Westminster Hall

Tuesday 9th November 2021 Westminster Hall

Tuesday 9 November 2021

[Philip Davies in the Chair]

Photographic Reconnaissance Unit: National Memorial

Tuesday 9th November 2021 Westminster Hall

00:00

[Philip Davies (in the Chair)]

Before we begin, I remind Members that they are expected to wear face coverings when not speaking in the debate, in line with guidance from the House of Commons Commission. I also remind Members that they are asked by the House to take a covid lateral flow test twice a week if coming onto the Parliamentary estate, which can be done either at the testing centre or at home. Please give each other and members of staff space when seated and when entering or leaving the room.

[Andrew Bowie (West Aberdeenshire and Kincardine) (Con)]

I beg to move,

That this House has considered a national memorial to the Photographic Reconnaissance Unit.

It is a pleasure to serve under your chairmanship, Mr Davies. I have a confession to make today: until seeking this debate, I knew little to nothing about the Royal Air Force’s Photographic Reconnaissance Unit. I knew little to nothing about the heroism, the bravery, and the contribution of the men who flew in the PRU and can quite legitimately claim to have turned the tide of that war against evil in Europe between 1939 and 1945.

I was—I admit this now that the debate has been granted and we are all gathered here today—doing a friend a favour. Luke Graham, the former MP for Ochil and South Perthshire, first sought a debate on this campaign for a national memorial to the PRU back in 2019. Sadly, in December of that year he ceased to be the MP for that constituency. When asked if I would carry the baton forward and continue this campaign in Parliament, I heartily agreed.

To be clear, I do fully believe in this campaign. I fully believe that the PRU deserves a national memorial. However, this campaign only became real to me yesterday when, by chance, following a phone call to my office from a Mr Menzies of Conon Bridge in the highlands Scotland, who had read an article on this debate in the Sunday Express, I was put in touch with Mr George Pritchard of Northampton—one of four living veterans of the PRU still with us .

[Andrew Lewer (Northampton South) (Con)]

I apologise for interrupting my hon. Friend’s peroration so early; I am sure it will be excellent. However, I did not want to allow the opportunity to go by without expressing my gratitude to my hon. Friend for his reference to George Pritchard, who is a resident of Duston in my constituency of Northampton South. At a magnificent 97 years old, he is a lively, active, living tribute to the outstanding work that he and his fellow PRU personnel undertook in defence of our freedom. This early intervention is my opportunity to say that my hon. Friend’s campaign has my full support.

[Andrew Bowie]

I thank my hon. Friend for that intervention and I heartily agree. It was in speaking with George yesterday who, as my hon. Friend says, at 97 remains as sharp as a tack and very much on the ball, that this campaign was really brought home to me. George flew Mosquitoes over enemy lines to gather crucial intelligence for the allies, and he made clear to me just how important this campaign is. There will come a time, which is sadly fast approaching, when there will be no veterans of that great conflict left with us. Therefore it lies with us—we who are free to stand in this Parliament today, in this country, on this continent, because of the actions of men like George—to commemorate and remember them.

I thank the Backbench Business Committee for granting this debate today, and in this week of all weeks, when the nation will fall silent as we remember all those who fought and did not return; those who did give their tomorrow for our today, 378 of whom flew with the PRU and 143 of whom lie with no grave. They really were the few.

Early in the morning of 5 March 1942, 22-year-old Alastair “Sandy” Gunn of Auchterarder in Perthshire climbed into his Spitfire AA810 at RAF Wick, taking off into the cool, blue dawn with one instruction: to get eyes on the Tirpitz. The Tirpitz was the sister ship of the Bismarck. She had escaped unscathed from an RAF bombing raid on Wilhelmshaven where she lay in build and, since evading the Royal Navy, local intelligence and RAF aerial searches for months, the pride of the German fleet had been seen in Trondheim harbour.

It was a beautiful late winter morning—one of those seen only over the North sea—giving Sandy no cloud cover whatsoever. Not that that mattered very much, because the Luftwaffe, from their listening station in Kristiansund, had scrambled two Messerschmitts. As with all photographic reconnaissance aircraft, Sandy’s Spitfire was stripped of guns and plating, which were replaced with cameras and enough fuel for long-range missions. Hon. Members will agree that that takes incredible bravery—to fly those most dangerous of missions, over enemy lines, with no armaments whatsoever with which to defend oneself. Diving down, the Messerschmitt found Sandy’s oil system but, as it closed in, blinded by spray, could not hold course and broke away. The second Messerschmitt, pressing home the attack, sprayed its 20 mm cannon into Sandy’s wing, bursting a fuel tank. The Spitfire was on fire, falling fast.

Sandy ejected, and parachuted into the snow-covered mountains. Two Norwegians climbed to meet Sandy with skis—and with all the daring resolve of their underground resistance. His Spitfire, the AA810, remained on the mountainside. Badly burned, Sandy was in no state to attempt a cross-country escape across occupied Norway. Instead, he handed himself in to the Germans. Interrogated for 21 days, Sandy held his resolve, and held his silence, before he was sent off to the infamous Stalag Luft III. Punished for a first, failed escape, he then set himself at the slow and steady work of tunnel Harry and, alongside his fellow inmates, made his great escape on 24 March 1944. Looking to find neutral Sweden, riding on the axles of freight trains, he and Flight Lieutenant Casey were one day’s walk away from the Baltic coast. Sadly, they were caught and, given up to the Gestapo, interrogated. Sandy was brought outside and shot, on Hitler’s direct orders.

Sandy was one of over 1,000 who flew with the PRU and one of over 378 who fell, giving the PRU the second-highest attrition rate of any unit in the entire second world war. However, in delivering over 20 million images of enemy operations and installations—from Norwegian fjords to the Burmese jungle; for D-day, Amiens and the Dambusters raid; first spotting the V1 and V2—the PRU opened up the terrific German war machine cog and piece apart, and gave a sight of victory. If that sounds familiar to the Minister, it is because the first camera systems were fitted into the Spitfires and Mosquitoes at RAF Farnborough, in his constituency, and the men who did so taught at the RAF School of Photography nearby.

The Photographic Reconnaissance Unit was formed on 24 September 1939. Throughout the second world war it operated, as I said, in highly dangerous, clandestine photographic reconnaissance operations in all theatres of operation.

[Wendy Chamberlain (North East Fife) (LD)]

I thank the hon. Gentleman for securing the debate and for his tenacity in bringing it back post 2019. He mentioned Sandy Gunn and his bravery. Sandy Gunn flew from Wick during that campaign, but he was briefly at Leuchars. Given that the hon. Member is describing the history of the Photographic Reconnaissance Unit, it would be remiss of me not to detail the fact that it was based at Leuchars airfield from late 1942 to early 1944. I hope that the hon. Member will join me in seeking to honour the memory of all those men and to ensure that all air bases are recognised in the memorial.

[Andrew Bowie]

I thank the hon. Lady for her intervention. I completely agree: all the air bases from which the PRU flew should be commemorated, and all the men who flew, from whatever airfield, should be commemorated if we are able to succeed in getting a memorial erected in a prominent position in the country in the coming years.

In 2019, Mr Tony Hoskins recovered Spitfire AA810—Sandy Gunn’s Spitfire—from the Norwegian mountainside where Sandy had ejected all those years ago. Tony Hoskins established the Spitfire AA810 Project to restore the plane to flight, which it is hoped will be completed by 2023. The project also established the Sandy Gunn Aerospace Careers Programme, which was launched at Cranfield University on 27 September 2019—what would have been Sandy Gunn’s 100th birthday.

In 2019, the Spitfire AA810 Project began its campaign to establish a national memorial to the PRU and the brave men who flew for it from wherever they were based. This year, the project established an advisory board, with representatives from industry, academia and both Houses of Parliament, to drive forward the establishment of a national memorial to the PRU. The young pilots who flew for the PRU performed their duty in highly dangerous conditions, without armour and alone. The work of the PRU and the intelligence it gathered were crucial to allied planning and strategy throughout the war. They were critical to the success of countless operations, saving the lives of thousands of servicemen in the process.

[Mr Mark Francois (Rayleigh and Wickford) (Con)]

I apologise to you, Mr Davies, and to the Minister that I cannot be here for the whole debate because I am about to attend a remembrance service in the Guards’ Chapel. No disrespect is intended.

May I pay a family tribute? My late father, Reginald Francois, was on a minesweeper on D-day. There were many reasons why Operation Overlord succeeded, but one undoubtedly was the ceaseless courage of the unarmed PRU pilots who flew multiple missions to successfully reconnoitre the Normandy coast so that the allied invasion could be best planned. From the son of a D-Day veteran, I offer my hon. Friend unstinting support for his campaign, and thank him and his predecessor for having the courage to raise it in this place. We wish him Godspeed.

[Andrew Bowie]

I thank my right hon. Friend for that intervention, and that very personal family tribute. His father, like many, served in the second world war, and they were only able to do so and complete their missions because of the bravery of men like Sandy, George, and all the others who flew with the PRU, giving Allied Command the intelligence that they required to navigate their way through incredibly difficult situations. I thank my right hon. Friend very much for his tribute and his contribution, and for his support for the campaign to get a national memorial established.

The PRU’s pilots and the reconnaissance aircraft in which they flew are, sadly, largely unrecognised in history. Their story, their success, and their sacrifices are, as I have said, mostly untold. Furthermore, the highly dangerous conditions in which the pilots of the PRU served meant that it experienced a tragically high death rate. Although it was a relatively small unit, the PRU suffered horrendous losses from its inception in 1939 through to the end of hostilities in the far east in 1945, with records now showing that—as I have said—its survival rate was the second lowest of any allied aerial unit during the entire war.

Some 1,287 men have so far been identified as having flown operational photo reconnaissance sorties, but only 29% of them have been confirmed as having survived the war. Even more tragically, due to the solitary nature of their work, 12% of those who flew are still missing to this day, their final resting places unknown and unrecorded. A permanent national memorial to the Photographic Reconnaissance Unit would be a fitting tribute to those pilots, navigators and observers who undertook those dangerous missions in the service of our country, and would serve as a de facto headstone for those who served in the PRU but have, as yet, no known grave.

So, I come to the ask—except, exceptionally for Westminster and, I am sure, to the relief of the Minister, I make no financial ask of the Government. I simply request that the Minister meets with the campaign for the national memorial, and gives support to the efforts to establish a national memorial in an appropriate location in London: a memorial to the 1,287 men who flew for the PRU; to the 378 who did not return; to the 143 who lie with no grave; to Sandy and all those like him; and to George and the three others, the last of the few.

09:42

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to speak in this debate, Mr Davies. First, I thank the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) for leading such an important debate, and for the way in which he expressed his request to the Minister. I am sure that the Minister’s response will be positive and helpful.

This important debate reiterates the necessity of remembrance, coming up to Remembrance Sunday. I, along with others in this Chamber and outside of it, look on Remembrance Sunday as one of the most special days of the year. There are other days in the year that are incredibly special, but I always enjoy—if that is the right way of putting it—Remembrance Sunday, because it cements for me the sacrifice of all those who have given so much for us.

Were it not for this debate, I would not have known all about what happened with the PRU; I would have been aware of it, but not with the intensity with which the hon. Member for West Aberdeenshire and Kincardine has expressed himself today, with such knowledge and power.

This morning, along with others—some have done so yesterday; others will do so today—we will lay a wreath or a cross in the remembrance garden just outside this building. The sacrifices that the hon. Gentleman referred to took place during the second world war, but it is good to remember the ongoing sacrifices of others.

At this time of year, most of us partake in the wearing of poppies to celebrate and remember those who gave their lives for our future and, for many of us, the war effort is collectively remembered.

At times it is right and proper that we remember the essential cogs in the war machine that did tremendous work in fighting off the violence and intrusion that threatened to damage our nation. The PRU was one of those essential cogs. When the United Kingdom perhaps felt like it was standing alone against Germany, the Photographic Reconnaissance Unit was there. I am thankful to the hon. Gentleman for giving me a reason to delve into history and learn new facts to teach my grandchildren to let them know why we have a democracy. We have freedom and liberty today because of those people and what they did. I am also thankful to my hon. Friend the Member for Belfast East (Gavin Robinson), who passed on some detailed information from a constituent. That informed me—indeed, enthused me— about this debate today.

The PRU was formed in 1939 and its operations were considered highly dangerous. Its purpose is well known in this place. It was the first foray into clandestine photography. The unit was ordered to capture images of enemy operations and installations during the war. The success of the photographic units is well documented. It was because of the unit’s operations that lives were saved, as referred to by the hon. Member for West Aberdeenshire and Kincardine, and towns and cities were kept safe. The intelligence gathered was highly secret and was used by all Britain’s armed forces. The unit took over 20 million images. Information and images were not collected, as they could be today, by typing a code into a computer to task a satellite to move. Innovative secret cameras were carried and used by people who gave their lives to get the right shots. It was about getting the information in the right way and then getting it back home. Collecting so many images was nothing short of incredible.

I love, as I suspect others here do, the History Channel, where one can see stories of how the photographs were taken, and where the terrible danger that the unit was in is clearly illustrated. When one sees the grainy photographs, one wonders what they could prove or achieve, but the photographs were well taken and the detail was examined. We all know, as the hon. Gentleman mentioned, some of the things that happened—for example, the flying rockets and the launching pads that were photographed and then ultimately destroyed.

From its creation in the early stages of the war, the unit suffered horrendous losses, which should be remembered and respected. The survival rate was proportionally the second lowest of any aerial unit in the entire war. Approximately 500 men became casualties, and 144 of them have no known grave. That highlights how this debate should be warmly welcomed across the House, as all forms of remembrance should be.

