to consider the complexity of the matter as a whole. The noble Lord still does not look satisfied, so perhaps I should put it in writing in due course.

The noble Lord also asked who was consulted. We consulted widely with organisations responsible for exercising powers of entry as well as with the businesses and individuals who are subject to the powers. We believe the new code of practice will provide the much needed consistency and transparency that he talked about and will ensure that members of the public know what to expect when powers of entry are exercised without unduly restricting the ability of enforcement bodies to take necessary action.

I now have from the Box behind me another point about why it took so long to produce the code. It was in order to meet the concerns of other government departments. It was necessary to complete the review of existing powers before bringing forward the code of practice and take into account their concerns on the wording of the code. I will lay that out in writing to the noble Lord.

The code was subject to public consultation and was available on the Home Office website. Home owners at the time were able to access it. The review and the code were separate projects—that might also be helpful to the noble Lord. The review was about which existing powers should be revoked, have safeguards added or be rewritten, while the code is about what safeguards should apply to the exercise of powers of entry that remain on the statute book. I hope that helps to clarify the noble Lord’s concerns there.

The noble Lord, Lord Rosser, asked why it will be five years before an internal review takes place. Section 49 of the Protection of Freedoms Act 2012 places an obligation on the Secretary of State to keep the code under review. This obligation will bite from the point the code comes into force. I hope that explains that point.

The noble Lord also asked whether organisations say that the code will make them less effective than they are now. None of the organisations that responded to the consultation stated that the code will be less effective than the current arrangements. I hope that gives the noble Lord comfort.

The noble Lord also asked when changes proposed by the review will take effect. It is for the department to make the legislative changes that have been proposed in review reports. Timetables will take into account the wider policy context in which a particular power operates; for example, it might be appropriate to make changes to powers of entry alongside other planned reforms. The Protection of Freedoms Act 2012 provides statutory tools to repeal, add further safeguards to or consolidate powers of entry, and I am aware of a number of changes having been introduced.

I am sure that I have not answered everything that the noble Lord, Lord Rosser, asked, but I hope that gives him some satisfaction. With that, I commend the order to the Committee.

Motion agreed.

Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

16:39

Moved by

[Baroness Williams of Trafford]

That the Grand Committee do consider the Regulation of Investigatory Powers (Communications Data) (Amendment) Order 2015

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[Baroness Williams of Trafford (Con)]

My Lords, this order concerns the important government commitment to reduce the number of organisations that can access communications data. Noble Lords will be aware of the significance of this subject and of the provisions on the retention of communications data currently being considered by this House in the Counter-Terrorism and Security Bill.

As noble Lords will know, communications data are the who, where, when and how of a communication but not its content. It is a crucial tool for fighting crime, protecting children and combating terrorism. Access to communications data is governed by the Regulation of Investigatory Powers Act 2000, known as RIPA. RIPA contains robust safeguards, including tests of necessity and proportionality. In July last year, in response to an adverse judgment of the European Court of Justice on the EU data retention directive, Parliament passed the Data Retention and Investigatory Powers Act, or DRIPA. This Act ensured that important capabilities were not undermined, while increasing safeguards.

While that legislation concerned data retention, the Prime Minister also announced a number of safeguards concerning access to communications data. One of those safeguards was a commitment to reduce the number of organisations with access to that data. This order fulfils that important commitment. A further safeguard in the Data Retention and Investigatory Powers Act will ensure that data retained under that Act can be accessed only via RIPA or through a court order or warrant. This order therefore replicates a power to access communications data that already exists in the Financial Services and Markets Act 2000.

I will now turn to the substance of the order. As I have said, it reduces the number of organisations that can access communications data. This is a crucial safeguard. I know that this Committee will agree that only those authorities that can make the strongest possible case should be allowed access. Following a recommendation from the Joint Committee on the draft communications data Bill, the Home Office conducted an exercise to ascertain whether some authorities should lose their powers to access communications data. This order removes powers from the following 13 authorities identified in that exercise: the Charity Commission; the Civil Nuclear Constabulary; the Department of Agriculture and Rural Development, Northern Ireland; the Department for Business, Innovation and Skills; the Department for Environment, Food and Rural Affairs; the Department of the Environment, Northern Ireland; the Environment Agency; the Food Standards Agency; the Pensions Regulator; the Port of Dover Police; the Port of Liverpool Police; the Royal Mail; and the Scottish Environment Protection Agency.

Some noble Lords may consider that we should have gone further and taken away powers from more authorities. The Government considered the business cases for all the authorities with communications data powers. I can assure noble Lords that there are very good reasons why the authorities that have retained their powers have been allowed to do so. When deciding which authorities should retain access, the Government considered a number of issues, including the statutory responsibilities of the authorities with access, the seriousness of the offences they investigate and the number of requests that they made. Although identifying authorities to lose powers was not easy, the authorities identified in this order were not able to demonstrate that their continued access was strictly necessary.

It is worth noting that there is also a substantial amount of transparency on this issue. The most recent report by the Interception of Communications Commissioner listed all the authorities with access to communications data and the purposes for which they can access those data, as well as the number of requests that they made in the calendar year. I hope that the approach the Government have taken and the transparency available will assure noble Lords that the Government are taking the right action concerning which authorities should have investigatory powers. This brings me on to the other provision in this order.

The order also amends the Regulation of Investigatory Powers (Communications Data) Order 2010 to add a new purpose for which communications data may be acquired for the purposes of the Regulation of Investigatory Powers Act. This new purpose is specifically designed to replace powers that are currently available in the Financial Services and Markets Act 2000. The order specifies that only two public authorities will be able to use this purpose to access communications data: the Financial Conduct Authority and the Prudential Regulation Authority. The measure will ensure that all their requests for communications data are subject to the safeguards in RIPA. These two authorities are currently able to access communications data under RIPA for the purpose of the prevention or detection of crime. They are also able to access communications data under the Financial Services and Markets Act when investigating civil abuse of our financial system.

Noble Lords will understand, particularly in the light of experiences over the past few years, how serious and damaging the impact of abuse of our financial system can be. Communications data are capable of showing who contacted who and at what time. This power is fundamental in, for example, proving that insider dealing has taken place. So to be clear: this new purpose replaces powers that have been available in the Financial Services and Markets Act 2000 but ensures that they are subject to the robust safeguards in RIPA.

I know that the Committee will appreciate why we are bringing forward the provisions in this order. Equally, I know that the Committee will want to feel confident that we will keep under review whether the right authorities have the right powers. I can assure the Committee that we will. The Data Retention and Investigatory Powers Act 2014 provided for David Anderson QC, the Independent Reviewer of Terrorism Legislation, to undertake a review of investigatory powers and report by 1 May 2015. DRIPA also contains a sunset clause of December 2016. Therefore, legislation on communications data will be needed in the next Parliament. We look forward to the findings of the review and to using those findings to inform future legislation.

In closing, the order fulfils the important government commitment to reduce the number of organisations with access to communications data. It also ensures that all requests for communications data by the financial regulators are subject to the safeguards in RIPA. I beg to move.

[Lord Rosser (Lab)]

My Lords, I thank the Minister for explaining the background and purpose of the order which, as she said, removes some public authorities from the list of bodies allowed to access communications data under the Regulation of Investigatory Powers Act 2000, and increases the grounds under that Act on which the Financial Conduct Authority and the Prudential Regulation Authority can access data to include non-criminal enforcement of financial services regulation.

However, why are the Government bringing forward the order now? The Explanatory Memorandum refers to the draft communications data Bill, as did the Minister, and a Joint Committee report published more than two years ago. The Explanatory Memorandum also states that while that Bill was being considered there was substantial consultation with the authorities from which this order removes powers, as well as with the Treasury in relation to the change affecting the Financial Conduct Authority and the Prudential Regulation Authority. All this appears to have been some time ago, and it is only now that the order is being brought forward, yet there have been other developments since the Joint Committee report on the consultations to which I have referred. As the Explanatory Memorandum itself says in paragraph 12—to which the Minister has already made reference—the Data Retention and Investigatory Powers Act of last July,

“requires the Independent Reviewer of Terrorism Legislation to carry out a review of investigatory powers, including communications data”.

That review should be completed by 1 May, in just over three months’ time. In addition, the Intelligence and Security Committee is determining how we can properly balance both security and liberty in online communications.

Why then have the Government decided to bring this already delayed order in now rather than wait for the pending reports and views on issues relating to communications data from the independent reviewer and the ISC? Is bringing this order forward now rather a case of jumping the gun in the light of developments in recent months, bearing in mind that this order appears to have been somewhat delayed? It would be helpful if the Minister could say why the Government deem it appropriate for the 13 organisations listed to lose access to communications data. One of them has undergone a fundamental change in ownership since the Government first started considering this issue. What were the criteria against which the decision that they should lose access to communications data was reached?

On the consultation that took place some time ago, which is referred to in the Explanatory Memorandum, can the Minister confirm what I think she said in her opening comments that all the 13 authorities concerned had agreed to the removal of their powers to access communications data? Will she also say whether the relevant Ministers did likewise in respect of the authorities that came under their departments? Were any authorities originally on the list subsequently taken off the list of 13 we now have? Were any organisations that were not originally on the list subsequently added it?

During a debate in this House in July last year, reference was made to the Food Standards Agency, which is included in the list of 13 organisations and, in particular, to the egg inspectorate of the Food Standards Agency using RIPA. We were told that in the past few years people have gone to prison for multimillion-pound frauds restamping eggs. In that debate, we were told that billions of eggs were being brought in from France unstamped and processed in a factory in the Midlands. The egg inspectorate had to know about this, and there was a tip-off. The point being made in that debate was that any idea of the egg inspectorate not being able to use RIPA would seriously weaken the efforts of those who are there to protect us from the kind of activity I have just described. Will the Minister comment on that in the light of the fact that the Food Standards Agency is listed as one of the organisations losing access to communications data under RIPA?

We are not opposing the order, but I should be grateful if the Government respond in some detail—if not today, then subsequently—to the questions I have asked and the points that I have made.

[Baroness Williams of Trafford]

My Lords, I thank the noble Lord, Lord Rosser, for the questions he has raised. I am very grateful that he will allow me to write to him in due course, given that I have not had a Box behind me for most of the debate.

On why the order is required now and why we cannot do everything together, DRIPA has a sunset clause and everything will have to be reviewed in the next Parliament. In addition, the independent reviewer David Anderson QC will report his findings on 1 May 2015. There is no doubt about it: the Government and subsequent Governments will need to review the whole thing in the round anyway, and the sunset clause in 2016 will underline that need to review the whole issue.

The noble Lord also asked why we specifically chose the 13 organisations to lose power and whether they were satisfied with that loss. I understand that some concern was expressed by the Royal Mail. I do not know of any concern expressed by any other organisation. The primary reason they were chosen was they had made little if any use of the powers, and therefore were taken off the list. It is also important to note that the Joint Committee found it difficult to say which organisation should lose its powers.

[Lord Rosser]

As I understand it, the Joint Committee basically said that organisations should be looked at. That has been done and the 13 have emerged. It would certainly be helpful to know the criteria that we use to decide which ones should be on the list.

[Baroness Williams of Trafford]

I hope that I have explained that. It was the case that either little use or no use had been made of the powers. I assume that, as time goes on, organisations may be added to the list or be taken off it, depending on events. The noble Lord asked a specific question about the egg inspectorate. As I understand it, the inspectorate does not have powers to access communications data. I hope that that helps.

[Lord Rosser]

Is the Minister saying that it does not have powers at present—not that it will not have them but that it does not have them at present?

[Baroness Williams of Trafford]

It has never had them, I understand. I will have to write to the noble Lord because I know that I have not answered all his questions, but I hope that he will be satisfied with that.

Motion agreed.

Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

16:57

Moved by

[Lord Popat]

That the Grand Committee do consider the Motor Vehicles (Wearing of Seat Belts) (Amendment) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[Lord Popat (Con)]

My Lords, this measure has already been considered in another place. It has long been an established fact that wearing seat belts is an important safety mechanism. Seat belts are a significant factor in saving lives in collisions, and they are therefore something that the Department for Transport takes very seriously. That is why the fixed penalty for not wearing a seat belt increased to £100 in 2013.

That said, there are some circumstances in which it is appropriate for individuals to remove their seat belts. An exemption from the requirement to wear a seat belt exists for those travelling in vehicles being used for police and fire-safety purposes. There is no parallel exemption for ambulance personnel when they are travelling in the back of an ambulance and providing treatment to a patient. Therefore, an ambulance worker who removed their seat belt to provide life-saving treatment, including chest compressions, to a patient or to deal with a paediatric or obstetric emergency would be committing an offence. That is an unfair position in which to put those whom we should properly be supporting. The outstanding and selfless work and commitment of those in the front-line ambulance service is one of the things that makes the NHS the envy of many other countries in the world.

In December 2011, as part of the Department for Transport’s Red Tape Challenge, a decision was taken to create a new exemption from the requirement to wear a seat belt for persons riding in an ambulance while providing treatment to a patient. In 2013, the proposal was considered in a consultation paper on speeding limit exemptions for emergency vehicles. There was unanimous support for the proposal from a range of stakeholders, including representatives from the ambulance service, the police, road safety groups and members of the public.

There is a European directive which harmonises the compulsory use of seat belts in specific categories of vehicles across member states. The directive permits member states to grant exemptions from the requirement to wear seat belts in certain specified circumstances, provided that the approval of the Commission is obtained. One such circumstance is ensuring that the emergency services can perform their duties properly. The department requested the EU Commission’s approval in respect of the proposed exemption in November 2013, and this was granted in June 2014. The derogation granted by the Commission provides that the exemption should be applied when the patient requires treatment,

“which due to its nature or the medical situation of the patient cannot be delayed”.

These regulations will add an additional exemption from the requirement to wear a seat belt for persons travelling in an ambulance while they are providing urgent treatment to patients. The regulations are drafted in accordance with the terms set out by the European Commission.

The proposed changes have been drafted in consultation with the Department of Health. They have the support of the Association of Ambulance Chief Executives and seem entirely logical. This is a straightforward change which will allow the emergency services to do their job. I therefore commend the order to the Committee.

17:00

[Viscount Simon (Lab)]

My Lords, the Minister in his opening remarks has touched considerably on what I wanted to ask him. He mentioned road safety groups. I simply want to ask whether those groups include representatives from St John Ambulance and other charitable organisations. Will they covered by these regulations?

[Lord Rosser (Lab)]

I thank the Minister for explaining the purpose of and reasoning behind this order, which we support. As the noble Lord said, the regulations exempt persons riding in an ambulance from the requirement to wear a seat belt while providing emergency medical attention or treatment to a patient for whom such treatment cannot be delayed. Indeed, one assumes that in reality ambulance personnel have been ignoring the existing regulation in these circumstances since, I am sure, they put the welfare and indeed the survival of their patients ahead of abiding by seat belt regulations—and ahead of their own personal safety. Not being in a position where seat belts can be worn places the safety of ambulance personnel in jeopardy if the ambulance itself is involved in a road accident or incident either directly or indirectly. I assume that the purpose of the order is to regularise a situation that I imagine has existed on almost a daily basis.

I would be grateful if the Minister could confirm—I am sure that the answer will be “yes”, given what is set out in the Explanatory Memorandum to the regulations—that this measure has also received the support of the trade unions which represent ambulance personnel.

Perhaps I may also take what is to an extent a liberty by raising another point. I hasten to say that I do not expect the Minister to respond to it today since I accept that, while it relates to an aspect of wearing seat belts, it is not one that even I could argue is covered by these regulations. It would be helpful if the Minister could let me know in due course either what decision the Government have made, or when they expect to make a decision, following a consultation in 2011 on the implementation and method of enforcement of the 2003 EU directive requiring children aged three and up to 14 travelling in a coach to wear seat belts. As I say, I appreciate that I am taking a bit of a liberty in raising this issue now, but if the Minister is subsequently able to give me the answer, I shall be extremely grateful to him. Again, we support the order before the Committee.

[Lord Popat]

I thank the noble Lord, Lord Rosser, for supporting the order. The noble Viscount, Lord Simon, asked a question about St John Ambulance. These regulations apply the definition of “motor ambulance” in Regulation 3(2) of the Road Vehicles (Construction and Use) Regulation 1986. A motor ambulance is defined as a purpose-built motor vehicle which is specifically constructed and equipped for medical purposes. I am pleased to say that that applies to St John Ambulance.

The noble Lord, Lord Rosser, asked what paramedics do at the moment when they need to provide treatment. Obviously, they do an excellent job. Given the imperative for paramedics to preserve life and give treatment to the patient in the ambulance, we understand that they will carry out treatment using their judgment and will remove their seat belt if necessary. I am glad they have that exemption now so that whatever work they do will be legal.

The noble Lord, Lord Rosser, also raised the outstanding issue of buses and coaches having seat belts for children under 14. This legislation took a long time to come here because we had to get permission from the European Union. Legislation requiring that seat belts are worn by children under 14 is being prepared by the Department for Transport and will be presented to the House for consideration when it is finalised and cleared.

I hope that I have answered all the questions. I will certainly look at Hansard and, if I have left anything out, I will be very happy to write to noble Lords.

[Lord Rosser]

I raised a question that relates to the order. It was about whether trade unions representing ambulance personnel supported the change. I am sure they did, but perhaps the Minister can confirm that.

[Lord Popat]

There was widespread consultation on this—a 12-week consultation about changes to specific exemptions, which closed in February 2103. A wide range of stakeholders responded, including representatives from the ambulance service and road safety groups. There was also widespread support for the proposal across all stakeholder groups. I guess that “all stakeholders groups” would include the CBI and the TUC.

I hope that I have addressed all the questions. As I said earlier, I will be very happy to look at Hansard and, if I have left anything out, I will respond.

Motion agreed.

Local Audit (Appointing Person) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

17:09

Moved by

[Baroness Williams of Trafford]

That the Grand Committee do consider the Local Audit (Appointing Person) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[Baroness Williams of Trafford (Con)]

These regulations are among a number necessary for local public audit in the new regime introduced by the Local Audit and Accountability Act 2014. That Act abolishes the Audit Commission and gives greater responsibility for auditor appointment to local public bodies. I will not take up the Committee’s valuable time by repeating the arguments put forward during the passage of the 2014 Act in this debate. There was broad support across the House for making the collective procurement of audit services available to local public bodies, and these regulations deliver on the commitment that we made then.

We recently updated our impact assessment: this is saving £759 million over the five years between 2012 and 2017—the duration of the outsourced audit contracts—and an estimated £1.35 billion over 10 years. As a direct result of this work being done by the private sector, the cost of external audit for local bodies will reduce by £30 million per annum.

Before getting into the detail of these regulations, I will explain the background. From 2017, a local public body will have to appoint its own auditor unless it chooses to opt in to the collective procurement arrangements we are providing for with these regulations. The Local Audit and Accountability Act 2014 already allows local public bodies to get together to jointly procure audit services. During its passage through Parliament, we amended the Bill to make broader collective procurement arrangements available in light of an appetite in the sector for this. In particular, the noble Baroness, Lady Hanham, worked with the noble Earl, Lord Lytton, to address and resolve concerns so that legislative provisions for collective procurement for smaller authorities would be suitable for the needs of that sector.

I will deal with the appointing person regulations first. As I said, we made provision for collective audit procurement in the Local Audit and Accountability Act in response to demand within the sector. We also consulted on a draft of these regulations. Responses were broadly content with these provisions, including those that we asked specific questions about: that the decision by local bodies to opt in must be taken at full council, and that the maximum period of the appointing body’s responsibility should be set at five years.

This is a lengthy set of regulations, so noble Lords will understand if I do not discuss them in detail. They make the collective procurement of audit services available to the sector while meeting objectives of accountability, transparency, continued auditor independence and audit quality. To achieve this, they: provide for the Secretary of State to specify an appointing body in a transparent manner; allow more than one appointing body to be specified, enabling specialisation in audit procurement for different groups of authorities; set out how authorities can opt in to, and later opt out from, the appointing body’s arrangements; require the appointing body to consult authorities on audit fee scales; define the appointing body’s roles in relation to auditor appointment, resignation or removal; require the appointing body to monitor auditor independence and compliance with contractual obligations, and deal with any disputes or complaints relating to audit work or audit contracts; and provide that an authority which has opted in to these arrangements will not be required to have an independent auditor panel. The regulations also provide that the appointing body’s services will be available as an additional option to the Secretary of State if an authority which has not opted in to collective procurement arrangements also fails to appoint its own auditor.

The smaller authorities regulations have a similar objective to the set of regulations I have just spoken about, but for smaller local public bodies. They provide for the collective procurement of audit services for smaller bodies, with the same guiding principles as for principal authorities. Those are transparency and accountability in decisions taken about how a body’s auditor is appointed, and continued effective, independent assessment of the accounts of authorities subject to that audit.

As with an appointing body for principal authorities, the body’s remit is clearly defined and will be focused on achieving good value for money in audit procurements. If it does not, smaller authorities are unlikely to use its services.

17:15

A key difference is provided in these regulations between the collective procurement arrangements for larger and smaller authorities. Principal authorities must choose to opt in to take advantage of their appointing body’s arrangements. Smaller authorities, however, must actively opt out of their appointing body’s arrangements if they prefer to appoint their own auditors. There are very many smaller authorities—nearly 10,000 in total—and we expect that the majority will want to remain opted in. It is more cost-effective and efficient therefore to opt them in as a default, but a smaller authority will be free to opt out if it chooses.

These regulations also make some audit provisions specific to smaller local public bodies. Authorities with a turnover above £25,000 but below £6.5 million must appoint an auditor, or have an auditor appointed to them, to provide a limited assurance on a financial statement. The regulations also provide that bodies with a turnover of under £25,000 are not normally subject to audit engagement but must comply with enhanced transparency requirements. We have taken a risk-based approach to the exemption for the smallest bodies: the exemption will not apply when such a body is new or where it is subject to a report in the public interest, or an item in its accounts has been declared unlawful. We have consulted the National Audit Office on this approach and it is content.

We undertook two rounds of consultation on these regulations. The first, in the autumn of 2013, was on an initial draft. Again, respondents were broadly content with their provisions, including: that a smaller authority should not be forcibly opted out by the appointing body; that the appointing body should publish a list of appointing bodies; that the Secretary of State should have the power to opt in a smaller authority which has failed to appoint an auditor; and that below-£25,000 authorities should not be exempt from a limited assurance audit if they are newly formed or have had an item in their accounts declared unlawful, or if they have been the subject of a public interest report in the previous year.

We undertook a second round of consultation in the summer of 2014. In particular, we asked whether the draft regulations met the objectives of transparency, quality and cost-effectiveness. Most expressing a preference agreed. However, chief among the concerns was that the regulations are complex and that many smaller authorities may remain unaware of the new requirements.

We recognise the complexity of these regulations and the challenge to many smaller authorities of interpreting their effect. Therefore, we have redrafted them to simplify and clarify them where we can. We are publishing a brief and accessible guide to the audit and transparency requirements applicable to smaller authorities, which we have shared with this Committee in draft. Again, this guide reflects considerable consultation with the sector.

In summary, the regulations provide for the Secretary of State to specify an appointing body for smaller authorities in a transparent manner. They set out how smaller authorities can opt out of, or later opt in to, the appointing body’s arrangements. They require the appointing body to consult representatives of smaller authorities on audit fee scales. They define the appointing body’s roles in relation to auditor appointment, resignation or removal, monitoring auditor independence and compliance with contractual obligations, and dealing with any disputes or complaints relating to audit work or audit contracts. The regulations set out that an authority opted in to these arrangements will not be required to have an independent auditor panel. They also require a smaller authority whose turnover is below £25,000 and is thus exempt from the requirement for limited assurance audit to self-certify by letting the appointing body know this and by publishing the fact.

These regulations were debated in another place last Wednesday and several issues were raised. While it is for the sectors concerned to set up audit procurement bodies, the Minister confirmed that the body for smaller authorities was to be in place later this year, and the Local Government Association was well engaged on the question of a body for larger authorities.

The Minister was also able to confirm that concerns expressed by the Institute of Chartered Accountants in England and Wales about the status of the limited assurance audit work carried out on smaller authorities were being addressed. Departmental officials have been engaging with the institute and with audit firms themselves. Audit firms are positive about the limited assurance work; many are already undertaking it. I understand that officials will next be meeting the institute to discuss their concerns on 2 February. With that, I commend the regulations to the Committee.

[Lord Palmer of Childs Hill (LD)]

My Lords, I thank my noble friend the Minister for that detailed exposition. I need to declare—especially given her last comment—that I am a chartered accountant and that I was, until May, the chairman of a local authority audit committee. I think that is probably enough in that respect.

I see my role as being to pick holes, if there are any, in what I see in front of me. The main thing that I am looking at is the draft guide which my noble friend referred to. On page 3 of that guide, there is the comment that the annual accounts are subject to a limited assurance review. Within audit committees, internal audit teams have a way of classifying the work of each department or service area, and when they audit that service area, they deem its performance to have been satisfactory, limited or poor respectively. It is generally done with a traffic lights system. The term “limited assurance” has a specific connotation within the audit field, and by referring in the guide to a limited assurance review there is the complication that it will be viewed as part of what I call the traffic lights system in local authorities. It is a slightly careless use of words that are used within the realm of audit. Could my noble friend think about that and the confusion that it might cause?

There seems to be a very light mention within the paper of internal audits, which I mentioned in an earlier discussion on the Bill. Good local authorities rely very much on their internal audit teams. External auditors also rely on the internal audit to a large degree, although it depends very much on the firm and the internal audit. The idea is that you do not do the job if it has already been done. However, internal audit is hardly mentioned. It is mentioned on page 5 of the paper that there should be an internal control, but there does not then seem to be a relationship in terms of what regard external auditors can take of that internal audit. If we are aiming to drive down costs for local authorities and the like, there ought to be an acknowledgment of what good internal audits can achieve. I did this when I was chairman of an audit committee—internal audits tore the living daylights out of service areas, and if they did not perform better, they had to come back and explain why. That is what internal audits do, but there does not seem to be much mention of it here.

Annual appointments are complicated, as very few accountancy firms are deemed by the Institute of Chartered Accountants in England and Wales—I presume this is the case in Scotland as well—to have the stature, knowledge and capability of doing this. I cannot remember what the figure was—I am sure other noble Lords will—but it was no more than eight, and probably about five. There were about 10 firms that had the capability but only about eight were deemed to be able to do it. So there will be a very limited market for these firms. I do not know whether the Minister has inquired with the professional bodies as to whether they see any problem.

My last comment on this is about very small authorities. My understanding of the paper is that very small authorities—those with a turnover under £25,000—will not need to appoint an external auditor, unless someone raises a query. In practice, if a small authority that needs a set of accounts, and thus an audit, has a turnover of £25,000 or less, and somebody raises an accounting query, that local authority or body will then have to appoint an external auditor to deal with that query from a member of the public. I may have this wrong, and my noble friend will correct me, but my reading says that that is what needs to happen. Therefore, in practical terms, if Mr or Mrs Vexatious raises a problem with the accounts of a local body with a turnover of £25,000 or less, it has to appoint an external—not internal—auditor, whose fees will start, say, at £1,000 and may be a lot more. My noble friend should know that that is impractical. I hope that these points are addressed before the regulations are put on a firm basis.

[Lord Beecham (Lab)]

My Lords, I declare an interest as a member of Newcastle City Council and of its independently chaired audit committee.

My noble friend Lord McKenzie and I whiled away a happy hour or three, as I recall, on these issues when the Bill was going through. Some of the reservations that we had then would apply also to the proposals before us, and my noble friend will enlarge on them. I concur with some of the questions raised by the noble Lord, Lord Palmer. In particular, he is right in his recollection that there are, apparently, eight firms—a couple of which are actually connected to the big five; so there is generally little choice in this field. One of the questions is whether that is acceptable to the Government or whether there should not be an attempt to encourage other, perhaps smaller, firms to develop an expertise, make more of an impact on the market and recognise that, in fact, the high cost of employing the major firms—the Deloittes, the PwCs and so on—is justified in the context of even a joint appointment. The fact that there is a joint appointment will not necessarily reduce the cost of an individual audit exercise, although perhaps the Government have done some work on that and can enlighten us.

One of the points that I, and I think my noble friend, raised was the desirability of positively promoting a change of auditor after a period of time, because there is a danger that the auditor and the local authority get too close together. The Minister has a long experience—although not quite as long as mine—in local government and as a council leader, and will therefore be familiar with these issues. A turnover is desirable, and perhaps the noble Baroness can indicate whether the Government might be prepared to facilitate that in this context.

One of the other issues facing all local authorities is, given the effective demise of the Audit Commission, the difficulty of comparing what goes on within one’s own authority with other authorities. The Audit Commission had its virtues and some problems from time to time, but at least it often provided information across the piece that one could look at and with which one could compare what one’s own authority was doing. I know that that is the view not just of political members of the audit committee in Newcastle but very much of the independent chair and independent members, and they miss such a basis for comparison. Given what I guess is the slightly smaller degree of experience in these matters among the smaller councils that we are talking about, have the Government any proposals to remedy this information gap? While all authorities can benefit from that kind of comparative information, it is probably more important, in some respects, for smaller authorities—particularly if independent members serve on them. It would be very much welcome to hear the Government’s position on that process.

The Audit Commission is not officially dead and buried but that part of its work regarding local authorities is effectively gone as far as local authorities are concerned. That is unfortunate and we have to live with it—at any rate, for the time being—but, given these new proposals, I hope that something will be done to assist members of smaller authorities, their officers, in so far as they have any, and those who ultimately do their accounts to be able to look at what comparable authorities are doing. That would certainly be a much more useful process for the audit committee’s oversight, or that of the local authority, of what is going on in their local patch.

17:29

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for introducing these two sets of regulations. As she will have gathered from the debate in the other place, although we have some questions of detail, we will not seek to oppose these regulations.

I agree with much of what the noble Lord, Lord Palmer, and my noble friend Lord Beecham said, and I will come on to some of those points in a moment. However, on the issue of internal audit, I had no doubt that the noble Lord would raise it because he was very strong on this issue when we were discussing the Bill. My question is how under this regime the strength of internal audit is going to be reflected in the setting of fees. That was not clear from my reading of the regulations.

We are pleased that during the passage of the Local Audit and Accountability Bill, which is now an Act, the Government accepted the argument in favour of preserving some opportunity for ongoing collective procurement of audit services for those who wished to avail themselves of the opportunity, which is what these regulations cover. Although we were not supportive of retaining the Audit Commission with all its former powers, its precipitate demise forgoes the opportunity; we should have used it in some of the roles that are promulgated in these regulations. It is a pity that that decision was taken without thinking through the consequences.

The LGA has created Public Sector Audit Appointments Ltd which is due to manage ongoing audit arrangements. Until April 2015, it is the responsibility of the Audit Commission. It will use staff transferred from the commission, so we are getting rid of the commission and transferring some of the staff into this new body to carry out some of the activities that it was already carrying out in managing those existing contracts. How many staff are to be transferred under these arrangements and what are the expected ongoing annual costs of the new entity through to 2017?

My noble friend Lord Beecham touched upon the best value profiles and the ability of individual authorities to benchmark themselves against others. I understand from what I have read that the profiles will not be preserved in their previous form and therefore will not be available under the new regime.

Both the appointing person regulations and the smaller authorities regulations provide for the Secretary of State to specify the person or persons to appoint a person to appoint a local auditor. For principal authorities and smaller authorities the Secretary of State can specify different persons in relation to different classes of authorities. Will the Minister say a little more about what the Government have in mind in terms of these appointments, whether they will seek to appoint for different classes of authority, what experience they will look for in the person they appoint, how they propose to monitor the performance of such persons and by reference to what criteria?

The noble Baroness referred to the LGA. I do not know whether it is proposed that the existing LGA entity will become involved, whether there will be a new entity, or whether that will be part of the provision. Is it the intention that Public Sector Audit Appointments Ltd will be an appointee? It is noted that no appointment can be made for a financial year before 1 April 2017, but does this imply that the existing contracts will not be extended beyond their current term? I think that they can be extended to 2020. What is the earliest date that the run-on of existing arrangements can be triggered? If there is a desire to run them on to 2020, what is the earliest date when the decision is needed in respect of that?

The noble Lord, Lord Palmer, and my noble friend Lord Beecham touched on capacity. When outsourcing its audit contracts to the private sector the Audit Commission sought, although with limited success, some diversity of providers. My recollection is that most of the contracts went to the big four accounting firms. I think there were a few others, and Grant Thornton featured among them. I cannot remember how many other firms were sought, but there were precious few.

[Lord Palmer of Childs Hill]

Perhaps I may add that Grant Thornton did not mop up a large number of the contracts.

[Lord McKenzie of Luton]

I think that it was the fifth firm. I cannot remember whether there were any beyond that, but there may have been changes in the interim.

What requirements, if any, will be placed upon appointed persons in this regard to seek to bring diversity of providers to the market? The regulations cover the obligation of appointing persons to oversee issues of independence. Generally, this should cover the independence of the auditor from the authority being audited as well as the independence of the auditor from the appointing person. As the Minister said, there has been extensive consultation around these proposals, but significant and authoritative concerns still appear to have been raised in some quarters. I refer first to comments made by the Audit Commission, which chime with those made by the noble Lord, Lord Palmer. How does the Minister respond to the comments made by the Audit Commission in its letter to all noble Lords written in September 2014? I refer to two paragraphs in particular. The first says:

“Currently all local authorities have their financial documents subjected to review by an external auditor. This is at no cost to most councils spending less than £25,000 a year and has a maximum cost to them of £100 a year. Under the current government’s proposals, external checks will not happen routinely for local authorities spending less than £25,000 a year. However these bodies will have to appoint an auditor for when local people wish to contact one with formal questions or objections. Additionally, these parishes and other bodies will have to publish specified information on their website or, if they don’t have one, on the website of the district council. This will inevitably cost more than the current arrangements”.

That is precisely the point the noble Lord made. The commission goes on to say:

“The regulations making provision for all procurement possibilities (exempt opted-out authorities, exempt opted-in authorities, non-exempt opted-in authorities, and non-exempt opted-out authorities) are close to impenetrable. Administering these complex new arrangements will also require any collective procurement body to hold and keep up to date large amounts of information about all 10,000 or so small bodies across the country. This will include contact details, whether they want to be part of the body or not, all the audit appointments the body has made, and all the bodies where auditors have used their statutory powers. This will add to its costs and therefore increase audit fees”.

How do the Government respond to that?

Moving on briefly to the position of the Institute of Chartered Accountants in England and Wales, I should declare my interest as a fellow of the institute, although it is a long time since I practised to earn a crust. A key part of the new arrangements will be the NAO’s proposed Code of Audit Practice. The Minister will be aware of the responses to the draft code as well as the smaller authorities regulations, in particular that of the ICAEW. Although broadly supportive of the code, the institute has expressed some reservations about smaller authority assurance arrangements. It expresses these in two paragraphs in particular, and as an aside I should say that it also refers to the issue of value for money in arrangements going forward:

“We have noted the statement in paragraph 3.6”—

of the consultation document—

“‘should evidence of poor value for money become apparent during the course of the audit, the auditor should consider the implications of this for their work.’ It would be helpful to clarify that this does not require auditors to search for evidence of poor value for money, but rather consider the underlying arrangements where a significant situation might arise which identifies that value for money is not being achieved”.

Is that right and are the Government happy that that is the position?

I now move on to small authority assurance engagements, to which the noble Lord, Lord Palmer, also referred. The institute states:

“As you know, ICAEW has had significant concerns about the government’s proposals in relation to smaller authority assurance engagements. In particular, our concerns have centred around the mis- understanding of the difference between ‘audit’ and ‘assurance’ engagements”.

It goes on to say:

“ICAEW would not be supportive of a change to the definition of audit as suggested by DCLG and we would strongly urge the NAO to also reject moves to create such confusion and to create a new definition. Indeed, as indicated in our response to government on the smaller bodies’ regulations … we would not recommend that any ICAEW member firm take this work on if significant changes to the regulations are not made and that the definitions of audit and limited assurance continue to be mis-interpreted”.

That is pretty strong language, and stronger than I have read in any representations that it has made before. The Minister said that the Government are still in discussion about that, but can she say something more about whether there is any movement or convergence of views on that with the institute? If the institute is advising its members not to engage, that is a very serious blow indeed. If these issues with the ICAEW have not been resolved, and the institute maintains its stance on discouraging member firms from taking on assignments, there is a major problem. Obviously, there is a little time before we get to 2017, but it would be good to know that there was some progress on that matter.

I have one or two further minor points for the Minister. An opted-in authority will not be required to have an auditor panel, but if it does, that panel must not be consulted on opted-in matters related to the audit or the auditor appointment. Why is that provision there? It is not apparent to me as it stands. For smaller authorities, the exercise of the public right to question and object must in future take place within the 30-day inspection period rather than in the period after it. What is the purpose of that change?

I have one final point. Under the transparency code for smaller authorities, there has to be an explanation of any differences between balances carried forward and total cash and short-term investments. How is that supposed to help? As it stands, it could be interpreted in myriad different ways. These regulations are exceptionally complex. We would not seek to stand in their way, and guidance will obviously help, but we hope that the complexity will not defer the opportunity to use this approach, which is an important strand of our discussions on the Bill.

[Baroness Williams of Trafford]

I thank all noble Lords who have contributed to this debate. Like them, I declare an interest in local government, but I do not declare an interest as an accountant—although I declare an interest as being married to one.

The noble Lord, Lord McKenzie, is quite correct that this is a complex area. The more we look into it, the more we realise how complex it is. I will go through the various points that noble Lords made.

I wonder whether my noble friend Lord Palmer is the same Lord Palmer who was on Barnet Council.

[Lord Palmer of Childs Hill]

I was for 28 years until last May, yes.

[Baroness Williams of Trafford]

I conducted a peer review on Barnet Council some time ago and I wondered whether that was indeed my noble friend.

[Lord Palmer of Childs Hill]

As an opposition councillor, I was chair of the audit committee for four years.

[Baroness Williams of Trafford]

Marvellous, so our paths have crossed. My noble friend asked about the draft guidance on the limited assurance review and whether it was understood by the accountancy profession. It is well understood by the audit and accountancy professions because it is already in use. It is about European standards and defined in the guide, so I hope I can give him comfort on that.

My noble friend also made a point about internal audit and about there not being enough detail in the guide. It may be helpful if I point out that these regulations and the guide are about external auditors and do not really focus on internal audit. However, that is not to say that we do not agree entirely that internal audit is extremely important.

17:45

My noble friend also made a point about vexatious queries and how time-consuming and money-consuming they can be for smaller authorities, asking how the regulations guard against such costs. The regulations allow for the auditors to ignore obviously vexatious claimants.

[Lord Palmer of Childs Hill]

The point is that a very small local authority would not have an auditor and would have to appoint someone if an action took place. If an auditor was in situ, I am sure that they would behave very responsibly—I have seen them do so—but my point concerns when you have to appoint one. I am sorry for interrupting my noble friend.

[Baroness Williams of Trafford]

I totally understand where my noble friend is coming from. If you are a small authority—for example, a parish council—and someone makes a vexatious claim against you, I am making the assumption, although I stand to be corrected if I am wrong, that the appointing body could do that for you. I understand that that is correct. Therefore, the body appointed by the Secretary of State could do that for you—it could take on the role that a larger authority would avail itself of. I hope that that helps my noble friend.

Both my noble friend Lord Palmer and the noble Lord, Lord Beecham, talked about the limited audit market. The Government’s view is that the repackaging of the audit contracts by a sector-led body could in fact open up the market. That is the hope. It may be helpful for noble Lords to know that we are working with the sector to encourage new entrants.

The noble Lord, Lord Beecham, talked about the turnover of auditors. The NAO will have a key role in complaints, similar to that of the current Audit Commission. I am happy to share with him the letter from Kris Hopkins MP and Andy Sawford MP on this very point if that would be helpful.

The noble Lord, Lord McKenzie, asked about the number of staff to be transferred and the cost of the transfer. If it is okay with him, I will write to him about that. He also talked about the specification and who the Government will appoint as the specified persons. Much will depend on what is put forward by the sector, but it is open to the sector to bring forward specialised bodies. In terms of extending the current contracts, as the noble Lord pointed out, we will run them until 2017. We can extend them to 2020, and we will make that decision in the summer of 2015.

The noble Lord also asked about the independence of the auditor from the appointing person. That is a very good point. The auditors’ own codes and proper practices remain in place under the new regime.

The noble Lord also mentioned the concerns raised by the Audit Commission, which we do not agree with because we are of the view that the new system is cheaper. It is true that smaller authorities may pay more due to no longer being cross-subsidised by larger authorities, as is currently the case, but I assume that, in pooling arrangements, they will try to make those processes more efficient.

In terms of the limited assurance engagement, the limited assurance order is already under way. This will not change. Officials understand that firms are eager to engage with limited assurance contracts and will be meeting them on 2 February.

The noble Lord, Lord McKenzie, mentioned that the arrangements are very complex to maintain for smaller authorities. Smaller authorities will all have to self-certify income, and this information will be held on a spreadsheet just as the Audit Commission holds it, so it is not as complicated as it may first seem. The new regime for smaller authorities is proportionate to their size and the amount of public money that they handle.

I hope I have covered most points. If I have not, I shall write to noble Lords. On that note, I commend the order to the Committee.

Motion agreed.

Local Audit (Smaller Authorities) Regulations 2015

Tuesday 27th January 2015 Grand Committee

Motion to Consider

17:51

Moved by

[Baroness Williams of Trafford]

That the Grand Committee do consider the Local Audit (Smaller Authorities) Regulations 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

Motion agreed.

Committee adjourned at 5.51 pm.

House of Lords

Tuesday 27th January 2015 Lords Chamber

Tuesday, 27 January 2015.

14:30

Prayers—read by the Lord Bishop of Leicester.

Fixed-term Parliaments Act 2011

Tuesday 27th January 2015 Lords Chamber

Question

14:36

Asked by

[Lord Grocott]

To ask Her Majesty’s Government what assessment they have made of the impact on Parliament of the next general election date having been fixed as 7 May 2015 since the enactment of the Fixed-term Parliaments Act 2011.

[Lord Wallace of Saltaire (LD)]

My Lords, it is a little too soon to reach definite conclusions on fixed-term Parliaments. The Government believe that the Fixed-term Parliaments Act has a number of benefits. It curbs prime ministerial and, therefore, executive power by preventing the Prime Minister of the day from calling an election on his or her own schedule. It has also assisted with Parliament’s work planning. The Prime Minister of the day will be required to appoint a reviewer to evaluate the Act in 2020.

[Lord Grocott (Lab)]

My Lords, I wonder whether the Minister shared the nation’s palpable sense of gloom this morning when the broadcasters and the newspapers united in reminding us that there are 100 days of campaigning left until the general election. Do fixed-term Parliaments not inevitably lead to inordinately long election campaigns, as many of us predicted, and, I am afraid, to the past its sell-by date House of Commons that we have at present, with very little to do in either House? Does the Minister at least acknowledge that there is a growing view, on both sides of this House and in the Commons, that the passing of the Fixed-term Parliaments Act was a serious mistake?

[Lord Wallace of Saltaire]

My Lords, the noble Lord may perhaps have missed the report from the Political and Constitutional Reform Committee last year, which stated:

“Our evidence has overwhelmingly argued that the greater certainty about the length of a Parliament provided by the Fixed-term Parliaments Act 2011 is a positive development, and in particular has created opportunities for better planning by the Government and Civil Service”.

I cannot understand why he prefers the situation of 1964-66, which led to the putting off of decisions and the devaluation of 1967; the two elections of 1974, which led to a Labour Government entering into an IMF programme; the dithering by Mr Callaghan in 1978; or that wonderful experience in 2007 when Gordon Brown kept changing his mind as different opinion polls came out. That was not good Government.

[Lord Cormack (Con)]

My Lords—

[Lord Tyler (LD)]

My Lords—

[The Lord Privy Seal (Baroness Stowell of Beeston) (Con)]

My Lords, we have plenty of time. When two noble Lords stand up, perhaps one of them could be courteous to the other and decide to give way.

[Lord Cormack]

My Lords, I am most grateful to my noble friend Lord Tyler. As one who fought all the elections to which my noble friend the Minister referred, will he accept that those of us with that sort of experience have evaluated? We do not need to wait until 2020. This is a disservice to the constitution and the sooner it is consigned to the legislative rubbish tip the better.

[Lord Wallace of Saltaire]

My Lords, the noble Lord demonstrates that his conservatism on constitutional matters is as deep as that of the noble Lord, Lord Grocott. It was in the Labour Party’s manifesto for the last election that it would legislate on a fixed-term Parliament—as indeed in others. This transfer of, what was after all, executive power to Parliament was, one would have thought, an extension of our democratic system and a limit on prime ministerial power.

[Baroness Hayter of Kentish Town (Lab)]

My Lords, the Minister said that it is too soon to decide whether this is a good thing. The sad thing is that the other place seems to be working part-time, so why are the Government not using their planning for better use of Parliament during the extended period?

[Lord Wallace of Saltaire]

My Lords, that is something that we need to learn about five-year Parliaments. There are some very good proposals from the Institute for Government and from the Political and Constitutional Reform Committee about how best to use the fifth year of a Parliament to discuss some of the issues that any Government will have to deal with—for example, Green Papers on the future of the National Health Service, et cetera. That is something which, in a future five-year Parliament, perhaps with another stable coalition Government, we might do. We have delivered stable government through difficult economic times for five years, unlike the Labour Governments of 1974 to 1979, and others. That is a very major advantage.

[Lord Tyler]

My Lords—

[Lord Foulkes of Cumnock (Lab)]

My Lords—

[Baroness Stowell of Beeston]

My Lords, the noble Lord knows that we follow several conventions. We have had one already, which is about giving way to each other. There is another about the sides taking turns as we go around the House. We have just heard from the Labour Front Bench, so it is now the right time to hear from the noble Lord, Lord Tyler.

[Lord Tyler]

My Lords, will my noble friend confirm that there are 19 government Bills still in play in this Session and a further 14 government-backed Private Members’ Bills? There are a number of draft Bills and more than 90 statutory instruments, so this Parliament still has a lot of work to do. Does he agree that anyone who attended our very interesting debate yesterday on the Counter-Terrorism and Security Bill or indeed the debate on the Infrastructure Bill in the other House can see that Parliament is working really hard at the moment? Any suggestion that this is a zombie Parliament is ridiculous. Has my noble friend also noted that the Labour Opposition in the other House constantly complain that they have not enough time whenever a programme Motion is recommended?

[Lord Wallace of Saltaire]

My Lords, I think that we stand a good chance this time of avoiding the dreadful experience of the wash-up which we have had when elections are called at short notice and the rushed election campaigns which follow.

[Lord Elystan-Morgan (CB)]

Will the Minister accept, putting the matter as neutrally as one can, that there must be some dubiety as to whether there was the slightest justification in constitutional law for the Fixed-term Parliaments Act in that since the Second World War there was no instance of a Government running to the country in the short term without justification—that was true in 1951, in 1966 and in 1974—but there were instances of Governments who went right up to the buffers —in 1997 and 2010? Is not the true reason for the Fixed-term Parliaments Act that the coalition Government were desperately anxious to give security of tenure to the Liberal Democrat party?

[Lord Wallace of Saltaire]

My Lords, I do not accept any of the noble Lord’s premises.

[Lord Foulkes of Cumnock (Lab)]

Is the Minister aware that my noble friend Lord Grocott has more parliamentary experience than Nick Clegg, David Cameron and Ed Miliband put together? He therefore deserves to be listened to carefully.

[Lord Wallace of Saltaire]

My Lords, I have infinite respect for the ancient wisdom of the noble Lord, Lord Grocott.

Boko Haram

Tuesday 27th January 2015 Lords Chamber

Question

14:45

Asked by

[Baroness Quin]

To ask Her Majesty’s Government what recent assistance they have given to the rescue and recovery of the Nigerian girls abducted by Boko Haram.

[Lord Wallace of Saltaire (LD)]

My Lords, the abduction of the Chibok schoolgirls was an appalling example of Boko Haram’s brutality. Since their abduction we estimate that another 900 or more individuals have been abducted by Boko Haram in separate incidents. The UK, along with international partners, has increased its support for the Nigerian Government to help locate the girls and to tackle the broad threat posed by Boko Haram. We are providing a substantial package of UK military, intelligence and development support to Nigeria.

[Baroness Quin (Lab)]

My Lords, Holocaust Memorial Day seems a particularly poignant time to remember the Nigerian schoolgirls, and indeed the others who are victims of Boko Haram’s violence and persecution of religious communities in Nigeria and now in neighbouring countries. Is the Minister aware that the African Union summit is being held this weekend? It originally planned to focus on the vital issue of the empowerment and education of women but will now also include the need to unite against Boko Haram. In the light of that, will the Government give urgency to their consultations with our European, Commonwealth and North American partners to see how international assistance can be stepped up?

[Lord Wallace of Saltaire]

My Lords, my noble friend Lady Northover is at the African Union summit this week, and will no doubt be taking part in some of those conversations. We are consulting not only with our North American and Commonwealth colleagues; Niger and Cameroon are directly affected. The French, British and American Governments, in particular, are working with all the countries in that region because Boko Haram, as noble Lords know, does not respect borders.

[Baroness Falkner of Margravine (LD)]

My Lords, does my noble friend agree that, given the pivotal role of the Commonwealth—with two affected countries, Nigeria and Cameroon, being members—it is appalling that the Commonwealth Secretary-General took four months before he responded to the abduction in the first instance; and can the Minister tell the House a little more about what efforts we are taking within the Commonwealth to step up efforts to defeat Boko Haram?

[Lord Wallace of Saltaire]

We are working very closely with Nigeria. I am not fully briefed on how far the rest of the Commonwealth is involved, but we have a training team and an intelligence team working with the Nigerians on coping with the pressure from Boko Haram, which now occupies a substantial chunk of north-eastern Nigeria.

[Baroness Kinnock of Holyhead (Lab)]

My Lords, the Minister may be aware that Boko Haram has very strong ties with Islamic State and, indeed, with al-Qaeda. Does the Minister agree that the insurgency currently taking place in Nigeria is a direct result of the bad governance and the systemic corruption of President Goodluck Jonathan’s Government?

[Lord Wallace of Saltaire]

My Lords, my briefing is that Boko Haram is much more a Nigerian phenomenon than a global one such as ISIL. There are some links but that is what I understand. I also stress that the origins of Boko Haram go far back beyond President Goodluck Jonathan’s Government. It dates from the noughties, so to speak. Things have been getting worse recently but it is rooted in a range of underdevelopment problems in north-eastern Nigeria, such as overpopulation and government neglect.

[The Lord Bishop of Leicester]

My Lords, will the Minister join me in expressing his appreciation of those moderate Muslims who have spoken out in this country against Boko Haram and in emphasising the continuing need to be proactive in drawing together those communities that would easily find themselves pitched against each other in our towns and cities?

[Lord Wallace of Saltaire]

My Lords, I will happily join in that. Boko Haram has almost certainly killed more Muslims than it has Christians. It is very much a radical Muslim movement, which is as opposed to the Sultanate of Sokoto and the moderate Muslims in the north as it is to others.

[Baroness Afshar (CB)]

My Lords, in their negotiations, are the Government aware that everything Boko Haram is doing is contrary to the teaching of Islam, to the textual teaching of the Koran, which demands the education of women, and to the practice of the Prophet, who favoured his wives and daughters to be educated?

[Lord Wallace of Saltaire]

My Lords, I am well aware of that. But, as the noble Baroness well knows, radical movements of this sort, made up of the young, discontented and jobless, tend to latch on to whatever ideologies they can find.

[Baroness Morgan of Ely (Lab)]

My Lords, we understand that up to 100 British soldiers are being lined up for a mission to train the Nigerian military in its fight against the Islamic extremists of Boko Haram. Will the Government ensure that human rights training is included in this initiative?

[Lord Wallace of Saltaire]

My Lords, I am not going to comment on operational numbers. We have a military mission there and we are also sending people in on short-term secondments to help with the training. Of course human rights is a part of this, as I mentioned.

[Baroness Hussein-Ece (LD)]

My Lords, does my noble friend agree that speaking out against the horrendous Boko Haram has nothing to do with religion? We speak out against it, whether we are Christian, Muslim, Jewish, Hindu or whatever. It is an aberration that has nothing to do with any religion.

[Lord Wallace of Saltaire]

My Lords, I entirely agree.

[Lord West of Spithead (Lab)]

My Lords, in support of my noble friend Lady Kinnock, is it not clear that the Government in Nigeria have focused much more on the coming election and the wealth down in southern Nigeria and have ignored northern Nigeria; and, further, that local government and the police are corrupt and on occasions, as we know, have been helping Boko Haram? Are we putting pressure on the Nigerian Government to correct those faults? Without doing that we cannot really gain any momentum in the other areas the Minister has talked about.

[Lord Wallace of Saltaire]

My Lords, of course we are working closely with the Nigerian Government on a whole range of issues such as this. The north-east of Nigeria has been neglected compared to the north-west—not only to the south—and the noble Lord knows well the extent to which the oil wealth is now in the south but the northern elite that used to think it ran Nigeria feels excluded. There are many levels of different tensions that are reflected in this.

[Lord Lea of Crondall (Lab)]

My Lords, given that we do not run Nigeria like we did until about 1960, and given that we have to be sensitive about the views of the Nigerian Government on overseas countries, of which we are one, being party to all the security concerns within the country, will the Minister comment on the degree to which he feels that the Nigerian Government are being open to other countries that wish to be of assistance, whether on a bilateral or multilateral basis?

[Lord Wallace of Saltaire]

My Lords, we are working very closely with the Nigerian Government. Of course, we are not trying to pretend that we are a colonial power coming in. We are an ally and we are concerned about the security of the whole of the broader Sahel region.

Alcohol Consumption

Tuesday 27th January 2015 Lords Chamber

Question

14:53

Asked by

[Lord Harrison]

To ask Her Majesty’s Government, in the light of policies to reduce alcohol consumption, what discussions they have had with supermarkets about the range of strengths of alcoholic drinks they supply.

[Baroness Jolly (LD)]

My Lords, the Government have long worked with the alcohol industry to reduce health and social harm. Supermarkets are committed to all relevant alcohol pledges under the public health responsibility deal, and have contributed to removing 1.3 billion units of alcohol from the market by reducing strength; 80% of labels now have the correct health information; and there is the promise not to sell any carbonated drink with more than four units of alcohol in a single-serve can.

[Lord Harrison (Lab)]

To help supermarkets communicate with their customers, will the Government consider providing a legal definition of lighter wine, as well as exploring duty differentiation in wines to provide a service that will enable people to choose lighter wines? Finally, will the Government encourage the average strength of house wine to be lowered where such house wines are sold in pubs, restaurants and, indeed, here in the House of Lords?

[Baroness Jolly]

The noble Lord is right in that all the major supermarkets and chains have worked really hard to reduce the amount of alcohol in the wine, beer and spirits that they sell. However, one thing they are not particularly good at—with the exception, perhaps, of Morrisons and Asda—is having separate spaces within each supermarket where wines with lower levels of alcohol are displayed. On the question of the House wine, I am happy to have a word with the Secretary of State about that.

[Baroness Gardner of Parkes (Con)]

My Lords, is the Minister aware that some time ago we were told that the calorific value of a glass of wine would be published? Why is that not proceeding, because it is quite an incentive for people who are not too worried about the alcoholic effects but are concerned—as we all should be—about obesity?

[Baroness Jolly]

We should all be concerned about the alcoholic effects as well. Currently, not all wine bottles have calorific labelling, although there is labelling that relates to anxiety about pregnant women, but I will have to come back to Peers on that.

[Lord Turnberg (Lab)]

My Lords, is the Minister aware that whenever the price of alcohol goes up—above the level of inflation—the incidence of deaths from liver disease goes down? Will the Government consider increasing taxation on alcohol to take it above the level of inflation so that we will see a reduction in liver disease?

[Baroness Jolly]

The noble Lord is right. Alcohol consumption has fallen, as has the number of alcohol-related deaths, due to the increase in taxation on alcohol by this Government and possibly previous Governments. Nevertheless, harmful effects such as liver disease, as well as social impacts linked to alcohol, such as crime and domestic violence, remain much too high.

[Baroness Cumberlege (Con)]

Does my noble friend agree that there is great merit in keeping the pubs open and that single men who are lonely and depressed are very often welcomed into pubs? Their spirits are raised—in all senses of the word—and they then are not a burden on the National Health Service.

[Baroness Jolly]

I am not quite sure. I can tell noble Lords about licensing. We are actively working with Public Health England on the practicalities of how health-related objectives for the licensing of premises selling alcohol would work at a local level.

[Lord Brooke of Alverthorpe (Lab)]

My Lords, while we welcome the reduction in the amount of alcohol being sold in certain areas, is it not true that growth is taking place in other areas? In particular, the drinks industry is trying to get its brands into the heads of young people. Is the Minister content to see supermarkets now selling alcoholic lemonade that is stronger than many beers? Is she content to see them selling ginger beer and other soft drinks with more alcohol than is contained in many beers? Should we not be doing something about that?

[Baroness Jolly]

Yes, indeed, and that has been done already. There is a commitment on the amount of alcohol that can be contained in fizzy, canned drinks.

[Lord Krebs (CB)]

My Lords—

[Lord Phillips of Sudbury (LD)]

My Lords—

[The Lord Privy Seal (Baroness Stowell of Beeston) (Con)]

My Lords, when I am up, everybody has to sit down; that is the usual convention. As we have not heard from the Cross Benches on this Question, we will go to the Cross Benches, and we should have time for my noble friend, Lord Phillips of Sudbury, after that.

[Lord Krebs]

My Lords, can the Minister give us some information on the Government’s current assessment of the public health benefits of a 50 pence per unit minimum price for alcohol, which has been recommended by the Chief Medical Officer, among many others?

[Baroness Jolly]

We are keeping the developing evidence on minimum unit pricing under review. It has only ever been one part of the Government’s strategy, which, as I have explained, includes a wide range of national and local actions, including partnership with industry and increased powers for local communities to take action.

[Lord Phillips of Sudbury]

Will my noble friend assure the House that the Government will continue to resist the temptation of yet more legislation in this area and rely on persuasion? Secondly, can she tell us whether the existing law is being enforced? My suspicion is that it is extremely patchy.

[Baroness Jolly]

I know that as part of the responsibility deal there has been a big move by Public Health Ministers at the Department of Health to drive down the number of alcohol units being sold. As I have said, that number has been significantly reduced—by 1.3 million units.

[Baroness Armstrong of Hill Top (Lab)]

Is the Minister satisfied that supermarkets have done enough—it is voluntary, as she said—to reduce the amount of high-value alcohol products being sold cheaply as loss leaders?

[Baroness Jolly]

There is always more to be done in this area.

NHS: Finances and Services

Tuesday 27th January 2015 Lords Chamber

Question

15:00

Asked by

[Lord Hunt of Kings Heath]

To ask Her Majesty’s Government what assessment they have made of the latest King’s Fund quarterly monitoring report on the situation of National Health Service finances and services.

[Baroness Jolly (LD)]

We agree with the King’s Fund that very real financial and operational challenges face our health and care services. However, we are committed to a sustainable future for our NHS. This is demonstrated by our protection of NHS funding and our further funding commitment for 2015-16. This will begin to deliver the vision for transformation set out in the NHS Five Year Forward View.

[Lord Hunt of Kings Heath (Lab)]

My Lords, the King’s Fund quarterly monitoring report of NHS finance directors shows a worrying picture of 42% of NHS trusts facing a financial deficit this year, services under pressure, operations cancelled and a 50% increase in the wait for packages of care by patients in hospitals. Finance directors describe the situation as critical. What specific action are the Government taking to respond to this crisis? Are the Minister and her Liberal Democrat colleagues now prepared to say that they regret their role in helping the passage of the 2012 Act, which has caused so much damage and fragmentation?

[Baroness Jolly]

To take the last point first, I do not regret that. I do not regret parity of esteem for mental health. I do not regret health and well-being boards in local authorities. On the noble Lord’s first set of points, we have seen rising demand in emergency and waiting lists, a reduction in unplanned financial support, and focus on safer staffing ratio guidance. Various things are happening. The noble Lord, Lord Carter, one of the noble Lord’s noble friends, is looking at procurement within hospitals. Right across the piece, local NHS and foundation trust boards are concentrating on how they can restructure services to improve the situation.

[Lord Fowler (Con)]

On the financial position, did my noble friend hear the interview given this morning on the “Today” programme by the Labour health spokesman, Mr Burnham? Given the pressure on health budgets, which we all accept, would it not be idiotic, as he advocated, to turn our backs on the sensible economies that can be achieved from the contracting out of ancillary services?

[Baroness Jolly]

This brings us, I think, to Section 75. We are absolutely clear that no contracting out or commissioning should be done unless it is in the interests of the patient.

[Baroness Tyler of Enfield (LD)]

My Lords, a recent report from the Nuffield Trust on the state of NHS finances showed that spending on agency and contract staff had increased by roughly 20%. Given that this increased reliance on temporary staff has significant costs attached, as well as raising concerns about quality and continuity of care, can my noble friend say what the Government plan to do about it?

[Baroness Jolly]

Agency staffing cost the NHS £2.5 billion last year. This is nothing new. For as long as I have been involved in the NHS, there has been a hefty agency bill. The Government established Health Education England to ensure that the NHS has access to the right number of staff, with the right skills and available at the right time. The Department of Health expects trusts to have a strong grip on their finances.

[Baroness Howarth of Breckland (CB)]

My Lords, does the Minister accept that, until we have a system in which care and health are linked together, we will never manage to get a secure system? Does she not agree that we are in real difficulties when hospitals are blamed for not having good-quality staff, because those cost money, and yet are blamed for overspending when they do have the quality staff?

[Baroness Jolly]

This Government have introduced the better care fund, which aims to produce seamless care across health and social care. There are also 150 local plans, 120 of which are fully approved. We shall watch those pilots with interest.

[Baroness Farrington of Ribbleton (Lab)]

Would the Minister care to comment on the fact that cuts in local authority spending are spoiling the chance of getting proper care in the community? The Government’s allocation of targets and grants is disadvantaging most of all the most deprived parts of England.

[Baroness Jolly]

I understand that local authorities have to struggle very hard to put together packages of care; I have even spoken to my own local authority very recently. We have to do the best with what we have. Currently, that is where we are.

[Lord Forsyth of Drumlean (Con)]

My Lords, can my noble friend help me and explain why it is that the health service both in Scotland and in Wales, where it has more money, is doing considerably less well than the health service in England under this Administration?