It is no secret that I love this history of this place—we probably all do—and the history of the surrounding streets here in London. The intelligence provided by the PRU that was used in the Cabinet war rooms—now the Churchill War Rooms located underneath the Treasury a short distance from where we are today—was instrumental in the planning of major operations such as D-day and the Dambusters raid, the monitoring of major shipping movements by such as the Bismarck and Tirpitz, which the hon. Gentleman referred to, and the locating of the VI and V2 rocket launching site at Peenemünde, among other major intelligence successes throughout the war. A monument is a proper thank you to the memory of those who flew the Spitfires and to the large numbers of pilots and personnel who never returned.

The hon. Gentleman described how the Spitfires had no armament and no protection. They had extra fuel and were—it is perhaps not fair to use this term—sitting ducks for the Messerschmitts that came to take them on. The conditions under which the men carried out their work were dangerous, with an extremely high death rate. Some 1,287 men have been identified as having flown operational photo reconnaissance sorties, but only 29% of them have been confirmed as having survived the war. We have heard today of at least two, to which the hon. Member for West Aberdeenshire and Kincardine and the hon. Member for Northampton South (Andrew Lewer) referred. Furthermore, 12% are still missing to this day, with no known identities or closure for families. We all know how important it is to get closure. Having come through the tragedy of Northern Ireland and the terrorist campaign, I often think of the disappeared and those families who have perhaps never had somewhere to lay their loved ones to rest, which is important.

Two notable organisations have been set up in memorial to the PRU: the Spitfire AA810 Project and the Sandy Gunn Aerospace Careers Programme, to which the hon. Member for West Aberdeenshire and Kincardine referred. They commit time to encouraging young people to partake in the engineering sector and to informing them of possible careers and employment opportunities. There are many ways of fighting a war, but they are all cogs in the big machine that make things happen. The service is entirely free to participants. I encourage young people to take advantage of that experience, and I urge the Secretary of State for Education to raise awareness of that type of practical training for young people. When the Minister responds, perhaps he can tell us whether there has been any engagement with Education Ministers about doing our best to ensure that those opportunities are taken up.

Spitfire AA810 Project emphasises that it makes no financial ask of the Government, which—let us be honest—is important in this day and age, so the Government can easily endorse the proposal. That is not to dismiss their contribution; it is important that the Minister responds and understands what we are trying to achieve. I have no doubt that he will recognise the importance of that work.

I urge all hon. Members to wholeheartedly support the cause and the effort to establish a national memorial in an appropriate location in London. The efforts of all the contributors deserve respect and remembrance. The risks associated with the duties undertaken by the men of the PRU must be acknowledged. I thank the hon. Member for West Aberdeenshire and Kincardine again and the Backbench Business Committee for ensuring that the PRU is remembered and thanked. I fully support what he said, and I am convinced that the Minister will also endorse it.

I hope that the Minister will come back with a positive response. We recognise that the PRU played an integral and important part in the battle against tyranny and against the evil of Nazism and fascism. We sometimes stood alone, but the PRU was a cog in the wheel of the victory that we needed.

00:03

[Stewart Malcolm McDonald (Glasgow South) (SNP)]

It is a pleasure to see you in the Chair, Mr Davies. In responding for the Scottish National party, I offer my full support on the issue that my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie), who really is a friend, has brought to Westminster Hall. He achieved a rare thing: he has educated the House. Although I am sure that we all read our briefs before the debate, I certainly learned more from his speech, for which I thank him.

I acknowledge the work of the former Member for Ochil and South Perthshire in first raising the issue when he was a Member. It will not surprise my hon. Friend that I do not necessarily share his disappointment at the result in that seat, as I was one of the main speakers at the big fundraiser to achieve the result that we did, but I do acknowledge that Luke Graham is a good person and he was right to bring the issue forward. For those of us who are acquainted with the Scottish Conservative group, it is no surprise that the issue is still alive with them, as it should be.

It is an anomaly that there is no national memorial and I am sure that can be rectified. As my hon. Friend mentioned, the PRU managed to gather more than 20 million images that were used to secure the victory in the war that the hon. Member for Strangford (Jim Shannon) ended his remarks on. It has been mentioned that those images, which were vital to our success, were gained with no protection whatsoever. Mr Davies, can you imagine being sent over enemy lines under those circumstances? But they did not blink. They got up and did the job that they were asked to do. As the hon. Member for Strangford rightly said, they were a vital cog in the machine of the war effort.

In return, the PRU had one of the lowest survival rates of any unit during the war, with over 500 casualties, more than 140 of whom—I believe 144—have no known grave or marking. I am sure we all agree that that is wrong and is something we can resolve, not least because this is possibly the only debate I have attended in Westminster Hall where there is no financial ask of the Minister from whom we hope to hear positive responses.

I want to commend the work of the Spitfire AA810 Project to secure that national memorial. I pay tribute to their tenacity, their resolve, their imagination and their determination to ensure that that national memorial is forthcoming. As has been mentioned, all of us are sitting here wearing red poppies, rightly so at this time of year. This is a useful time, not just to reflect on those who were part of that war effort, as we have done this morning, thanks to my hon. Friend the Member for West Aberdeenshire and Kincardine, but to recommit ourselves to the values that created that world we inherited, and that the men of the PRU and so many other parts of the war effort secured for us.

That is a useful thing to do, given geopolitics right now, particularly in Europe. We must always have robust political debate, discussion and disagreement. I suspect, Mr Davies, that you and I do not agree much on those affairs. What we do agree is that we must remember and be grateful for those who sacrificed their lives to ensure that we could have the kind of exchange that we enjoy. What better way to recognise the efforts of the PRU than to rectify the injustice of having no national memorial by securing one in a fitting place?

I offer full-hearted congratulations to my hon. Friend and the Backbench Business Committee for allowing this debate to take place. I hope that we can hear of positive developments from the Minister.

09:57

[Stephanie Peacock (Barnsley East) (Lab)]

It is a pleasure to serve under your chairship, Mr Davies. I congratulate the hon. Member for West Aberdeenshire and Kincardine (Andrew Bowie) and his predecessor on securing this important debate. I am pleased to respond on behalf of Her Majesty’s Opposition.

British intelligence services are widely recognised for playing a major role in the allies’ world war two victory. Every element of our armed forces made an incredible contribution to our safety and security, and they have done so throughout our history. Although much of that is recognised, the incredible work of some parts of our armed forces is less well known. One of those is the aerial arm of our intelligence services, as has been highlighted this morning, not least by the hon. Member for Strangford (Jim Shannon).

During the second world war, our aerial reconnaissance technology advanced at a truly remarkable pace. Having previously lagged behind Germany on aerial photography, Britain developed a world-beating capability to capture and develop images to provide detailed intelligence. The PRU took a total of 20 million photographs throughout the war and the rapid advance in intelligence played a tremendous role in the allies’ success. From helping to identify day-to-day enemy movements to informing D-day tactics, the intel provided saved countless lives.

Through their lifesaving work, the young pilots who flew our planes put their own lives at great risk. Not only did they operate in temperatures reaching minus 50°, at altitudes rarely reached before the second world war, but their Spitfires were stripped of any armour or protection. In those dangerous conditions, if engaged by enemy aircraft, the pilots had only their skill and bravery to rely on. With survival rates exceptionally and tragically low, every member of the unit deserves to have their bravery commended and their place in history cemented, not least those who were never afforded the dignity of a headstone.

As we begin this year’s remembrance week, there has never been a more suitable time to ensure that the Spitfire AA810 Project has the full support of the Government and the House for a national memorial. People born in 1939 will reach the age of 82 this year. As more time passes since the second world war, we must ensure that we never allow our collective memory to fade. My grandfather, who served in the RAF during the second world war, would have been 100 years old this year. I am incredibly proud of him and his contribution, just as I am of everyone who put their life on the line and fought for our liberty. I know that many in Barnsley, like me, are committed to keeping alive the unique stories of our family members and our town, and the part they played in the war effort, whether that is paying tribute to those in the RAF who lost their life after their aircraft suffered tragic fire, taking pride in the contribution of our miners to the war effort, who completed a job so vital that they were exempt and sometimes forbidden from military service—well known as the Bevin boys—or remembering those evacuees who found refuge in our town, escaping the blitz in London and Sheffield.

We cannot keep this history and the tradition of remembrance alive without education, memorials and opportunities to truly understand what happened. When Experience Barnsley, our local museum, hosted an exhibition featuring a Spitfire like those used by the PRU, the town hall said it was the busiest it had ever been. That success shows that although it might be difficult for many of us to imagine what war must have been like, memorials can bring those experiences to life for future generations. That is why, on behalf of the Labour party, I am pleased to support the campaign for a national memorial to the Photographic Reconnaissance Unit.

10:01

[The Minister for Defence People and Veterans (Leo Docherty)]

It is a great pleasure to serve under your chairmanship, Mr Davies. I am delighted to be here, answering for Her Majesty’s Government. It has been a positive and interesting debate. First, I congratulate my hon. Friend the Member for West Aberdeenshire and Kincardine (Andrew Bowie) on securing the debate and speaking so movingly about the remarkable and innovative role of the Photographic Reconnaissance Unit. I thank my right hon. Friend the Member for Rayleigh and Wickford (Mr Francois), my hon. Friend the Member for Northampton South (Andrew Lewer) and the hon. Members for Strangford (Jim Shannon), for Glasgow South (Stewart Malcolm McDonald), for North East Fife (Wendy Chamberlain) and for Barnsley East (Stephanie Peacock) for their collegiate and constructive contributions. I am pleased that our former colleague Luke Graham, the former Member for Ochil and South Perthshire, was also referenced.

I was particularly moved by the way that my hon. Friend the Member for West Aberdeenshire and Kincardine referenced first George Pritchard. I am grateful that my hon. Friend the Member for Northampton South was able to chip in and report back that George Pritchard, a veteran of the Photographic Reconnaissance Unit, is now 97 years old and in good order, living in Northamptonshire. I note that he is one of four veterans alive today who flew Mosquitoes in the PRU.

My hon. Friend the Member for West Aberdeenshire and Kincardine also referred to the remarkable and moving story of Sandy Gunn, who, while reconnoitring the area for the German battleship the Tirpitz, was shot down in 1942. His story of being shot down, rescued by Norwegians and then imprisoned in Stalag Luft III, thereafter to escape and be brutally murdered by the Gestapo, encapsulates and reminds us of the remarkable scale of bravery of the members of the PRU. It is also a fitting time, as we move this week into remembrance. So I am grateful to my hon. Friend for raising the remarkable story of Sandy Gunn.

My hon. Friend knows—he referred to the fact—that the Ministry of Defence cannot finance or commission new memorials. However, in answer to his question, it is, of course, a wholehearted yes. I would be delighted to meet him and others as soon as is practical—very soon, I hope—to discuss that further. I note the remarkable tenacity and energy behind the campaign, and I think I am safe to judge that it will undoubtedly meet with a positive response, especially among the wider public.

As we move into the formal week of remembrance, today is a good opportunity to dwell on the remarkable story, broadly, of the PRU. From humble beginnings as a single semi-civilian flight in 1939, it grew to encompass 10 squadrons, and as the second world war progressed, elements of the Photographic Reconnaissance Unit were based in the UK and overseas and became a remarkably valuable strategic asset. Throughout the war the intelligence that they gathered was crucial; it spanned the continent, stretching from the tip of Norway to the south of Italy. As with modern-day aerial reconnaissance, the main role of the PRU was to identify enemy formations and facilities, and to conduct battle damage assessment. The PRU’s ability to assess critical sites, before and after artillery or aerial strikes, allowed commanders to adapt their strategies accordingly. It was unique and innovative; it was also a force multiplier.

Beyond providing a unique picture of what was happening on land across Europe, the intelligence that the PRU gathered was also crucial to maintaining the safety of Britain’s convoys at sea. They had a key role in locating German capital ships; we have mentioned the Tirpitz—sunk in 1944—but they also had a key role in locating the Bismarck, which was sunk in 1941. These were prize targets, the destruction of which had a huge and strategic impact on the ability of the German military machine to dominate the high seas; it was a singular advance in the ability of our forces to fight back.

Perhaps even more significantly, but not immediately obvious, was the PRU’s hugely important contribution to the combined Anglo-American strategic bombing campaign. Among many other achievements, they identified the many German oil refineries and synthetic fuel facilities right across Europe; the destruction of those effectively grounded the Luftwaffe and rendered German Panzer divisions immobile during the latter stages of the war—having a hugely important strategic impact on its course. The PRU’s reputation for identifying vital targets was built on successes such as the location of the German research facility in the Baltic. That allowed the Bomber Command attack that significantly delayed the development of the V1 flying rocket and the development and dispatch of the deadly V2 rocket. Similar to the strategic bombing campaigns, that saved countless lives.

While a huge amount of technological advancement has taken place since the second world war, what is key to the legacy of the PRU is the human capability at the heart of all of this. Since the second world war, intelligence gathering from the air has remained a critical asset of the Royal Air Force, and our armed forces as a whole. In 2002, the intelligence elements from a number of RAF Squadrons were combined to form the Tactical Imagery-Intelligence Wing; you could say that where the PRU had pioneered that capability, the TIW formalised it. In 2016, the Wing became the 1st Intelligence Surveillance and Reconnaissance Wing—the 1st ISR Wing. Its role today demonstrates the ever-increasing close collaboration we have with our allies; the output of this Wing is used right across a number of platforms for both the UK and our NATO allies.