[Baroness Jolly]

My noble friend makes a very interesting point. Perhaps they should look at some of the examples that are actually used in the NHS in England.

[Lord Brooke of Alverthorpe (Lab)]

Is it not true that in Scotland and in Wales, there are more chronic, long-term sick patients than there are in the UK generally? Will the Minister say why, each time a Minister replies to questions on the failing performance, they pray in aid the number of additional patients who are now going into the NHS? Is this coming as a great surprise? Is it a surprise that people are getting older? What is the projection for the next five years about the numbers that we have to deal with? Surely this should be planned for.

[Baroness Jolly]

Indeed it should be planned for. There are now a million more people over 65 than there were at the beginning of this Parliament, but at the beginning of this Parliament there were no plans to cope with that onward growth.

[Baroness Tonge (Ind LD)]

My Lords, does the Minister agree with me that chaos is reigning in the health service at the moment? We really must stop this piecemeal approach of throwing bits of money at it and putting on patches where it is failing, and have a proper all-party conference to discuss the future of the health service and how we are going to fund it. That is the only thing that the general public would respect.

[Baroness Jolly]

I am not sure whether that will happen, but there is an awful lot of agreement across the main political parties about what should happen. In particular, we all agree that health and social care should be joined together.

Crime and Courts Act 2013 (Consequential Amendments) Order 2015

Tuesday 27th January 2015 Lords Chamber

Police and Criminal Evidence Act 1984 (Codes of Practice) (Revision of Code A) Order 2015

Motions to Approve

15:07

Moved by

[Baroness Williams of Trafford]

That the draft orders laid before the House on 25 November and 5 December 2014 be approved.

Relevant documents: 15th and 17th Reports from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January

Motions agreed.

Microchipping of Dogs (England) Regulations 2015

Tuesday 27th January 2015 Lords Chamber

Motion to Approve

15:08

Moved by

[Lord Gardiner of Kimble]

That the draft regulations laid before the House on 11 December 2014 be approved.

Relevant documents: 17th Report from the Joint Committee on Statutory Instruments, 13th Report from the Secondary Legislation Scrutiny Committee, considered in Grand Committee on 22 January

Motion agreed.

Films (Definition of “British Film”) Order 2015

Tuesday 27th January 2015 Lords Chamber

Motion to Approve

15:08

Moved by

[Lord Gardiner of Kimble]

That the draft order laid before the House on 4 December 2014 be approved.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 22 January

Motion agreed.

Recall of MPs Bill

Tuesday 27th January 2015 Lords Chamber

Order of Consideration Motion

15:09

Moved by

[Lord Wallace of Saltaire]

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 6, Schedule 1, Clauses 7 to 10, Schedule 2, Clauses 11 to 16, Schedules 3 to 5, Clauses 17 to 20, Schedule 6, Clauses 21 to 25.

Motion agreed.

Deregulation Bill

Tuesday 27th January 2015 Lords Chamber

Order of Consideration Motion

15:09

Moved by

[Lord Wallace of Saltaire]

That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 3, Schedule 1, Clauses 4 to 8, Schedule 2, Clause 9, Schedule 3, Clauses 10 to 13, Schedule 4, Clauses 14 to 18, Schedule 5, Clause 19, Schedule 6, Clauses 20 to 26, Schedule 7, Clause 27, Clauses 42 to 44, Schedule 12, Clause 45, Schedule 13, Clauses 46 to 50, Schedule 14, Clause 51, Schedule 15, Clause 52, Schedule 16, Clause 53, Schedule 17, Clauses 54 and 55, Schedule 18, Clauses 56 to 72, Schedule 19, Clauses 73 to 83, Schedule 20, Clauses 84 to 87, Schedule 21, Clauses 88 to 91, Clauses 28 to 35, Schedule 8, Clause 36, Schedule 9, Clause 37, Schedule 10, Clause 38, Schedule 11, Clauses 39 to 41, Clauses 92 to 96.,

Motion agreed.

Pension Schemes Bill

Tuesday 27th January 2015 Lords Chamber

Report

15:09

Amendment 1

Moved by

[Lord McAvoy]

1: After Clause 18, insert the following new Clause—
“Fiduciary duty of trustees
(1) The Secretary of State may by regulations—
(a) require any pension scheme, which is not already overseen by independent trustees, to appoint a board of independent trustees; and(b) set out the powers and duties of a board appointed under paragraph (a).(2) Regulations under this section—
(a) shall be made by statutory instrument, and(b) may not be made unless a draft of the instrument has been laid before, and approved by resolution of, each House of Parliament.(3) The board of independent trustees shall have a fiduciary duty towards members of the scheme overseen by them.
(4) The fiduciary duty set out in subsection (3) shall take precedence over any duty to—
(a) the shareholders in, or(b) other owners of,the operators of the scheme.(5) In relation to any matters of member interest, decisions of the board of independent trustees shall be binding on the board of directors or other analogous bodies.”

[Lord McAvoy (Lab)]

My Lords, the amendment stands in my name and that of my noble friend Lord Bradley. It is our contention that the Bill does not go far enough to address the governance of defined contribution pension schemes. We have consistently argued on the Bill and the previous Bill that all workplace pension schemes must be run by independent boards of trustees. Those trustees would have a fiduciary duty that would take precedence over any duty owed to shareholders. In proposing the amendment, we are setting out a clear responsibility that all those looking after someone else’s money or advising on investments should be subject to fiduciary standards of care. That will mean that conflicts of interest must be resolved in the beneficiaries’ interest. That omission from the Bill is perhaps surprising given the findings of the government consultation document entitled, Reshaping Workplace Pensions for Future Generations. Paragraph 22 states:

“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”.

The Bill sets up a new model of collective pensions. This will have a form of independence within the governance arrangements, with an alignment of interests. It falls short of our proposal for independent trustees with a clear fiduciary duty to act in savers’ interests, but is an acknowledgement of the principles underpinning good governance. The Government have failed to take the opportunity to require that independence in the governance of all pension schemes.

In Committee, the noble Lord, Lord Bourne of Aberystwyth, said:

“I do not think that we are miles apart on our desired outcome, but we believe that working with the industry, consumer groups and pension groups to achieve the best interests is the right way forward. If we can achieve the same end without making it mandatory, we believe that that is the right approach. It is probably at the root of the difference between the two parties that we believe that we are achieving the result without having to make it mandatory”.—[Official Report, 7/1/15; cols. 381-2.]

In response, we say to the Minister: how long should we give the industry to change? How much evidence do we need to prove that government action is needed and that it is our responsibility to act? Enough is enough.

During the past three years alone, the failures of the pension industry have been well documented. Market studies have been produced by the Office of Fair Trading and the Financial Conduct Authority and reports produced by the Pensions Institute and the Centre for Policy Studies, among others, as well as by journalists from the Times, the Telegraph, the Mail and the Guardian, through to Channel 4 documentaries, to name but a few. There can hardly be a literate adult in the UK who does not understand that there is something seriously amiss with our pension industry. Nor should we ignore the fact that many of those commentators and financial experts have called on the Government to take action because of the failure of regulation, the failure of parts of the market to follow ABI codes of practice or adopt best practice. It has been given a chance to improve for the past decade or more, and even the mis-selling scandals that have cost the industry dear have not been enough to prompt the change that we all believe is necessary.

One further matter should be considered: the success of auto-enrolment. Auto-enrolment has proved attractive and more people have remained in the schemes to date than we had dared hope. We have helped people to do the sensible thing, but that will not be sustained if we do not protect savers from excessive charges, poor returns, poor management practices, mis-selling scandals and the like. People need to trust the private sector pensions industry. As my noble friend Lady Drake said in Committee:

“It will be a major regulatory failure of public policy if millions of citizens are auto-enrolled into pension schemes but Parliament has not ensured that sound governance is in place.—[Official Report, 7/1/15; col. 378.]

I beg to move.

15:15

[Lord German (LD)]

My Lords, before I listen to answers from the Benches opposite, I shall ask the Minister a few questions. If he feels that it is not appropriate for him to reply, perhaps members of the Labour Front Bench might give me the answers.

My understanding is that the number of schemes without trustees—those referred to in this amendment—is of the order of 40,000 to 47,000. I have no problem with independent trustees or trust-based pension schemes: my question is about the scale of the impact of this amendment. If 46,000 or 47,000 schemes—if that is the number of schemes required by this amendment to set up boards of independent trustees—are required to find trustees, there would, first, be a drag on finding that number of suitably-qualified people to fulfil those roles. I wonder where such people might be found.

Secondly, is there a cost to such a change? Changing these schemes is bound to cost them money. Given that the Government have put in place the 0.75 per cent cap, which means that more than 99 pence in the pound of every pension contribution goes towards the benefit—the pension that comes out at the other end—is there any way that that cost would have to fall on the member benefits? In other words, would the need to pay the costs of so many changes to a large number of schemes reduce people’s pensions?

My final question relates to the role of the independent governance committees that are set up. My understanding —perhaps my noble friend could confirm it—is that these committees were set up as a result of the report of the Office of Fair Trading and are a government response to that request. If that is so, perhaps my noble friend could tell me what the role and responsibilities of the IGCs are which can be fulfilled, and which would perhaps fill the trustee role in the schemes where there is no trust-based system as required by this amendment?

[Lord Bourne of Aberystwyth (Con)]

My Lords, I first thank the noble Lord, Lord McAvoy, for his contribution. I will do my best to answer his points and those of my noble friend Lord German.

I welcome the opportunity to debate this amendment again, having discussed it at length in Committee. It is fair to say—as the noble Lord said in opening—that, in philosophical terms, there are differences between the Government and the Opposition on this issue. However, we certainly want the freedoms that the new system contained in the Pension Schemes Bill offers. To that extent, we are united. However, we are certainly coming at it from different angles.

The noble Lord, Lord Bradley, suggested in Committee that all workplace pension schemes should be run by trustees and have a legal duty to prioritise members’ interests. In the same debate the noble Baroness, Lady Drake, made a broader case for extending a fiduciary duty to all who have the discretion to manage other people’s money. The Government share the concerns of the noble Lord and the noble Baroness that pension schemes should be well run. As I said in Committee, the Government are committed to ensuring that all workplace pension schemes are well governed, with members’ interests at the heart of everything they do. That is why, in March last year, we set out our proposals for strengthening the governance of occupational pension schemes that are money purchase schemes, and to the money purchase benefits provided by other schemes, in the Command Paper, Better Workplace Pensions: Further Measures for Savers. I should add that the majority of stakeholders supported these proposals by saying that they represented a positive change, intended to drive the right behaviours.

As noble Lords will be aware, in that publication last October we put these proposals on a sure footing by consulting on draft regulations to place minimum governance standards on, broadly, all occupational pension schemes which are money purchase or have money purchase elements to them. That consultation has now ended; we will shortly be publishing the Government’s response and laying the final draft regulations before Parliament, to come into force this April. For workplace personal pension schemes, the FCA has also completed its consultation on draft rules for independent governance committees, which were referred to by my noble friend Lord German and which will ensure oversight of these schemes in members’ interests from April 2015, and aims to publish its policy statement by early February of this year. That probably answers my noble friend’s point: these committees are essentially supervisory rather than day-to-day, which would be the role of trustees.

In respect of the governance of collective benefits, I can reassure noble Lords that we have a number of provisions in Part 2 that enable us to make requirements in regulations about some of the key aspects of running a scheme offering collective benefits. These are specifically tailored to such schemes and reflect key differences in the rights that members have in collective benefits, compared to money purchase benefits. We may also make regulations under a power in Part 3 to require certain decisions in respect of collective benefits, and in relation to defined ambition schemes, to be made in the best interests of members to ensure appropriate safeguarding of members’ interests. This reflects the different nature of the decisions being made on behalf of members in these types of pensions, compared to money purchase pensions.

I will refer now to another point made by the noble Lord, Lord Bradley, in Committee. He proposed that a trust-based approach is preferable to a contract-based one. I emphasise again that we must not assume that trust-based schemes are always better governed than contract-based workplace pension schemes. There is no evidence that one governance structure necessarily delivers better outcomes than the others. As I said in Committee, we consider that scale, good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust-based. But as I also emphasised, while we are interested in scale inasmuch as it may help schemes to improve quality and lower charges, it is not an aim in itself and bigger does not always mean better. The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the Treating Customers Fairly principles, which have formalised firms’ responsibilities to their customers.

The introduction of independent governance committees with a duty to act in members’ interests, from April 2015, will further strengthen the governance of contract-based schemes. Also from April of this year, the Government and the FCA are intending to introduce measures so that certain savers in, broadly, all occupational and contract-based schemes providing money purchase benefits which are used for automatic enrolment will not be subject to high or inappropriate charges. The positioning in the Bill of this amendment limits the powers to schemes with collective benefits. However, it is not clear whether this is the intention behind the amendment.

We would not want to single out collective schemes here and, as I have mentioned, there are powers in Part 3 covering the interests of members of collective schemes. If the noble Lord, Lord McAvoy, intended the amendment to apply to all schemes, I am not sure whether it would achieve this. As I explained in Committee, if this amendment were exercised across all schemes, it would require independent trustees to be recruited for tens of thousands of pension schemes. I believe that this answers a point raised by my noble friend Lord German. Data from the Pensions Regulator show that there are at least 47,680 private workplace schemes alone, although I accept that not all those will need to recruit independent trustees. My noble friend Lord German put a powerful case for not passing this amendment, as it is not clear whether it is intended to cover just collective benefit schemes or schemes more widely. Clearly, there will be a cost associated with it.

[Lord McAvoy]

I thank the Minister for giving way. The Minister has raised some objections that are less extreme than those of the noble Lord, Lord German—so there is a difference in fairness here. Our new Clause 13 was initially a response to the problem of having so many trustees. Let us not forget this direct quote from my honourable friend Gregg McClymont:

“Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point”.—[Official Report, Commons, Pension Schemes Bill Committee, 4/11/14; col. 324.]

[Lord Bourne of Aberystwyth]

I am grateful to the noble Lord opposite for that intervention, but the case remains there is clearly going to be a cost associated with this. This is an objection to it, but the prime objection is that we do not accept the principle that contract-based schemes need such a fundamental change. Though different in essence from the fiduciary nature of trustees’ duties and trust schemes, there are of course obligations placed on contract-based schemes, as I have tried to set out.

We all agree that good governance of pension schemes is essential. This is why the Government’s proposed new governance standards, applying across broadly all workplace pension schemes in respect of money purchase benefits will further protect members by ensuring that schemes are run in their interests. It is also why this Bill makes provision for targeted regulation-making powers in respect to the running and good governance of collective benefits and certain decisions in defined ambition schemes and in relation to collective benefits.

I accordingly and respectfully ask the noble Lord to withdraw this amendment.

[Lord McAvoy]

My Lords, maybe I am paranoid or maybe I just have a suspicious mind or maybe my mother knew what she was doing when she called me “Thomas”, but I do not believe that it is entirely coincidental that what someone called the Welsh mafia are in operation here, with certain facts—in inverted commas—being produced. Cost has been mentioned by the noble Lord, Lord German, and the Minister. Can anyone in this House give an exact figure for the cost to the members of pension schemes where there has not been proper fiduciary guarantees of independent governance? Can anyone give me a quote? Plenty of folk can quote instances where money has been lost through pension funds. I do not think that the principle that we are putting forward here is as unreasonable as has been portrayed, particularly by the noble Lord, Lord German. We will return to scale at a later stage. In the mean time, we will try to find an estimate of how much has been lost to ordinary members of pension schemes through a lack of governance.

In the mean time, however, I beg leave to withdraw the amendment.

Amendment 1 withdrawn.

Clause 45: Rules about modification of schemes

Amendment 2

Moved by

[Lord Bourne of Aberystwyth]

2: Clause 45, page 19, line 24, at end insert—
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”

[Lord Bourne of Aberystwyth]

My Lords, I address the House as one half of the Welsh mafia or the Taffia—a charge I reject totally of course.

These amendments are consequential in nature. They address an omission in the current legislation. In the course of checking through the changes made as a result of the Bill, omissions in the Pensions Act 2014 came to light. The amendments needed all relate to overriding legislation—that is, when legislation overrides provision in the scheme rules such that the legislation is treated as if it were part of the scheme rules.

Without these amendments, any overriding requirements made under regulations under Schedules 17 and 18 to the Pensions Act 2014 would not be treated as part of the scheme rules for the purposes of the Pensions Act 2004 and subsisting rights provisions in the 1995 Act, leading to inconsistency in the way in which overriding provisions are dealt with and a potential lack of clarity.

I beg to move.

[Lord Bradley (Lab)]

I shall briefly respond as this is the first set of government amendments. I thank the Minister for the courtesy of writing to me with his proposals around these amendments; it is very helpful to have that in advance, as it limits the need for further debate on these matters. Maybe I should declare an interest in that my great-uncle was Welsh, but I do not claim to be part of the Welsh mafia. With those remarks, I am supportive of the amendments.

Amendment 2 agreed.

Amendment 3

Moved by

[Lord Bourne of Aberystwyth]

3: Clause 45, page 19, line 27, at end insert—
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”

Amendment 3 agreed.

15:30

Clause 47: Pensions guidance

Amendment 3A

Moved by

[Lord Bradley]

3A: Clause 47, page 20, line 9, at end insert—
“( ) The FCA must discharge its functions in relation to pensions with a view to securing an appropriate degree of protection for consumers with a right or entitlement to flexible benefits whether they have used pensions guidance or otherwise throughout the decision-making and purchasing process, including safeguards actively to inform consumers of key risks and benefits.”

[Lord Bradley]

My Lords, this amendment is connected to Amendment 22. We had an extremely interesting debate in Committee on the merits of what is known as the second line of defence, and I am pleased that we are able to return to it today as a result of our amendment.

I preface my brief remarks on this matter with our general approach to the Bill throughout its passage in the House. While we broadly support the new freedoms and flexibilities in the Bill and its related Bill on taxation, we have sought throughout to ensure that the interests of pensioners—customers—are protected in what has often been a very dysfunctional annuities market. Our overriding aim has been to ensure that those protections for the public are in place before the Bill is enacted at the beginning of April.

To return to this specific amendment, we argued in Committee that a second line of defence was vital. We discussed evidence from two reports from the Financial Conduct Authority, quoted in Committee, that the market is often not functioning as it should and is letting consumers down. We believed that action was needed immediately to protect savers when making possibly the most complex financial decision that they will ever have to make.

In Committee, the Minister did not seem to accept that action for a second line of defence should be in place by April this year, when the new freedoms and flexibilities are implemented. Instead, he suggested that, because the FCA is a relatively new body with new powers, and has committed to reviewing all its rules in the first half of this year, we should in effect await the outcome of its deliberations before any further action was taken. In response to the Minister, I said that while I would reflect on what he had said, I believed that the public sought reassurance and the confidence that a second line of defence would give them. That is why we have continued to champion a second line of defence throughout the passage of the Bill in both Houses, as have many pension groups and organisations outside this House.

I and my noble friends therefore welcome the Government’s apparent change of heart today, and the fact that they have recognised the strength of the arguments to protect pensioners that we have been making. It is with pleasure we received, and read, the very welcome letter from the Financial Conduct Authority, dated 26 January, saying that it would ensure the,

“appropriate protection of consumers, accessing their pension saving”.

This is extremely welcome, and starts to put together a proper second line of defence.

At this stage of the debate, though, I have three questions for the Minister. First, as the letter says:

“Subject to agreement of the Board, we are minded that it is appropriate to bring these rules into force on a temporary basis from 6 April, and prior to consultation, to provide important additional protection for consumers”.

Will the Minister confirm that the Board will agree to putting this second line of defence in place and that, at a future stage, the Board may decide that it is not necessary?

Secondly, the letter goes on to say:

“As part of that consultation we will also consult on whether to retain or modify the temporary rules that we are proposing to introduce in April”.

Will the Minister assure the House that, after the temporary period that the Financial Conduct Authority is proposing, there are no circumstances in which it would then remove the second line of defence?

Thirdly, in relation to trust-based schemes, it is my understanding that the Pensions Regulator is responsible for these schemes, not the Financial Conduct Authority. Will the Minister assure the House that similar protections for trust-based defined contribution schemes will be made by the Pensions Regulator, in parallel with the FCA?

The merits for a second line of defence seem now to be accepted. I look forward to the Minister’s responses.

[Baroness Drake (Lab)]

My Lords, I had a lengthy and impassioned speech prepared on the need for a second line of defence to address the risks that pension savers might make detrimental and irreversible choices when they access their savings. However, this has been tempered by the letter from the FCA, so my contribution is shorter and less passionate as a consequence.

This amendment sets out a duty on the Financial Conduct Authority to protect savers accessing their pension savings when they are engaging with providers during the decision-making and purchasing process. This is distinct from the duty on the FCA to protect savers receiving guidance from designated guidance providers.

The guidance guarantee, now referred to as Pension Wise, is a key measure for helping people navigate the complex retirement options arena from April 2015. There are people working hard to make its delivery a success, as it will provide a very important service to savers. The FCA will expect providers to check whether a customer has used the guidance service and, if not, to encourage them to do so. In popular parlance, this is the first line of defence.

Beyond the guidance stage, the saver has to move to the process of making a decision, and of selecting or purchasing a retirement income route. It is what happens at this stage—the exchange between the consumer and the provider—that is causing so much anxiety and to which the amendment is directed. It puts a duty on the FCA to secure an appropriate degree of protection for the consumer at that stage. This is what is popularly referred to as the second line of defence.

As my noble friend has said, we have now received the letter from Mr Woolard, Director, Strategy and Competition at the FCA, advising that FCA board approval is being sought for this second line of defence. It is minded to bring these rules into force on 6 April 2015, pending a review of all the current regulatory requirements around the customer’s interaction with the providers. The CEO and chair of the FCA have made some thoughtful and welcome speeches that have set the framework for debate in addressing the challenge of poorly functioning financial services markets.

The recent FCA reports on retirement income markets have been hard hitting and on the nail. It is worth reminding ourselves what they observed: annuity sales practices were contributing to consumers missing out on a potentially higher income; consumers’ tendency to buy from their existing provider lowered the potential for higher income; consumers will be poorly placed to drive effective competition; the retirement income market is not working well; and the introduction of greater choice and potentially more complex products will reduce consumer confidence and weaken the competitive pressures on providers to offer good value. The anxiety was that that analysis and the heightened risk of consumer detriment with the advent of the new freedoms would not translate into sufficient regulatory protection. Against that background, the FCA letter is most appreciated, although I await with interest the answers to my noble friend Lord Bradley’s three questions.

The second line of defence is not a total solution to the risk that consumers will make decisions that are not in their interest, but it will make a very important contribution to what we know is a poorly performing market. I therefore welcome the FCA letter and thank the Minister for facilitating its publication.

[Lord Hutton of Furness (Lab)]

My Lords, it has been clear to everyone following this debate about the latest tranche of pension reforms brought forward by the coalition Government that if we were to mitigate some of the obvious risks that are created by this new world of choice and flexibility at the point of retirement for people saving in DC schemes, it would be necessary to put into place something that we have now called the second line of defence.

The need for the so-called second line of defence was crystal clear quite early on. It is important that we do not treat people at the point of their retirement like children; they have saved all their lives for that point. However, the lack of a requirement to take guidance, because it is a choice or option, certainly creates a substantial risk that the benefits of the Government’s reforms—the greater freedoms—which I think most of us would welcome, could create some very unfortunate outcomes. We know from the failure of the open market option, and from previous attempts to get this right, that the real risk we need to mitigate here is that people will make the wrong decision, and in the later years of their retirement they will find that they just do not have enough money to pay their bills, and will present themselves and seek benefits. That would be a terrible outcome.

Therefore, the decision to put in place the second line of defence, which we heard recently from the FCA, is to be enormously welcomed. We do not know what this second line of defence will actually be; we do not know what will prompt them—what questions consumers will be asked by their pension provider before they take any final decisions. But at least we now have something in place that holds out the prospect that these reforms will work. There was a very real danger that if we did not put this second line of defence in place, the reforms would fail, and that the failure would live with us and haunt us for decades—people who had saved and worked hard all their lives would find themselves running out of money during their retirement. That would represent policy failure on a grand scale.

Today, therefore, we have an opportunity to make these reforms work. I suspect that means that probably we will not need a vote on my noble friend’s amendment, which, like my noble friend Lady Drake, I was very keen to support today. I hope that we would have had a majority in this House for the amendment. This prudent step is not about wrapping up these new freedoms with overly regulatory responses, and so on, but about taking the right course of action to mitigate the obvious risk of policy failure while preserving at the same time the essence of the new freedoms, which is to choose and to make personal financial decisions at the point of retirement.

So I, too, would welcome some further clarification from the Minister today about exactly how this so-called second line of defence will work. We do not know very much about it, but it has to be in place pretty quickly, and there will be lots of concerns out there about exactly what it will mean and who will effectively have the responsibility to enforce it and oversee it.

15:45

The whole world is now much more complicated for people saving in DC schemes. Previously, one had to purchase an annuity at the point of retirement. We know that that market was not working, and the Government brought forward reforms to deal with that failure. We will have to wait and see whether these reforms are going to work. It is absolutely clear from all the consumer research that people are saying that they want to have secure, reliable income in retirement so that they can pay their bills and do the other things that they want to do with their remaining years. There is an absolutely overwhelming need for people to get proper advice about what to do with their pension pots at the point of retirement. This is not one of those areas where we can shrug our shoulders and say that laissez-faire will get us through. Doing nothing will almost certainly ensure that there will be a colossal scandal in a few years’ time when people will turn round to this House, and another place, and say: “What on earth were you thinking of? What on earth were you doing?”.

We have the chance today to make these reforms succeed. By succeed, I mean that we will help people when they are approaching retirement to make the right choices about what to do with their pension pots so they can live a secure, comfortable life and not face the terrible consequence of having to turn round at some point in their retirement years and seek benefits.

[Baroness Greengross (CB)]

My Lords, I put my name to this amendment. I thank the Ministers, with whom I have had the pleasure of discussing it, for the work they have done in making sure that the FCA has come to its extremely welcome conclusion. I echo what the noble Lord, Lord Hutton, has just said. We want to know a bit more about exactly how this will work and whether it is sufficient. In the mean time, I have nothing more to add except that, with a great deal of pleasure, there is no longer the need for an amendment, so far as I am concerned—so I will leave other noble Lords to speak to it.

[Lord Newby (LD)]

My Lords, I declare that I have no known Welsh connections.

[A noble Lord]

Shame!

[Lord Newby]

In Committee, the issue of the second line of defence was the subject of more debate than anything else. I, and other noble Lords, received a lot of lobbying from all sides of the industry and consumer groups about the need for a second line of defence. So I am pleased that other noble Lords are as pleased as I was when I heard, at the end of last week, that the FCA was planning to announce yesterday that it would make new rules by April to protect consumers as they make decisions on how to access and use their pension savings in later life. The Government share the aspirations of the noble Lords, Lord Bradley and Lord Hutton, that we should put in place a new system which gives the maximum opportunity for people to take informed decisions, because we accept that these decisions are, very often, for life and have very significant consequences.

Yesterday evening, I circulated the FCA announcement to noble Lords who had taken part in earlier debates. In short, the rules will introduce a second line of defence. Pension providers will be required to ask consumers seeking to access their pension savings about key aspects of their circumstances relating to the choice that they are making and give relevant risk warnings in response to the answers. This is a very important element: we are keen not simply to have another tick-box exercise, which we could have done at this point. Providers will also have to highlight that guidance from the Pension Wise service, or regulated advice, can help them to avoid making a poorly informed decision. The FCA will also require that messages should be delivered to consumers in direct and simple language.

The FCA announcement illustrates precisely why the amendments we are considering are not needed. The FCA already has a duty to ensure that the retirement income market is working for consumers captured under its statutory objectives, including its objective to secure an appropriate degree of protection for consumers. The announcement demonstrates just how seriously the FCA is taking this duty. It would also be unusual to legislate to give the FCA a specific objective in relation to one sort of investment—pensions—and to do so outside the Financial Services and Markets Act.

I was asked a number of specific questions. The first related to the board agreeing the proposals. It is notable that the press release does not refer to the board. I suspect that this is not an unusual way of dealing with announcements that the FCA wishes to make between board meetings. I believe that there will be a board meeting next month at which the decisions announced yesterday will be ratified. It would be extremely unusual if the board were to go against the advice of its officials on a matter such as this. I am not on the board; its members are independent. However, if I were a betting man, I would be prepared to put my shirt on the likelihood of these new rules being ratified.

The second question was whether these are temporary or permanent rules. The temporary element of them relates to the fact that there has been no consultation. In order to get them in place in time, they have to be introduced quickly under a fast-track procedure. Again, while I cannot formally commit the board or the FCA, I think it is fair to say that there is no intention in anyone’s mind that this should be a temporary provision. The new rules have a long-term purpose; there is no temporary element. It is certainly the intention that there will be permanent rules—but, as I say, the transition from temporary to permanent involves the consultation process which they would normally undertake.

The third question related to whether trust-based schemes would also be covered. As the noble Lord, Lord Bradley, pointed out, the FCA will not cover trust-based schemes, but the DWP, which writes the regulations for trust-based schemes, is working with the Pensions Regulator to consider how this can best be dealt with for trust-based schemes on the same basis, so we have it in hand. This is a very recent development so far as the FCA is concerned; it was announced only yesterday.

[Lord Bradley]

I am grateful to the Minister. As the DWP is working on the issue with the Pensions Regulator, will it be on the same timetable for introducing such a second line of defence from 6 or 7 April?

[Lord Newby]

My Lords, that is what we are hoping to achieve, so that everybody is working on the same basis. In making the announcement yesterday, the FCA demonstrated that it has listened to the many representations it has received directly, and to debates in your Lordships’ House. I am pleased that it has. In the light of that announcement, I hope that the noble Lord will feel able to withdraw the amendment.

[Lord Bradley]

I am very grateful to the Minister for that reply. I thank my noble friends Lady Drake and Lord Hutton, and the noble Baroness, Lady Greengross, for their support for this amendment.

The Minister responded well to the three questions I raised. While I accept that he is not a betting man, I also accept that his assurances that the board will approve these proposals, that they are not temporary, and that the DWP will bring in a similar, parallel policy for trust-based schemes are all welcome and reassuring to the House. I believe that this is a real victory for all those who have campaigned, both inside this House and outside Parliament, for a second line of defence to give added protection to people making decisions about the pension pots and retirement income. As we said, that is perhaps the most important financial decision they will make in their lives.

[Lord German]

I also support the letter from the FCA. It is very welcome. The bottom of the first page of the letter says, in absolute terms, that,

“the FCA has also decided to bring the ABI retirement code into our rules”.

Would the noble Lord agree that that is very welcome, given that the ABI retirement code lays out in great detail the journey through which the customer will travel? The letter makes it very clear that that will happen.

[Lord Bradley]

I am grateful to the noble Lord, Lord German. That is in the letter and, as I said, we welcome its contents. It reinforces the points that we made about the second line of defence and the future adequacy of that provision. That is clearly welcome.

In conclusion, we will closely monitor the way that the policy and the implementation fall, to ensure that consumer rights are properly protected in the way that everyone in this House expects. With that, I beg to ask leave of the House to withdraw the amendment.

Amendment 3A withdrawn.

Clause 48: Independent advice in respect of conversions and transfers: Great Britain

Amendment 4

Moved by

[Lord Newby]

4: Clause 48, page 20, line 30, leave out “create exceptions to subsection (1)” and insert—
“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;(b) create other exceptions to subsection (1).( ) Regulations under subsection (3)(a) may, in particular, make provision about—
(a) the valuation of the subsisting rights;(b) the process for determining whether the exception applies.”

[Lord Newby]

My Lords, these amendments are those that we indicated, in Committee, that we would lay on Report. They respond to the recommendations of the Delegated Powers and Regulatory Reform Committee. The committee was concerned that Clause 48(3) was too broad. That subsection provides a power to create exemptions to the requirement to check that advice has been received under the advice safeguard. In Committee we explained that, as set out in the consultation response document Freedom and Choice in Pensions, we intended to exempt those with pensions wealth below £30,000 from having to obtain advice. This remains our only intended use of the exemption. However, it may prove necessary, once the new flexibilities come into force, to create an exemption that applies in other circumstances.

Amendment 4 divides the original power, creating a specific power to exempt from the safeguard those who have rights to safeguarded benefits that are worth less than an amount specified in the regulations. This relates to the exemption we intend to make in regulations for those with safeguarded wealth of £30,000 or less. Amendment 6 makes the same change for Northern Ireland. Amendment 14 changes the procedure that applies to regulations made under these powers, so that only regulations that make an exception for those whose safeguarded wealth is below the specified amount are subject to the negative procedure. These regulations will need to be in place by 6 April, so it will not be possible to make them subject to the affirmative procedure. However, regulations that create any other sort of exception will be subject to the affirmative procedure. Amendments 15 and 16 make the same change of procedure for regulations made by the Northern Ireland Department for Social Development.

The final part of Amendment 4 allows the regulations to specify exactly how this £30,000 threshold will be calculated. In response to feedback from stakeholders, we have decided that this should apply only to safeguarded benefits in the scheme from which the member intends to transfer, and be calculated on the basis of the cash equivalent transfer value, which is the standard measure in the industry.

16:00

The Delegated Powers and Regulatory Reform Committee was also concerned that Clause 48(7) was too broad. Subsection (7) currently provides a power to give the meaning of the phrase “appropriate independent advice” in regulations. In Committee, we explained that in the response document to the consultation on freedom and choice in pensions, the Government set out that the advice which schemes would have to check had been received would be given by an adviser authorised by the FCA. We also explained that our intention is to define “appropriate independent advice” in regulations by reference to an activity regulated by the FCA, and that in parallel to this Bill the Government will seek to legislate to add a new activity to the FCA’s regulated activity order. This will be done by means of a statutory instrument amending the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, which will be subject to the affirmative procedure. The Treasury will lay a draft of this statutory instrument before the end of the month, and ahead of Third Reading.

Amendment 5 draws upon Amendment 44A, tabled in Committee by the noble Lords, Lord Bradley and Lord McAvoy, which suggested that advice should relate to the characteristics of the adviser providing it, as opposed to the nature of the advice itself. The amendment provides that, “appropriate independent advice” must be,

“given by an authorised independent adviser”,

and goes on to set out that this means someone who,

“has permission under … the Financial Services and Markets Act 2000 … to carry on a regulated activity specified in regulations”.

This pertains to the link we intend to draw from regulations between the definition of “authorised independent adviser” and the new regulated activity that the Treasury will seek to legislate to create.

The clause, as amended, retains the power to specify the nature of the advice. This is being done as a precautionary measure to allow the Government to respond to practice emerging after April, which may require aspects of the definition of “appropriate independent advice” to go beyond that which can be expressed purely by the link to the FCA’s regulated activity.

Amendment 7 makes parallel amendments for Northern Ireland. I hope the House will agree that these amendments satisfy our commitment to seek to address the concerns of the Delegated Powers and Regulatory Reform Committee. I beg to move.

[Lord Bradley]

I am grateful to the Minister for the explanation of the amendments, which are fine for the Bill, particularly the clarification around the amendment that we moved in Committee on the issues of appropriate independent advice and authorised independent adviser. That is very helpful, and I am pleased that the amendments are now being made.

Amendment 4 agreed.

Amendment 5

Moved by

[Lord Newby]

5: Clause 48, page 21, leave out lines 1 and 2 and insert—
““appropriate independent advice” means advice that—
(a) is given by an authorised independent adviser, and(b) meets any other requirements specified in regulations made by the Secretary of State;“authorised independent adviser” means a person who—
(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Secretary of State, and(b) meets such other requirements as may be specified in regulations made by the Secretary of State for the purpose of ensuring that the person is independent;”

Amendment 5 agreed.

Clause 51: Independent advice in respect of conversions and transfers: Northern Ireland

Amendments 6 and 7

Moved by

[Lord Newby]

6: Clause 51, page 22, line 21, leave out “create exceptions to subsection (1)” and insert—
“(a) create an exception to subsection (1) in the case of a member or survivor whose subsisting rights in respect of safeguarded benefits under the scheme, or safeguarded benefits under the scheme and any other schemes, are worth less than a specified amount;(b) create other exceptions to subsection (1).( ) Regulations under subsection (3)(a) may, in particular, make provision about—
(a) the valuation of the subsisting rights;(b) the process for determining whether the exception applies.”

7: Clause 51, page 22, leave out lines 31 and 32 and insert—
““appropriate independent advice” means advice that—
(a) is given by an authorised independent adviser, and(b) meets any other requirements specified in regulations made by the Department for Social Development in Northern Ireland;“authorised independent adviser” means a person who—
(a) has permission under Part 4A of the Financial Services and Markets Act 2000, or resulting from any other provision of that Act, to carry on a regulated activity specified in regulations made by the Department for Social Development in Northern Ireland, and(b) meets such other requirements as may be specified in regulations made by the Department for Social Development in Northern Ireland for the purpose of ensuring that the person is independent;”

Amendments 6 and 7 agreed.

House resumed.

Northern Ireland: On-the-Runs Scheme

Tuesday 27th January 2015 Lords Chamber

Statement

16:03

[The Parliamentary Under-Secretary of State, Wales Office (Baroness Randerson) (LD)]

My Lords, with permission, I will repeat in the form of a Statement the Answer given by my right honourable friend the Secretary of State for Northern Ireland to an Urgent Question in another place on the on-the-runs scheme. The Statement is as follows.

“On Monday 26 January, the coroner conducting the inquest into the death of Mr Gareth O’Connor, who disappeared in May 2003, directed that the inquest would be stayed, pending an investigation by the PSNI into one of the suspects in Mr O’Connor’s murder. The suspect was part of the administrative scheme dealing with so-called on-the-runs, and was in receipt of a letter from the Northern Ireland Office informing him he was not wanted for arrest by police forces across the United Kingdom. This case is specifically covered on pages 107 and 108 of the Hallett report into on-the-runs, where it is described as ‘error 2’. The fact of the error has been in the public domain for some time and this case is not a new development.

The Police Service of Northern Ireland is investigating the suspect’s case and will be considering whether charges can be brought against the individual. I spoke to the chief constable of the Police Service of Northern Ireland yesterday, and I understand from him that this is a live police investigation. I also briefed the Justice Minister on the case. The police will investigate where the evidence leads them. Under the circumstances, it would not be appropriate to comment further on the specifics of the case.

In relation to the OTR administrative scheme, I set out the Government’s position in full in my Statement to the House on 9 September. This followed detailed consideration of the report by Lady Justice Hallett that was published in July. I made clear in my Statement that the scheme is at an end and that there is no basis for any reliance on letters received under the scheme by so-called OTRs in the past. There is no amnesty, immunity or exemption from prosecution. Those who received letters under this scheme should be in no doubt. If there is considered to be evidence or intelligence of their involvement in crime they will be investigated by the police, and if the evidence is sufficient to warrant prosecution, they will be prosecuted”.

16:06

[Lord McAvoy (Lab)]

My Lords, I thank the Minister for repeating the Secretary of State’s Statement in the House of Commons. The revelation yesterday regarding the collapse of the inquest into the murder of Gareth O’Connor has caused further justifiable concern and anxiety in Northern Ireland. Our thoughts today must and should be with the O’Connor family. Like so many of those left behind, they sought truth and justice about what happened to Gareth in 2003. They have waited 12 long years for an inquest into the death of their son. The thought of preparing for a week-long inquest would have been harrowing for the family. This development has made a highly stressful situation even worse. News of another error from the administrative scheme for the on-the-runs is devastating, following the catastrophic error in the Downey case last year.

We have apologised for the Downey error, and do so again for the error in the O’Connor case. In the same way as this scheme never offered amnesty, it was also never intended to cover alleged offences committed after the signing of the Good Friday agreement. The delay in the coroner and the family being made aware of the error is deeply troubling. The Northern Ireland Office and the police knew about the case, and indeed—as the Minister has indicated—it was referred to in the Hallett report.

I have some questions for the Minister. Why did the Northern Ireland Office not ensure that this family were told of the error in the immediate aftermath of the Hallett report? How many other potential specific errors identified in the Hallett report are the Northern Ireland Office currently investigating? In view of the financial pressures facing the Police Service of Northern Ireland, what is the Minister’s estimate of the time it will take to review all the cases covered by the on-the-run scheme? Finally, in a related matter which has caused similar concerns, can the Minister give the House an update on investigations on the missing information as regards the royal prerogative before 1997?

[Baroness Randerson]

The noble Lord made a number of important points and asked a number of questions. I am very pleased to hear that the noble Lord has echoed the apologies already made by the PSNI and by the Secretary of State to the family concerned. Why were they not told of the error earlier? It is a very complex situation in terms of the independence of the judiciary and of the inquest service. However, it is important to bear in mind that the Secretary of State and the PSNI have apologised to the family for the impact of this new development on them. We fully understand the problems it raises for them.

The noble Lord asked for the number of errors that were identified in the Hallett report. The Hallett report identified the Downey case and two other errors, of which this is one, and there are 36 cases where there is concern. All these are being reinvestigated by the PSNI as part of Operation Redfield.

The noble Lord asked how long this will take. I can be no more satisfactory in my answer than to say a number of years, in the estimation of the PSNI. He also asked for an update on the information relating to the royal prerogative of mercy. Following the Hallett report, the Northern Ireland Office has taken steps to improve its administrative systems. Work is ongoing with stakeholders to identify if there is any more material to be found.

16:11

[Lord Alderdice (LD)]

My Lords, I am grateful to my noble friend for repeating the Answer. I recall some elements of this case because Mr O’Connor disappeared shortly after the IMC was formed and we reported as much as we knew at that time in the very first report of the IMC. What puzzles me a little at this stage is, the mistake having been made and having been reported on some time ago, was the coronial service not informed so that it would have known that bringing forward an inquest at this stage was not going to go anywhere? If it was informed, it seems puzzling. If it was not informed by the PSNI, surely that is a serious gap that adds insult to injury in terms of the disadvantage that the family have been put at, not to mention the coronial service itself.

[Baroness Randerson]

My noble friend refers to the interlinking between the PSNI and the coroners service. It is important to bear in mind the independence of the PSNI. It must be free to pursue investigations. It is also important to bear in mind that this inquest has been ongoing for a number of years. Beyond that, it is not appropriate for me to comment on an individual case.

[Lord Rogan (UUP)]

My Lords, will the Minister confirm that the letter to the suspect in the Gareth O’Connor case was delivered to him by Gerry Kelly? If this is so, why was Gerry Kelly used as the postman, and how did he know the name and address of the suspect? How many other OTR letters have been given to Kelly for delivery? Further, how many other OTR letters have been given to the IRA/Sinn Fein leaders, Gerry Adams and Martin McGuinness, for delivery?

[Baroness Randerson]

The noble Lord asked about the issues associated with the OTR administrative system in general. I can do no better than to refer him to the Hallett review, which set out in detail a description of the situation. This was a system set up under the previous Government. In so far as we are able, this Government have given the full information that we are aware of in relation to the Hallett review.

[Lord Browne of Belmont (DUP)]

My Lords, will the Minister explain how a suspect received an on-the-run letter in error relating to a murder that took place post the 1998 peace agreement? Who was responsible for the error and who signed it off?

[Baroness Randerson]

I am sorry to disappoint the noble Lord. I really cannot comment on the details of a specific case.

[Lord Empey (UUP)]

My Lords, will the Minister explain what metaphysical forces were at work that allowed a member of Sinn Fein to deliver a letter to a person who he did not know at an address that he did not know? Will she also confirm to the House that no blank letters were given to Sinn Fein for it to distribute to persons of its choosing? Will she give a categorical assurance from the Dispatch Box that no letters of that character were issued at any stage?

[Baroness Randerson]

I understand the general concern that noble Lords are expressing about this scheme. I can say to the House only that, once we identified the scheme we brought it to an end in an orderly manner. We certainly are not of the view that the scheme has been operated in an efficient and acceptable manner. I once again refer the noble Lord to the Hallett report, which gave a very detailed description of the way in which those letters were issued and the way in which errors were made.

[Lord Lexden (Con)]

Would my noble friend not agree that a postman who takes possession of a letter and then says that he does not know the address to which that letter was delivered strains credibility?

[Baroness Randerson]

The noble Lord has his own view. In speaking to the House today, I can deal only with the facts as I know them about events that took place a considerable number of years ago.

[Lord Hylton (CB)]

My Lords, on the wider question, we can all understand the grief, the sense of loss and sometimes the bewilderment of families who were the victims of ancient crimes. However, would it not be very much better for all concerned if prosecutions were to cease for offences committed before 1994, when the two major ceasefires came into force?

[Baroness Randerson]

This Government take the view— the same view as the two parties of this Government took when we were in opposition—that it was inappropriate for there to be amnesties for people who had committed crimes at that time.

Pension Schemes Bill

Tuesday 27th January 2015 Lords Chamber

Report (Continued)

16:17

Amendment 8

Moved by

[Lord Bradley]

8: After Clause 60, insert the following new Clause—
“Drawdown funds: cap on charges
The Secretary of State may make regulations imposing a cap on the charges that may be imposed on members of flexi-access drawdown funds.”

[Lord Bradley (Lab)]

My Lords, the purpose of this amendment is to give the Government the ability to cap the charges on flexi-access draw-down pension products. It is important because it gives the Secretary of State the power to take action if it is clear that unfair charges are being levied. When the freedoms and flexibilities commence in April, there will likely be a large increase in the number of people using these products, and it is right that the Government are able to protect these savers.

In Committee, I laid out why this measure is necessary. A possible 320,000 savers will be looking to turn their pension pots into retirement income in April, and the charges that can be levied can be high. As Which?, the consumer body, has pointed out:

“Even for a simple fund structure from a low-cost provider, the annual management charge might be 1% plus an administration fee of £250 per annum, which would cover the cost of income payments and income level reviews, for example. A more common total cost is about 2% p.a. which is similar to that for an investment-backed annuity. Worryingly, we came across cases where the charges for a SIPP package and advice were 4%-4.5%”.

We remain concerned about ensuring that good products are available for low and middle-income savers, as well as for those who have large pension pots. As I have said, we should remember that the median pension pot is around £30,000. The cap on charges for these products on decumulation, alongside those in place during accumulation, could be a very important stage. As NEST pointed out in its recent consultation on the subject:

“The solutions we as an industry develop over the next few years could affect the lives of millions of people in old age. We absolutely cannot afford to fail consumers. Leaving their retirements to chance is not an option”.

As I said in Committee:

“A good first step would be to remove the possibility of savers being open to what may be termed rip-off charges. This should apply in the decumulation stage as well as the accumulation stage, because a rip-off charge is a rip-off charge, wherever a consumer finds themselves at the end of it”.—[Official Report, 12/1/15; col. 614.]

I accept that I have fallen into the jargon that we promised we would not pursue during our deliberations. Decumulation is when you are turning your pension pot into a decision on retirement income.

The Minister replied that this amendment was not required, because:

“There already exist regulation-making powers which allow the Government to cap charges on the new flexi-access draw-down funds. The Government took broad powers under the Pensions Act 2014 to limit or ban charges borne by members of any pension scheme. These powers would allow us to cap charges on draw-down funds offered by a pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers”.—[Official Report, 12/1/15; col. 617.]

This is obviously potentially very welcome, but I want take the opportunity provided by this amendment to probe a little further. Can the Minister advise the House today precisely which part of the existing legislation the Government would use were they to take action? Further, can he say whether the Government have any plans to take such action and when that would arise? I am trying to establish not just whether the Government believe that it is possible to do that but whether they would use the powers that the Minister says they now have. Even if the powers already exist—I look forward to the Minister’s response to my question—accepting this amendment would send a powerful signal that the Government intended to protect savers in this market from April. I hope therefore that the Minister will indicate that the Government are ready and willing, as well as able, to do so. I beg to move.

[Lord Bourne of Aberystwyth (Con)]

I thank the noble Lord, Lord Bradley, for his contribution and recognise that “decumulation” might be jargonistic—I am sure that I have used jargon myself—but “rip-off” certainly is not, and I think we agree that we do not want rip-off charges. The Government are as much against them as the Opposition, I am sure. I will do my best to answer the specific points that the noble Lord raised.

This amendment was tabled by the noble Lords, Lord Bradley and Lord McAvoy, also in Committee earlier this month, so noble Lords will forgive me if I have dealt with some of this previously. As I mentioned on that occasion, the Government take the issue of charges on pension products very seriously and are committed to taking action where there is evidence of consumer detriment. I can reassure the noble Lord on that point.

I am pleased to be able to say that the Government have powers under the Pensions Act 2014—specifically, Section 43 and Schedule 18 confer them—to limit or ban charges borne by members of any pension scheme, including any new flexi-access draw-down funds, if this proves necessary to protect consumers.

Similarly, the Financial Conduct Authority has wide-ranging product intervention powers, including the ability to cap charges on flexi-access draw-down funds. These existing powers cover all the institutions that could offer such draw-down arrangements.

Flexible draw-down is a relatively niche product, aimed primarily at those savers with large pension pots. HMRC data from the start of 2014 showed that only 5,000 people per year have entered flexible draw-down, which has been in place since 2011. Flexible draw- down is clearly not currently a mass-market product.

With the introduction of the new flexibilities from April of this year, we expect this to change. We have given the industry a great deal of flexibility to develop a range of more flexible retirement income products and offer consumers greater choice. We want to see a vibrant and competitive marketplace, bringing forward products that meet consumers’ needs and enable consumers to make reasoned choices. The Government believe that a competitive market is the best way to ensure that products are well priced and we expect the expansion in take-up of draw-down products to exert a downward pressure on charges. Moreover, as scheme members can withdraw variable amounts, draw-down products generally require more administrative activity than accumulation-phase products. With the introduction of the new pension flexibilities, none of us can be absolutely certain how this market will develop. This was a point made quite fairly by both the noble Lord, Lord Bradley, and the noble Baroness, Lady Drake, in Committee.

Imposing a charge cap on draw-down at this stage, before we have seen the charges on the new products that are currently under development, could therefore risk setting a new norm and arrest any reduction in charge levels, or set a charge that is too low to be deliverable and stifle the draw-down market altogether. We therefore need to monitor how this market develops from April to gather further evidence about average charge levels before making any decision on what would be an acceptable charge level. The Government and regulators are therefore monitoring the development of new retirement income products, including the next generation of draw-down products, very closely.

Innovation and flexibility in the retirement income market must, of course, be for the benefit of consumers, not at their cost. The Government welcome the FCA’s commitment in its recent policy statement that it will commence a full review of its rules in relation to the retirement income market in the first half of this year. If these measures reveal evidence of sharp practice—rip-off charges, in the noble Lord’s phraseology—the Government and the FCA have the powers to act quickly to protect consumers. Along with the Financial Conduct Authority, we are also legislating to require reporting of charges and information on transaction costs by trustees and independent governance committees respectively of all workplace pension schemes from April this year. We are also committed to consulting further in 2015 on the transparency of additional costs and charges, to enable comparability across schemes; we will be considering draw-down funds as part of this work programme. We covered some of these transparency issues in Committee.

[Baroness Drake (Lab)]

The Minister made the point that I had not heard before that, from April 2015, the independent governance committees will be invited to report on draw-down products, which is to be welcomed. Could he clarify whether the full remit of the independent governance committees will apply to draw-down products, or is it just a question of reporting?

[Lord Bourne of Aberystwyth]

As I understand it, it would certainly cover the point that the noble Baroness makes about draw-down products; it will not simply be a question of reporting.

To conclude, while the Government share the concerns about member-borne charges, the Government and regulators are equipped with the powers to cap charges in all pension schemes, including draw-down products. We feel that intervening in the market at this stage would be wrong: intervention must be based on evidence, but it is an intervention that the Government have not shied away from making elsewhere in the market. We are closely and proactively monitoring developments in the decumulation market to consider whether there is need to use those powers.

In the closing remarks of the noble Lord, Lord Bradley, in Committee, he stated his hope that we would act in the interests of consumers if we were to see excessive charges in the new draw-down products that come to market. I can reassure him that this remains our intention. I therefore respectfully ask the noble Lord to withdraw his amendment.

[Lord Bradley]

I am grateful to the Minister for that response, and for taking up all the issues that I raised under the amendment. I noticed with interest his view that the competitive market will put downward pressure on charges, and I sincerely hope that that is the case. Monitoring of that situation will be essential to ensure that products do not come on to the market that seem attractive to customers, but with charges attached that are, because of the products’ complexity, hidden within them.

I welcome the fact that the Government have clarified to the House exactly what powers they have to deal with the matter, and the assurance that the Government not only have them but will use them in conjunction with the regulators if it is quickly seen that it is necessary to protect consumers from excessive charges. With those assurances, and with the certainty that this will be closely monitored both inside and outside the House, I beg leave to withdraw the amendment.

Amendment 8 withdrawn.

16:29

Amendment 9

Moved by

[Lord Bradley]

9: Before Clause 67, insert the following new Clause—
“National Employment Savings Trust transfers
In relation to NEST, within one month of the passing of this Act, the Secretary of State must lift the ban on transfers and the contribution cap.”

[Lord Bradley]

We return to the issue of the National Employment Savings Trust. The amendment requires the Government to lift the restrictions on NEST. In Committee and in a letter that the Minister was kind enough to send me between Committee and today, he explained why it is the Government’s opinion that that is impossible. I want to use this short debate to push back against that idea and explain why I believe that it is possible to lift the restrictions quickly, and why it should be done now.

NEST has been a success, as we all recognise and as the Minister acknowledged in Committee. As I said then, we should celebrate the fact that it has provided a high-quality, low-cost product in an important market that has not always—or often—served the saver well. Restrictions remain that prevent NEST building on that success. They limit, first, the contributions that can be made. In 2014-15, no more than £4,600 could be paid in. Secondly, there are restrictions on transfers from NEST in and out of other pots, except in certain circumstances, such as pension credits as part of a divorce settlement.

We have long argued that those restrictions should be lifted, but the Government pushed back, arguing that to do so would break EU state aid rules. That was obviously a serious point that needed to be addressed, as it was important not to leave NEST open to legal challenge. The EU ruled relatively recently that NEST is a service of general economic interest and did not breach state aid rules. My colleagues in the other place therefore sought legal advice to ensure that it would not breach state aid rules if the restrictions were lifted. That advice was published in November 2012, and concluded:

“It is important to appreciate that this can be done without offending EU state aid rules if the UK government presents the arguments as to why the subsidy no longer qualifies as a state aid under the Altmark principles”.

However, the Government still have not moved on that. Since then, we have had confirmation that legal advice sought by Gregg McClymont was accurate. The EU commission agreed that NEST would not breach state aid rules were its restrictions to be lifted. That is obviously welcome news, and has the potential to improve the savings environment for many in the UK. Alas, the Minister laid out, both in Committee and in the letter that he has since kindly sent me, why he believed that it was still not possible. The reason was that it appears to be EU state aid rules. In the Chamber the Minister argued:

“It is our understanding that we would have to reapply to vary the state aid consent that we have”.—[Official Report, 7/1/15; col. 442.]

However, later in the correspondence he said that the European Commission decision published on 26 June 2014 provided confirmation that removing the annual contribution limit and transfer restrictions from 1 April 2017 is compatible with the state aid measures afforded to NEST. The Commission also agreed that the removal of restrictions on individuals making transfers in and out of NEST could be brought forward to coincide with the introduction of automatic transfers, if they were earlier than April 2017.

Noble Lords will, therefore, understand if I am reluctant to accept the Government’s argument. We have been told repeatedly that state aid rules make this simple but important change to NEST impossible now. So can the Minister, first, provide more details as to why the EU state aid decision does not apply to any point earlier than 2017? Secondly, can he say why the decision on state aid would be challenged, as he suggested in the letter that it might? Thirdly, whose interests would be disadvantaged by the cap being lifted earlier? Lastly, how is that sufficient to invalidate the existing EU judgment? It would be helpful to the House to have further clarity on the Government’s argument as to why it is not possible to lift restrictions on NEST before 2017. I beg to move.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Bradley, for his contribution and for allowing me to provide an update on NEST. I will do my best to answer the specific point on state aid rules.

I stress at the outset that the Government have broadly two concerns about the amendment. One of them is the state aid rules. The second is that we want NEST to focus on its mission to provide assistance to small and micro-employers in the run-up to 2017, when the restrictions will be lifted. However, I will go through some of the background and do my best to answer the specific points—or point—raised by the noble Lord, Lord Bradley.

As promised—and as acknowledged by the noble Lord opposite—during the Committee proceedings I wrote to the noble Lords, Lord Bradley and Lord McAvoy, copying it to other noble Lords who had participated in the debate, clarifying, I hoped, a point relating to state aid and the removal of the annual contribution limit and transfer restrictions from 1 April 2017. It must be noted that that letter referred to it certainly not being contrary to state aid rules to lift the restrictions on 2017. That was, of course, the consent given. However, it does not follow that it could be done any earlier; otherwise, a particular date would not have been chosen for lifting the restrictions. This is where the issue is: whether if a particular date is given, and consent is given for that date, it follows that you can lift the restrictions at any date before. This is the difference between us. I do not think it follows, where an application has been made for a particular date and consent is given, that you can predate it. However, I will try to come back to that.

[Lord Bradley]

My Lords, following that last point, perhaps I might quote again from the letter, which I accept I may not be interpreting correctly. It says:

“The Commission also agreed that the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with the introduction of automatic transfers if this were earlier than April 2017”.

[Lord Bourne of Aberystwyth]

Indeed, and I will come on to that point but it relates only to the transfers, not to the amount. The amount remains subject to the consideration of 2017. There are two limbs to this and I will try to cover that point, because we may be looking at a date slightly earlier than April 2017 if we succeed in achieving the aim of the automatic transfer. That limb of it could be there somewhat earlier but not the other limb, as it were. Let me proceed and, I hope, deal with the points. If not, I am sure that the noble Lord will let me know.

Later this week noble Lords will again, I hope, debate the National Employment Savings Trust (Amendment) Order, laid before Parliament on 16 December 2014. Its purpose is to implement the proposals that we have been talking about. As noble Lords will be aware, NEST was established to support automatic enrolment by ensuring that all employers had access to a low-cost workplace pension scheme with which to meet their duties, regardless of the size or profitability of their workforce. Its design, including the annual contribution limit—I think this is the point at issue, and is subject to the 2017 designation—and transfer restrictions, which admittedly could be somewhat earlier, focuses NEST on this target market of low to moderate earners, and smaller employers whom the market found difficult to serve. I believe that I mentioned this in Committee but I may be wrong on that point.

NEST already has more than 1.8 million members and 10,500 participating employers. NEST is doing what it was set up to do: supporting automatic enrolment, and doing so very successfully. During winter 2012 and spring 2013, the Department for Work and Pensions undertook a call for evidence on these issues of limitation. It sought to assess whether there was evidence that the annual contribution limit and the transfer restrictions placed on NEST were preventing it serving the market it was designed for. The evidence showed that although there was a perception that these two constraints were a barrier to access, the reality was that they did not prevent NEST from serving its target market. Seventy per cent of small and medium-sized employers expect to contribute no more than the legal minimum to their workers’ pensions. Until October 2017, minimum contribution levels are a total of 2% on a band of earnings. There is already a substantial amount of headroom within the annual contribution limit, which is currently £4,600, for contributions above the minimum. For example, minimum total contributions for a median earner on £26,000 a year would be £405.

In relation to transfers, individuals in other schemes who can already make transfers rarely do so. Evidence shows that more than 80% of workers fail to transfer their previous company pension funds across to their new employer’s scheme. In addition, around only 14,000 small and medium-sized employers currently provide trust-based workplace pension schemes that could be transferred to another pension provider. Of these, the Department for Work and Pensions estimates that around 5,000 might be able to consider a transfer of their workplace pension provision to NEST, which is equivalent to less than 1% of all firms.

Around 1.2 million small and micro-employers have yet to enrol their eligible workers. There is most likely to be a supply gap in this segment of the market, which underlies the rationale for establishing NEST. This is where the Government want NEST to focus. This is because of a shortage of provider capacity and the fact that other providers have traditionally not found it possible to serve this market at reasonable cost. Implementation on this scale needs NEST, the only scheme with a public service obligation, to be able to play a significant part in meeting this challenge.

If the House will indulge me for a moment, automatic enrolment has been a tremendous success so far, with more than 5 million workers enrolled into a workplace pension. Opt-out rates have been lower than expected, at around just 10%. We would not be in this position if not for the consensus that automatic enrolment has enjoyed from all sides of this House over the past decade. However, we must not be complacent. The 5 million workers enrolled so far work for only 43,000 employers. The challenge for the next phase of the rollout of automatic enrolment is to ensure that the remaining 1.2 million small and micro-employers are able to enrol their eligible workers.

The Department for Work and Pensions estimates that NEST will need to accept between 45% and 70% of those employers, ensuring that supply gaps are addressed. The scale of this challenge should not be underestimated—for example, during 2016, around half a million small employers will need to enrol their workers, which is an average of more than 40,000 employers per month.

With this in mind—and taking account of the evidence —the Government determined that removing the annual contribution limit and transfer restrictions immediately to address the perception of complexity would not be a proportionate response. Conversely, doing nothing would not be consistent with the Government’s broader policy objectives to encourage increased saving and consolidation of pots. We therefore concluded that legislating now to remove these constraints in 2017 was a balanced approach. Legislating now will address any current perception that the constraints are discouraging small employers from using NEST to meet their automatic enrolment duty. It will also send a clear signal that NEST will be on a similar footing to other schemes from 2017.

16:45

The European Commission’s decision, published on 26 June 2014, confirmed that removing the annual contribution limit and transfer restrictions from 1 April 2017 would be compatible with the state aid measure afforded to NEST. The Commission—this is the significant point and the point the noble Lord, Lord Bradley, was rightly raising— also agreed that should the Government introduce automatic transfers earlier than 2017, the removal of the restrictions on individuals making transfers into and out of NEST could be brought forward to coincide with this. We will publish further information about the implementation model and timetable for automatic transfers in the coming months. So that particular part of the NEST restrictions is encompassed within the original decision in 2014 from the European Commission, but not with regard to the contribution limit.

If we were to lift these constraints—those agreed—sooner than approved by the decision, we would need to refer back to the Commission. Noble Lords are aware that negotiations with the Commission took more than a year to conclude. There is a risk that the state aid provided to NEST would be unlawful if we are unable to get the Commission’s agreement to lifting these constraints before bringing changes into force.