As the 1st ISR Wing has continued to grow, we are reminded that it is a vital element of the Royal Air Force’s ISTAR capability; Members will know that means intelligence, surveillance, target acquisition and reconnaissance. My hon. Friend the Member for West Aberdeenshire and Kincardine will know about the build-up of our P-8A maritime patrol aircraft capability at the Royal Air Force station in Lossiemouth. That demonstrates our ongoing commitment militarily to Scotland, as well as our plans to boost our ISTAR capability, particularly with the introduction of the E-7 Wedgetail to that station. If my intelligence is correct, I think he may be visiting that station later this month. The P-8A is strategically hugely important; it is a powerful tool in our anti-submarine operations and a valuable enhancement to the UK’s search and rescue capability. The E-7 Wedgetail is a significant advance on its predecessor, the E-3D Sentry, and is capable of simultaneously tracking multiple airborne and maritime targets, heightening the already considerable abilities of our combat air platform and warships.

As we track the amazing technological advances that have taken place since the second world war, there is no doubt that a pivotal and pioneering role was played by the PRU. While technology has evolved, it is pertinent that many of the analysis methods refined during the war are still used today. Hugh Hamshaw Thomas, a leading paleobotanist at the time, employed his talents to examine the black-and-white photographs that the pilots sent back. I thought that was most interesting. Those methods are still used extensively on modern black-and-white electro-optical images, which remain widely used. We have come a very long way in technological terms. The Royal Air Force not only has colour imagery and moving imagery on the Typhoon and Reaper platforms, but those skills developed during the second world war are still entirely pertinent.

We have reflected on the remarkable human skill and courage of the PRU pilots. It was fitting that a number of colleagues mentioned the fact that these individuals were entirely unarmed when they were flying into enemy lines. They used a remarkable combination of speed and altitude, and they depended on their guile, agility and raw wits to stay alive. That was extremely high-risk, and they were extremely courageous. Today, despite technology having advanced, that same human spirit is alive in the Royal Air Force in 1 ISR Wing. They are highly trained, dedicated people, who are trained to analyse imagery in real time. We need look no further for the modern inheritors of the tradition of courage from the early days of the PRU than the young men and women in the Royal Air Force of today in 1 ISR Wing.

I thank all Members for having contributed so positively and interestingly. I reindorse my response to my hon. Friend the Member for West Aberdeenshire and Kincardine, and I look forward to meeting him very soon. I am also grateful to him for calling the debate at a very fitting time. As we move this week into the formal element of remembrance, we remember the remarkable sacrifice of those who have gone before us. The debate has been a very fitting tribute to the sacrifice that we have discussed today in the form of the activities of the PRU.

10:12

[Andrew Bowie]

I thank my hon. Friend the Minister for his response to the debate and for his acknowledgment of the campaign. I also thank him for agreeing to meet me and other members of the campaign as we seek to get a memorial established.

As I said in my speech, it is an opportune time to be holding this debate about a national memorial, because the few are getting fewer. We are very lucky to be the last generation to have known and been lucky enough to speak and listen to the men and women who fought in that great conflict of 1939 to 1945 to free our continent from the tyranny of the Nazis and fascism. It falls to us to carry the stories of their bravery and heroism. That greatest generation enabled us to continue to speak and debate freely, as we do every day in this place, in this country and to a large extent across the continent of Europe.

The campaign to get a permanent memorial to the Photographic Reconnaissance Unit—a unit that is so little understood and known about, but which deserves so much more recognition—is, I believe, one way that we can carry that torch forward and take these stories on to a new generation. We must never forget those that fell for our freedoms. We must never allow the stories of the great deeds done for our own sake by that greatest generation to fall into distant memory. I thank every one of my colleagues for their contribution. It is very much a cross-party campaign, and I thank everyone for coming along and contributing. I thank the campaign for bringing the cause to my attention and the nation’s attention, which they have done by getting the debate today. Thank you, Mr Davies, for chairing the debate.

Question put and agreed to.

Resolved,

That this House has considered a national memorial to the Photographic Reconnaissance Unit.

10:14

Sitting suspended.

East to West Chesterfield Cycle Route

Tuesday 9th November 2021 Westminster Hall

11:00

[Philip Davies (in the Chair)]

Before we begin, I remind Members that they are expected to wear face coverings when not speaking in the debate, in line with guidance from the House of Commons Commission. I also remind Members that they are asked by the House to take a covid lateral flow test twice a week if coming on to the parliamentary estate, and this can be done either at the testing centre in the House or at home. Please give one another and members of staff space when seated and when entering or leaving the room.

I will call Toby Perkins to move the motion and the Minister to respond. As I am sure they both know, there will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.

[Mr Toby Perkins (Chesterfield) (Lab)]

I beg to move,

That this House has considered East to West Chesterfield cycle route.

It is a great pleasure to serve under your chairmanship, Mr Davies.

I welcome the Government scheme that will help towns such as Chesterfield to develop new cycling infrastructure. I am very much in favour of creating a strong cycling and walking network in Chesterfield and encouraging cycling across the country. I would not want anyone to characterise my contribution to this debate as being anti-cycling or as being a dispute between cyclists and motorists.

It may surprise you, Mr Davies, that I am an occasional cyclist myself, and many of my constituents will have seen me whizzing past them down the hills, or agonisingly plodding up them. In Chesterfield we have better cycling infrastructure than most towns of our size, but I support Derbyshire County Council’s restlessness to improve that infrastructure. I am very aware of the limitations of our current network.

Many positive benefits come from further investment in cycling and walking, which can transform our communities. Cycling and walking are great for physical health, for mental health and for our communities. Being able to get out and about means that people can actively participate and engage with their community, which helps to address social isolation and loneliness. Having more people cycling and walking will also do wonders for our local shops and town centres. People who are on foot or bike are less likely to travel as far and are more likely to shop local.

At a time when the high street is under pressure and local shops are closing, we should be cognisant of the powerful rejuvenating effect that both cycling and walking can have on the backbone of our economy. In the week following the start of COP26, when the whole world comes together to discuss how we can combat climate change, we need to acknowledge the environmental benefits of cycling.

This does not mean that we should blindly support each and every project, or that new cycling infrastructure does not need a proper consultation process, which is what people are concerned about when it comes to the east to west Chesterfield cycle route. The controversy surrounds two aspects of the plan. To the east, without any consultation, the council closed Crow Lane, an extremely steep hill that links the Riverside estate with Brimington Common, in May 2020. Initially for an 18-month period, the council now plans to make the closure permanent. This proposal was part of Chesterfield Royal Hospital’s plan to encourage people to cycle to work. One of the critics’ key objections to the plan is that closing Crow Lane adds to the traffic on the A632, which is exceptionally busy and is the only route to Chesterfield Royal Hospital. Just a couple of weeks ago, I was driving up the A632 on a Friday and had to pull over, with traffic stood still in both directions, as an ambulance attempted to wind its way down this busy road in an emergency. That is a common situation.

To the west, the proposal is to narrow the extremely busy A619, which links Chesterfield with Bakewell. It is the main road to Manchester and, particularly in the summer, is thronged with visitors to nearby Chatsworth House. We always encourage people to visit our beautiful town and to avail themselves of the Peak district and wonderful Chatsworth. We want visitors to linger in our town centre, not in a traffic jam on the A619. It is important that we do not have proposals that only add traffic to an already fairly congested road.

I have been contacted by countless residents, those who have been most affected by the proposed route, who did not receive any consultation letter or information leaflet from Derbyshire County Council inviting them to give their views. Residents living on the roads off Chatsworth Road, where the biggest impact of the route will be, and many of the people in the Brimington Common area, who are affected by the ongoing closure of Crow Lane, have reported to me that they have had no contact from the council.

I wrote to residents last week, when I secured this debate, to ask whether they had been consulted. Within 24 hours of receiving that letter, 70 residents had already come back to me. Those opposing the scheme outweighed those who supported it by a ratio of about two and a half to one. It is by no means a universal opinion—there are many people who support the route—but in all the consultations I have done, there is a majority against.

In June 2020, along with Stuart Brittain, the then councillor for Brimington, I sent a survey to residents of Crow Lane. We received 283 responses, 63% opposing any closure and 27% supporting it. In response to the letter that I sent last week, both constituents who supported the route and those who opposed it told me that they had never received a consultation letter. Those concerns cannot be dismissed as just disgruntled people unhappy with the suggested route. Even those who support the route say they have never been consulted on it.

The lack of contact from the county council has resulted in my constituents feeling that the proposals are being forced through, while excluding the views of the people who will have to live with their impact. The county council claims that 4,000 letters were sent out and that a small number of people responded, with a majority in support. It is implausible that 700 people should sign a petition against it; that 283 people in Brimington Common alone should respond to my survey, the details of which I sent to the county council; that 70 people should respond with 24 hours of receiving my letter this week; yet only small numbers responded to a consultation that the county council claims to have conducted.

I am sure the Minister agrees that a consultation that fails to hear the views of the people most affected should not be considered legitimate. It feels to me and many of my constituents as if the council made the decision on the route that it wanted and gerrymandered the consultation to match the decision it had already made. That means that alternative routes and legitimate concerns about the current proposals have been wilfully ignored.

Before I go into more detail about the merits of the individual decision, it is relevant to discuss the politics, in the hope that it might make the Minister think twice about it. The east-west cycle route was an issue in the Derbyshire County Council elections in 2021. It pains me to inform you, Mr Davies, that the 2021 Derbyshire County Council elections were a considerable success for the Conservative party, which ended the election with eight more councillors than it started with.

The main variation to that Tory success was in Chesterfield, specifically in the divisions attached to the cycle route. We went into the elections with the two wards most affected having one Labour county councillor representing them and one Conservative county councillor. The Labour councillor in Brimington was elected but the Conservative councillor was not, I think uniquely among Conservative councillors. Both publicly and privately, he has blamed this ill-conceived cycle route for his defeat, and I share his view on that.

I also share the view of local councillors such as Councillor Dean Collins in Brimington that Derbyshire County Council had been provided with better options than using Crow Lane to the east or Chatsworth Road to the west. On that western route, a cross-country path from Somersall to Holymoorside has been in the pipeline for many years and still makes the most sense, in reducing the impact on residents and providing a much more pleasant rural and safer cycling route. The only obstacle to that route was landowners who required clarity about liability for prosecution and upkeep of the route. The county council seems to have used those legitimate concerns as a rather flimsy excuse to scrap the more rural and sympathetic route and instead pursue the idea of narrowing the A619.

Alternative routes have been suggested to the east, which would mean that Crow Lane could be reopened. The route could use the far less developed Dark Lane, instead of Crow Lane, which would help to cut commuting times for my constituents in Brimington and reduce traffic on other heavily congested roads.

The proposed scheme could have an adverse effect on emissions in Chesterfield. The closure of Crow Lane has forced cars on to busier roads such as the A632 which, as I mentioned, serves the Royal Hospital, as well as affecting people wishing to travel to Bolsover and other districts to the east. The road is already blighted by slow-moving traffic. The narrowing of Chatsworth Road is likely to cause traffic to become heavily congested, with the potential for large heavy goods vehicles having difficulty passing one another on that road. I fear that the gains made from encouraging more people on to their bikes could be undermined by the added traffic jams, which would mean that cars remain on Chesterfield roads for far longer than before.

Chatsworth Road is one of the busiest roads in Chesterfield. It is the primary route between the M1 and Manchester for those travelling between the south and the north-west of England. It has a significant amount of HGV and commercial traffic, and is vital for Chesterfield businesses. On Chatsworth Road, as is standard with many urban A and B roads, hatched-line medians are in place to improve safety. These enable vehicles to move towards the median, away from emerging traffic, to overtake parked vehicles more easily and maintain a better distance from the pavement, and they aid safe right-hand turns. The proposals put forward by Derbyshire County Council will see the median removed and the available road narrowed. With such large vehicles using Chatsworth Road, I am concerned that these measures will make it considerably more dangerous.

The plans also reduce the number of pedestrian crossings and they do not extend across the proposed cycle path, creating an additional risk to pedestrians. I share the concerns of many constituents regarding the danger and the traffic congestion that will be created at the junctions along Chatsworth Road. These problems would be avoided with the proposed route through Holymoorside to Somersall Park. I am anxious about supporting any scheme that has the potential to increase the risk to pedestrians, cyclists and all other road users. The county council needs to listen to constituents and provide answers to their concerns. We need a plan that is right for Chesterfield, not just one that meets the funding criteria decided in Whitehall.

The residents who have contacted me are generally people who are very much in favour of improving our cycling infrastructure, but they have genuine concerns about the safety of the proposed route along Chatsworth Road, the ongoing unfair disruption caused by the Crow Lane closure, and they worry that the plans will lead to more congested roads.

The closure of Crow Lane, which the council wishes to make permanent, has been handled in a completely unacceptable fashion, which has led to widespread anger among constituents in the Brimington Common area and in Calow in the Bolsover constituency. Those constituents now have longer commutes to work, spend more time sitting in traffic and have added difficulties on the school run. The closure of the road was initially proposed during the first lockdown; we were informed that it would be for three weeks. It was a measure that I supported to help staff in the heat of the pandemic to be able to cycle to work and avoid public transport when travelling to work. I have to say that cycling up Crow Lane to the back entrance of Chesterfield Royal Hospital is not for the faint-hearted—it is a very steep hill. When surveys have been done, there are very small numbers of Royal Hospital staff cycling to work. Without any consultation or communication with residents, Crow Lane’s three-week closure turned into an 18-month closure and it now appears it is going to be made permanent.