The Government have therefore brought forward legislation to lift these two constraints from 1 April 2017 —after all existing small and micro employers have enrolled their eligible workers but before minimum contributions rise to 5 per cent. The draft National Employment Savings Trust (Amendment) Order 2015 was laid before Parliament on 16 December 2014. It is subject to the affirmative parliamentary procedure and I am sure the noble Lords will look forward to debating it later this week, as I mentioned, on Thursday.

I hope that I have answered the point that the noble Lord addressed to me and I urge him respectfully to withdraw the amendment.

[Lord Bradley]

Once again, I am grateful to the Minister for his extensive response on this very important matter and his recognition, which the whole House shares, of the value of NEST and the excellent work it has done—particularly for low-income workers, giving them a very important model to pursue. It was not our intention for the amendment to undermine in any shape or form the focus of the mission of NEST that the Minister rightly referred to. It was to try to ensure that the continued auto-enrolment of employees continues, and NEST is part of that process because it is doing such a successful job. I am, however, grateful for his clarification of the European ruling and the distinction between transfers and contributions. I will read the explanation in detail following this debate.

We all want to ensure the continued success of NEST as an organisation. I am sure that over the coming months it will continue to play that role and I look forward to debating further these matters as further legislation is presented to this House. In the mean time, I beg leave to withdraw the amendment.

Amendment 9 withdrawn.

Amendment 10

Moved by

[Lord McAvoy]

10: Before Clause 67, insert the following new Clause—
“Scale of pension schemes
(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have the power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”

[Lord McAvoy (Lab)]

My Lords, Amendment 10 would ensure that the fiduciary duty of pension scheme trustees should include a duty to consider whether the scheme had sufficient scale to deliver good value for members. It is the same amendment that we proposed in Committee but, having reflected on the Minister’s answers, we believe that this is so important an issue that we want to return to it.

The Minister said in Committee that,

“although … the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties”.—[Official Report, 7/1/15; col. 393.]

He also said that the framework was already there to enable mergers and scaling up, and indeed they are happening. However, it is crucial to us on this side of the House, whether the issue is governance and transparency or the way in which duties are imposed on trustees, that we should always be looking to get best value and protect the interests of the public throughout this process. Strengthening the arm of the Pensions Regulator will help to achieve that scale.

It is our view—and that of the Pensions Regulator, which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes, and we want a process in place to try to reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful, but would give powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pension industry that scaling up will have to happen, and that in doing so costs would be reduced and there would be a better outcome for savers, I hope and believe that the Government will wish to support the amendment. I beg to move.

[Lord German (LD)]

My Lords, once again I have a few questions for the movers of the amendment as well as the Minister. The sense that I get from the amendment is that bigger is always best and small is not to be preferred. The truth, presumably, lies somewhere in the middle of all that.

There are questions that arise from the amendment. When you have schemes—I presume there are many tens of thousands of them are around, but I do not know how many of them are of the size and scale interpreted by the amendment—it is important to ask what defines sufficient scale, which is the first part of the noble Lord’s amendment. I would like to understand what “sufficient” means. I presume that noble Lords would want to see all pension schemes with good governance, low fees and good outcomes for their members.

So my first question is: what is it that big schemes can provide that smaller ones cannot? I understand from reading Hansard from the other place that one of the suggestions from the movers of this amendment there was that asset management could be moved in-house. I wonder whether that is a sensible provision. Can the Minister tell us whether or not there have been successes with in-house asset management? Is that a given for securing lower costs and a better outcome for the consumer?

I turn to the other pressure that the amendment seeks to apply. The claim is that by forcing schemes to merge, there will be economies of scale. In the capping regime that the Government have undertaken, there must be a league table of high-cost fee pension schemes. Can the Minister say how many bigger and how many smaller providers are in that league table? This will enable us to discover whether or not big is best and whether there are appropriate economies of scale.

I need to test another issue with the movers of this amendment: namely, merging. Merging with whom and how is it to be determined? What the amendment seeks to do is to force pension schemes to merge. I understand that there has already been a significant shift in the number of schemes that have merged; the extent of the direction of travel is extensive. Perhaps the Minister could remind us of the speed with which schemes are merging and growing bigger. But if you force mergers, as with any arranged marriage you need to engage in a partner search. I wonder whether the movers of the amendment can tell us how this partner search is going to take place; who is going to undertake it and who is going to police it—because I think that would be almost impossible.

I remain to be convinced that forcing unwilling, low-cost, good value for money, well governed, smaller pension schemes to merge is the right approach to ensure that the members of the scheme get the best returns. There are alternatives. The fee cap, disclosure, regulation of governance and transparency are all issues that this Government have taken on board and are progressing. I am left with some doubts about whether the forced marriage regime which is being proposed by the noble Lords opposite is the best approach when there are better alternatives.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord McAvoy, for moving this amendment. It would impose an additional duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme.

The principle of promoting scale to drive value for money for scheme members is one that we can all understand. However, the Government believe that introducing further legislation to ensure that the fiduciary duty of trustees includes a duty to consider whether a scheme has sufficient scale is unnecessary and overburdensome.

In response to my noble friend Lord German, I can confirm that there is already a trend towards larger schemes and away from smaller schemes. We contend that trustees’ existing fiduciary duties already require them to act in their members’ best interests, so it would be unusual if they did not consider this point. In addition, trustees must pay particular attention to four key areas. First, they must comply with governance requirements—for example, they must establish and operate internal controls. Secondly, they must have regard to investment governance and decision-making. Thirdly, they must adhere to administration practices—for example, record-keeping. Lastly, they should seek to prevent fraud—for example, theft or pension scams. Specific legislation would place the financial cost of managing a difficult and complex forced consolidation on members. In many cases it would be in direct conflict with scheme rules which may not permit such transfers and mergers.

A further difficulty with this amendment is the complicated underlying process that trustees would be required to undertake to implement its requirements. The noble Baroness, Lady Drake, put her finger on this in Committee when she said that problems could arise around transfers. Trustees would, for example, be required to find a suitable alternative scheme, assess the scheme’s suitability and undertake independent checks. Again, the costs of that would be borne by members; it could be a costly process if they were required to do that in the way this amendment suggests.

17:00

The amendment would also give the Pensions Regulator a new power to compel a merger if it would be in members’ interest to do so. However, for the Pensions Regulator to use that power in accordance with any methodology, it would surely have to be publicly consulted upon and agreed with the Secretary of State. The amendment requires such a methodology to be kept under regular review. That additional measure is totally unnecessary. Both to stipulate what “sufficient scale” in members’ best interests means and for the Pensions Regulator to measure and police it would be very difficult.

New governance standards from April 2015 will mean that trustees will have a legal responsibility to ensure that schemes are well governed in members’ interests. In addition, the Pension Regulator’s existing regulatory strategy and activities include providing guidance and e-learning resources, and helping trustees to demonstrate that they meet the required standards of their defined contribution quality features. The regulator will also take enforcement action where necessary. That ranges from issuing advice letters, warning letters and statutory compliance notices to monetary penalties.

In short, this amendment is unnecessary and could be burdensome. There needs to be clarity about the standards of schemes into which small-scale schemes could be transferred or directed; for example, by the Pensions Regulator. Therefore a lot of work would be needed to do this, and it would cost a lot, and we are not of the view that it is necessary or that big is necessarily beautiful. Clearly, on occasion costs could be saved, and it may be that services could be shared—a point touched on by my noble friend Lord German.

Therefore we are not complacent, but we do not believe that proactive government intervention is necessary when it is clear that the number of small schemes is consistently falling and that trustees, providers and employers already have sufficient incentives and responsibilities to ensure that schemes can continue to operate effectively to benefit their members. Our analysis of the current defined contribution landscape shows that effective benefits of scale already operate within the marketplace, including significant consolidation of schemes. We expect that to continue and to accelerate as smaller employers are brought into automatic enrolment.

In Committee there was a consensus that big is not necessarily beautiful and, on occasion, many small schemes deliver very effectively. I am not suggesting that there is any difference between us on that point; I do not believe that we want a single monolithic structure that delivers the equivalent of “any colour as long as it’s black” in the insurance world. However, to come back to the point—whether we believe that small schemes can deliver—I am not quite sure that this sledgehammer is necessary here, because trustees should already be considering these types of issues. Some employers may prefer a smaller scheme that can deliver bespoke investments and communications to their workforce, which a large scheme might not be able to do. We have already seen smaller employers moving towards larger arrangements such as group personal pensions, master trusts and NEST. They can also access the benefits of scale, as I said, by purchasing investment or administration services from a larger adviser.

The Government believe that these flagship reforms we are introducing for the first time, of minimum governance standards to ensure that schemes are well governed with low and fair charges for members, represent the correct approach to drive value for money and better member outcomes. On that basis, I respectfully ask the noble Lord to withdraw the amendment.

[Lord McAvoy]

I thank the Minister for his response. However, I have struggled a wee bit to align some of the comments made by the Minister and by his loyal and noble friend Lord German. We have been accused of saying that bigger is beautiful, but no, we did not, and of saying that bigger is best, but no, we have not said that. The Minister has used the word “sledgehammer” to describe this minor, moderate amendment, and it is just not true. The noble Lord, Lord German, referred to a “forced marriage”. The only forced marriage I see is, more appropriately, across the Benches here and it is heading for a rocky end in divorce and mayhem and not on good terms either.

I repeat what the amendment would do. It would ensure that:

“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.

The only duty is to consider. It is not a forced marriage, it is not bigger is best, it is not big is beautiful, and it is not a sledgehammer. I am losing track of all the various adjectives used here to describe this little amendment. We think it is a reasonable duty to give them to make sure they at least consider it. No force of any kind is envisaged at all. The Minister is not an extreme person but I am disappointed that he has perhaps been waylaid by his loyal and noble friend into using some extreme language which does not fit the amendment. However, I beg leave to withdraw the amendment.

Amendment 10 withdrawn.

Amendment 11

Moved by

[Lord Bradley]

11: Before Clause 77, insert the following new Clause—
“Decumulation
(1) A qualifying money purchase scheme may not sell annuities directly to anyone who has saved with the scheme unless this is the recommendation of an independent annuity broker.
(2) A relevant scheme may provide an independent brokerage service itself.
(3) A self-provided annuity brokerage service will be considered independent for the purposes of this Act if the provision of its services is subject to the direction of independent trustees.
(4) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;(b) ensuring access to most annuity providers; and(c) minimising costs.(5) The standards meeting best practice for annuity brokerage services shall be defined by the Pensions Regulator after public consultation.
(6) The standards set out in subsection (5) shall be reviewed every three years and, if required, updated.”

[Lord Bradley]

My Lords, we return to decumulation, which is the process of converting pension savings into retirement income. The amendment is aimed at protecting savers who default into an annuity with their same savings provider. The annuity market is not working as it should and the Financial Conduct Authority’s recent Thematic Review on Annuities Sales Practices set out, first, that 60% of retirees with DC pension savings were not switching providers when they bought an annuity, despite the fact that around 80% of these consumers could get a higher income on the open market. Secondly, an estimated 91% of people with medical conditions could get a higher income on the open market through an enhanced annuity. Thirdly, firms’ sales practices are contributing to consumers not shopping around and switching, and missing out on a potentially higher income in retirement as a result. There is evidence of non-adherence by pension providers to the ABI code.

The amendment would provide safeguards for those who do not take advantage of the new flexibilities provided by the 2014 Budget changes and for whom an annuity remains the best product. There are people who will prefer the security of a product that guarantees them a set income for their entire lives, without the difficulty of making predictions about life expectancy. The FCA report recognises that annuities can still be a very attractive option—indeed, for some a better option—than a flexi draw-down product.

This amendment is about protecting people from a highly dysfunctional annuities market which can be riddled with excessive fees and charges, which sometimes capitalises on people’s inertia and lack of financial knowledge, that does not necessarily reward loyalty and that sometimes plays fast and loose with its regulatory framework. For example, the National Association of Pension Funds estimates that those who do not shop around receive up to 20% less in their annuity. The Financial Conduct Authority estimates that consumers could be missing out on up to £230 million in additional pension savings because they are not shopping around in the most effective way.

The annuitising process remains complex. The Financial Services Consumer Panel recognised this in December 2013 and said that a “good annuity outcome” might well require expert help. Our new clause would require the recommendation of an independent broker in order to sell an annuity to someone who has saved with the same scheme. This may be an existing provider or it may be another, but an independent broker would protect consumers from getting a bad deal when taking such a crucial decision in their lives.

In Committee, the Minister acknowledged that the process of annuitising is complex and requoted the evidence that says that,

“many consumers are not getting the most out of their hard-earned savings”.—[Official Report, 7/1/15; col. 363.]

He also concurs with us that annuities can be good value where the individual member selects a product that meets his or her needs. So, across the House, we recognise that the market is dysfunctional but that annuities should remain part of the options available for people planning for their retirement. However, we diverge on what should be done to help people find a way to the best product.

The Minister said that the Government, through providing the public with guidance,

“will ensure that individuals can access the support that they need to understand and navigate their retirement choices—for example, to help them decide whether an annuity product is the right choice for them … Where they decide to purchase an annuity, they must be encouraged and supported to shop around for the best deal. Those are key objectives for the guidance and the Financial Conduct Authority’s rules will underpin it”.—[Official Report, 7/1/15; cols. 363-4.]

I do not think that the guidance will be sufficient to enable the complex choice of deciding between annuity products. What guidance will do is to help people to consider where to annuitise, or whether to take the cash option or to go for some kind of draw-down product. This is fine as far as it goes. People who retain an independent financial adviser pay that person to select the best annuity options for them to choose between. There are hundreds of such products, all with a lot of small print and mystifying jargon and statistics. Choice requires expert help—even, dare I suggest, for the financially literate. The independent financial adviser is an expert, with regulatory backing and examinations to pass, so they do more than offer guidance. People may pay upwards of £1,500 for that assessment of options—a steep fee, and certainly one beyond the reach of people with small pension pots. However, the fee reflects the complexity of choosing the right product for that person to meet his or her particular needs. Guidance is not sufficient to choose an annuity.

There is other evidence to support advice for choosing annuities. As was made clear in Committee in the other place, pension schemes should ensure that any brokerage service they employ on behalf of their members meets best practice in terms of providing members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the costs. Pension schemes have a duty to get the best possible deal for their members, or to do it themselves in-house. Such good practice can be found in pension schemes such as the Royal Mail’s and the National Employment Savings Trust. Though this amendment, we are seeking such best practice in pension schemes across the country.

The Minister said in Committee in the same speech that requiring independent advice may have the perverse result of deterring people from selecting to stay with the same savings body. It is estimated that 20% of savers remaining with their existing company get a good deal, or perhaps even better than by changing companies. However, the fact that 80% do not get such a good deal indicates to me that our amendment is required to protect savers to ensure that they do. With respect, I think that the Minister is wrong in principle. An independent broker should consider all options, including remaining with the existing provider.

In many ways, I deeply regret the need for this amendment because it acknowledges that the change needs to come from government. Offering advice is best practice in some pension saving schemes, so why do they not all do it? If the industry acted in the best interests of all savers, it would not be necessary. Sadly, the industry does not always conform to the ABI code of conduct. Despite a series of damning reports from think tanks such as the Centre for Policy Studies, and the Office of Fair Trading report published in 2013 and the FCA reports in 2014, this financial sector has refused to change and put the best interests of savers first. Government action is required; the public should be able to look to us to protect them. At a time when the House collectively agrees that this series of pension reforms should seek to rebuild trust and confidence in pensions, particularly in the private pension sector, this amendment is needed to protect consumers.

17:15

I hope that I have now persuaded noble Lords that people who turn their pension pots into an income do not shop around for the best deal because it can be complex, confusing and difficult. Guidance, however good it is, will not be enough; it may help them to decide whether to draw down, take cash or annuitise, but deciding between options for annuities will require another level of advice. Because of that it seems sensible, if the consumer is to get it right for their retirement income, to empower pension schemes to undertake their responsibilities. I hope that this proposed new clause draws on best practice and that the Government will see merit in it. I beg to move.

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Lord, Lord Bradley, for introducing this amendment, which we recently considered in Committee. In his speech in Committee the noble Lord explained the intent behind this amendment, as he has again today: to protect savers who put their pension savings into an annuity with the same provider they save with because of failure to shop around for a better deal. In Committee he also referred to the concept of empowering schemes to undertake the responsibility for ensuring the member gets the best deal, using their advantages of bulk buying. We can all understand the noble Lord’s motivation but, for reasons I will give, I do not think that the amendment would achieve these ends.

If the amendment were agreed to, an individual would be able to buy an annuity from their savings provider only if it was recommended by an independent annuity broker. This requirement would catch everyone who wants to buy an annuity from their savings provider, not just those who accept an annuity from their scheme without having looked for a better deal on the open market. It would also affect those who have made extensive investigations on their own behalf and who would therefore be paying a broker to tell them something they already know.

Moreover, the amendment would not protect consumers from getting a bad deal. I acknowledge that it might limit the providers who could offer that bad deal, but only regarding their existing customers. There would be nothing to stop someone getting a bad deal from an annuity provider chosen on the basis that it has a shop on their high street or appeared first on their internet search, as the annuity broker requirement would bite only if the member wanted to buy an annuity from his existing savings provider. If the broker does not recommend the savings provider, the member will not be permitted to buy an annuity from them. Are we so sure of the competence of all annuity brokers that we should, effectively, take this decision out of the hands of the person most affected by it and put it into the hands of the annuity broker?

On the idea of empowering schemes to undertake the responsibility for ensuring the member gets the best deal by using the advantages of bulk buying, there again appears to be nothing in the amendment to facilitate this. In any case, I remain agnostic on these advantages in the context of an individual choosing what to do with their pension savings. The purpose of the Budget changes is to allow the member to choose from a range of options that suit them best, based on their knowledge of their specific circumstances and wishes. It is not clear how schemes bulk buying annuities for cohorts of members would be able to reflect these choices.

In addition, we must always be careful of the law of unintended consequences—a law that cannot be amended by this House. There would be a real risk that members would simply stop even considering internal annuity products because of the inconvenience and delays, not to mention the extra costs involved in consulting a broker. In fairness to the noble Lord, that point was raised in Committee.

I remind noble Lords that some providers offer guaranteed internal annuity rates which can often be a higher rate than that available on the open market. We should be careful before we do anything which might deter members from taking advantage of such products. As I hope I have made clear, we agree that individuals should certainly be helped in reaching the decision that is right for them and, as noble Lords already know, we have put in place a number of ways in which this help is offered, and via the FCA we have brought forward additional safeguards thereto. However, we do not think that the individual’s decision should ultimately be constrained by others. On that basis, I urge the noble Lord respectfully to withdraw his amendment.

[Lord Bradley]

Again, I am grateful to the Minister for his views on this amendment, so clearly laid out. I was particularly interested in his comment that we should recognise the law of unintended consequences on this amendment. Some may consider it to be true of the whole Bill, but that remains to be seen.

Maybe the reason I am most persuaded to withdraw the amendment is that I will not have to try to pronounce “annuitise” as many times in the future as I have in the last few days. I recognise the points that have been made, and we will be debating further this afternoon matters relating to the guidance guarantee and how robust that will be in supporting people. We are particularly concerned about the number of people who remain within the same scheme and do not seek advice. We will look at that again as these matters unfold further through regulation. In the mean time, I beg leave to withdraw the amendment.

Amendment 11 withdrawn.

Amendment 12

Moved by

[Lord Newby]

12: After Clause 79, insert the following new Clause—
“Public service pension schemes
In Schedule 5 to the Public Service Pensions Act 2013 (meaning of “existing scheme”), in paragraph 1, after “1972” insert “other than a scheme which relates to staff of the Secret Intelligence Service or Security Service”.”

[Lord Newby]

My Lords, these two amendments make a small change to the Public Service Pensions Act 2013 in respect of the pension schemes of the Security Service and Secret Intelligence Service to put beyond doubt the application of that Act to those agencies.

The first amendment introduces a proposed new clause after Clause 79 to ensure that the pension schemes of the Secret Intelligence Service and the Security Service are not included in the list of existing schemes in Schedule 5 to the Public Service Pensions Act. The amendments are necessary because since the Act was passed in 2013 new information suggests that the pension schemes for those security services might fall within the Act’s definition of an “existing scheme”. As such, they would be subject to the requirements set out in the Act that their current pension schemes should close on 1 April this year, and a new scheme, reformed in line with the Government’s principles on public service pension reform, should take its place.

However, at the time the Act was drafted it was thought that the security agencies’ pension schemes fell within a different category—that of public body pension schemes. The requirements here are different. Instead of a closing date of April this year, the Government have set out an expectation that public body pension schemes will reform by April 2018. Consistent with our original understanding of their status, the Government have been working with the security agencies to ensure that a new reformed pension scheme is in place ahead of 2018.

As I am sure noble Lords will understand, it would not be possible at this late stage for the Government to change course and put in place a new pension scheme for the security agencies in time for this April. It would also not reflect the agreement the Government have with the agencies and their staff to keep the existing scheme open until 2016. As things stand, without introducing a new pension scheme in April this year, there is a significant risk that the agencies’ staff would be left without any lawful pension provision after this date. That is obviously a situation that the Government could not allow to happen. The amendments I propose today will prevent any risk that the security agencies’ pension scheme will be forced to close on 1 April 2015 and will allow the Government to continue to work with the security agencies to put in place a new reformed scheme by the original deadline. The amendments do nothing more than this and will have no wider bearing on any other public service or public sector pension scheme. The second amendment enables the new clause to come into force on Royal Assent. This is to ensure that it is in force before 1 April 2015, so the risk of forced closure never manifests itself. I beg to move.

[Lord Bradley]

I am grateful for the explanation from the Minister and I can assure him that I have no intention of opposing changes to the secret service’s or the security services’ pension schemes.

Amendment 12 agreed.

Clause 83: Regulations

Amendment 13

Moved by

[Lord Bourne of Aberystwyth]

13: Clause 83, page 47, line 4, after “containing” insert “—
( ) the first regulations under section 8(3)(b), 9, 10, 11 or 21,”

[Lord Bourne of Aberystwyth]

My Lords, this amendment changes the parliamentary procedure applicable to the exercise of some delegated powers contained in Part 2 of the Bill from the negative resolution procedure to the affirmative resolution procedure the first time these powers are exercised. These powers relate to exclusions from the definition of collective benefits and how schemes that provide collective benefits will operate in relation to certain key matters. The Delegated Powers and Regulatory Reform Committee recommended that the regulation-making powers in Clauses 9 to 11 and Clause 21 should be subject to the affirmative procedure the first time they are used. In response to amendments tabled by the noble Lords, Lord Bradley and Lord McAvoy, in Committee, I made clear that the Government accept that recommendation in respect of those powers. This amendment therefore places regulations made under those powers subject to the affirmative procedure on first use, as the Committee recommended. The Committee also recommended that the power in Clause 8(3)(b), allowing regulations to exclude a specified benefit from the definition of a collective benefit, should be subject to the affirmative procedure every time it is used.

I also explained when we debated the noble Lords’ amendments in Committee that the Government do not consider this to be appropriate because there needs to be flexibility to respond to new developments in scheme and benefit design that could result in benefits falling within the definition of “collective benefits” and hence becoming subject to the requirements of regulations made under Part 2 of the Bill, contrary to policy intention. Clause 8 is a key provision as it defines the scope of the provisions relating to collective benefits in Part 2. Because it is a key provision it should be subject to the affirmative procedure the first time it is used but there are circumstances where the Government may need to use this power without unnecessary delay to avoid members’ benefits being affected and to avoid schemes being subject to expensive requirements around the setting of targets, actuarial valuations and so on, which are not appropriate because other regulatory and governance requirements would be more appropriate to them. As the affirmative procedure could result in delay, leading to significant distress to members who would be without clarity as to whether their benefits were caught by the collective benefit provisions, we believe that the power in Clause 8(3)(b) needs to be affirmative on first use only. I therefore beg to move this amendment.

Amendment 13 agreed.

Amendment 14

Moved by

[Lord Bourne of Aberystwyth]

14: Clause 83, page 47, line 4, after “containing” insert “—
( ) regulations under section 48(3)(b), or( ) ”

Amendment 14 agreed.

Clause 84: Regulations: Northern Ireland

Amendments 15 and 16

Moved by

[Lord Bourne of Aberystwyth]

15: Clause 84, page 47, line 16, at end insert—
“( ) Subsection (2) applies where regulations made by the Department for Social Development in Northern Ireland contain—
(a) provision made under section 51(3)(b), or(b) provision made under section 82 that amends, repeals, revokes or otherwise modifies a provision of primary legislation,(whether alone or with other provision).”

16: Clause 84, page 47, line 17, leave out from “Where” to “, the” in line 19 and insert “this subsection applies”

Amendments 15 and 16 agreed.

Clause 88: Commencement

Amendment 17

Moved by

[Lord Bourne of Aberystwyth]

17: Clause 88, page 48, line 35, at end insert—
“( ) section (Public service pension schemes);”

Amendment 17 agreed.

Schedule 2: Other amendments to do with Parts 1 and 2

Amendments 18 and 19

Moved by

[Lord Bourne of Aberystwyth]

18: Schedule 2, page 63, line 21, at end insert—
““( ) regulations made under Schedule 17 to the Pensions Act 2014;( ) regulations made under Schedule 18 to the Pensions Act 2014;”

19: Schedule 2, page 63, line 24, at end insert—
““( ) regulations made under paragraph 17 of Schedule 17 to the Pensions Act 2014;( ) regulations made under paragraph 6 of Schedule 18 to the Pensions Act 2014;”

Amendments 18 and 19 agreed.

17:30

Schedule 3: Pensions guidance

Amendment 20

Moved by

[Lord Bradley]

20: Schedule 3, page 68, line 20, at end insert—
“( ) must be sufficient to ensure that the body is capable of carrying out its functions under section 333C(1).”

[Lord Bradley]

We now come to the very important issue of the guidance guarantee. In Committee we debated a number of significant issues that this amendment addresses. However, I would like to probe the Government a little further on the arrangements for providing guidance through Citizens Advice and the Pensions Advisory Service.

Specifically, I am seeking assurances that those two organisations are capable of delivering the guidance and that the quality of the guidance will be consistently high across the two delivery partners. Key to this is that the delivery agencies receive the funding they need to deliver a quality advice service for those who request it. The whole purpose of this is to ensure that when the pensions freedoms and flexibilities are introduced in April, people have the quality guidance to make the crucial decisions about their retirement income.

Guidance—not advice, which is a regulated function—will be available from April 2015 to assist all the 600,000 people due to retire next year, or those who have deferred making decisions about their annuities until the legislation is passed, together with any 55 to 65 year-olds who are thinking of cashing in their pension pot. Further demand for the service may also come from younger people as the Treasury has said that people in their 50s or even 40s may be eligible for guidance.

In the debate on the previous amendment, we talked about unforeseen consequences of the legislation. I hope— this is just a background comment—that we are not in a position that a previous Government were in in the 1980s, when we blundered into a massive pension reform without thinking through all the implications. As Black and Nobles said in “Personal Pensions Misselling”, as quoted in The Blunders of Our Governments:

“No-one looked at pensions as posing particular problems because no-one knew or thought to look”.

To her credit, my noble friend Lady Turner was pretty much a lone voice in the debate in this House in raising concerns about that Bill, and concluded in a speech on 11 July 1986 that it was “vital” that people buying personal pensions should be offered adequate protection. I am very pleased that my noble friend is in the Chamber this afternoon.

It is against this background that we still have concerns and questions about how guidance will be organised and delivered in practice. These concerns include: people who decide to cash in their pension pots or to move money into complex draw-down products when an annuity may still have been their better option; the potential for product scams and whether the introduction of the criminal offence, although welcome, will be enough to deter the proliferation of what the Financial Times called “whizzbang investment schemes”; that the Financial Conduct Authority will not be specifically regulating the guidance guarantee; that the guidance will not be comprehensive enough to ensure that people fully appreciate the consequences of the decisions they make; and that all government policy has not been thoroughly thought through and clarified, because unless the policy is clear, the guidance staff will be put at a great disadvantage.

We know now that in the first instance the Government have allocated £35 million to the guidance service to recruit around 300 staff for the Pensions Advisory Service and Citizens Advice. It is still not clear how this amount has been calculated. Has the Minister made any further assessment of the likely take-up of the guidance from the first tranche of, say, the 600,000 people who may seek such guidance? As was pointed out in Committee, there has been a huge variation in projections on this point, from the Legal & General study of 9,000 people being offered free advice but with only a 2.5% take-up, to the Chartered Insurance Institute, which predicted a 90% take-up.

Further, has an estimate been made of the proportion of people who will seek guidance by phone from the Pensions Advisory Service and those who will seek a face-to-face interview delivered by the citizens advice bureaux? Without such an assessment, it is difficult to understand how demand for the service will be managed by the different delivery agencies.

Next I will deal with qualifications and training. These issues have been explored well by outside commentators, including Radio 4’s “Money Box” programme, Money Marketing and other specialist pension advisers. It has been noted that TPAS is recruiting telephone advice workers at a salary of around £30,000 per annum. Applicants are expected to have five years’ experience of pension work and advice and, ideally, a relevant qualification. However, the CABs are recruiting people for face-to-face work on salaries of around £18,000 to £24,000. Applicants there need merely to be numerate, and knowledge of pensions is desirable but not essential.

Further, the Treasury has said:

“All Citizens Advice and TPAS staff delivering the pensions guidance will receive intensive and detailed technical training prior to April 2015. They will be tested to ensure they have the necessary pensions knowledge before they talk to the public. They will also have access to a programme of continuous professional improvement”.

However, Barnett Waddingham, senior consultant and former TPAS chief executive Malcolm McLean has said:

“You can train people until you are blue in the face, but they need to have a starting point of knowledge. Citizens Advice seems to think that you can take people with absolutely no pensions knowledge and train them up in a few weeks’ time. Why is it asking for such a different level of pensions knowledge to TPAS? Arguably the face-to-face service is more difficult, because you are on your own in a room with someone”.

Is the Minister satisfied that staff recruited will be of sufficient quality to deliver the service? “Money Box” suggested that the face-to-face service could be second class compared with TPAS. Will he confirm that to date TPAS has recruited only 20 extra staff. Crucially, will he confirm that the intensive and detailed technical training will be completed when the system goes live in April?

My next questions are about coverage of the face-to-face service being provided by the citizens advice bureaux. In Committee, it was pointed out that Citizens Advice has a network of some 300 bureaux across the country, but the specialist pension guidance staff would be located in only 44 offices. In the light of the International Longevity Centre study that suggested that 63% of people seeking guidance would prefer a face-to-face interview, are 44 centres sufficient to meet the demand from April? Can the Minister confirm that these are sufficient? Have the Government made any estimation of the maximum waiting time for an appointment at one of these centres? If there is a delay in getting an appointment, a decision could be made about pension pots that is not in the best interest of the customer.

Since there are only 44 centres, what is the maximum distance that a person will have to travel to get guidance, and has account been taken of the distribution of these centres for public transport for those who may need it? In terms of the day-to-day operations of the service, will the offices be open early in the morning or late in the evening, or at weekends, particularly for those people who are in employment? Further, on the money allocated for the service, will the Minister again assure us that the invaluable work undertaken by CAB staff for some of the most vulnerable people in local communities will not be affected by the pensions work and that no funding provided by local authorities will be used by CABs for pensions guidance? Will the Minister also confirm that each interview will last up to 45 minutes and that the designated guidance adviser, as the CAB worker will be known, will just lay out the options for the customer to consider? Will the customer after a period of reflection be entitled to further consultation, or will they then have to seek paid independent financial advice?