The voices of residents and the representations from local councillors and me have been completely ignored, and the closure has remained in place without any real discussion. We have seen the same disregard for local representatives in the county council’s consultation. The county council emailed me to ask about my availability for a meeting to discuss the cycle path proposals. My office provided details about my availability, but instead the county council picked a date when I was out of the country. We contacted the county council again to make it clear that an alternative date would be needed. The local ward councillors—including the leader of Chesterfield Borough Council, Councillor Tricia Gilby, who is a huge supporter of cycling—and the local county councillors also made it clear that an alternative date was needed. There was plenty of time for an alternative date to be found, but the county council went ahead with the meeting, entirely disregarding local representatives. That feels like a deliberate attempt to silence the voice of local people.

I therefore call on Derbyshire County Council to pause their plans and re-engage with residents in the affected areas, so that their views are heard and fully considered. I have also raised a complaint with the local government ombudsman regarding the consultation and the decision-making process. I would appreciate the Minister’s views on this situation and his saying whether or not he is satisfied that a scheme funded by his Department is going ahead without the views of local residents being heard, apparently with a deliberate attempt to diminish the voices of those who oppose it. Does the Department for Transport have any guidelines for local authorities on the minimum standards required for the consultation process, in order that they can access funding from the Department’s scheme, and will the Minister investigate to see whether Derbyshire County Council’s consultation adheres to those minimum standards?

Three years ago, I pressed the Department for Transport to provide ring-fenced funding for local authorities for cycling and walking infrastructure, so of course I welcome any such funding that we can secure in Chesterfield. However, I am absolutely determined that such funding should not be set up so that projects are designed to fit centrally developed criteria, rather than being based on what cycling infrastructure is best for an individual town and its people.

It has been suggested that the funding that the Government have brought forward in this respect would not be available for a rural scheme and is only available for urban schemes. If that is the case, I would be interested to hear from the Minister why that is so.

Would either the Minister or his colleague—the Minister of State, Department for Transport, the hon. Member for Daventry (Chris Heaton-Harris), who is responsible for cycling infrastructure and who, I understand, was unable to attend this debate; he very kindly contacted me to say that he already had a commitment to be in Saudi Arabia—be willing to meet me to discuss the funding scheme, the current proposals and whether other routes would qualify for funding, as well as the question that I have asked about the consultation process?

In conclusion, I do not want this debate to become one that pits cyclists against motorists, because the majority of my constituents who have contacted me support cycling infrastructure; they just have concerns about this particular route. Unfortunately, however, Derbyshire County Council’s approach has polarised opinion and left many of my constituents feeling ignored and disenfranchised.

With every major planning decision, there will always be people who remain opposed to it and remain angry, but if a proper consultation process has been followed, with every view given equal weighting, then at least people know that the process has been fair. I do not believe that Derbyshire County Council’s process has involved a fair consultation. That is a failure of process and of democracy, so I urge the Minister to do whatever he can to ensure that Derbyshire County Council pauses its plans and undertakes a proper consultation with my constituents. After that consultation, if DCC still presses ahead with its proposals, that will be fair enough, but at least the people of Chesterfield, particularly those most affected by these proposals, will have had their views fully heard and considered.

11:14

[The Minister of State, Department for Transport (Andrew Stephenson)]

It is a pleasure to serve under your chairmanship, Mr Davies, and I start by thanking the hon. Member for Chesterfield (Mr Perkins) for raising this important issue.

May I also say how happy I am personally to respond to a debate on cycling, because my constituency of Pendle is home to Hope Technology in Barnoldswick, which created the bikes used by Team GB at the Tokyo Olympics? My constituency is very proud of its record on cycling, and I echo much of what the hon. Gentleman said about the importance of supporting cycling.

Before I turn to the hon. Gentleman’s specific concerns about the east-west cycle route in his beautiful constituency, let me say a few words about Government support for cycling and walking, or active travel, which I am pleased he supported in his speech.

We really are at a now or never moment when it comes to reducing emissions and stemming the rise in global temperatures. As transport is our biggest source of greenhouse gas emissions, we need more people to change their travel habits, choosing cleaner, more sustainable and healthier ways to get around.

We must also recognise that the profile of walking and cycling has never been higher. The pandemic has fundamentally changed our relationship with travel. We went from a car-dependent economy, where a quarter of all journeys by car were under 2 miles to one where active travel has ended up flourishing. Cycle rates went up by 46% in 2020 compared with 2019, and a million more people started walking for leisure. Travel restrictions obviously played a part in that, but there was clearly pent-up demand for active travel, which existed before the pandemic brought about the conditions for a release valve. That is why I am confident that we can achieve the Government’s ambition of ensuring that half of all journeys by 2030 are cycled or walked.

We are building on the momentum we have seen over the past 20 months by investing an unprecedented £2 billion over the next five years, delivering new walking and cycling routes, wider pavements and safer junctions across the country. We have already issued 400,000 bike repair vouchers, delivered £18 million of Bikeability training for children and parents and helped extend the Walk to School outreach programme to 1,000 primary schools. Step by step, we are giving people the confidence to see active travel as a practical means of transport, rather than just a form of leisure or sport.

To maintain progress, we need the help of local authorities. We need bold and ambitious proposals that deliver real change for active travellers. That means properly segregated cycle lanes, street architecture that encourages people to walk, and measures that treat cyclists as vehicles, not pedestrians. Last month we doubled down on our commitment to active travel. The spending review set out a significant uplift in funding through the £5.7 billion city region sustainable transport settlements, which gives transport authorities the flexibility to plan and deliver long-term improvements to cycling and walking.

We are making it easier for local authorities to make these changes. Our recent changes to the highway code will help with this, as will our support for school streets to enable more children to walk to school. We are also updating our design guidance for streets to ensure local authorities make decisions that prioritise people and places over motorists. This design guidance, which will help create more sustainable, healthy and active communities, should be published next year.

I realise that in recent months there have been a lot of negative comments about measures to support active travel, but opinion surveys regularly show that the majority of people support these improvements to their local communities. Two thirds of respondents to a Government-commissioned survey were supportive of reallocating road space to walking or cycling across towns and cities in England. Making our streets more attractive to pedestrians and cyclists is without doubt the right thing to do, because it is not just active travel that benefits; we all do. More people cycling and walking means fewer cars on the road, less congestion and an economy that is not held up by gridlock. It means cleaner air and less pollution, creating healthier communities and better spaces to live and work.

I will now turn to the specific scheme in Chesterfield, about which the hon. Member spoke so eloquently. One thing that can be said for sure about any meaningful cycle lane is that it will have its supporters and its detractors. Reallocating road space in favour of people cycling inevitably means less road space for other modes of transport, so getting the design right is critical. There is always a balance to be struck. It is not for central Government to design cycle lanes in Chesterfield—or anywhere else for that matter. Local authorities are the ones who must decide where the balance of the interest lies, taking into account the statutory network management duty guidance, which we have made available.

The guidance makes clear that in many cases a traditional consultation exercise may not fully capture local views. The results of traditional consultations can sometimes be deceptive, because respondents tend to be those who are most passionate, either for or against the scheme in question. That is why genuine and thorough engagement with local people is so important, including through the use of objective methods, such as professional polling, to provide a genuine picture of local opinion, rather than listening only to the loudest voices.

The Department has always said that local authorities should seek the views of a representative sample of the local population as a whole on their proposals. Our own public opinion surveys suggest that there is often a silent majority who are either in favour of or neutral about new cycle lanes or low traffic neighbourhoods. That is not the impression that we get from media coverage or from traditional consultations that tend to polarise the debate. Of course, local authorities must listen to the opponents of schemes as well as those in favour, and must make sure that any changes make sense. No meaningful active travel scheme is ever universally popular. Local authorities should not expect or require universal support for their schemes, and should avoid allowing any group to exercise a veto on them.

Given all the benefits of active travel, it has one of the best returns on investment for the Government. The economy, the environment and public health all receive an active travel dividend. Cycling and walking must be a core part of that future. Schemes must be properly designed to the appropriate design standards, and local authorities must listen to the views of local people. Getting more people walking and cycling is the right thing to do, and the pandemic, for all its disruption and devastation, has given us a golden opportunity to make a lasting change. Let us not waste that chance.

I thank the hon. Gentleman for what he has said today. I am more than happy to meet him, and I know that the Minister with responsibility for cycling, my hon. Friend the Member for Daventry (Chris Heaton-Harris), will be happy to meet him. I am also sure that the hon. Gentleman’s council has heard his remarks loud and clear. I thank him once again for calling this debate.

Question put and agreed to.

11:25

Sitting suspended.

SMEs: Access to Finance

Tuesday 9th November 2021 Westminster Hall

[Mark Pritchard in the Chair]

11:19

[Mark Pritchard (in the Chair)]

I remind hon. Members that they are expected to wear face coverings when not speaking in the debate. This is in line with current Government guidance and that of the House of Commons Commission. I also remind hon. Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. That can be done either at the testing centre in the House or at home. Please also give each other and members of staff space when seated and when entering and leaving the room, and make sure that mobile devices are turned off.

[Peter Gibson (Darlington) (Con)]

I beg to move,

That this House has considered access to finance for small and medium sized enterprises.

It is a pleasure to serve under your chairmanship, Mr Pritchard. I am grateful that this timely debate was granted. Following the UK’s departure from the European Union and our ongoing economic recovery following covid-19, the UK has a unique opportunity to shape a diverse financial services sector that serves a fair, robust and competitive economy with small and medium-sized enterprises at its heart. Research by the Industrial Strategy Council, economists at Sheffield University and the International Monetary Fund concluded that the UK is the most regionally imbalanced country in Europe when it comes to the productivity of its economies.

It is worrying that the job opportunities and livelihoods of most UK citizens depend on where they live. We know that skills and talents are spread throughout the country but opportunity is not, and so it is with SME finance. The Prime Minister has rightly made levelling up his key mission, examples of which I am already beginning to see in my constituency, with the establishment of the Darlington Economic Campus providing life-changing new opportunities for the Tees valley. I and my Conservative colleagues look forward to the levelling up White Paper and the opportunity that it will provide to right some of the imbalance in our country that has perpetuated under Governments of all colours for decades.

How does regional inequality relate to small businesses up and down the country? As Mark Carney said when Governor of the Bank of England in his speech at the Lord Mayor’s banquet for bankers and merchants in 2019, SMEs across the country face a £22 billion funding gap. A recent inquiry by the all-party parliamentary group on fair business banking, chaired by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), my good friend, found that SMEs report significant problems in accessing finance.

[Margaret Ferrier (Rutherglen and Hamilton West) (Ind)]

I congratulate the hon. Gentleman on securing the debate. I recently met representatives of the British Business Bank, who ran through their full range of offerings, including optional learning modules for entrepreneurs, which are an excellent way to mitigate lending risk and provide entrepreneurs with the knowledge they need to be successful. Does he agree that that is an excellent initiative and should continue to be funded and expanded?

[Peter Gibson]

There is a lot to be learned in this area. My hon. Friend the Member for Thirsk and Malton and his APPG have been championing much of that learning, and I am sure the Minister has his listening ears on today.

The Department for Business, Energy and Industrial Strategy’s 2019 paper, “Equity Finance and the UK Regions”, confirmed that finance is too concentrated in London and the south-east, further increasing regional disparities, with London and the south-east of England receiving 67% of all equity deals and 75% of all invested funds in the UK between 2011 and 2017. The UK’s current financial system, which has historically been dominated by four large, shareholder-driven banks, is not fit for purpose in helping to address this issue. While a Back Bencher, my neighbouring MP, the Chancellor, my right hon. Friend the Member for Richmond (Yorks) (Rishi Sunak), said in his report, “A New Era for Retail Bonds”, that

“limp competition is likely to result in less availability of credit, higher prices and poor service for SMEs.”

SMEs tend to take smaller loans, and by nature tend to be riskier borrowers. The profit-maximising big four banks will steer away from lending to this demographic, especially when they are able to lend to larger, more profitable and secure companies.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

My hon. Friend makes a good point about smaller loans. Last year, the Government—BEIS and the Treasury—did a fantastic job in rolling out SME finance schemes during the crisis. When those schemes were launched, the banks were initially only interested in lending amounts above £25,000—sometimes above £50,000. We were told there was no demand for smaller loans. Bounce back loans then came along and have been a huge success—£50 billion of lending. It is important we get money right to the bottom—to the smallest SMEs that are so critical.

[Peter Gibson]

I know how much work my hon. Friend put in last year to ensure that bounce back loans were available to small businesses, and I pay tribute to him for that effort.

Moreover, big banks tend to require large amounts of financial data from businesses when assessing their eligibility for loans. For a new or small company, this data simply does not always exist, but should that prevent them from being eligible for finance? SMEs need to be assessed on their business model and their economic potential in local areas and their wider potential contribution to society, not just on existing balance sheets—qualitative rather than quantitative. Yet this process is too time consuming for banks, preventing SMEs from crossing the first hurdle.

Due to the concentration of finance within large, shareholder-driven banks, SMEs are often not even aware of alternative lending providers and think that rejection from a big bank is a life sentence with a lack of finance. The current bank referral scheme, originally designed to help businesses access finance once rejected by a bank, fails to provide adequate information on a diverse range of borrowing options and fails to help SMEs understand why they got rejected, what financial products are best suited to them, and how they can optimise their application to get the best chance of success.

This environment discourages SMEs from continuing their search for finance, despite competitive, socially responsible and trustworthy alternative lenders being out there and wanting to lend to SMEs. In fact, as found by the Federation of Small Businesses in 2018, 73% of SMEs in the UK would rather grow more slowly than borrow. The Centre for Policy Studies also found that the UK is ranked 13th among the 14 OECD countries in the proportion of start-up businesses that grow to 10 people or more in three years.