Will the Minister confirm what the complaints procedure will be? Will the customer first complain to the CAB and what form will that take? If it is not resolved, will it then be passed to an independent adjudicator approved by the Treasury? Can the Minister give details about how that independent adjudicator service will work? If the complaint remains unresolved, will the Parliamentary and Health Service Ombudsman then intervene, but only with the support of a Member of Parliament? Is this all correct, and will the Minister give full details of the complaints procedure? If he cannot do so today, can he tell us when it will be published?

Finally, will the Minister give us an absolute assurance that both the TPAS and the CAB service will be ready to go live from April, in barely eight weeks’ time, not only in England and Wales but in Scotland and Northern Ireland, and that there will be clarity on all policy areas so that those delivering the guidance are able to give accurate information to the customer?

At the heart of the amendment is our wish to ensure that the Bill works in the way that is intended and that the guidance will be available, taken up and prove effective in helping people to choose the right products to fund their retirement, and to make the right decisions about lump sums or other retirement income. To date, this House has been provided with too little information about the guidance to be offered. At this late stage, we must be satisfied that the guidance will be fit for purpose and will address all the issues that the public will need to consider in order to make one of the most important decisions of their lives. I beg to move.

[Baroness Oppenheim-Barnes (Con)]

My Lords, this Bill is a very welcome reform and has been met with a good deal of justified praise. I, too, have concerns about the possibility of the citizens advice bureaux being able to take on such another role—and to do it effectively, because I have the greatest admiration for it having dealt with it over many years. Its staff are all volunteers. They do not necessarily have specialised knowledge. Those who have had training in dealing with the pensions market are scattered quite thinly, as has already been said by the noble Lord, Lord Bradley. We had not very long ago two big Bills which imposed new duties on the citizens advice bureaux, the most recent being the Consumer Rights Bill and, before that, the regulatory reform Bill. They were given extra sums of money, which were not overgenerous, because they now have to give specialised information. I know that big-shot financial advisers often get things very wrong and they are supposed to be experts, so a great onus is being placed on the citizens advice bureau that I am concerned about. These are very important matters; this is a very important and welcome Bill; and I hope that my noble friend will be able to say something that is helpful and pacifies my concerns.

17:45

[Lord Flight (Con)]

My Lords, I, too, have some reservations about the guidance arrangements, in two different types of area, which I hope can be put at rest. First, imagine that an individual with a pension of £20,000 goes to get guidance. Is the guidance likely to say, “Go on—pay the tax, take the money and spend it”? The main guidance will be divided between buying an annuity or entering into a draw-down. The pension might be a bit small for the mechanics of a draw-down, so one is likely to be guided towards an annuity. For the present and foreseeable future, we all know that bond yields are artificially low, and that anyone who buys an annuity today will look back in five, seven or I do not know how many years’ time, when bond yields are back to normal, and say, “My God, I got a really bad deal when I bought that annuity. I know that I cannot sue the Government because it was guidance, not advice, but it was pretty bad guidance to suggest that I buy an annuity when what it was based on—mainly bond yields—were artificially low”.

The second thing that worries me is that people will, as it were, be left in the air. Their guidance might sort out whether they would be right to buy an annuity or right to do something else, but let us say that the guidance is, perhaps, that they should leave their money in the pension scheme and draw down only when they want to. They will then need someone to manage those investments. As a result of what I believe to be the very mistaken RDR reforms, most financial advisers are not willing to take on individuals with less than a substantial sum of money. How, therefore, will the individual get from the position of government guidance on what type of product they might buy to selecting a fund manager or a fund, if they are not able to get financial advice? As a result of the contortions that we have got into in financial regulation, people cannot get such advice from the government guidance bodies because the Government cannot give investment advice. I think a lot of people will end up feeling that they are left hanging in mid-air, even if they have gone through a very good guidance process, as to where they should go to choose the right product.

[Baroness Turner of Camden (Lab)]

My Lords, it was very kind of my noble friend on the Front Bench to mention me in his very interesting summary in support of this amendment. This is a Bill that involves a number of risks for the individual. That is one of the reasons why the individual benefiting from it should also have access to very reliable advice. That is what this amendment is all about: ensuring that the Government make quite clear that individuals have a right of access to reliable information. This has to last them for a long time, and it is on a risky basis unless they have proper guidance before they enter into it.

[Lord Newby]

My Lords, this amendment relates to the funding of the Pension Wise service. It requires that financial assistance given to the service and to Citizens Advice is sufficient to allow them to discharge their function of giving pensions advice. The Government wholeheartedly agree that it is vital that delivery partners are funded appropriately to discharge the function of giving pensions advice. As I made clear in Committee, there are already provisions in the Bill that effectively safeguard that. The Bill places the Treasury under a legal duty to take appropriate steps to ensure that people can access pensions guidance. Implicit in this duty is a requirement to ensure that delivery partners are appropriately funded to deliver their element of the service.

The noble Lord, Lord Bradley, asked a number of questions, in Committee and again today, about both funding and process. I hope that I can reassure him on them.

On funding, I am happy to reconfirm that all delivery partners, especially those such as the Pensions Advisory Service and the three Citizens Advice bodies in the UK, which will rely wholly or largely on government funding, will be appropriately funded to allow them to deliver pensions guidance, and that that funding will be ring-fenced for that purpose. There is no question that Citizens Advice core grant funding from local or national government will be expected to be diverted from other activities to fund pensions guidance. Citizens Advice is very experienced in effectively managing multiple ring-fenced funding streams.

I can also reassure noble Lords that grant agreements are already in place to ensure that delivery partners are appropriately funded in the current set-up phase. That funding is coming out of a £20 million development fund that the Chancellor announced in the Budget, of which a £10 million advance was approved by Parliament last July to cover preparatory work on the service. Funding agreements for the live running phase are currently being discussed and agreed with the delivery partners.

In its guidance publication on 12 January, the Treasury set out further detail on the costs of preparing to deliver the guidance service in the current financial year, and an initial estimate of how much it will cost—namely, £35 million. Both in Committee and today, the noble Lord, Lord Bradley, asked me to give a more detailed description of what assumptions have been made to come up with that figure, because there is a wide degree of uncertainty as to how many people will take it up. I am sure that he will understand why the Government are reluctant to publish a central assumption, as it were. Inevitably, it will be less than 100% accurate and will raise all kinds of questions about whether it should be higher or lower than the figure given. All that I can say today is that we have talked to the potential guidance providers and other stakeholders, and formed a range of likely outcomes, which has informed that figure of £35 million.

I can confirm that the majority of the funding estimate will go to delivery partners. We are continuing to take on board information from delivery partners and others. I can confirm what I said in Committee, which is that we will confirm a levy figure in March, which we expect to be £35 million, or very similar. If the Treasury finds that more resource is needed, it will provide that resource in the forthcoming financial year and claw it back from the industry in subsequent years. So there is flexibility to ensure that we can meet demand once we see how the scheme is going.

The noble Lord and other noble Lords asked a number of detailed questions about citizens advice bureaux’s readiness for 6 April. I hope that I can reassure them on progress to date. First, delivery partners have had clarity on FCA standards since they were published last November. That provides the framework for the guidance against which their compliance will be measured. I can assure him that delivery partners and the Treasury have been working hard to ensure that the service will fully comply with those standards.

The noble Lord asked about the 44 participating bureaux. The 44 bureaux, the names of which have already been published, are the first tranche of participating bureaux. We will not limit the number to 44 across the country as a whole; that is the first tranche, and a further wave will be announced shortly. So there will be significantly more than 44, and we are still in discussion with Citizens Advice about exactly what that number should be.

Recruitment is under way, and there has been a very encouraging response so far. I understand the concerns of the noble Lord and others about training and whether, at the end of it, people will be able to give high-quality advice. The development of that programme is well under way and it will be accredited by the Chartered Insurance Institute, which is an extremely well respected professional standards body. All trained guidance specialists must have undergone training and passed the assessment at the end of the training programme.

[Lord Bradley]

Is the Minister confirming that they will be accredited with that qualification before the service goes live at the beginning of April?

[Lord Newby]

My Lords, that is the intention. I was about to say that although not every person recruited by Citizens Advice will be an expert in the field, it is recruiting at two levels, including those with relevant experience. It would, therefore, be a complete mistake to gain the impression that the Citizens Advice workforce will be made up of well meaning people who have just had a bit of training. Some will have had a small amount of training but others will be seasoned experts in the field. That has been borne out to a certain extent by the people coming forward so far.

[Lord Bradley]

On that point, will the customer be able to choose whether they have a specialist adviser or someone with a very small amount of training on this issue?

[Lord Newby]

No, I do not think that that is the intention. We believe, and are confident, that everybody will have been trained to a level at which they can give appropriate advice. It would be completely impractical and unnecessary to proceed as the noble Lord suggests. I can assure him that the Treasury is working extremely closely and collaboratively with the guidance bodies to design the service and ensure that we are ready for April. Are we confident that we will be? Yes, we are.

The noble Lord asked a number of other questions. Could I confirm that we expect a typical advice session to last 45 minutes? Yes, we can. He asked whether people would be able to go back and get a second bite of the cherry. We have already said that that will be possible, although we hope that if people do not have all the guidance they need, directing them to the website will deal with a lot of second-order issues.

The noble Lord outlined his understanding of the complaints procedure. I believe that the way he outlined it is correct. If not, I will write to him—I need to read it first.

The noble Lord also asked about operating hours, which are still being finalised.

[Baroness Hollis of Heigham (Lab)]

Would the Minister mind expanding a little on this? He, or certainly his colleagues, will know that as a result of cuts by the MoJ, CABs have lost 60% of their funding that has been going into legal aid. To my knowledge, this means that CABs have substantially restricted their hours, they are often unavailable on the telephone and they are offering a very reduced and spartan service, particularly in rural areas, where, at the same time, individuals cannot access through broadband any of the websites that TPAS and so on may go on to produce. Is the Minister saying that there will be enough funding, over and beyond paying the CAB advisers £18,000 a year or whatever after their training, to keep CABs open at full hours, rather than simply to mount the skeleton service that is all they can afford at the moment, thanks to the cuts by his colleague, the right honourable Chris Grayling?

[Lord Newby]

My Lords, I am saying that we will designate a very significant number of CAB offices to provide this service, and the funding that we will provide will allow them to meet this additional requirement without having to draw on any of their existing funds. We are not planning to operate this service through every CAB, so I cannot say how it will affect any particular one. However, the key principle under which we are operating is that the CABs which participate in giving this advice will have the funding to do it without drawing on any of their other resources.

[Baroness Hollis of Heigham]

I am grateful to the noble Lord for giving way. Is the Minister saying therefore that the CABs will be open all the hours necessary for pensions advice, but will still be unavailable to help people who are at risk of losing their home because they have housing benefit problems?

18:00

[Lord Newby]

My Lords, all I am saying about operating hours is that they are still being finalised.

The noble Baroness, Lady Oppenheim-Barnes, expressed some concerns that other noble Lords have expressed, in particular that CAB volunteers might be expected to do this onerous job. I assure her that everybody who will be providing the guidance will be paid, so it is a rather more formal arrangement than that.

The noble Lord, Lord Flight, talked of the possibility of people being given inappropriate advice. It is not a question of the guidance being like advice, to the extent of saying at the end of the session, “You should therefore do X rather than Y”. The purpose of the guidance is to set out the options so that people can make informed choices. He referred to people hanging in mid-air because they would not know what to do next. We hope that the combination of the guidance session and the information on the website will be extremely helpful. As we discussed earlier, the companies with which an individual already has a pension pot will have significant responsibilities to ensure that their existing policyholder takes all relevant circumstances into account. To the extent that the companies believe that the policyholder may be going off the rails, they are able to point this out to them and, we hope, guide them on to a more sensible path.

Perhaps I may conclude by quoting Gillian Guy, the CEO of Citizens Advice, speaking on BBC Radio 4’s “Money Box” last Saturday. She said:

“We are absolutely confident that our service will be up and running and … we’re really pleased that we have a role in this pensions guidance delivery, because it actually plays to our strengths in helping people understand the options that are open to them and setting them on a path where they can take decisions in a well-informed place”.

We agree. I hope that the noble Lord will feel reassured that the Government will provide sufficient funding to delivery partners to provide the guidance service and therefore feel able to withdraw the amendment.

[Lord Bradley]

Again, I am grateful to the Minister for his response to the many questions that I and other noble Lords have raised today. I must admit that I am not particularly reassured by the responses. I am still concerned about the level of qualification and training of the staff in CABs. This is no reflection on the CAB which, as the noble Baroness said, does invaluable work. When I was a Member of Parliament, my local CABs were superb in giving supporting advice to my constituents, many of whom I referred directly to them. This is no comment on the integrity or the quality of the CAB. I just worry that by moving into this specialist area, it will not have the level of expertise to give the proper guidance to ensure that people make the right decisions about their retirement income.

Again, while I cast absolutely no criticism on the CAB, I worry that the haste in which the service is to be rolled out—in barely eight weeks’ time—will not ensure that the bureaux are able to deliver as comprehensively as will be required, or that they have the level of staff in the 44 offices in the first instance to respond to the demand. In regard to the second tranche which the Minister mentioned, the CAB website refers to “a small number” of additional officers. Again, that concerns me when it comes to the national coverage of the scheme—there will not be a sufficient number of accessible officers to meet the demand.

I recognise why the Minister is not able to give me a take-up figure, but surely in determining what the demand will be on 7 April, some estimate must have been made. Again, I worry that if that has not been done in a very effective way, people may have to wait weeks or even months for an appointment with one of the advisers to get advice, by which time they may have taken a decision that is not in their best interest. The underpinning of the freedoms and flexibilities will quickly fall into disrepute because of the lack of opportunity to get an appointment and for the guidance to be in an accessible place at the time the person needs that help and advice.

A huge number of issues have been raised this afternoon across this House that still need to be properly addressed. I fear—I mentioned it as background—the problems of the 1980s; I sincerely hope that the guidance service will not quickly fall into disrepute due to lack of preparation, lack of staff qualifications and lack of coverage to meet the demands made of it. I make all those points to ensure that they are recognised by this House. We will monitor the situation closely, as will the public and outside bodies. Suffice it to say that that is what we will do. In the mean time, I beg leave to withdraw the amendment.

Amendment 20 withdrawn.

Amendment 21

Moved by

[Baroness Hollis of Heigham]

21: Schedule 3, page 70, line 24, at end insert—
“( ) must ensure that guidance includes the consequences of pensions flexibility on eligibility for income-related benefits and on assessment for care and support under section 17 of the Care Act 2014 (assessment of financial resources).”

[Baroness Hollis of Heigham]

My Lords, I would like to move Amendment 21 in the names of my noble friends Lord Bradley and Lord McAvoy and the noble Baroness, Lady Greengross, who apologises for having to leave early. I hope, as this is a modest amendment asking for guidance, that the Government will accept it. I really do. There are huge issues to be untangled.

The Government are proposing that, at 55, people should have full access to their DC—defined contribution —pots, without, I believe, fully considering how this affects entitlement to means-tested, income-related benefits, IRBs, as well as payment for social care. Clearly, if a warehouseman of 56, earning perhaps £20,000 per year and living in private rented accommodation with a DC pot of £25,000, in future extracts £8,000 of it to buy a new car, that £8,000 will count as extra income in that year. Some of it will be taxable and it will affect any income-related benefits he may have, such as housing benefit. Obviously, guidance is absolutely essential, so that people with modest pots understand this. Taking some capital from their DC pot adds to their income—no question. It can both be taxed and affect any benefits.

So far, so simple—sort of. But what if our warehouseman can access the £25,000 in his pension pot but chooses not to do so, so that it sits there as capital? The social security capital rules of people of working age are clear: you are allowed £6,000 of savings without affecting your income-related benefits; from £6,000 to £16,000 your savings are assumed to generate an additional income of £1 for every £250 of capital per week; more than £16,000, you lose entitlement to means-tested benefits altogether. If, therefore, our warehouseman has savings, say, in an ISA worth £25,000, he has to spend down £10,000 of that to become eligible, say, for some housing benefit.

The question then is: what counts as accessible capital or savings such that they affect working-age benefits? Not your home—I will not raise issues of equity release here—nor an inaccessible pension pot; but savings accounts, unit trusts, stocks and shares, and ISAs do count, sensibly, so that one cannot shelter large savings, say of £100,000, while claiming taxpayer-funded benefits. The rules are there for a purpose. If you deliberately deprive yourself of capital—perhaps buying that Lamborghini—in order to claim housing benefit, you are treated as though that capital is still available to you.

However, from April you can access your DC money purchase pot at 55 in exactly the same way as you can access your ISA. Both pensions and ISAs are tax privileged. From 55, the only difference will be that with pensions you get tax relief when putting money in, and with ISAs when taking money out. Growth in either a pension or an ISA pot is tax-privileged in exactly the same way.

We know, however, that £25,000 in an ISA pot debars you from IRBs. What will happen now to a £25,000 pension pot equally accessible at 55? Under the existing rules on social security, having such a pot should stop you claiming IRBs until you have spent it down to below £16,000. Our warehouseman, who after 20 years with the same firm injured his back at 53, gets ESA and housing benefit, but at 55, because he can access his DC pot of £25,000, exactly like ISAs, he should lose his benefit—until, exactly like ISAs, he has spent it down to £15,000, whether or not he actually takes money out of the pot.

However, the Government do not like that; it rather spoils the pensions party. So they seek—irrationally, in my view—to treat pensions and ISAs differently, because, as the letter to me of 22 January from the noble Lord, Lord Bourne, of which other noble Lords have also received copies, states:

“The key difference between the classification of pensions and ISAs rests on the tax treatment. Pensions have never been taxed, and so are effectively deferred income which has yet to be taken. As the primary purpose of pensions is for retirement, this is not assumed to generate an income until pension credit age. ISAs on the other hand are treated as capital rather than income, because they have been saved for out of already-taxed income. Although ISAs and pensions may appear more similar in the light of flexibility, they remain fundamentally distinct”.

But they do not; the argument is patently absurd. The key difference between pensions and ISAs in the past has not been their tax treatment, which is effectively identical if you are a basic rate taxpayer, both in work and in retirement, with the same tax relief on the way in and on the way out. That makes no difference at all, despite the letter from the Minister. The key difference has always been that ISAs are accessible and pensions are not. Because ISAs were accessible, they counted—rightly, in my view—against income-related benefits. Because pensions have not been accessible but were ring-fenced for retirement, they rightly did not count against income-related benefits.

The Minister says that the primary purpose of pensions, and therefore the reason for treating them differently from ISAs between 55 and 65, is that they are for retirement. That is true now, but it will not be after April 2015. That DC pot of £25,000 can be used at 55 for anything—buying a car, helping a daughter with university fees or helping a son with a mortgage deposit—just like ISAs. The pension pot can be wiped out by 65 even before you hit retirement—just like ISAs. Equally, the pension pot and the ISA pot made by choice both remain untouched until 65—just like ISAs. There is no difference. To argue that they have a different purpose because “pensions are for retirement” is whistling in the wind. DC pensions need no longer be for retirement at all; they are just like ISAs. Much of the research so far suggests that some people will treat them in practice exactly like ISAs and use them for whatever they see fit. For the Government to treat them differently makes a mockery of fair and consistent rules in social security.

18:15

But hold on; it gets worse. My warehouseman is in work at 53 but his back is troubling him badly and, in the next year or two, he fears that he will have to stop work and need to claim employment support allowance and housing benefit. Because he has worked in a firm for 15 or 20 years, he has £25,000 in ISAs and £25,000 in his pension pot. His ISAs, though not his pension pot, stop him getting benefits—ESA and HB—so, as we have seen, he will be incomeless. So he transfers all his ISAs into his pension before he is 55 and thus shelters £50,000 in his pension pot, any pound of which he can access at any time after 55, just like his ISAs in the past. Meanwhile, having sheltered that amount, he gets full income-related benefits if he needs them, as though that pension pot did not exist. He has lost no access and gained full IRBs, such as housing benefit.

Some 17.5 million people have ISAs; some 4.5 million people have DC pots. It is a no-brainer. Shelter your ISAs or any other savings by cycling them into your pension pot, especially if you rent privately and might be glad of some housing benefit because you are on a low income. Up goes the benefit bill. So either pensions are treated, after 55, like ISAs and people lose their income-related benefits, or they are treated differently, in which case the taxpayer may foot a large increase in benefit payments at a cost to us all.

But hold on; it gets still worse. My warehouseman at 56 has so badly damaged his back that he has, alas, become confined to a wheelchair. He is semi-paraplegic and needs social care and support. According to the Care Act 2014, this is currently means tested by the local authority. How will he be assessed for its cost? My noble friend Lord Hunt pressed this earlier, and the noble Baroness, Lady Jolly, replied on 12 January 2015. Her letter may assume that all those needing social care are pensioners, though the Act simply talks about adults and makes no distinction about what age one may seek social care. The letter makes it clear that, under Section 17 of the Care Act 2014, social care benefits will be income related—in other words, means tested.

So, if my warehouseman puts his pension pot into a savings account, under the Act this is taken into account for social care. However, if, after 65, he does not access his pension, the local authority will still treat his pot as generating income as though he has turned it into an annuity and he will pay towards his social care. So if my warehouseman at 55 needs only employment and support allowance, his pension pot does not count—but, if he is more severely injured and needs social care, under this Act his pension pot must count as income and he has to pay. With a lesser injury, he gets full income-related benefits but, according to the Care Act, with a greater injury, he has to pay income-related social care. Is that fair?

Or does he? Are the Government going to have different rules for paying for social care before and after retirement? At 55 pensions do not count, even though you can access them, but at 65 they do, even though you have not accessed them. The elderly—anyone over 65—needing social care get hit and have to pay for it, whether they have accessed their pension or not. However, those of working age over 55 who could access their pension but have not done so and need social care, do not. This is simply because the untouched pension pot is not taken into account for social care between 55 and 65, but is after 65. So will my warehouseman in a wheelchair have his pension excluded until he is 65 and then suddenly be hit with social care bills thereafter? If the same social care is offered throughout from the age of 55 to 65 and from 65 thereafter, does this not amount to age discrimination and is it not illegal under equalities legislation?

This is a complete mess, and frankly, the Government should be embarrassed. They are tearing up the rulebook on the treatment of capital within DWP by tearing up the rulebook on access to pensions in HMRC. Once the Government have finally got their head clear, when we may have some consistent policy between DWP and HMRC, may we hope that that same luminous clarity will be conveyed in guidance to those millions who may be affected to their detriment and who do not know what to do? That guidance is essential. I beg to move.

[Baroness Drake]

My Lords, this amendment addresses the need for the Government to make savers aware of the interplay between pension freedoms, entitlement to income-related benefits and assessment for care and support. Pension reforms give rise to a significant risk that those with modest incomes will be overtaxed when they take cash out of their pensions—a concern shared by the FCA, the Pensions Policy Institute and the International Longevity Centre.

In the face of complexity, people get security from taking cash and putting it in the bank. They may not understand that that could result in their facing a significant tax bill, generating less income for their retirement. However, that is not the end of it. Savers accessing the cash from age 55 may not understand the risk of depriving themselves of income-related benefits. Some savers therefore risk both moving into a higher tax band than normal and paying unnecessary income tax, and losing benefit income because cash in the bank means loss of entitlement to benefits.

For pension savers below the state pension age who are claiming income-related benefits, the DWP will not take into account their pension savings if they do not access them. Once they do, however, the funds accessed will be treated as income, such as an annuity, or capital, depending on how they take them; the rules are different. Savers receiving benefits—such as housing benefit, council tax deductions, income support and income-based jobseeker’s allowance—could therefore experience benefit loss if they take significant cash out of their pension pot. For example, and as my noble friend explained, under current rules, anyone below state pension age with capital below £16,000 can apply for housing benefit. When an individual’s wealth goes above £6,000, they will start to see a reduction in benefit, and once it reaches over £16,000 it will stop completely. Reductions in council tax operate on a similar principle.

For pension savers above the state pension age, under the new freedoms, as now, pension savings are taken into account when assessing entitlement to benefits —whether or not the saver has accessed them. Defined contribution pots are given a notional income, or the actual income taken from the pension pot is used. Under the new freedoms, a saver, through income draw-down, can keep varying the amount of cash that they draw down. As it is not a single decision, will people have to report every time they access their savings?

If the saver takes all of their pension pot in cash—not to behave irresponsibly but to put it on deposit in their building society—they might meet a loss of entitlement to benefit. The noble Lord, Lord Newby, in his letter to my noble friend Lady Hollis, states:

“We believe that people should use their funds responsibly if the alternative to doing so is claiming income-related benefits”.

I completely agree with that sentiment. However, that message has not been communicated clearly to people on income-related benefits or to those who are potentially on those benefits. It has been lost in the “Your Money, Your Choice” promotion. Pension savers who take the cash and put it on deposit may not believe that they are behaving irresponsibly. As Martin Wheatley of the FCA observed: when faced with complexity, people prevaricate. If the simple option of just taking the money and putting it in their bank is given to them, they may just make that snap judgment.

Where savers take the cash and go on a spending spree, they risk being caught by the “deliberate deprivation of assets” rule, which is meant to stop benefit abuse. I will paint a scenario. Complexity and behavioural bias push people towards taking cash. They are overtaxed and the value of their savings falls. The cash, put responsibly in the bank, results in a loss of benefit income so the real value of their savings falls further. If they spend their capital too aggressively they could be caught by the deliberate deprivation of assets rule. One could say that it was their freedom of choice: they made the mistake and took the cash and put it in the building society; or they blew it, so they should not be allowed to fall back on the state. However, we should at least make sure that people understand that. I am pretty confident that most people out there do not have a clue on the interface between the benefit system and the pensions freedom. If the Government want them to make an informed choice, they are entitled to and need to know.

How does one police the new arrangements? Does the DWP have the capacity to keep track of how pension cash has been spent? Will providers have to keep records of savers’ behaviour, and for how long? What if someone takes their savings in cash in their 50s, when working, and there is a long gap between taking it, spending it and seeking benefits? What evidence will be used for determining deliberate deprivation? Will it include taking too many cruises? The Government’s policy and rules need to be clear and people need to have clear information so they can take informed decisions. I do not demur from the sentiment explained by the noble Lord, Lord Newby, but at least allow people to understand how they discharge responsible behaviour.

There is also a lack of clarity on how the Government’s pension freedoms are intended to complement their policy on the provision of care and support. I have not seen any analysis that has worked through the subtleties of that interplay. Rather, as the noble Baroness, Lady Jolly, confirmed in her letter to my noble friend Lord Hunt, the Government’s view is that the impact on care and support in the longer term is difficult to assess, because it is difficult to predict how people will behave under the new freedoms. The Government have therefore chosen a practical response on how people will contribute to the cost of care. In essence, people will be charged and assessed on the basis of their assets at the point of needing care. Cash taken from pension pots is an asset to be taken fully into account. If a saver has an annuity, that income will be taken into account. If the saver has not accessed their funds, a notional income will be calculated. These are complexities which have to be explained to the saver who is looking to make an informed decision. On the one hand, if people take all their pension fund in cash and put it in a savings account, it could be utilised more quickly when paying for care. On the other hand, if people do not take an annuity and spend their pension cash quickly, they will make less of a contribution to the funding of social care costs. This presumably has policy implications for any Government.

How will access to cash from income draw-down products be monitored or required to be taken? If draw-down is to be treated as income, could you take such a little tiny bit that you protect your pension assets and have a minimal amount taken into account? I do not have a clue and I am sure most people do not either. Will the rules require you to take a certain amount from your income draw-down product when you are being assessed for care support? I do not want to get into debate on government policy, but people need clear information on what the policy and rules are so that they can make informed decisions.

18:29

[Lord Bradley]

I will be brief as I cannot better the brilliant analyses of my noble friends Lady Hollis and Lady Drake on the interrelationship between the pension freedoms, income-related benefits and care costs. The only point I want to emphasise relates to our previous amendment on the guidance guarantee—namely, it is critical that there is absolute certainty and clarity of policy in this area to ensure that those who are giving guidance to customers are consistent and clear about what that guidance should be. I look forward to the Minister’s detailed response to the analyses of my two noble friends.

[Lord Newby]

My Lords, I hope that noble Lords will forgive me if I concentrate on the amendment. First, the Government believe it is right that the content of the guidance session is set out in FCA standards which are unfettered by a restrictive legislative framework.

The FCA consulted on these standards last year and published its responding policy statement, including a near-final version of the guidance standards, in November last year.

[Baroness Hollis of Heigham]

I apologise for interrupting the noble Lord quite so quickly, but the amendment was not meant to refer solely and exclusively to face-to-face guidance that may or may not be offered by the CABs or TPAS. What I am talking about is a government leaflet, the content of which should also be on a website, explaining in very plain English exactly what all these interactions mean, and therefore allowing people to reflect on those before they then go off to the CABs to decide what is the best thing for them.

[Lord Newby]

My Lords, I remind the noble Baroness that there will be three strands of guidance: face-to-face guidance; telephone guidance; and information on the Treasury website. Perhaps we will produce a leaflet, but we hope that much of the detail of the background to the way in which the system will work will be on that website.

[Baroness Hollis of Heigham]

I am sorry to press this, and the noble Lord is being very generous in allowing me to intervene again. However, after following this Bill through, I do not know how these provisions will interact. I do not know whether it is okay to recycle your ISAs into pensions and carry on claiming full income-related benefits. This is not about guidance from the CABs. Unless the CABs know whether you are allowed to recycle your ISAs into pensions, how the hell can they give anybody any advice?

[Lord Newby]

My Lords, I will come to that. I shall deal with the amendment first because it raises an important point in itself before we get to some of the broader issues.

As I say, the FCA consulted on the guidance standards last year, and published its policy statement in November. The near-final FCA standards make certain specific requirements with regard to both collecting relevant information and providing certain types of information. Ensuring that consumers consider factors which are pertinent to their retirement decision, as relevant to them, is an important part of that which the standards capture. The standards require that, according to consumer needs, people are encouraged to provide relevant information about their financial and personal circumstances and their objectives to ensure that they can get maximum value from their guidance experience. In terms of financial information, this might include pension pots or benefits, other sources of wealth or income, including where the individual has a spouse or partner, tax status and debt. In terms of personal circumstances, this might include whether an individual has dependants, or a spouse or partner, and the state of their health and potential long-term care needs. In terms of objectives, this might include the consumer’s plan for retirement, so they can identify their income needs.

The noble Lord, Lord Bradley, spoke to this issue in Committee and asked about the effects of the new flexibilities on eligibility for income-contingent benefits and social care. That has been the burden of other speeches today. This is an extremely important issue and one to which the Government have given, and continue to give, detailed consideration. It is important that the treatment of such products is clear for claimants and for decision-makers, as noble Lords have pointed out. On guiding principles, the Government want to ensure that someone’s decision to use a flexible pension product does not significantly impact on how their means are assessed for social security purposes or social care charging purposes.

Our intention is for the principles of the current rules to remain in place after April this year. At the last Autumn Statement we announced a change to the notional income rules for benefits from April 2015, so that 100%—rather than 150% as now—of the income that an equivalent annuity would offer is taken into account. This will therefore be a more generous calculation than under the previous rules. Guidance will be tailored to an individual’s circumstances and give consideration to issues such as welfare, the need for and future likelihood of social care, and levels of savings and debt. However, where it is clear that consumers need specialist help, they will be directed to relevant specialist guidance and information as appropriate. In the case of social care needs, the guidance service will direct people to their local authority, which, under the Care Act, is obligated to direct them to sources of information and advice.

Benefits entitlement will be one issue for individuals to consider in making their choices, but it is only one of several important factors, such as tax consequences and personal circumstances. As we discussed on tax, there is a special requirement on pension providers to discuss with customers the potential tax implications of the course that they might follow. I can also reassure the House that the guidance service will ensure that consumers also consider relevant issues related to pension decisions, such as state pensions, debts, and other assets, wealth and income. The Government are committed to ensuring that individuals are equipped and empowered to make informed decisions on how to use their pension savings and to take account of these wider circumstances.

On the amendment, the guidance will include benefits. The problem that the noble Baronesses so eloquently described, particular concerning ISAs, is that there are a number of extremely detailed interactions between the savings options and the benefits and tax consequences that will need to be dealt with as part of the guidance. The concern expressed by the noble Baroness, Lady Hollis, which I completely understand, is that the Treasury and DWP will not get their act together and are not up to the job of doing this. Unsurprisingly, I am significantly more confident than she is. She has begun a correspondence with the DWP on the ISA issue; an e-mail from her to the department is awaiting a response. I can give her an assurance that she will get a detailed response in writing to the questions she has raised between now and Third Reading.

I am not seeking in any way to diminish the fact that potential areas of confusion might arise in particular cases. The challenge that we have accepted, and hope that we can rise to, is to ensure that the guidance and the people providing it will be able to guide people through some of these thickets. If it were not complicated, we would not need to go to such lengths to set up a guidance system in the first place. We are confident that we will deal with these issues, and that people, as they take up guidance, will get the information they require to enable them to make informed choices.

[Baroness Hollis of Heigham]

My Lords, the Minister’s answer—this is of course not personal; he is dependent on the briefing and the current state of the consideration in the two departments—frankly has appalled me. It is shocking. We are eight weeks away and apparently the two departments have not yet worked out the different rules for the treatment of ISAs and pensions. Are you allowed to cycle your ISAs into pensions to protect them but see the benefit bill go up? Answer: we know not.

We seem to have different rules for social care for those below 65 and above 65—above 65 you will pay, but below 65 you need not. A capital asset is essentially your pension. Is that right? We do not know. We do not know whether we will have fairness between people of a generation—those aged from 55 to 65—or whether we will have intergenerational fairness between those below 65 and those above it.

This is not about guidance; it is nothing to do with guidance at this stage. It is about getting the darned policy right. The policy has not been established. On all the difficult issues, the Government have said, “Have your choice and don’t worry about the small detail”. I am sorry but something like 15 million people are out there who in one way or another will be getting income-related benefits or state pension who need to know. We are eight weeks away and the Government, in the Minister’s words, say these issues are under “detailed consideration”.

This is awful. I have never seen anything of such significant importance to individuals in all my time—20-odd years in social security—or of such sizeable financial implications for taxpayers. We are eight weeks away and we have no clarity of policy that could therefore inform guidance. Writing guidance down and sending it off to CAB and TPAS is easy. What matters is getting the policy straight, and as far as I hear from the Minister tonight the Government have not even begun to do that. It is frankly appalling. I do not blame him. He is obviously a messenger—if I may use that word impertinently—from the DWP and is trying to put the best case he can, but this is shocking. I am sorry that unless he can tell us the policy answers to the questions raised by my noble friends and me tonight this has to be further explored at Third Reading because, as he said, it is under “detailed consideration” and he cannot give answers now.

All that the Minister has so far are inconsistent and contradictory policies, whether they come from HMRC, social care or the DWP. Even though he has had plenty of notice, he has been unable to put those bits together into a jigsaw so that we can even begin to recognise the picture on the box. Eight weeks away! He must be mortified. I would be if I had come to the House with that brief. I hope that, as a result, he will stamp his foot, and we will see whether he is in a position to give clarity of policy, following which there may then possibly be clarity of guidance on Third Reading. If not, I strongly suggest that he postpones Third Reading until the Government have got their act together. In some anger, I withdraw the amendment.

Amendment 21 withdrawn.

Amendment 22 not moved.

Amendment 23

Moved by

[Lord Bradley]

23: Schedule 3, page 80, line 37, at end insert—
“Pension flexibility: Treasury review(1) The Chancellor of the Exchequer shall, within a period of 18 months from 6 April 2015, publish and lay before both Houses of Parliament a comprehensive review of the impact of pension flexibilities.
(2) The information published under subsection (1) must include—
(a) the distributional impact, by income decile of the population;(b) a behavioural analysis;(c) an analysis of the cumulative impact on Exchequer revenues;(d) an analysis of the impact on the purchase of annuities.”

[Lord Bradley]

I will be brief on this amendment because I share the concern of my noble friend Lady Hollis about the previous amendment, and I do not want to delay the Treasury Minister stamping his feet to get it sorted out as soon as possible.

This group contains amendments which, in their various ways, require the Treasury to publish updates on the key fiscal and behavioural effects caused by the freedoms and flexibilities introduced in this Bill and in the Taxation of Pensions Act. I wanted to return to the debate that we had in Committee and see whether this time I could convince the Minister of the importance of doing so. I hope that I am not unfairly characterising his argument in Committee by saying that the essence of it was that this is not necessary because the relevant data will be published elsewhere. He said that,

“there is no need, in the Government’s view, for further reviews of the Exchequer impacts of the policy as the Government have already committed to keep these under review through the usual processes”.—[Official Report, 12/1/15; col. 576.]

There are two reasons why I still believe that these amendments represent a good additional way of tracking the effects of the policy. The first is that while the relevant data may be published elsewhere, a single document containing the Government’s assessment of the effects, specifically of the new freedoms and flexibilities, would be a welcome addition and require the Government to focus on the overall effects of the policy.

The Government are fond of talking about how significant and novel the changes are. In the foreword to the recent update the Chancellor wrote:

“The government is introducing the most radical changes to pensions in almost a hundred years”.

It is therefore incumbent on the Government to go further than before in thoroughly monitoring the effects and ensuring the public have easy access to the information.

18:45

The second reason is that other types of analysis are required by these amendments that may not be covered by the usual Treasury documents. For instance, we are specifically requesting that the Government conduct analysis on the use of salary sacrifice arrangements. It is still not clear whether the Government had properly thought through the potential loss of tax revenue that could result from these arrangements. The updated figures the Minister was kind enough to provide in Committee confirm that the Government revised up the amount of tax that could be lost in this way—after putting in place the £10,000 annual allowance—once a pension has been flexibly accessed. That rather suggests that the first estimate did not include salary sacrifice because if it had then the introduction of the allowance should have led the tax leakage figure to be revised down. I gave a specific example of this in Committee and would be grateful if the Minister would confirm again that the scenario I outlined has been fully recognised in the Government’s calculations. These amendments also require the Treasury to publish analysis on the behavioural effects of the changes and the effect on the annuities market, which I do not think would be part of the usual process of review, although I am clearly happy to be corrected.

Once more, I urge the Minister to reconsider the Government’s opposition to conducting the analysis outlined in the amendment. It is reasonable and proportionate given the speed with which these profound changes are being implemented and will help to ensure clarity and transparency of the effects of the policies, both inside and outside Parliament. I beg to move.

[Lord Newby]

My Lords, these amendments would require the Government to publish two reviews of the impact of pensions flexibility. I will explain again to noble Lords why the Government believe that they are unnecessary. First, on the issue of the request for distributional analysis,

“by income decile of the population”,

Amendment 23 seeks to require that the Government review the distributional impact of pensions flexibility no less than 18 months after the Bill takes effect. As set out during debate on the Taxation of Pensions Bill, pensions flexibility does not have a direct consequential impact on household incomes. Distributional effects will be driven by the choices individuals make about how and when to take their pension. In addition, household income is not necessarily a reliable measure of pension wealth, particularly in the years immediately prior to retirement. It is possible that the impacts of this policy could be misrepresented if we were to review them only against the distribution of household income.

Turning next to the issue of behavioural analysis which we discussed in Committee, the costing of tax policies often takes account of how individuals will behave in response to them. The assumptions that underpin this behavioural assessment and the methodologies used to arrive at them are certified by the independent OBR. The assessment of how people will behave is, of course, fundamental to the costings that the Government published in the Budget for the impact of pensions flexibility on the Exchequer. The policy costings note published alongside the Budget sets out in detail how the figures have been calculated and so how the Government have estimated the number of people who will access their pension flexibly.

Although I will not describe that methodology in detail here, it is freely and publicly available. Additionally, the Government have set out information elsewhere on the number of people they expect to access their money flexibly. The Tax Information and Impact Note published at the Budget and updated since states that the Government expect,

“around 130,000 individuals a year to access their pension flexibly”.

Policy costings notes set out the assumptions and methodologies underlying costings for tax and annually managed expenditure policy decisions. This practice was established at the June Budget 2010 and reflects the principles outlined in Tax Policy Making: A New Approach, published alongside the Budget that year. This publication is part of the Government’s wider commitment to increased transparency. However, as discussed in Committee, the Treasury considers that in certain circumstances—usually regarding tax-planning and avoidance—making more detailed behavioural assumptions public can have the potential to affect the behaviour they relate to, and can as such be potentially detrimental to policy-making. I reassure noble Lords that the Government will be closely monitoring the behaviour of individuals through tax data when the new system comes into force. This will also be made public through the significant amounts of data on tax receipts and liabilities that HMRC publishes annually.

Both these amendments would also require reviews of the effects of pensions flexibility on the Exchequer, including the impact on income tax, national insurance contributions and the use of salary sacrifice arrangements. When considering this, it is important to note that at the Autumn Statement the Government published estimates of the Exchequer impact of the policy as a whole. These costings, which were certified by the independent Office for Budget Responsibility, cover all the changes made to the policy since the Budget as a result of consultation.

As noted earlier, table 2.1 of the Autumn Statement document set out the total impact of these decisions publicly. After debate on this subject in the other place during the passage of the Taxation of Pensions Bill, the Financial Secretary to the Treasury wrote to the former committee for the Act, setting out these impacts. This included costings for the £10,000 annual allowance, which the Government have introduced to protect the flexibilities from being used by individuals to gain unintended tax advantages.

Turning first to the issue of salary sacrifice, as I explained in Committee, the costings published as part of the Autumn Statement are based on the same central assumptions that underpin the costings published at the Budget. Since the Budget, the Government have explored in more detail the effect of salary sacrifice on this costing. These costings have been scrutinised by the OBR, which was created to provide independent and credible analysis of the public finances. In line with standard practice, these are accounted for as changes to the forecast and so are not outlined in table 2.1 of the Autumn Statement document.

In recognition of the concern raised by Members in the debate on the Taxation of Pensions Bill about the likely impact of salary sacrifice on the Exchequer, the Government’s estimates of these costs were included in the letter sent by the Financial Secretary, and I outlined them in Committee. As the Financial Secretary stated in the debate on the Taxation of Pensions Bill in the other place, the Government will be closely monitoring behaviour under the new system and will work closely with industry to ensure that the system remains fair and proportionate.

The Government therefore believe that there is no need for further legislation in relation to reviews of the Exchequer impacts of this policy, as the Government have already published a significant amount of information and have committed to keeping the Exchequer impacts under review through the usual processes.

Amendment 23 contains a provision that would require that any published review include any impact the pensions flexibility measures might have on the sale of annuities. Data on annuity sales will continue to be available through other channels, such as the data published by the ABI and publications by individual firms. For the Government to review this would be an unnecessary duplication of information already in the public domain.

As I have set out, much of the information requested by this amendment is already in the public domain, published as part of the fiscal process. I hope that that will satisfy the noble Lord. He asked me a specific question about whether his assumption in Committee was correct. I believe it is; if I am wrong, I will write to him. But in the mean time, I hope he will withdraw his amendment.

[Lord Bradley]

I am grateful to the Minister for his response, particularly on that last point about the example I gave in Committee regarding salary sacrifice. I accept his assurance that, as far as he is aware, all possible scenarios in relation to salary sacrifice have been taken into account in the calculation of impacts on Exchequer revenues, and thank him for his offer to write to me if that is not comprehensively covered by the point I made in Committee.

I am obviously disappointed that the Minister is not prepared to bring all the issues together into one coherent document that would be available to the public and to Members in both Houses of Parliament for ease of analysis of that information. However, I am pleased that he has assured us that, as part of the process of monitoring, the behavioural effects will be taken into account, because the consequences of all these changes need to be very closely monitored. But, in light of the time and the urgency with which he needs to address many of the issues raised today on Report, I beg leave to withdraw the amendment.

Amendment 23 withdrawn.

Schedule 4: Rights to transfer benefits

Amendment 25

Moved by

[Lord Bourne of Aberystwyth]

25: Schedule 4, page 83, line 5, at end insert—
“( ) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;”

[Lord Bourne of Aberystwyth (Con)]

My Lords, this group of amendments is required to ensure that the transfer provisions contained in Schedule 4, which replace provisions under the Pension Schemes Act 1993, continue to operate effectively. The amendments will also ensure that the regulations being adjusted to take account of the new transfer rights that we are creating operate correctly. It may appear that we are taking a range of additional regulation-making powers, but I reassure noble Lords that that is not the case.

Many of these amendments will enable the continued operation of regulations that have been created under existing powers in the Pension Schemes Act 1993 and their adaptation for the new transfer provisions. These regulations were created under a broad power in the Act to modify or disapply the transfer provisions. This power related to salary-related schemes. As this term will no longer be used, that section of the legislation was removed. However, the regulations that flowed from it still need to operate in the broader regime that we are now creating. Rather than replace the broad power, these amendments introduce a number of more specific powers so that it is clearer in the primary legislation what the regulation-making powers are being used for.

I will now briefly set out what each amendment does. Amendment 25 restores an existing power to ensure that the Transfer Values (Disapplication) Regulations continue to have effect by creating a new limb to new Section 93(10) to provide a power to disapply the right to transfer in prescribed circumstances in relation to a prescribed scheme or a member of a prescribed scheme. It is necessary to restore this power to ensure, for example, that the current provisions relating to NEST and transfers continue to have effect. Amendment 33 makes identical provisions for the corresponding Northern Ireland legislation.

Amendment 26 will allow the continued operation of the regulations that give a member more time to make a decision about their transfer if their cash equivalent value has changed—for example, due to a mistake in the original calculation—after they have received their statement of entitlement. From April, members with safeguarded benefits will be required to take “appropriate independent advice” before their transfer out can be processed. This amendment would allow regulations to provide for more time to apply for a transfer if they do not obtain their financial advice within the usual three-month period, should this prove necessary. Amendment 29 will allow regulations to make corresponding time extension provisions for trustees to do what is necessary to give effect to their members’ wishes.

Amendment 27 provides a power to allow the continued operation of the transfer regulations that enable a member to choose whether to proceed with a transfer where the amount of the cash equivalent shown in a statement of entitlement is subsequently increased or reduced.

Amendment 28 makes a consequential amendment to the existing legislation that sets out when a member’s right to a transfer falls away. It puts beyond doubt that the right to a transfer value falls away either after three months or after any extension period granted by the legislation. This amendment has been made in response to industry concerns that the current situation could place trustees in a conflicting position where they could not action the transfer, as the advice had not been obtained within the relevant period, even though, in theory, the right to transfer still existed.

19:00

Amendments 30 to 32 deal with pension credit members who have acquired pension rights in a scheme following a divorce settlement. Amendment 30 restores in part an existing power by adding a power to the provisions dealing with pension credit members; that is, those who have rights in the scheme as a consequence of a court order made on divorce or dissolution of a civil partnership. The power allows regulations to disapply the right to transfer in relation to persons of prescribed descriptions. An identical power was inserted into the legislation by the Pensions Act 2008 but was inadvertently omitted in the current legislative changes and is now being restored.

Amendments 31 and 32 provide that pension credit members may be granted additional time, in prescribed circumstances, to complete the various steps of the transfer process. This will ensure that pension credit members have time to obtain the “appropriate independent advice” where they wish to transfer safeguarded benefits to a scheme that will provide flexible benefits and receive parity of treatment with members under regulations. Amendments 34 to 39 make identical provisions for the corresponding Northern Ireland legislation.

The amendments will ensure that the transfer process continues to operate smoothly for members and scheme trustees after April, when the new transfer requirements come into force. I hope that I have reassured noble Lords that these are not a whole new set of regulation-making powers, but rather allow existing regulations, suitably adapted, to continue to operate. I beg to move.

[Lord Bradley]

I am grateful to the Minister for his explanation. Clearly, it is important that the transfer provisions smoothly flow between this legislation and previous legislation to safeguard people’s benefits in their pension schemes. While I acknowledge the Minister’s comment that the amendments do not add even more regulations, in the scheme of things, this matter probably would not be something that we would be too concerned about because of the number of other matters that already have to be dealt with. However, that is the nature of the Bill—it relies heavily on regulations—so the explanation of these amendments is important in the overall scheme of the Bill.

Amendment 25 agreed.

Amendments 26 to 39

Moved by

[Lord Bourne of Aberystwyth]

26: Schedule 4, page 84, line 19, at end insert—
“( ) After subsection (6) insert—
“(6A) Regulations may extend the period specified in subsection (1A)(a) in prescribed circumstances.””

27: Schedule 4, page 85, line 19, at end insert—
“(3B) Where regulations under subsection (2)(b) provide for the cash equivalent shown in a statement of entitlement to be increased or reduced after the member has made an application under section 95, the regulations may provide for the application under section 95 to lapse (but this does not prevent the member making a fresh application in respect of the increased or reduced cash equivalent).””

28: Schedule 4, page 85, line 24, leave out from “period” to end of line 27 and insert “required by section 95(1A) or (6A).
(1A) A member of a pension scheme loses the right to take a cash equivalent in accordance with this Chapter if, after the member makes an application under section 95, the duty of the trustees or managers to do what is needed to carry out what the member requires is extinguished by section 99(2A).
(1B) Nothing in subsection (1) or (1A) prevents the member from later acquiring a new right to take a cash equivalent in relation to the same benefits.”

29: Schedule 4, page 85, line 45, at end insert—
“( ) After subsection (4A) insert—
“(4B) Regulations may extend the period for compliance under subsection (2) or (3) in prescribed circumstances.””

30: Schedule 4, page 88, line 41, at end insert—
“( ) provide for this Chapter not to apply in relation to a person of a prescribed description;”

31: Schedule 4, page 89, line 35, at end insert—
“Regulations may extend the period specified in subsection (2)(b) in prescribed circumstances.”

32: Schedule 4, page 90, line 23, at end insert—
“( ) After subsection (2) insert—
“(2A) Regulations may extend the period for complying with the notice in prescribed circumstances.””

33: Schedule 4, page 96, line 3, at end insert—
“( ) provide for this Chapter not to apply in prescribed circumstances in relation to a member of a prescribed scheme or schemes of a prescribed description;”

34: Schedule 4, page 97, line 15, at end insert—
“( ) After subsection (6) insert—
“(6A) Regulations may extend the period specified in subsection (1A)(a) in prescribed circumstances.””

35: Schedule 4, page 98, line 16, at end insert—
“(3B) Where regulations under subsection (2)(b) provide for the cash equivalent shown in a statement of entitlement to be increased or reduced after the member has made an application under section 91, the regulations may provide for the application under section 91 to lapse (but this does not prevent the member making a fresh application in respect of the increased or reduced cash equivalent).””

36: Schedule 4, page 98, line 42, at end insert—
“( ) After subsection (4A) insert—
“(4B) Regulations may extend the period for compliance under subsection (2) or (3) in prescribed circumstances.””

37: Schedule 4, page 101, line 29, at end insert—
“( ) provide for this Chapter not to apply in relation to a person of a prescribed description;”

38: Schedule 4, page 102, line 26, at end insert—
“Regulations may extend the period specified in subsection (2)(b) in prescribed circumstances.”

39: Schedule 4, page 103, line 14, at end insert—
“( ) After subsection (2) insert—
“(2A) Regulations may extend the period for complying with the notice in prescribed circumstances.””

Amendments 26 to 39 agreed.

Schedule 5: Pension scheme for fee-paid judges: consequential amendments

Amendment 40

Moved by

[Lord Bourne of Aberystwyth]

40: Schedule 5, page 106, line 40, at end insert—
“8 (1) Section 29 (regulations and orders) is amended as follows.
(2) In subsection (2), after “other than” insert “regulations under section 18A above or”.
(3) After subsection (2) insert—
“(2A) A statutory instrument which contains regulations under section 18A may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.””

[Lord Bourne of Aberystwyth]

My Lords, the House will be relieved that this amendment is relatively straightforward. It enables any regulations that are made under new Section 18A of the Judicial Pensions and Retirement Act 1993 to be subject to the affirmative resolution process.

Clause 78 of the Bill provides a power to create a fee-paid judicial pension scheme via new Section 18A of that Act. The creation of such a pension scheme is a legal requirement on the Lord Chancellor as a consequence of the Supreme Court ruling in O’Brien v Ministry of Justice.

The Delegated Powers and Regulatory Reform Committee report for the Bill recommended that such regulations be subject to the affirmative regulations procedure, and we are pleased to confirm this. This brings regulations on judicial pensions in line with those that will establish the new judicial pension scheme starting in April 2015, providing a high level of parliamentary control in respect of any changes to judicial pensions. I beg to move.

[Lord Bradley]

It would not behove me well to challenge anything that the Supreme Court rules on, but I am sure that it is as relieved as we are that the regulations would be subject to affirmative resolution.

Amendment 40 agreed.

Eritrea and Ethiopia

Tuesday 27th January 2015 Lords Chamber

Question for Short Debate

19:05

Asked by

[Lord Chidgey]

To ask Her Majesty’s Government what assessment they have made of recent events in Eritrea and Ethiopia, and of their impact on migration to western Europe.

[Lord Chidgey (LD)]

My Lords, according to the UN refugee agency, in the first 10 months of 2014, the number of asylum seekers in Europe from Eritrea nearly tripled. In Ethiopia and Sudan, the number of Eritrean refugees also increased sharply. By November, some 37,000 Eritreans had sought refuge in Europe, compared with around 13,000 a year ago. Most asylum requests have been lodged in Sweden, Germany and Switzerland, with the vast majority arriving by boat from across the Mediterranean. Eritreans were the second largest group to arrive in Italy by boat, after the Syrians. An unprecedented number of Eritreans are fleeing their country as refugees, on a precarious journey to Europe as well as to bordering countries. As at mid-2013, the UNHCR estimated that the total population of concern originating from Eritrea was more than 313,000 people, including more than 292,000 refugees and 20,000 asylum seekers.

Sheila Keetharuth was appointed special rapporteur on the human rights situation in Eritrea by the UN Human Rights Council in September 2012. Since then, she has made several requests to visit Eritrea; so far, her requests have been denied. She has nevertheless reported on the human rights situation in Eritrea. In her second report, in May 2014, she confirmed that violations included indefinite national service; arbitrary arrests and detention; extrajudicial killings; torture; infringement of freedom of movement, assembly, association and religious belief, and so on. In November 2014, the UN announced that the commission of inquiry into human rights abuses in Eritrea, established in response to the steep rise in migration out of the country, had begun operations. It is due to report in June 2015.

A common argument from Eritrean pro-government supporters is that the exodus of Eritreans is due to economic pull factors. If this were the case, one would surely expect to see refugees from other developing countries fleeing in similar epic proportions. They clearly do not. On the other hand, there are apparently numerous human rights violations that incite Eritreans to leave the country. In this regard, the indefinite national service and arbitrary arrests and detention, or fear of them, are the top push factors for flight, according to the special rapporteur.

According to reports from the UN Human Rights Council, Eritrea holds many detainees without charge or due process. Some have been in prison for more than a decade. Others have died in detention. Apparently, detention without recourse to justice is common in Eritrea, there being no avenues for detainees to submit complaints to judicial authorities, or to request investigations of credible allegations of inhumane conditions or torture. There is no independent authority serving on behalf of detainees. Furthermore, detainees and family members do not challenge, allegedly for fear of reprisals. The state does not investigate or monitor conditions in detention centres, nor does it appoint independent monitors to do so.

The Danish Immigration Service undertook a fact-finding mission to Ethiopia, London and Eritrea in the autumn of 2014, publishing its findings and conclusions in November 2014. The conclusions of the report differed significantly from the body of the text in its interpretations of the causes of emigration, quoting information from UN agencies that could not be verified by the UNHCR. Supporters of the Eritrean Government have nevertheless quoted the report widely in response to concerns about the unprecedented number of Eritreans fleeing the country. The UNHCR published its concerns regarding the methodology used by the DIS, stressing that information ascribed to the UN in the report was not provided by the UNHCR, as inferred. Information provided by the UNHCR about Eritrean arrivals was not included; instead, the report relied on the speculative statements of others.

In December 2014, the UNHCR published a detailed, point-by-point commentary and critique of the DIS report. It pointed out the absence of any information on regulatory frameworks for the media, NGOs, research institutes and other actors, and of any assessment of the reliability of information from those sources. It is understood that the DIS has withdrawn its report for further consideration. In the mean time, the 17 recommendations made to the international community in the first report of the UN Human Rights Council special rapporteur on Eritrea still stand.

With regard to development co-operation, for more than a decade, the Eritrean Government have encouraged mining and exploration firms to participate in the exploitation of the country’s mineral resources. Although major firms have stayed away, possibly aware of the risk of complicity in human rights violations through the use of national service conscripts, a number of smaller firms have acquired mining and exploration licences.

According to Human Rights Watch, those mining firms are walking into a potential minefield of human rights problems, particularly getting entangled with the Eritreans’ uniquely abusive programme of indefinite forced labour—the inaptly named national service programme. The programme was originally set at 18 months, but now requires all able-bodied men and most women to serve indefinitely, often for years with no end in sight, under harsh and abusive conditions. Some conscripts are assigned to state-owned construction companies, which have a complete monopoly in their field. International firms operating in the country are more or less forced to engage those companies as subcontractors, thus indirectly supporting a system of forced labour.

The relationship between Eritrea and Ethiopia is arguably the most important and volatile in east Africa. The fall-out between the two former brothers in arms initiated a two-year long border war in 1998. Apparently triggered by a dispute over the border district of Badme, the war claimed about 100,000 casualties, cost billions of dollars, and remains the main source of instability in the region.

Fighting ended with the signing of the Algiers peace agreement and establishment of the Ethiopia-Eritrea border commission in 2000. The commission delivered its delimitation decision in early 2002—importantly, placing Badme inside Eritrean territory. Initially, Ethiopia refused to accept the commission’s findings and refused to withdraw to the border that it had established, leaving thousands of internally displaced people in refugee camps.

Ethiopia eventually accepted the commission’s ruling in 2006, but its implementation continues to be the source of severe tension between the two Governments. Indeed, the UN special rapporteur on Eritrea stated in her second report in May 2014 that she holds the view that border issues should not serve as an excuse for the Government of Eritrea to violate the rights of their citizens within their own territory.

Furthermore, a sustainable peace is unlikely to emerge as long as conflict is seen solely in terms of border demarcation. The economic, political, cultural and historical links that bind the two states together should be the basis for a sustainable framework for peace. According to the Royal Institute of International Affairs—Chatham House—opportunities exist for external efforts to foster improved relationships. A fresh approach should involve engaging with each country separately, rather than immediately attempting to promote dialogue between them.

Economic incentives are central to enabling improved relations between the two states, although prospective economic benefits from reopening the border are unlikely to be persuasive, given that they were unable to prevent the war. International engagement on areas of mutual interest could help foster a sense in Eritrea of stable economic sovereignty against Ethiopia’s economic predominance. Waiting for changes of leadership before making significant efforts to engage is, however, untenable, with no guarantee that successors would adopt a different foreign policy.

In discussions prior to this debate, it has been claimed by Eritrean Government supporters that the Eritrean Government now plan to restrict national service to 18 months as set out in law, probably by the end of the year. I have also acquired a document issued by the Permanent Mission of Eritrea to the UN in New York. The document is entitled “Leaked Memo” and claims to reveal Ethiopia’s destabilising policy against Eritrea. It is apparently a translation into English from Amharic of a news item from the Shabait news agency website last February. I would be grateful if my noble friend the Minister could comment on these developments and perhaps give a considered response in due course.

My noble friend will be aware that since December 2014 a number of responses have been given to Written Questions on Eritrea submitted by noble Lords, including the noble Baroness, Lady Kinnock. These have been commented on in the past but can my noble friend provide an update, for example on the outcomes of meetings of FCO and Home Office officials with Eritrean Ministers in December; on EU negotiations on policies towards Eritrea, to suppress the number of refugees from that country; and on the release of political prisoners in Eritrea since FCO officials raised the issue with the Eritrean ambassador in March 2004, considering that since then a new ambassador has been appointed?

19:19

[Lord Patten (Con)]

My Lords, migration from Ethiopia and Eritrea to western Europe can be understood only in relation to where those leaving go to. Take Ethiopia. Following my noble friend’s excellent speech and the point he made on Ethiopia, we must recognise, however, that that country is now host to more than 600,000 immigrants—the highest number of refugees taken in by any African country. The Government of Ethiopia should be highly commended for accepting and managing so many with such scant resources—and not attacked.

The first question is where these refugees come from. A minority come to Ethiopia from sub-Saharan Africa—from countries even poorer than Ethiopia. Far more come from countries nearer at hand. A lot of Somalis, many more from the Sudan and more from Eritrea itself, of course, flood into Ethiopia. Then there is the huge number—more than 160,000—of recent returnee refugees: Ethiopians returning to Addis Ababa from Saudi Arabia since the amnesty there granted by the late King Abdullah ended. They, too, are often destitute when they arrive.

Where do all these people go to if they try to get away from Ethiopia? The answer is that not all, by any means, go to Europe—that is a contemporary urban and media myth. Quite a lot travel south to South Africa. Ethiopia and its Eritrean refugees generate by far the largest number of migrants out of the Horn of Africa to the Yemen and through Djibouti. Certainly, some travel the western route, aiming north for countries such as Libya and thence to attempt those perilous sea crossings to reach the warm waters of southern Europe, before travelling further north. Far from all of them, however, come, or seek to come, to Europe.

Vital work needs to be done to try to anchor people where they are in Ethiopia or Eritrea—to develop there a stable, trustworthy civil society within which sustainable local livelihoods can emerge. This does not need grand plans, geopolitical initiatives or great gestures, let alone a bunch of selfie-taking celebs jetting in and then, just as quickly, jetting out as soon as possible. Rather, it needs some money and lots of slogging, grinding hard work.

Many are trying to do it. For example, there are three outfits in Ethiopia that I know doing just this, in the shape of CAFOD, the UK-based Catholic Agency for Overseas Development, and two sister—or brother—organisations of theirs from the Caritas network: SCIAF and Trócaire. They are all working to promote sustainable livelihoods and then to anchor the otherwise wannabe migrants, whether they are refugees in transit from the countries I have described or younger native-born Ethiopians seeking the somewhat illusory betterment that they think they might get abroad through migration.

As it happens, my own daughter, Mary-Claire, is not long back from a visit to Tigray in northern Ethiopia, with CAFOD, for whom she works, happily just in time for this debate. She has told me what it is like on the Eritrean border, marked by just a line of straw across the asphalt track between the two countries. The programmes run by these three bodies have to date reached more than 65,000 people, more than 60% of whom are women and girls, which is much to the good.