I recall the huge leap of faith and risk I had to undertake when I began to grow my business. Moving from five to six employees was a big hurdle to overcome, as were the leaps to 15 and to 20 employees. The smaller you are, the bigger the hurdles. Moving from one employee to two is a doubling of the payroll, which will inevitably put a strain on small and fledgling businesses’ cash flow. Because that is so difficult, many businesses do not grow to their full potential.

The critical lack of diversity in the business lending market is detrimental to the resilience of the UK economy. As we continue to debate how the future regulation of the financial services sector should look, we must consider parts of the world where they are already doing well. Take one often-cited example from the critical post-recession period of 2008 to 2013: total bank lending to non-financial business in the UK dropped by about 25%. However, during the same period in Germany, where regional mutual banks and co-operatives are commonplace, lending increased by around 20%.

This critical lack of funding for SMEs is also detrimental to growth of the UK economy. The Department for Business, Energy and Industrial Strategy and the Office for National Statistics estimate that SMEs represent 99% of businesses. Their abundance means they have the potential to increase UK productivity. They are areas that the UK has struggled with for many years. More specifically, many SMEs contribute greatly to their local communities through increasing local employment, contributing to local economic growth and improving livelihoods. As the recent report of the APPG on social integration, which I chair, recently reported, SMEs were at the forefront of community volunteering during the pandemic.

I know the Minister is a good man. Although the Westminster Hall debate he is responding to today does not have the fireworks of yesterday’s, I can assure him that the solutions are within our grasp. It does not need years of planning and strategising; the solutions are out there. They just need support and political will.

First, we must deliver a strong local finance option for businesses in the UK. We cannot continue to deprive hungry and ambitious businesses of access to finance and scaling up, simply because they do not have access to the right financial product. We need to provide capital to community development financial institutions and regional mutual banks, to allow them to increase their offering.

Community development financial institutions are private finance institutions that are dedicated to providing responsible, affordable lending to disadvantaged communities and individuals. They do not prioritise profit, but prioritise allowing local-income areas to flourish. By providing finance as well as financial support and knowledge, CDFIs look at the wider benefits that each SME can provide to its local area, financing businesses that can make the biggest impact, even if they have been rejected by the big four.

Regional mutual banks have a more regional structure, prioritising relationship banking and making use of soft information to assess SME customers for credit.

[Kevin Hollinrake]

My hon. Friend makes a good point on regional mutual banks, and I congratulate him on bringing forward this important debate. It is also a pleasure to serve under your chairmanship. Mr Pritchard. Might my hon. Friend consider, in conjunction with his fellow MPs in the Tees Valley and the excellent Tees Valley Mayor, Ben Houchen, taking forward an initiative to set up a Tees Valley regional mutual bank?

[Peter Gibson]

That is an excellent idea, which I am sure my hon. Friend would be keen to help us spearhead. I am sure that Mr Houchen and the Tees Valley Combined Authority would relish the opportunity to bring more investment to the Tees Valley.

These finance providers tend not to have capital stock but are owned by their members, who have a say over the governance of the fund. Both regional mutual banks and CDFIs bring a refreshing approach to finance, prioritising local growth over profits—an approach that is much needed in today’s market. I know, too, from my own experience in business over 15 years before entering this place, that those relationships, with a dedicated relationship manager, are crucial.

Put simply, we need local solutions to local problems. Tees Valley Mayor Ben Houchen is leading the way in the north-east, having recently launched a new back to business fund worth £250,000, granting small and medium-sized businesses in the hospitality, tourism and events industry the help they need in their journey to recover from the pandemic. That is local leadership with local solutions.

Secondly, we need to turbocharge the challenger bank and non-bank lending sector. Such companies have provided a welcome challenge to the big four banks in recent years, yet they are currently hamstrung by disproportionate regulation. Reforming the minimum requirement for own funds and eligible liabilities—MREL rules—and providing access to the term funding scheme for non-bank lenders, will create a more level playing field for challenger banks in competing against the big four.

Thirdly, we need to continue Government initiatives to unlock patient capital from pension funds, by using social usefulness criteria, an idea currently used in France. We can unlock that money for investment in long-term, socially important companies.

Fourthly—last but certainly not least—we must ease the finance application process to encourage borrowing for growth. We need to ensure that business support services, such as local enterprise partnerships, the bank referral scheme and the British Business Bank—I am grateful to the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for mentioning it—are properly funded.

Small businesses are the backbone of this country— 99% of businesses in the UK are classed as small. They play an essential role in strengthening our local economies, creating job opportunities and introducing innovation to their local communities. They are the businesses that support our local charities and volunteer groups. They are the people who sponsor the local football, cricket or rugby club, and they are the lifeblood of our towns across the land.

As we bounce back and build back better, we must take advantage of this opportune moment to reshape the financial services sector in a way that puts those hard-working businesses at its heart. Improving access to finance will provide SMEs with ample opportunity to scale up businesses and communities and improve employment chances across the country. In short, we need a financial services sector fit for everywhere, from Devon to Darlington—fit for the whole United Kingdom, not just the City of London.

14:45

[Kevin Hollinrake (Thirsk and Malton) (Con)]

It is a pleasure to speak under your chairmanship, Mr Pritchard. I again congratulate my hon. Friend the Member for Darlington (Peter Gibson) on bringing forward this important debate. It is very important, particularly in these times, to refer the House to my entry in the Register of Members’ Financial Interests. Although I am no longer directly involved in my business, I led and built a business for the best part of 30 years. Access to finance is the critical factor in wanting to grow and scale a business.

As my hon. Friend set out, SMEs are so important in the UK in terms of the dynamism of our economy. Some 60% of the private sector workforce and 50% of our private sector turnover comes from SMEs. We are facing some huge challenges that are relevant to our economy, not least the demographics of costs in the future. We recently had a debate in Parliament about how we pay for the covid crisis and pay for social care, but we have some even bigger challenges in terms of balancing the books. The Office for Budget Responsibility has said that because of healthcare costs, social care costs and pension costs, our debt to GDP ratio, which is currently about 100% or £2.2 trillion, will be 400% by 2060 if we do not change our tax system or change the dynamics of our economy to pay for such costs over the next few decades.

The only way of paying for that is to make the economy more productive and more dynamic. I know, from my experience in running a business, that one thing that made our business more productive and more dynamic was competition. New competitors appearing on the horizon made us more efficient and more productive. We need a much more dynamic business environment. That is why my hon. Friend’s comments are so relevant, particularly on the statistic he cited from the APPG’s report, “Scale up to level up”, which I know the Minister has seen. Some of its conclusions are so important, but so are some of the facts behind it.

As my hon. Friend said, 73% of SMEs would rather grow more slowly than borrow. That means that we have a real problem, because we need those businesses to scale up. Not every business wants to do that, of course. Some businesses are happy to stay at a lifestyle kind of level. But part of the problem we have, as was very well articulated by the Chancellor when he was a Back Bencher, is that we are No. 1 in the OECD report in terms of start-ups, but No. 13 or No. 14 in terms of scale-ups—the number of small businesses that employ 10 people or more after three years. That is a real problem.

It is our belief, which is certainly borne out by anecdotal conversations with businesses, that because of the fall-out of some banking scandals—which came as result, principally, of banks trying to restore their balance sheets after the difficult recessionary problems of the global financial crisis—withdrawal of finance to business in the five-year period post 2008 has, as my hon. Friend the Member for Darlington set out, damaged confidence between business and banks. We need businesspeople to feel that they can scale up and grow, which means taking finance, taking risks, and, in most cases, putting their house on the line. I think my hon. Friend and I have both put our houses on the line in the form of personal guarantees and others. These are big risks that businesses have to take. If we expect them to do that without the confidence that banks will see them through a crisis, then many fewer businesses are going to take that risk.

This is where Germany has won and got it right: regional mutual banks. In fact, it is not just Germany. Every G7 country has a significant regional mutual banks sector as part of their lending mix, and the UK is an outlier in that sense, having just commercial banks. That is important because, particularly post the financial crisis, we saw banks prioritising their own finances, shareholders and balance sheets over the SMEs, which led to tens of thousands of businesses going to the wall.

That withdrawal of finance between 2008 and 2013 saw a 25% reduction of lending to SMEs from our commercial banks in the UK. At the same time, the Sparkassen and Landesbanken in Germany, the community and co-operative banks, increased lending by 20%. That is an incredibly important statistic, because that is when the SMEs needed the finance. There is an old adage we quote in our report—I heard it from my father when I was a young boy—which is that the banks will give you an umbrella when the sun is shining and take it away when it is raining. That proved to be the case in the worst financial crisis—the five-year crisis—we have had in this country and that, again, damages confidence.

That is not to say that our commercial banks are not part of the solution. Clearly, they are, and I must say that they did a fantastic job in 2020 in terms of getting finance out of the door to our SMEs—about £80 billion in coronavirus business interruption loans and bounce back loans. However, I wonder—although I probably do not have to—how much of that money would have been lent had the Government not stepped in to give them guarantees. How much of that money would have been lent if the Government had not taken away the responsibility for a forward-looking viability test? A fraction, I suspect.

Shareholder-driven banks will tend to look after the shareholders in these crises, whereas mutual banks and community development finance institutions, which are effectively not-for-profit co-operatives, really look after businesses. Clearly, some businesses will go to the wall if they are not fit for purpose in the current or future climate; we do not want to see zombie businesses. Nevertheless, we want businesses that hit problems because of a short-term recession to be helped through that period and into the better times ahead.

From my experience in the property sector, we had a good business going into 2008, when we had 210 staff members. However, we were not treated as a good business with longevity by our bank when we went into that crisis, and we had to make huge cuts. We cut our staff from 210 to 65 in a very short period. That was short term—we eventually picked those jobs back up—but we could have been helped through that crisis much more effectively. If the banks had not had shareholders as their priority, and if they had had customers as a priority, then I think we would have seen something different.

[Margaret Ferrier]

Does the hon. Member agree that high street banks could benefit from investing more time in understanding the SMEs they lend to, really taking the time to understand the business model and the entrepreneur throughout the whole lending process?

[Kevin Hollinrake]

That is such an important point, and I appreciate the hon. Lady’s intervention. Again, going back to my days as a child going with my father to see the bank manager, Mr Ron Taylor of Barclays bank, my father had that one-to-one relationship with him. He knew a good business from a less good business; he knew which ones he would support in difficult times. That type of relationship between big banks and SMEs has largely gone now, and the lending decisions have moved away from those relationship managers.

That is a worry and a concern, and it is what CDFIs and regional mutual banks can bring back. In this report, there is clear evidence from the sector, academics and people in the German banking sector that big banks primarily lend to big businesses—not exclusively, but primarily—and that big banks did not want to lend to SMEs, did not want to lend below £50,000, even though they were effectively Government-backed loans, until the bounce back loan scheme was brought forward and businesses could get a loan on demand. That is because that relationship with SMEs has principally gone now.

That relationship is something we need to restore. The CDFIs and regional mutual banks are those smaller banks, and it was great to hear that my hon. Friend the Member for Darlington would consider a Tees Valley version of that. I am very keen to work with the Mayors and the council leaders across Yorkshire. They are in talks now, trying to set up a Yorkshire regional mutual bank. That would be a fantastic step forward. It would not require any money from the Treasury or the Department for Business, Energy and Industrial Strategy, from Government, other than a guarantee or loan, because the money comes back. The money is lent to businesses sensibly. It will then be returned to the Treasury, and with interest, on the basis that that will create tax receipts, which are good for the Exchequer. It would be a very sensible move to pump-prime a number of regional mutual banks, which would have that patient capital approach in the down cycles.

Of course, as my hon. Friend the Member for Darlington set out, what the Treasury and BEIS did in pumping out the money last year was tremendous, and my hon. Friend the Minister did a great job of engaging with businesses. One mistake we made, though, was that we made bounce back loans so cheap—which was a great thing to do to get that finance out to SMEs—that it was not possible to borrow from wholesale markets to lend at 2.5%. It meant that only the big banks had access to very cheap capital through the term funding scheme for SMEs. It meant that, whereas we had seen about 59% of SME finance in recent years coming from the challenger banks and non-bank lenders, suddenly that was down to 11% as the big banks took a great big market share. For people such as iwoca, Tide and others, their market share dropped dramatically and they lost, potentially, thousands of customers during that period.

We will have to do this again at some point, so we might as well be ready for it. I have asked Andrew Bailey about this. It was not all in the Treasury’s gift to sort the term funding scheme for SMEs; it is a Bank of England scheme. Nevertheless, we can square that circle in a couple of ways. Either we find a way for the term funding scheme to work for non-bank lenders, or we put requirements on the banks so that if they access that scheme, they also have to lend a proportion of those moneys to non-bank lenders and the like. It is very important that we get this right now. We must not simply forget some of the things that we learnt last year but actually put those things in place today to ensure that we are prepared for the future.

I say that because there is another challenge ahead, and this is the second requirement that I am going to refer to—there are only three, Mr Pritchard. This is another APPG initiative—Bankers for NetZero. It is a world-leading initiative; we are now one of the key chapters in international financial regulation in terms of how we decarbonise our economy and how we bring the UK finance industry together with business and provide the capital to decarbonise—that will be a critical part of the conversation. We are going to have to do something at some point to provide capital to businesses so that they can decarbonise, because significant investment will be required in lots of businesses to be able to do that. We do not want to simply pull the plug in terms of SMEs that could contribute towards decarbonisation. We should not be thinking, “Oh, they’re businesses that operate in old ways, using what is probably less green technology, and therefore we’re not interested in them. We’re going to pull finance from those people and go to new businesses.” That would be a significant mistake: the scale would probably be a multiple of two or three times what it was during the financial crisis when we pulled money from certain businesses. We should be allowing these businesses to invest in decarbonisation.

To give a simple example, there is a very good business in my constituency—I have used this analogy many times for people who listen to my repetitive speeches—called the York Handmade Brick Company. It makes handmade bricks, as can be imagined, and employs about 20 people in my constituency. It is a very good business. I am not saying that it has any kind of liquidity or capital issues; I am sure that it has not, because it is a very successful business. But that business fires all its bricks in its kilns using natural gas. Nobody has yet invented a different solution to that problem, although no doubt there will be solutions on the horizon—biogas and the like. But whatever it has to do to make the business less carbon intensive will cost money—cost investment. Then it will have to find some capital to invest in new technologies. What we do not want to see, of course, is a bank coming along and saying, “Actually, our own business and our customer base have capital requirements that require us to not lend to businesses with a large carbon footprint,” and simply withdrawing finance from those kinds of business. It is a significant problem—a significant danger.

We will have to ensure that capital is made available, probably at a cheaper rate, a discounted rate, to decarbonise such businesses. For example, a term funding scheme for net zero, which the report on mainstreaming net zero proposes, is something that we should consider. We must get that right to ensure that all lenders can access those things. The Conservative Environment Network, of which I am proud to be a member, is also looking at this, and we had a conversation earlier today. It is very clear that we need finance for environmental reasons as well as for economic reasons. I could not put it better myself. The Conservative Environment Network is also very worried about divestment.

The last report to which I will refer is “Resolving insolvency”, because the Minister has responsibility for this area as well. It is a very important report. Today’s debate is not just about businesses that are growing but about businesses that might hit difficulty. The Department for Business, Energy and Industrial Strategy has made some very important changes to insolvency over the last year or so, giving businesses that are under pressure and having difficulties time to restructure. That is absolutely right.

However, what we have not addressed yet, although the Government have legislated to address it, is reform of the insolvency industry. The report highlights some very concerning conflicts of interest between insolvency practitioners and, for example, banks and private equity. There was a very disturbing recent case in which KPMG was fined £13 million in relation to Silentnight. That certainly highlights the kinds of conflicts that occur between secured lenders and insolvency practitioners.

The report recommended that the Government set up a totally independent regulator, as they have set out to do in the past. Currently, insolvency is regulated by recognised professional bodies—membership organisations. It is the only significant part of our economy that is not properly and independently regulated. We urge the Government to introduce changes to put in place an independent regulator, an ombudsman, a statutory code of ethics and a central database of repossessions.

My final comments relate to another change that the APPG on fair business banking has worked very hard to bring about. Following the global financial crisis, the APPG advocated an increase in the coverage of alternative dispute resolution. The Financial Ombudsman Service now has jurisdiction over businesses with a turnover of up to £6.5 million, up from £1.8 million previously, which is good. However, there is a scheme that looks at historic complaints and covers businesses with turnovers of up to £10 million. The Business Banking Resolution Service is a voluntary scheme involving seven banks, but at the moment it is an embarrassment to the banks that established it. It hears very few cases. Of the 626 cases that have currently applied to the scheme, only 90 are likely to be deemed eligible. Some of the cases fall into what is called the concessionary cases area, and of the 10 cases that the BBRS is recommending that the banks accept into the scheme, only one has been accepted, which is absolutely wrong.

The BBRS needs more independence and greater jurisdiction. I saw comments in The Times today about this particular issue to the effect that the APPG on fair business banking and the SME Alliance unanimously approved the eligibility rules for that scheme. That is absolutely not what we said. We said that we will have a watching brief over the scheme. It is not working. It needs urgent reform. I have talked to the Minister about this before, and I am sure that he will take those comments on board.

15:04

[Marion Fellows (Motherwell and Wishaw) (SNP)]

It is a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate the hon. Member for Darlington (Peter Gibson) on securing this very important debate. He gave us a very full and interesting speech, full of issues that I recognise. In terms of regional inequality, he has it spot on. When looking at regulation in different types of banks and those in Germany and France, and where small and medium-sized enterprises can receive their finance, he gave us a thoroughly good and interesting lesson.

The chair of the APPG on fair business banking, the hon. Member for Thirsk and Malton (Kevin Hollinrake), followed—I apologise to him for my not perfect attendance at that important APPG—and gave us a quick run through a number of reports produced by the APPG, all of which were interesting and relevant to the subject we are talking about. During this time of COP26, I especially take on board his words about decarbonisation and small businesses looking forward environmentally. That could well become really important and another block to gaining finance in the future.

After the financial crisis, many SMEs were left to sink or swim when bank lending dried up, despite MPs from all parties calling for access to finance. That mistake must not be repeated. It was only right that firms were given furlough, coronavirus business interruption loans and bounce back business loans to get them through the coronavirus crisis. Since March, those have been replaced by the recovery loan scheme, administered by the British Business Bank. Loans are available through a network of accredited commercial lenders; I will come back to that point later. Term loans, overdrafts, invoice finance and asset finance are now available.

The Scottish National party welcomed the autumn Budget 2021 announcement that the scheme would be extended until June 2022, because it was originally due to close at the end of 2021. However, from 1 January the scheme will be open to small and medium-sized enterprises only and the maximum amount of finance available will be £2 million per business. The guaranteed coverage that the Government will provide to lenders will be reduced from 80% to 70%, which could have a huge impact on small to medium-sized enterprises.

Moving from the previous loan system could be difficult for small to medium-sized enterprises. The flexibility of the bounce back loans for small firms, as well as automatic approval and repaying only when the firm is growing, is no more. This is huge. It is beyond belief, and will mean that schemes will be axed before firms have been lent the amount promised.

As well as access to new finance, the SNP has concerns about firms being able to cope with debt levels accumulated during the coronavirus pandemic, and the economic future is looking even more uncertain. After the last crisis, many SMEs were left bankrupt when they could not repay their debts, despite MPs from all parties calling for access to finance. That is another thing that must not happen again.

However, the risk is rising. Last month, the Financial Times reported that the Bank of England has warned that a

“third of the UK’s small businesses are classed as highly indebted, more than double since before the Covid-19 pandemic”.

It went on to say that the Bank of England said

“two-thirds of the £79bn increase in UK corporate debt between the end of 2019 and the first quarter of 2021”

was held by firms who would not have been able to borrow pre-pandemic. The report continued:

“The research showed 33 per cent of SMEs held debt levels of more than 10 times their cash balances, versus 14 per cent before Covid-19 hit. The percentage of those with high debt relative to both cash balances and monthly inflows trebled to 10 per cent from 3 per cent over the same period.”

The Bank of England’s Financial Policy Committee warns starkly:

“Although debt appears affordable in the near term, insolvencies are likely to rise from 2021 Q4 as government support is withdrawn as planned.”

There is a clear blueprint that the UK Government can adopt from TheCityUK, which the SNP has supported since its publication. TheCityUK’s report, “Supporting UK Economic Recovery: Recapitalising Businesses Post Covid-19”, warned that, by March 2021, £100 billion of unsustainable debt was owed by UK businesses, with £35 billion from Government loan schemes. Much of that came through coronavirus business interruption loans and bounce back loans, which were taken to support firms and the economy through the pandemic. Under current rules, responsibility for chasing up businesses that are struggling to pay back their coronavirus loans falls on banks and other lenders, which will only force a rerun of the post-financial-crisis saga of SMEs being bankrupted by banks collecting debts. That the Government will be forcing them to do so is beyond belief, as the hon. Member for Thirsk and Malton said.

TheCityUK came up with a business repayment plan that would let very small businesses pay back their coronavirus loans via a long-term, student loan-style system, with small repayments made every month via the tax system; and a business recovery capital option allowing larger small businesses to convert their coronavirus loan into a long-term, unsecured loan, again to be gradually paid back. TheCityUK plans would also enable some larger businesses to convert their loans into shares in their company on which they paid regular dividends, but that is unlikely to apply to many SMEs. All that would be overseen by a proposed UK recovery corporation, which in conjunction with the UK Government would administer these repayment schemes. Repayments will be a huge drain on SMEs and the economy for a long while to come. Mike Cherry, national chairman of the Federation of Small Businesses, recently suggested that small businesses should repay their coronavirus loans only once they are turning a profit:

“A guarantee that they won’t have to start making repayments until they’re turning a profit would give them the confidence to invest and hire today, rather than further down the line when such activity may prove too little too late.”

Rising overheads are a key factor behind a slump in Scottish business confidence, according to new research from the FSB in Scotland. Some 77% of Scottish businesses say that the cost of running their business has increased since this time last year, compared with only one in 20 —some 5%—that are seeing a decrease. The FSB’s Scottish small business confidence index fell steeply to +1.2 points in the third quarter of this year, from +20.5 points in the second quarter. The UK’s index also fell, although not quite so steeply, meaning that the typical Scottish business is now less optimistic than the UK average, a reversal of the situation in the summer.

The FSB warns that rising overheads are making it difficult for businesses to invest in measures to grow their operations or tackle their environmental impact, which will hold back efforts to recover from the covid crisis in a sustainable way. Andrew McRae, FSB’s Scotland policy chair, says:

“Scottish business optimism bounced back over the summer but has slumped in the autumn. That’s partly because the easing of Covid restrictions delivered a big confidence boost that’s waned over time. However, punishing rises in business overheads are also taking their toll on the trading outlook. And with a rise in payroll taxes on the way, there’s no end in sight. Spiralling overheads are one of the biggest headaches for our members. Smaller businesses neither have the statutory protections of consumers, nor the bargaining power of the biggest firms. That’s why FSB has been campaigning for the UK Government to take action to help these operators, at the very least easing the VAT burden on their gas and electricity bills.”

One business hit by those rising costs is Equi, which has a number of shops. They are concerned that a high increase in their overheads may cause them to cut corners and cut staff, as happened in the past, which will mean that they are not as successful as they have been in recent years.

A separate FSB report calls on our policy makers to launch a new voucher initiative called “Help to Green” to help small businesses to reduce their environmental impact. The scheme would give businesses grants of up to £5,000 to become more energy-efficient. Andrew McRae said:

“In the short term, we need to help firms manage the overnight spike they’ve seen in their bills. Next, we need to support local and independent firms to reduce the amount of energy they use.”

All that has happened during COP.

Smaller businesses know that they have to take action, but only a third have a plan in place to reduce emissions. Governments in Edinburgh and London need to put together a package of help and support to help firms move in the right direction. SNP Members would prefer indebted firms that are held back from growth by interest payments to have their debt converted to equity or grants.

The UK Government should not force banks to take coronavirus business interruption loan scheme and bounce back loan debtors to the cleaners, as that will prevent them from rebuilding their businesses and, therefore, the economy. The Tory Government’s plan for business-as-usual debt collection is totally inappropriate following what we hope was a once-in-a-century economic shock.

The Chancellor said that total departmental spending will increase by £150 billion over the Parliament, which means a real-terms rise in spending across the board, with Scotland’s Barnett funding up on average £4.6 billion annually. All funding is welcome, but we need to be cautious. The Scottish Government are getting less funding for day-to-day spending in every year of the spending review period than this year. Most of the increases are likely to be in capital.

[Kevin Hollinrake]

The hon. Lady is making some good points, but I am nervous about turning a loan into a grant or making it non-repayable, as I think she outlined that TheCityUK suggested. Lots of businesses did not take loans and used their own funds to keep going, and lots took loans and paid them back. Would there not be a moral hazard in effectively saying that some businesses could have free Government money when others did not take it?

[Marion Fellows]

I take the hon. Member’s point, but I think my point was worth making. We have to be so careful, because businesses took those loans on and are now likely to be hounded by banks that are mainly interested in providing money to their shareholders. The hon. Members for Darlington and for Thirsk and Malton spoke about the mutualisation of banks and local regional banks, which are also on the SNP wish list. I take the point, but my main point is that businesses should not be forced out of business because they borrowed money at a time when they were able, and perhaps would not have been able in the past.

The Chancellor invoked Margaret Thatcher and said:

“The budgets are set; the plans are in place; the task is clear. Now we must deliver because this is not the Government’s money— it is taxpayer’s money.”—[Official Report, 27 October 2021; Vol. 702, c. 279.]

That makes it clear that we must be wary of warm words. The Scottish Government will have to consider the detail of the Budget when it has been confirmed. The £150 million small business fund for Scotland should be disbursed by the Scottish Government and Scottish Enterprise, not the UK Government or the British Business Bank exclusively.

Although the coronavirus business interruption loan scheme and bounce back loans were offered, not all our constituents could access them due to their business banking accounts not being with one of the big banks on the list. They tried to access them through feeder accounts from other banks such as HSBC, but continue to be denied access to any financial support. They were mostly SMEs, many of which were forced to close.

Will there be any guarantee that those who were unable to access those loans but managed to survive with grants from, for example, the Scottish Government will be able to access the recovery loan scheme? Will the scheme allow those forced to close to rebuild their business? I hope the Minister can give assurances on those matters and take on board TheCityUK’s plan and the warnings from the Bank of England, FSB Scotland and nationally.

15:19

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Thank you for your chairmanship, Mr Pritchard. I am grateful to the hon. Member for Darlington (Peter Gibson) for proposing the debate and to the hon. Member for Thirsk and Malton (Kevin Hollinrake) and the APPG on fair business banking for their work on the issue.

As we have heard, small and medium-sized enterprises are at the heart of the economy. They employ millions of people and are responsible for much of the innovation and creativity that makes this country such a special place and such a dynamic economy. They have, of course, been through a tough time over the past 18 months or so. Many small businesses could not trade at all for much of the period, and others only in very restricted circumstances. In that context, programmes such as the bounce back loan scheme and the coronavirus business interruption loan scheme were important and welcome. As we now unwind from that level of Government support, it is important that the repayment mechanisms and the schedule are realistic. The SNP spokesperson referred to the burden of debt that has been left. It is also important that we have a proper assessment of the level of fraud and the use of public money in those schemes. A lot of money went out of the door and it is important that the taxpayer gets good value for money in support schemes of that nature.