What do these programmes do? They provide training and support on business development and entrepreneurship skills to poor female and male farmers—former pastoralists—as well as to the urban self-employed, predominantly women and girls. They also help organise farmers into co-operatives and support groups and get the young training in business, finance, numeracy and literacy, and lots more.

None of this is easy; nor is it easy at the moment for our own Government to deal with much of the raucous criticism of our taxpayer-funded overseas aid budget. I suspect but do not know that much of it, directly or indirectly, goes on trying to help people in the end to stay put and not to migrate—to be where all of us would want to be, at home if at all possible. I say to my noble friend the Minister on the Front Bench that figures are perhaps available. If figures to this end are available, they might persuade more of our fellow citizens that the overseas aid budget is well spent on trying to anchor the otherwise migrant-inclined.

19:20

[Baroness Kinnock of Holyhead (Lab)]

My Lords, I will briefly touch on the situation in Ethiopia. With an election looming there in May, we learn that its media are being decimated. The right to free expression continues to be denied and at least 60 journalists have fled the country since 2010. The reality is that the Ethiopian Government cannot tolerate independent voices being raised or information and analysis being disseminated. Intimidation, harassment, threats and unbearable pressure are put on those whose voices are raised against policies which threaten political opposition.

Both Eritrea and Ethiopia have a Marxist-Leninist heritage. Ethiopia is still effectively controlled by the Tigrayan People’s Liberation Front, through a system of ethnic federalism. Although there has been some improvement we have to ask how it can be that, at the 2010 election, the EPRDF won 90% of the vote. At this stage, I particularly commend the work of Human Rights Watch, which argues relentlessly for recognition of the effects of the Ethiopian denial of fundamental rights and the need for its friends and donors to speak out on issues which are of life-and-death proportions to so many brave people.

In 1988 I travelled to Eritrea, which was at war at the time with Ethiopia. Since 1962 they had been deadly enemies; tensions and conflicts have characterised all the years since. It was the longest running struggle for independence in Africa and was about independence from Ethiopia. As we know, the people of Eritrea continue to suffer and such is their desperation that they seek refuge in other countries, which can mean very long journeys.

On the subject of migration, I begin with a shocking fact which serves to illustrate the desperation of Eritreans. Almost as many Eritreans fled their country—a country which, incidentally, is not at war—as Syrians fled theirs in 2014. UNHCR has said that:

“From January to October 2014, more than 60,000 Syrians, including almost 10,000 children, arrived by sea. In the same period almost 35,000 Eritreans arrived by sea in the Mediterranean, including 3,380 unaccompanied children”.

Surely, we have to ask exactly what makes people take such terrible risks to leave their country. The cruelty, tyranny and oppression of Isaias Afewerki and his regime know no bounds. Eritrea is isolated politically, regionally and internationally and it is under UN sanctions because of its alleged support for al-Shabaab in Somalia. The country is often described as Africa’s North Korea. All rights and freedoms are denied. There is no religious freedom or political pluralism, and no freedom of the media or of speech.

The 2015 FCO report has given details of Eritrean abuses: arbitrary and inhuman detention, indefinite national service, lack of religious freedom, no job prospects and much more. Indefinite national service is clearly the main driver of migration. UNHCR has confirmed that young Eritreans are conscripted into endless military service characterised by harsh treatment. They are sent to work in gold and copper mines or to camp out on the Ethiopian border. National service should be limited to 18 months but conscripts are often held for as long as 20 years. Is it surprising that they are prepared to take such risks in the hope of a chance of a better life? The number of Eritreans seeking to come to Europe has nearly tripled over the last year and is mostly made up of very young refugees. The special rapporteur says that the authorities in Eritrea show no inclination to tackle the root causes of the exodus. She confirms a lack of rule of law, and reported cases of extrajudicial disappearances, arbitrary detention and torture in detention.

Also, does the Minister agree with the suggestion made by some European Governments that it is necessary now to offer additional support and engagement to Eritrea, arguing that additional aid will lead to more openness and to change? Surely there can be no “new beginning”, as has been suggested, with this regime. As history proves, concessions to regimes such as Eritrea will achieve absolutely nothing. I ask the Minister to give some detail on the apparent willingness of the UK to have discussions with the Eritrean regime on,

“drivers of irregular migration and ways to mitigate it, asylum and returns, and potential areas for joint co-operation”.—[Official Report, 6/1/15; col. WA 136.]

What exactly does that mean? Will the UK delay any response on refugee policy until the UN commission of inquiry issues its report on the subject?

European Governments should not make major Eritrean policy changes until they see the inquiry findings. Let us see if Eritrea is prepared to co-operate with the UN commission of inquiry before taking any hasty decisions. Now there are signs of unbelievable courage and determination in Eritrea on challenging Isaias Afewerki. The people are aware of the dangers of open protest, but we have to ask just how long they—and he—can hold on. We must urge the EU and others to make sure that the UN commission is given clear and urgent access.

Isaias Afewerki’s agreement to co-operate would be the first test of whether he is ready to accept change. Whatever happens, if there is negotiation, the European Union and member states must not make quick concessions but use any momentum to ensure that there can be—and will be—fundamental change. The release of Dawit Isaak would be a welcome and symbolic victory.

My final point relates to what are routinely called “irregular migrants”. These people arrive in Calais having endured a terrifying journey and are then treated as if they are economic migrants. This is clearly not what persuades them that they must leave Eritrea. Many other African countries are just as poor as Eritrea, but their citizens do not come to Europe in their thousands, as they do from Eritrea now. Will the UK argue for their right to stay and ensure that they are treated as refugees?

19:28

[Lord Avebury (LD)]

My Lords, I warmly congratulate my noble friend Lord Chidgey on securing this short debate that links Eritrea and Ethiopia, and on his masterly summary of the human rights violations in Eritrea and the consequent exodus of large numbers of refugees.

The two countries were linked in a forced marriage when the UN organised a bogus test of public opinion in Eritrea and imposed a federal union of the two countries in 1952, followed 10 years later by Emperor Haile Selassie’s annexation of Eritrea. There followed a 30-year war of liberation to restore Eritrea’s independence.

In the 1970s, I was chairman of the Eritrea Support Group, which campaigned in Parliament and the media for Eritrea’s freedom and tried to persuade Ministers to support the self-determination of the Eritrean people, sanctioned by international law. Ministers would always reply with the mantra, “We believe that a federal solution would be best for the people of Eritrea”. I tried to ask them how they dared to usurp the right of the people themselves to exercise the most fundamental right of all peoples, emphasised by its position as Article 1 of the International Covenant on Civil and Political Rights.

In 1981, I visited Eritrea at the end of the Ethiopian sixth offensive. I travelled by Port Sudan through the desert and then along the Freedom Road, which was blasted out of the rock, up into the highlands, where I stayed at the Nacfa Hilton, a cave behind the front line. At dawn we saw the Antonov bombers dropping their loads on the ruins of Nacfa, in which the only building standing was the tower of the mosque. The corpses of Ethiopian conscripts killed in a hopeless attack on the cliffs protecting Nacfa were still lying where they had fallen, testifying to the futility of the Dergs’ colonialism.

In 1993, after the Eritreans gained their freedom, they held a referendum, in which there was a 99.3% turnout, in favour of independence, an event that no one who was there could ever forget. There was a spontaneous outburst of joy, with singing and dancing in the streets, and it seemed as if Eritrea, with its talented and hard-working people, would become a beacon of democracy and prosperity in the Horn of Africa. However, that dream was shattered when Ethiopia launched a fresh war of aggression on the pretence of a dispute over the border between the two countries.

After tens of thousands of lives had been lost on both sides and hundreds of millions of dollars had been spent on sophisticated weapons, it was agreed to refer the demarcation of the boundary to a commission headed by the distinguished British jurist Sir Elihu Lauterpacht, who was a schoolmate of mine 66 years ago. Both countries had agreed to accept the commission’s decision as final, but when the details were published in April 2002, Ethiopia found one excuse after another to dispute the findings. Ostensibly, its main reason was that the commission had awarded the small town of Badme to Eritrea, but as it had no significant value there must have been other reasons. The suspicion is that the long-term objective of Ethiopia is to re-annex its former dependency and, meanwhile, to weaken it by threatened aggression along the border and working to intensify sanctions on false charges of supplying weapons to the al-Shabaab terrorists in Somalia.

The Ethiopians unlawfully occupied territory all along the border that should have been demilitarised under the settlement, and Eritrea has been forced to maintain large armed forces as a precaution against further military attacks by its bullying neighbour. That was its justification for the much criticised imposition of indefinite military service, which was mentioned by my noble friend. The Eritrean ambassador told us that from last November conscription was limited to 18 months and that conscripts would not be required, as before, to perform civilian work such as road building, earning no more than $30 a month. Thousands of young people are fleeing the country every month, and Eritreans are the most numerous of those attempting the risky crossing from north Africa to Europe in which so many lose their lives. There is hope now that the flood of Eritrean asylum seekers will abate and that the colony will receive a boost from the extra labour in the private agricultural sector from the release of the indefinitely conscripted young people in the system.

The permanent existence of a state of “no war, no peace” is a major reason for the plethora of human rights violations by Eritrea, which have been mentioned by both my noble friend and the noble Baroness, Lady Kinnock. These include the arrest and disappearance of 21 opponents of the Government in 1991, arbitrary arrests and severe restrictions on freedom of expression and assembly. These are undoubtedly seen by the regime as necessary protections against their unscrupulous and determined enemy. That is not to defend such practices but to make an observation. Does the Minister not agree that, if the threat of aggression were lifted, violations of human rights would diminish and the flow of refugees would be further reduced? Trade between the two countries and access by Ethiopia to the ports of Assab and Massawa would boost economic activity throughout the region and lower unemployment locally and internationally, thus reducing the incentive to emigrate.

Ethiopia, on the other hand, has no enemies in the region and therefore has no reason for the severe restrictions on freedom of expression that it imposes. Human Rights Watch said last week that 22 journalists, bloggers and publishers were charged with criminal offences in the past year. Six independent publications were intimidated and closed, with dozens of staff forced into exile. Three owners of publications also fled abroad to escape false charges that led to sentences of three years in prison in absentia. Six members of Zone 9, a bloggers’ collective, were charged under the counterterrorism laws and have been in custody for 274 days, sending a chilling message to online activists. Can the Government not make representations to Prime Minister Desalegn to relax the stringent controls on freedom of expression so that Ethiopians can have a genuine election in May?

Above all, I call on the Government, and through them the EU, to launch a new diplomatic effort for peace in the region—for Ethiopians of all political parties to accept the Lauterpacht settlement unequivocally and to withdraw their forces from Eritrean territory.

19:36

[The Lord Bishop of Derby]

My Lords, I, too, thank the noble Lord, Lord Chidgey, for his comprehensive and challenging analysis and assessment. I will make some general remarks and then one or two specific points.

This complex situation is partly because the region is very unstable and there is a lot of movement from both of these countries to Saudi Arabia and the Yemen, as well as to Europe. Such an unstable context requires some big picture approaches. Then there is the conflict between Ethiopia and Eritrea, as the noble Lord, Lord Avebury, has clearly explained. That complexity makes a neat solution very difficult.

We have heard something of the human rights abuses. We need to put firmly on record in this House the particular suffering of women and girls, not least through military service, through trying to avoid military service by escaping into marriage and getting married at a very young age. There is also the problem of religious freedom in Eritrea. The constitution there guarantees religious freedom but only four groups are allowed to worship—Orthodox Christians, Catholics, Sunni Muslims and Lutheran evangelicals. Any mature country in that region needs to honour the spirituality and aspirations of its citizens.

We are told that 4,000 people a month are fleeing from Eritrea into Ethiopia, which further complicates the dynamic between the two countries. Because many who flee are women and children and unaccompanied minors, they are ripe for what we call human trafficking. Many of them are picked up and exploited by labour gangs for sexual slavery and even for body parts. The noble Baroness, Lady Kinnock, spoke of their sheer desperation and desire to escape. In Matlock, in the Peak District of Derbyshire, you might think that you could not be further from Ethiopia and Eritrea. However, when a couple who had driven back from the continent in a campervan arrived in Matlock, out from underneath crawled a refugee. He had had a desperate experience and was shaking, crying and happy to be turned in to the police. This tragic vignette illustrates the issue.

I am privileged to be a trustee of Christian Aid, which, along with CAFOD, is working on the ground in Ethiopia. It has been there for 30 years. It started by engaging with emergency work and is now doing very important development work with HIV, malaria, maternal and child care and especially the safeguarding of the rights of women and girls and of their educational development. I tell noble Lords that in part because it is a sign of hope, but Christian Aid—and possibly CAFOD, too—does not work in the north of Ethiopia or in Eritrea. It cannot get access to do that voluntary work; often we can work with partners on the ground, growing capacity, but Eritrea and the north of Ethiopia is a no-go territory because of the chaos. That means that the partnership that government can often assume from the voluntary and faith sector is not able to operate, which is a further challenge and complexity.

The number of migrants we experience in western Europe is simply a cry for help, showing us the scale and seriousness of government malfunction and the complexity of the history we are looking at. Therefore, there has to be an approach that is not just bilateral, with these countries trying to work with their difficult histories and tensions. Rather, we have to ask our Government to work with the EU, the UN and through the Foreign Office, and to try not just to look at the political possibilities but to engage with the voluntary and faith sectors to work with the desperate need on the ground, especially in northern Ethiopia and Eritrea, where there is all that suffering and no real access to giving help.

Therefore, I will be interested if the Minister can comment on the overall strategy and on how working with Europe and the UN might give some hope, besides bilateral things; on any representations on honouring religious freedom in Eritrea; and on how voluntary and faith groups might assume the partnership they often have with Governments in other needy areas to offer some offer support and development on the ground within the context of that complex political situation.

19:41

[Lord Rea (Lab)]

My Lords, I am very grateful to the noble Lord, Lord Chidgey, for securing this short debate. I thank the noble Lord, Lord Avebury, for introducing me to Eritrea in the year 2000 during a lull in the war with Ethiopia. In the next phase of the war the Eritreans did not do so well; it ended in a rather unsatisfactory ceasefire a year or so later. The subsequent developments in the economically damaging state of “no war, no peace”, were described extremely well by the noble Lord, Lord Avebury. The unresolved border tension, as several noble Lords have said, is having a major impact on Eritrea’s economy—less so, I guess, than in Ethiopia, which has a much bigger population. The standing army that Eritrea maintains is a major drain on a country with only 3 million people.

When we were in Eritrea, we visited, among other places, the Red Sea port of Massawa, where we met the Minister for the coast and fisheries, Petros Solomon, an impressive former senior officer in the independence struggle. He took us to see a remarkable coastal prawn and tilapia aquaculture pilot project, which was being developed with the help of a small American grant. If that project had gone ahead and expanded it could have become a valuable food-producing and export industry. Sadly, it was abandoned a year or so later, possibly due to government opposition to external NGOs.

In 2001, I was among those invited to attend the 10th anniversary celebrations of the end of the independence struggle. Among other visits we were taken by helicopter to the former battleground of Nakfa, which the noble Lord, Lord Avebury, described. We were impressed by the ingenuity and courage of the Eritreans and their capacity for hard work. However, shortly after our visit, 15 senior government members, known as the G15, who had signed a letter to President Isaias Afewerki urging him to implement the agreed democratic constitution and hold elections, were all arrested. They included Petros Solomon, whom the noble Lord, Lord Avebury, and I had met one and a half years earlier. Some 13 years later, he is still in prison, without trial and held incommunicado, as is his wife. Can the noble Baroness, to whom I gave notice of this question, say whether our embassy has been able to obtain any information about this man and his colleagues who are still detained? Some fear that he and some of the other G15 letter writers may no longer be alive.

There are other long-term political prisoners, including a number of journalists known as the 31, whose fate is unknown, and there are almost certainly many more. Human Rights Watch and Amnesty International have condemned these and other arrests and disappearances, as the noble Baroness is fully aware. As all other speakers have said, there is compulsory conscription for national service and not all of it is military. Some consists of what could euphemistically be called vocational training, but pay is very low—pocket money if you are lucky. There is also a large standing army which has to be maintained because of the tension with Ethiopia and which the country can ill afford.

It is alleged that many national service recruits are being used as virtual slave labour, in poor conditions in ore-producing mines. The Eritrean Government deny this. Does the noble Baroness have any information on this? According to an independent report by the Danish immigration service, the reason given by most Eritrean asylum seekers for leaving the country is economic rather than political, although deserters from national service naturally fear punishment if they return. As noble Lords have said, this report appears to have been withdrawn. Other noble Lords have testified to the important part played by human rights abusers in the exodus of Eritreans. As we hold this short debate, there is a UN human rights commission of inquiry going on. It was not allowed into Eritrea itself, so it has, apparently, had to rely on external testimony. Does the noble Baroness have any information on the progress of this inquiry?

Other informants give another, rather more hopeful, side to the story. There is grass-roots development and, within limits, considerable local democracy. As can be imagined, this does not include criticism of the president who, like President Putin, is unaccountable but still apparently popular, despite having lost the war with Ethiopia and heading an autocratic regime. As in Russia, support for the president is strongest in provincial and rural areas. In part, this is due to the policy of land reform which grants land—all of which is state owned—to landless farmers on equitable long-term leases. WHO and UNDP have praised the effectiveness of Eritrea’s antimalarial programme and its collaboration with external advisers in public health. It has achieved the millennium development goals in education and maternal and child health. This information comes, not just from the Eritrean Government, but from United Nations agencies. Its expansion of free education and healthcare is well ahead of most other countries in Africa.

Eritrean support of al-Shabaab in Somalia is denied by the regime’s supporters who say that, in fact, Eritrea has its own jihadist problem. Does the noble Baroness have direct evidence of this alleged Eritrean involvement in Somalia? Could this possibly be Ethiopian propaganda?

Eritreans are intensely proud people and respond negatively if told what to do. They are determined to pull themselves up by their own bootstraps—hence their rejection, often to their own detriment, of many projects by aid agencies, whether official or non-governmental, and their stringent conditions for accepting much needed inward investment. They are determined not to be exploited by multinational corporations. It would be very useful to hear what the UK’s experience of investment in capital projects has been in Eritrea.

I suggest that, as with other long-drawn-out conflicts, discussion, initially perhaps behind closed doors, is more likely to lead to an acceptable outcome than open confrontation or sanctions. Having said that, political prisoners such as Petros Solomon, of whom I spoke, must be released, or at least be tried in open court. Their continued detention without trial and the failure to implement independent Eritrea’s agreed democratic constitution are major factors blocking the development of normal relations between Eritrea and the rest of the world.

19:50

[Baroness Morgan of Ely (Lab)]

My Lords, I congratulate the noble Lord, Lord Chidgey, on securing this very important debate, and particularly on his illuminating introduction.

The tragedy unfolding in Eritrea and Ethiopia is impacting directly on us here in the UK and across the EU, and the picture painted by the right reverend Prelate tugs at your heartstrings. It is another example of how we cannot isolate ourselves from the problems of the world; we cannot haul up the drawbridge and hope that the situation will go away. Hundreds of thousands of innocent people are desperate in both these countries: so desperate that they are prepared to risk everything—and I mean everything—to start a new life, not just here in Europe but in other African countries, too, as noble Lords have said.

There is no doubting the seriousness of the situation, particularly in Eritrea. As has been suggested, Eritreans and Ethiopians are the main nationalities of the irregular migrants seeking asylum in the EU, apart from Syrians. They come either by land, normally through Lebanon and Syria into Turkey and the western Balkans, then on to the EU, or by sea, often using Tunisia or Alexandria in Egypt as their key point of departure. I ask the same question as that asked by my noble friend Lady Kinnock: what are they fleeing from? What is driving this mass exodus, which includes not just women and children but thousands of unaccompanied minors? The simple answer is that neither Ethiopia nor Eritrea is a functioning democracy.

Although both Ethiopia and Eritrea are suffering real problems, there is more scope to influence activities in Ethiopia. In the past, there seems to have been a modicum of free speech and a free press in Ethiopia, although the Government’s intolerance of dissent seems to be increasing significantly in the face of general elections in May. There have been large-scale arrests of protesters and a crackdown on opposition opponents. This is particularly true in the Oromo region, where at least 5,000 people have been arrested as a result of their opposition to the ruling party.

But if we think that the situation is bad in Ethiopia, it is truly catastrophic in Eritrea, where all freedoms were suppressed in September 2001. There is no religious freedom, as the right reverend Prelate underlined, no political pluralism, and no independent press in the nation. The forced and interminable military service to fight the unending border war with the neighbours in Ethiopia is clearly a real problem that is driving people from the country.

There are some key points which we would like the Government to take on board. We believe that all possible pressure should be brought to bear in particular on the Eritrean regime to give way to a democratic Government who will respect human rights and the wishes of their people. What this does not mean is attempting to start a new relationship with the existing Eritrean authorities through providing unconditional aid. Given the failure of all previous attempts to engage in a meaningful way, do the Government really believe that the regime can respond positively? Do the Government agree that, unless there is clear and verifiable evidence that human rights in Eritrea have improved, there should be no new beginning with the regime?

I understand that the United Nations Commission of Inquiry on Human Rights in Eritrea will visit the UK this week to hold meetings and collect testimonies and accounts on the human rights situation in Eritrea. Can the Minister give an assurance that the Government will support the UN in its work and ensure that an objective picture of the situation in the country can be assembled?

We are all aware that there are fears and concerns within the British population about the scale of immigration to the UK. Such a fear is not just here in the UK, but true across the EU. We need to ensure that, across the EU, we have a co-ordinated approach to migration from this part of the world. Let us be clear: if Britain left the EU it would not stop people from coming, but it would stop us from working together in a co-ordinated fashion with our EU partners.

A €5 million programme is being established between FRONTEX—the agency of the EU that manages co-operation between national border guards to secure the external borders of the Union, including from illegal immigration, human trafficking and terrorist infiltration—and the UNHCR to help the countries of the western Balkans strengthen their asylum and migration policies and capabilities. Additionally, FRONTEX is co-operating closely with Turkey, which has helped to stem the flow of the ghost ships that we saw before Christmas. I understand that it has assigned a member state expert to help the Turks to improve security around the port of Mersin.

The EU has also signed a readmission agreement with Turkey, which means that Turkey must take back not only nationals who may be irregular migrants, but migrants who are seen to have come from Turkey. There is close and joint co-operation in the Aegean Sea and on the Greek and Bulgarian land borders. Could the Minister explain how on earth the UK could begin to influence or support these actions if we were outside the EU?

We should not underestimate the people who are seeking to benefit from people’s immense suffering: the people traffickers who extort thousands from these desperate people. Europol is ensuring that there is an exchange of information across Europe and with our partners in the western Balkans and Turkey that ensures that European nations can tackle some of the criminal aspects behind this migration.

However, we should be clear that none of this will stem the flows out of Ethiopia and Eritrea. The human rights violations are simply too much for many of the population to bear. While Eritrea is considered a real basket case in terms of human rights, the tragedy is that things seem to be getting worse in Ethiopia, which was once the darling of the international aid community. Can the Minister explain how aid, being conditional on improvements in human rights, can be strengthened for Ethiopia? Can she outline how we can offer more support to Eritreans in the camps in Sudan and Ethiopia? Finally, can the Minister clarify the situation relating to migrants from these two countries when they arrive in the UK? What proportion of them are termed “irregular migrants”? What proportion are given asylum status? Is there any recognition that there are many desperately poor countries in Africa, but that poverty and economic migration does not explain the disproportionate numbers arriving from these two countries?

19:58

[The Minister of State, Foreign and Commonwealth Office (Baroness Anelay of St Johns) (Con)]

My Lords, I congratulate my noble friend on securing today’s debate. I also commend the important work of the various all-party groups of which he is an active member, including the All-Party Group on Africa. As he has described, there are few more moving stories than those of migrants who undertake perilous journeys to reach western Europe, sometimes losing their lives in the process. The noble Baroness, Lady Morgan of Ely, has just described that graphically. Today’s debate is, therefore, a welcome opportunity to discuss an issue that clearly links the United Kingdom and our partners in Africa—and indeed, our partners in the European Union in our work to reduce the need for migration and the need for unsafe migration.

The Government have made it very clear that the international community must act together to reduce the risk of migrants losing their lives or falling prey to the traffickers. Migrants make the journey for a number of reasons—whether seeking more economic opportunities or to escape human rights abuses and persecution. I shall come in a moment to some of the more specific points which noble Lords have made on that matter. Poverty and instability in the Horn of Africa drives individuals to seek a better life in Europe and beyond. For those who cannot leave, these same factors contribute to an environment in which fundamentalism and extremism can prosper. Tackling illegal migration to the EU from the Horn of Africa is therefore clearly in our interest and that of all countries in the region. We must address the problem at its source, and the UK is committed to playing its part.

The noble Lord, Lord Rea, in particular asked questions about al-Shabaab and the terrorism link with regard to that. He mentioned the United Nations and Eritrea monitoring group. I understand that Eritrea denies any support for al-Shabaab but continues to refuse entry to the monitoring group. We urge it to co-operate fully with the group’s work. I am entirely at one with the noble Lord in this matter.

Clearly co-operation through our European Union partners is important. I was asked about that not only by the noble Baronesses, Lady Morgan and Lady Kinnock, but by my noble friend Lord Chidgey and the right reverend Prelate. In addition to our bilateral work with key regional partners, we play an active role in the new EU-African Union Khartoum process, which includes of course both Ethiopia and Eritrea, supporting dialogue and co-operation to tackle people smuggling and human trafficking in the region. I can tell the noble Baroness, Lady Morgan, that the Prime Minister’s position is that we will negotiate a successful resolution to our relationship with the European Union, and in any future decision by the British people we would put a very positive case and would certainly hope that we would remain part of it. That is the result of successful negotiation by my right honourable friend Philip Hammond, who has been travelling around countries throughout western Europe, taking soundings and getting some very positive results—more positive perhaps than some of the press makes clear on some of the issues that we have been broaching. There is still a long way to go. We know that but we are making progress.

We welcome the fact that both Ethiopia and Eritrea have expressed commitment to the Khartoum process. It provides the best framework to drive this issue forward. Noble Lords have drawn attention to the tension between Ethiopia and Eritrea. I would say to them that if they are taking the Khartoum process seriously, they have to take negotiation on the basis of solving the differences between them seriously too. As a member of the core group of EU and AU member states steering the development of how we take this process forward, we as a country are keen to ensure that we maintain momentum and that the process leads quickly to concrete projects that combat the smuggling and trafficking.

Several noble Lords asked me, in particular, about extended military service—very much a euphemism. I listened very carefully to all the words used by the noble Lord, Lord Rea, the noble Baroness, Lady Kinnock, my noble friends Lord Avebury and Lord Chidgey, and the right reverend Prelate about the real nature of this—one or two noble Lords referred to it as being like slave labour—and the fact that it acts as a serious driver for people to leave the country. Having left and broken the rules on conscription, people are—I cannot think of the right word—terrified to return. That is why some of the figures of asylum grants by us to Eritreans look so high, because clearly there has been concern about them returning to that country given their reasons for leaving.

We did indeed have a joint visit to Eritrea by Home Office and Foreign Office officials in December. They looked at the drivers of migration and particularly discussed the matter of extended military service. I can say to my noble friend Lord Chidgey that this was a useful starting point for further co-operation. A similar visit to Ethiopia is planned for the near future. With regard the visit to Eritrea, the Eritrean Government representatives assured the officials from the FCO that military service will be strictly limited to 18 months and, indeed, I have been briefed by those officials today. The undertaking has been given. It is matter now of making sure that that is put into practice.

The noble Lord, Lord Rea, made the valid point that not everybody fleeing Eritrea is fleeing persecution; some leave for strong economic reasons, and the extension of the 18 months’ military service, with no knowing when it would finish, was an awful position to be in. That is very different from some of the drivers that one sees for people fleeing from Syria.

The matter of development assistance was raised by my noble friend Lord Patten. He asked about the role of aid. We are firmly committed to the use of aid in ensuring that there is security and prosperity in countries that currently experience neither. Our total spend over all countries in 2013 was almost £11.5 billion, second only behind the USA in overall volume. We believe that that is helping to change the lives of many millions of ordinary citizens across the Horn of Africa. In Ethiopia, in particular, last year our funding allowed over 1.6 million children to go to primary school, helped 110,000 mothers to give birth safely and provided clean water for more than 250,000 people. Our funding is also helping Eritrean refugees in Ethiopia, particularly with shelter and support to unaccompanied minors, as well as warning refugees of the risks of illegal migration. I know that none of that will be a surprise to the noble Baroness, Lady Kinnock. When she was a Minister she was passionate about these issues, and rightly so. I can assure her that that passion remains in government.

I was also asked about the issue of Ethiopian and Eritrean relations more generally. My noble friend made reference to a leaked memo on Ethiopia’s destabilising policy against Eritrea—at least the memo refers to itself as being leaked, whether it was or not I simply do not know. We will consider its contents seriously and closely. Better relations between the two countries are clearly needed. We have called on both sides to respect the commitment that they made in the Algiers peace agreement of December 2000 to refrain from using force against each other. We will continue to encourage both Eritrea and Ethiopia to engage bilaterally and internationally to overcome the current stalemate and hope that progress can be made towards demarcation in accordance with the decision of the Eritrea-Ethiopia Boundary Commission.

[Lord Avebury]

Does my noble friend not recognise that the Algiers agreement was final and binding and that both parties had agreed to accept it, so there is no question of negotiations or variations on the settlement? They both must accept it, and, in particular, Ethiopia must agree to the border that was determined by the British judge, Judge Lauterpacht.

[Baroness Anelay of St Johns]

My Lords, international agreements, once entered into, should be adhered to, and I hope that the Russians hear that with regard to the Minsk protocol with regard to Ukraine. I agree with my noble friend about the importance of keeping one’s word.

Much attention was drawn to the issue of human rights, and rightly so. I will summarise very rapidly indeed. The noble Baroness, Lady Kinnock, my noble friends Lord Avebury and Lord Chidgey, the noble Lord, Lord Rea, and the right reverend Prelate the Bishop of Derby all raised issues. Briefly, with regard to the matter of Petros, we are of course aware of that case. I am afraid that I can give the noble Lord, Lord Rea, no comfort. We do not have any assurances about his well-being despite consistent efforts to obtain them. We will continue to call for his release.

There are human rights abuses across the board. The right reverend Prelate raised the issue of religious freedom. We will continue to look very carefully at the matters he raised because, clearly, those are abuses that have occurred and, as he rightly says, particularly against groups that are not registered under the Eritrean system. There was a reference to the detention of political prisoners and journalists. We certainly try to establish the facts. There are still journalists in detention despite reports that six have been released. There was a reference to the Swedish-Eritrean journalist Dawit Isaak, who is still under arrest.

With regard to all these matters, we do not give up. Just because it is difficult, we do not give up in pursuing our relationship with these two countries. Walking away would leave those who are the victims of persecution and misbehaviour by Governments in a more perilous position than they currently face. The commitment of this Government is that this is a challenge that requires a global, long-term response to a difficult problem. We will all keep trying to ensure that, as an international community, we do our best to tackle it for the sake of those behind the traffickers and behind Governments who do not have good governance.

Infrastructure Bill [HL]

Tuesday 27th January 2015 Lords Chamber

Returned from the Commons

The Bill was returned from the Commons with amendments.

House adjourned at 8.12 pm.