As we recover from the pandemic, many SMEs are facing labour shortages, rising crises in materials and other effects, and our capacity to recover economically from the covid pandemic will depend to a large degree on how SMEs meet those challenges and manage to fare over the coming years. There are, as we have heard, particular traditions when it comes to access to finance for SMEs here in the UK. They include a dependence on loans from a relatively small number of traditional high street banks, a major focus from banks on mortgage and other property lending, a relatively new group of challenger banking entrants and less-developed non-bank sources of finance that are not always easily available to SMEs. The hon. Member for Darlington mentioned community development financial institutions in that regard and I believe they have an important role to play. I am familiar with the role of the Black Country Reinvestment Society, which operates in the area I represent. It has been able to step in at times and offer loans when the main high street banks have turned people down, and I believe it has helped around 1,500 businesses in the west midlands region over the years. I am sure it is a similar story in other parts of the country with other CDFIs.

The debate has also seen some discussion about the challenger banks and their potential to do more. The Minister heard the points made by the hon. Member for Darlington about MREL funding. That is important, because there is an active debate between the banking sector and the Bank of England about how that operates. The concept of bail-in debt was introduced after the financial crisis to avoid the situation where the taxpayer has to step in if a bank goes belly up—or, as it was termed, privatising the gains and nationalising the losses. With bail-in debt the bondholders are supposed to be on the hook, not the taxpayers. That is the right thing from the public interest point of view, but inevitably it entails a cost that will be applied to those who are lending to banks under those circumstances.

In this country, once a bank’s balance sheet increases above the range of £15 billion to £25 billion, the MREL bail-in rules kick in, although the Bank of England has indicated recently that the staircase for compliance will be shallower and over a longer period than was previously the case. The thresholds elsewhere are much higher. In the European Union, the threshold is €100 billion. In the United States, it is $250 billion. That means that bail-in in those jurisdictions is aimed at much bigger banks. There is another factor, which is related to the different ways that deposit insurance works in those jurisdictions, which has an impact on the risk appetite of regulators, but those are still much higher thresholds than in the UK and they allow medium-sized banks to grow before having to adapt to this new regime.

The challenger banks argue that if the threshold for requiring bail-in debt was higher, that would release more capital, which could be lent to the SMEs that are the subject of today’s debate. When the Minister winds up, I would be really interested in his reflections on the debate about challenger banks and the minimum requirement for own funds and eligible liabilities.

For the purposes of clarity, I should say that this is not a Brexit issue. The differential balance sheet limits for MREL predate Brexit, but challenger banks have all made the point that it places a ceiling on their capacity to grow.

[Kevin Hollinrake]

The changes that the Bank of England has made on MREL are very modest and will not help a bank such as OakNorth, which is a very successful challenger bank, in terms of its ability to lend more, which it could do if the limits were changed. Does the right hon. Gentleman agree that it seems perverse that bail-in requirements are there to try to protect the taxpayer and to take away the systemic risk, but the biggest systemic risk is having all the banking concentrated in a few big banks?

[Mr McFadden]

There is a potential tension here between competition and safety. The rules were brought in to insulate the taxpayer, but, at the same time, the Bank of England, the Treasury and the Government—everybody—subscribe to the idea of more competition in the UK banking sector, so I believe this discussion will continue.

More broadly, the issue of access to finance is also related to the question of economic growth. Economic growth has been sluggish in the UK for the past decade, averaging just 1.8%, which is significantly lower than pre-financial crisis rates of growth. Once we strip out the covid effects of huge plunging growth last year and a sharp bounce back this year and next, the recent report from the Office for Budget Responsibility, published at the same time as the Budget, predicts a return to those sluggish growth rates, averaging just 1.5% between 2024 and 2026.

Let us be clear: taxes are increasing because economic growth has been low. It has been low for more than a decade, and the Government cannot continue to blame that on the past. This low growth has left the country less wealthy than it would have been, and it has made it harder to fund public services adequately without upward pressure on taxes. Low growth is the foundation for the series of tax rises that the Chancellor has announced over the past year. That is a much bigger factor than the pandemic; the OBR report makes that clear. In fact, in that report it downgraded the long-term impact of the pandemic on GDP from 3% to 2%. Its estimate of the long-term impact of the Prime Minister’s Brexit deal was a hit to GDP twice as high as that from the pandemic.

We are talking about the financial services industry today. It was hung out to dry in the Prime Minister’s Brexit deal. It is not that the Government fought for market access and lost—the Government did not even try. This is 10% of the UK economy, hundreds of thousands of jobs around the country. It was simply left by the wayside when the Government negotiated the Brexit deal.

It is in everyone’s interests to address the issue of the UK’s sluggish economic growth. If the economy grows more, tax revenues will increase without tax rates having to rise. The country will become more prosperous and we will be able to pay our way. That is another reason why a healthy and properly financed SME sector is so important. Businesses need access to finance to be able to invest in expansion, to make the new idea happen, to be able to buy the new piece of equipment that might be able to do the job in a greener or more efficient way, to move into new premises, and to increase capacity to meet new orders. That is the foundation of economic growth, and right now we do not have enough economic growth. That of course is not the only thing that will impact growth.

If we talk to many businesses, they will tell us about business rates. In advance of the Budget, we called for an increase in the threshold for small business rate relief from £15,000 to £25,000. That could have lifted many small businesses out of paying business rates altogether, but that did not happen. Nor did the more fundamental reform needed to ensure that business property tax fits the economy of today and tomorrow, rather than the economy of yesterday. There will be other factors, too—not least our education system and whether we are equipping the workforce of tomorrow for the labour market of the future. Every time talent or potential goes unfulfilled, it is a drag anchor on economic growth, and that denial of opportunity is not just socially unjust, but economically destructive. We need to examine everything that can contribute to economic growth, and that means an SME sector firing on all cylinders.

This debate calling for more access to finance for SMEs is timely, but access to finance is not an end in itself. It is a contribution to the economic growth that the UK needs if it is to escape the high-tax, low-growth trap in which it finds itself, and for which households and businesses will have to pay the price in the tax rises recently announced, which will kick in over the next few years.

15:31

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is always a pleasure to serve under your chairmanship, Mr Pritchard. I congratulate my hon. Friend the Member for Darlington (Peter Gibson) on securing today’s debate and on how he framed it. I pay tribute to him for his work as chair of the APPG on personal banking and fairer financial services. It is important that we continue to shine a spotlight on that. He has been a staunch advocate for smaller businesses both in his constituency and around the country, and he brings his own experience to bear on that. We also heard from my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who is a vice chair of the APPG and has brought so much fresh, new thinking to these areas, which is important for me, for the Economic Secretary to the Treasury and for the Government as a whole. We continue to respect and listen to the views of both my hon. Friends.

The business experience of my hon. Friend the Member for Thirsk and Malton has been instrumental in the framing of his words. Both my hon. Friends illustrated how deeply they care about small businesses and their contribution to the economy, which, as we have heard, provides millions of jobs. SMEs will be the backbone of the drive for growth, innovation and jobs, and we are absolutely determined to support them. That is why during the pandemic we protected small firms with our income support schemes, grants, and nearly £80 billion-worth of Government-backed finance to more than 1.6 million businesses. However, as we start our economic recovery, we need to shift our focus from emergency support to policies that will help businesses create jobs and invest. As the Chancellor has said, our plan is to make the UK the best place to start, grow and scale a business. The logic is simple. More start-ups and scale-ups will in turn help us in our mission to level up the country.

[Margaret Ferrier]

We need to ensure access to affordable finance UK-wide, so can the Minister tell us what steps the Government are taking to make sure that Scottish SMEs have the right level of accessibility?

[Paul Scully]

I thank the hon. Lady for that intervention. I mentioned levelling up the country, and she is absolutely right that we need affordable, diverse finances for SMEs right across the country, and that includes in Scotland. I want to make sure that we go further to make the UK the best place to start growth. It should not matter where we are in the country. It should still be the best place to start to grow and scale a business. That is as equally true of Scotland as it is of Wales, England or Northern Ireland. Brilliant businesses can be found everywhere in the UK. However, access to finance is undoubtedly skewed towards London and the south-east, and we need to rectify that.

At the Budget, we took some major steps towards redressing those regional imbalances. For example, the British Business Bank’s start-up loans have been helping entrepreneurs since 2012 with viable ideas that might otherwise struggle to obtain finance from more traditional sources. In fact, the bank has made 165 loans to businesses in Darlington, totalling more than £1.5 million. At the spending review, we built on that success, pledging another 33,000 loans over the next three years. That is not all for Darlington—it would be a significant number of start-ups there—but across the country. That is money that will get other great ideas off the ground.

Members have spoken of the need for strong local options for business; we absolutely agree. That is why the Budget committed a further £150 million to the bank’s successful Regional Angels programme, which helps entrepreneurs obtain early-stage finance across the UK. We also announced more than £1.6 billion for the British Business Bank’s regional funds, which provide debt and equity finance for SMEs to help them with their next stage of growth. Across those funds and start-up loans, CDFIs will continue to play an essential role to help get finance to underserved SMEs.

To answer the points hon. Members raised on CDFIs and mutual banks, community development financial institutions play a massive role in the landscape of alternative lenders, including those essential lenders providing credit to SMEs. They are such an important delivery partner for the start-up loans programme; 11 of the 21 start-up loans delivery partners are CDFIs. They account for approximately 30% of the loans issued through the scheme in 2021. More widely, the British Business Bank was working with 21 CDFI delivery partners, across a range of programmes, at July 2021. That includes the regional funds and the recovery loan schemes.

In addition, 14 CDFIs were accredited lenders for the covid loan schemes. In the wake of the spending review, we will continue to explore opportunities for collaboration between the BBB and CDFIs. The Government are also supportive of efforts to establish the regional mutual banks that we have heard so much about this afternoon across the UK. I understand that some prospective mutual banks have had success in raising capital from various sources, but they have also encountered some challenges. There are no plans directly to capitalise regional mutual banks, but I know the Government have been engaging with prospective mutual banks and are willing to explore solutions that are practical and proportionate.

My hon. Friend the Member for Darlington is not only not far from the Treasury in this place and constituency neighbour to the Chancellor, but the Treasury is moving a number of its operations to Darlington, his home town, which he represents. He will not have too far to go to knock on the door to further his case for regional mutual banks. I am sure he will be delighted to know that businesses will continue to obtain funding through all those schemes, along with those in the north-east and the wider south-west of England for the first time as we get regional funding for the British Business Bank increased.

The new regional funds the British Business Bank is setting up in Scotland and Wales, while building on its existing activity in Northern Ireland, will bring levelling-up opportunities for businesses across the UK. As the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) said in relation to Scotland, it is important that we support businesses wherever they are. The regional funds will support a wide range of businesses, including the innovative, high-growth firms that play such a big part in creating prosperity and opportunity. We are further turbocharging those firms through the £375 million Future Fund: Breakthrough, which sees the Government co-invest with private investors and businesses that are heavily focused on R&D.

Finally, as we have heard, the Chancellor announced the extension of the recovery loan scheme to 30 June 2022. From 1 January, the scheme will be open only to small and medium-sized enterprises and the maximum amount of finance will be £2 million per business. The guarantee coverage that the Government will provide to lenders will be reduced to 70%.

We also heard from Members about patient capital, and we are looking to improve access to longer-term sources of finance. We absolutely agree with my hon. Friend the Member for Darlington that we need to unleash the hundreds of billions of pounds in pension funds and other institutional investors for long-term investment. That is not just good for the wider economy, because it will support growth, but good for the customers who will benefit from the opportunities for returns offered by UK long-term assets. It is an area where we know we can and should make more progress. I am happy to say that this Government are taking significant steps in that direction.

We are implementing a plan to unlock more than £20 billion to finance growth in innovative SMEs. As part of this, British Patient Capital, a subsidiary of the British Business Bank, is supporting UK companies with high-growth potential to access the long-term financing they need to scale up.

We have also taken significant action to remove barriers to pension scheme investment in a wide variety of asset classes. Members may recall that in the Budget, the Chancellor announced the consultation on further changes to the auto-enrolment charge cap to remove barriers to higher-return investments, while ensuring vital member protections remain in place.

[Kevin Hollinrake]

I would like to put on record my thanks to the British Business Bank, which has done a fantastic job in engaging with the APPG over the last 18 months or so and a tremendous job in helping to get that money out of the door. In terms of releasing equity capital—the Minister talked about pensions, which is a very good move by the Treasury—I think Octopus also suggest we allow ISA investments into unquoted companies which, again, could provide a source of equity finance for some of the good, high-growth companies he was talking about. Would the Minister consider having a discussion with the Treasury about this?

[Paul Scully]

That is certainly something the Economic Secretary to the Treasury will have heard and will consider as we look to diversify finance, especially in longer-term projects. We have established the productive finance working group, which is an industry-led body, which has now published recommendations setting out how we can unlock new investment in those long-term assets. I am pleased to say the Financial Conduct Authority has just published its rules for a new long-term asset fund structure, which will make accessing illiquid assets easier and encourage investors to look increasingly further ahead.

Finally, we are encouraging asset management and pension funds to play their part. I am delighted to say that the Chancellor and the Prime Minister are planning an institutionalised investment summit later this autumn, which will be a chance to celebrate the progress and commitment to further industry-led action.

Although we undoubtedly need to do more to widen access to finance for business, we should not overlook the great support that existing lenders provide to our SMEs. Last year, in fact, members of the Finance & Leasing Association provided SMEs with more than £16 billion to fund new equipment, plant and machinery, or software. According to the British Business Bank’s “Small Business Finance Markets Report”, banks provided £104 billion in SME lending, up 82% compared with in 2019.

I am delighted that some major lenders are helping our Help to Grow scheme, which aims to boost productivity by giving entrepreneurs management training through the Help to Grow Management scheme, and helping them to adopt digital technology through Help to Grow Digital. I encourage all hon. Members in the Chamber and further afield to promote those schemes to their SMEs because they are incredibly important opportunities to boost productivity wherever they are in the country.

[Margaret Ferrier]

Government Department procurement processes usually mean that the cheapest quote wins the contract, which might mean that SMEs struggle to compete or operate at greater cost to their business. What steps are the Government taking to level the playing field for these contracts and encourage SMEs to apply?

[Paul Scully]

The Government have gone a significant way to try to simplify procurement options for SMEs. There is undoubtedly an unlevel playing field, as big businesses have the resource and capability of procurement specialists, which SMEs clearly do not. SMEs inevitably have to join the framework as subcontractors, which is not as easy for them or as good for the taxpayer, because it adds extra cost and extra levels. The Cabinet Office is always looking at the procurement framework to see what more we can do to have greater access for SMEs.

The greater the choice of finance options for small firms, the better. We know that challenger banks, including those in the FinTech sector, have the potential to make a real difference so, following the recent Kalifa review, we are rolling out initiatives that will help these organisations try out new ideas and grow.

To boost competition, we have also raised the banking surcharge allowance to £100 million from £25 million, which means that 35 banking groups will fall out of its scope completely. The British Business Bank has a specific objective to support diverse finance markets, and 94.5% of the finance supported by the bank’s core finance programme in 2020-21 was delivered through smaller, newer or alternative finance providers, exceeding its 94% target. I am sure that, over time, these measures will help to further widen small businesses’ finance options.

On the British Business Bank and its objectives, my hon. Friend the Member for Thirsk and Malton talked about delivering net zero. Indeed, we have implemented a net-zero objective within the British Business Bank, and therefore everything it does has to adhere to that objective.

The right hon. Member for Wolverhampton South East (Mr McFadden) talked about MREL, and the Bank of England is currently leading a review of that and its approach to setting a minimum requirement for own funds and eligible liabilities. The Treasury is working closely with the Bank, which is considering the responses to its consultation—the Bank will respond in due course. The Government and I thank the banks for their continued engagement. He also talked about bail-in debt, which is primarily a matter for the regulators, and it fits into that review, too.

The hon. Member for Motherwell and Wishaw (Marion Fellows) asked what will happen to the Government’s pandemic loan schemes, and we clearly have to get the balance right in ensuring taxpayers’ money is used well. As we heard from my hon. Friend the Member for Thirsk and Malton, a number of businesses that borrowed money did not necessarily need it, but they wanted the extra protection and are still sitting on the money. He is right that converting the money into a grant is probably not appropriate in ensuring that we get best value for money.

We clearly want to make sure that we address fraud, and we will have further updates on our estimate for fraud in the Department’s annual accounts, which will be published shortly and will be available to be inspected. We also have the pay-as-you-grow schemes. We have listened to businesses and have made sure to extend the exceptional support, allowing them to repay their bounce back loans on terms that work best for them. Businesses will be responsible for repaying any facility they have taken out, as is right and proper, but they will not necessarily be able to make repayments for the first 12 months or pay the standardised low interest rate of 2.5% afterwards, but the pay-as-you-grow options provide additional support to businesses throughout the life of their loans. We are trying to make sure we can flex as best we can to ensure that businesses have the best chance of recovering and succeeding.

This Government champion small businesses, and we have heard about the wisdom of people who run small businesses. This is not a macro consideration, and it is not just about a unit of economic activity. Entrepreneurs are taking a risk to set up their business, and they often take a personal hit to ensure that those who work for them can pay their bills. From my experience of running small businesses, I know that it adds a totally different perspective on life when someone is responsible for other people’s livelihoods. It is important that we have the human cost of getting it wrong at the forefront of our minds and that we see that small businesses can get the just rewards that they deserve for the risks that they are taking. However, it is also important that the people who work within small businesses get the opportunities that small businesses and SMEs inevitably can and will create as we recover and build back better. We want to ensure that the UK is a great place to be an entrepreneur. As I hope I have shown, we are focused on giving firms throughout the country the right tools to succeed, including access to finance to both launch and grow.

I thank right hon. and hon. Members once again for their excellent contributions to the debate. I look forward to working with everybody on this most important of issues over the months ahead.

15:50

[Peter Gibson]

I have thoroughly enjoyed this wide-ranging debate. Despite the small number of speakers, we have certainly covered a varied range of topics. As we have heard, access to finance is not an end in itself. We have covered issues such as the future recession preparation, helping to tackle carbon reduction, servicing of covid finance loans, regulation of the financial services sector, diversity in funding, the need for growth, regional inequalities, unlocking pension funds and the need for mutual banks.

I am incredibly grateful to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who has been an incredible support to me since I arrived in this place. I am grateful for all he does with the APPG on fairer business banking. He was right to highlight the need to tackle the issue of decarbonisation with the banks.

I am grateful to the hon. Member for Motherwell and Wishaw (Marion Fellows) for highlighting the work that the Federation of Small Businesses is doing and the need to tackle regional inequalities in this area. I thank the hon. Member for Rutherglen and Hamilton West (Margaret Ferrier) for her interventions during the debate and the right hon. Member for Wolverhampton South East (Mr McFadden), who highlighted the need for growth and his concerns about how banks are capitalised.

I turn now to the Minister’s speech. I know that he is a real champion of small businesses and that he understands business and listens. He knows, as do I, that small businesses are the backbone of what will drive the economy forward. I know that he is committed to the cause of our SMEs, and I am grateful for the role that he is fulfilling. I am delighted to hear that the Treasury is prepared to listen on the need for mutual banks.

Question put and agreed to.

Resolved,

That this House has considered access to finance for small and medium sized enterprises.

15:52

Sitting suspended.

Shrewsbury Town Centre Redevelopment

Tuesday 9th November 2021 Westminster Hall

[Mr Virendra Sharma in the Chair]

16:00

[Mr Virendra Sharma (in the Chair)]

Before we begin, I remind Members that they are expected to wear face coverings when they are not speaking in the debate. This is in line with current Government guidance and that of the House of Commons Commission. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate. This can be done either at the testing centre in the House or at home. Please also give each other and members of staff space when seated and when entering and leaving the room. I will call Daniel Kawczynski to move the motion and then call the Minister to respond. There will not be an opportunity for the Member in charge to wind up, as is the convention for 30-minute debates.

16:01

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

I beg to move,

That this House has considered Shrewsbury town centre redevelopment.

We are very proud of Shrewsbury, the county town of Shropshire. The Minister may know that Shrewsbury has more listed buildings than any other town in England. That is quite a unique attribute. Having more listed buildings than any other town in England means that we have outstanding architectural beauty in our historic town. Edwardian, Elizabethan and many, many other architectural periods have thrived in Shrewsbury. It was the birthplace of Charles Darwin and his home where he studied at Shrewsbury School before pursuing such a famous and important career.

The historic beauty of the town, surrounded by the beautiful Shropshire countryside, means that tourism is one of the most important major income generators for our town. I am very pleased to have secured a direct train service between Shrewsbury and London. This is extremely important for additional international tourists visiting our town. We have also now secured the funding for the north-west relief road—a vital artery in the ring road around Shrewsbury that is going to be built shortly.

Having secured those two important infrastructure projects in recent times, my mind now turns to how, as a local Member of Parliament, I can support the unitary authority, Shropshire Council, in its attempt to redevelop our town centre. I spent the summer recess extensively lobbying the previous Secretary of State for what is now the Department for Levelling Up, Housing and Communities and his junior Ministers. We had many meetings and conversations about the extraordinary opportunity that we have in the heart of Shrewsbury to convince the levelling-up fund that this is a project that needs investment. Unfortunately, the reshuffle that took place saw almost a clean sweep of all the Ministers. However, I welcome my hon. Friend the Minister to his position. I think, from my conversations with him, that he will make an outstanding Minister in the Department, and I am very grateful that he is here today to hear my appeals for this project directly to him and his officials.

In the recent round of levelling-up fund announcements, Shropshire did not secure the £20 million that our local council had asked for to redevelop the town centre. I will come on to explain how the council has now got control of three major shopping centres in the heart of our town, and prime real estate. Nevertheless, we were very disappointed that the council’s attempt to secure this funding was unsuccessful. I want to use this debate to try to tease out a little bit more information from the Minster as to why we were not successful, and what we need to do to turn this from a failure into a success.

We see massive investment in cities in our region such as Manchester and Birmingham. We see huge investments in the so-called red wall seats, in places such as Stoke-on-Trent. If I had £1 for every time I have heard that levelling-up funding was going to Stoke-on-Trent, or one of the other red wall seats, I would have been able to retire by now. I understand why and how red wall seats and inner-city areas in the midlands and the north need levelling-up funds. However, I want to express my concern that in the—quite right—levelling-up process that this Government are putting the country though, which is seeing more money spent in the midlands and in the north rather than the uniquely prosperous capital city in the south-east, we should take a moment to look at how that money is being distributed, and what percentage of that money is going to inner-city conurbations such as Birmingham, Manchester, Leeds and others.

I would argue—I will continue to be asking a lot of written parliamentary questions on this—that unfortunately, in the great thrust to redistribute this money to the midlands and the north, it is going primarily to those inner-city conurbations, and the rural shire counties are losing out. That has been my experience over the last 16 years as a Member of Parliament. Already in Shropshire, we receive a fraction of the investment in health, education, roads, and many other public sector services and works—indeed, a fraction of funding across the board—in comparison with those inner-city conurbations.

Therefore, we need greater clarity on the process, how these decisions are taken, when the next round will take place in the levelling-up fund agenda, and what criteria are being used to assess the economic benefits of the levelling-up investments. That is extremely important for the Minister and his Department, because as taxpayers we are particularly interested in value for money and the return on the investment from how that taxpayers’ money is being spent. When a project wins levelling-up funding, it is essential that the Department shares with the electorate not only how the money has been spent, but also the consequences of the public sector investment in that project and the outputs of investing that taxpayers’ money, in terms of gross value added uplift for the local economy and, indeed, jobs and economic prosperity.

Shropshire Council has not heard about future growth deals—when I spoke to Professor Mark Barrow, a senior officer at Shropshire Council, he wanted me to make this point. The council is not cognisant of future growth deals and needs clarification about the local enterprise partnerships. We have heard some quite different assessments and opinions about the LEPs and their long-term sustainability and operability. I would like to take a moment to pay tribute to the long-time LEP head in our area, Mandy Thorn, a local business lady who has done an outstanding job of managing our LEP. However, will the Minister clarify what he perceives to be the future of the LEPs and what role, if any, they will play in the redistribution of taxpayers’ money, so that my council, the LEP and others can plan for these changes?

On the specific nature of the bid, Shropshire Council has purchased three large shopping centres in prime real estate in the town centre: Pride Hill, Darwin and Riverside. There is controversy about this because the council purchased them at a time when their price tag was much higher than what the whole site is worth today. Inevitably, it sows concern with the local electorate and residents when the council makes a purchase of this nature, for tens of millions of pounds, and the value goes down.

Why has the value of the site gone down? We know about the rapidly changing circumstances of British high streets and the huge changes that are taking place in the way retail shopping is carried out, with more and more being done online. On the one hand, I can understand why some people may be concerned that the council has bought the site, but on the other hand the previous private-sector owners did almost nothing to the site, and we were not confident that they were able to develop it in a way that would benefit Shrewsbury.

Nevertheless, the council now owns this prime real estate in the heart of the county town of Shropshire. Bearing in mind what I have said about the changing nature of the high street and how we have to adapt to create lucrative and exciting opportunities for people to visit our high streets, it is now critical that we set aside the controversy over the purchase. We must do everything possible to help our council to develop the site in a way that is in the interests of the local community and is economically beneficial.

We can have a debate as to whether town centre redevelopment should be done by the public sector or the private sector. I have spent as much of my time working in the private sector as I have in the public sector: 16 years. There are weaknesses and strengths on both sides—that I know. The debate is not about whether the private sector or the public sector should develop the site; it is about the reality of the situation: that the council owns the site. As the Member of Parliament, I need the Minister to be cognisant of this opportunity.

I have heard from Professor Mark Barrow that there are already many opportunities and many private-sector companies that are seeking to invest in the site once a decision on how it will be redeveloped is made. Professor Barrow informs me that, when there is a plan for the demolition of some of these sites and redevelopment can start, there will be hundreds of millions of pounds of investment in Shrewsbury town centre. Very prestigious hotel chains have expressed an interest in buying plots and building. There is also an opportunity to reduce retail space to match the changing nature of retail shopping, which will help some of the small, independent retail outlets on Pride Hill, something for which Shrewsbury is famous, rather than the huge superstores that there are in Telford and elsewhere. Reducing retail space is also very important for sustainability.

There is also an opportunity to build a lot of commercial housing, including affordable housing, on the site. That is increasingly important for councils and the Government to take into consideration, bearing in mind how difficult it is for young people today to get on the housing ladder.

Of course, there are other modern facilities that will attract people, not just from Shropshire but from mid-Wales, into the town centre. We are very proud in Shrewsbury, as a border town, to be the gateway to Wales, and we benefit a great deal from many people coming not just from all over Shropshire but from mid-Wales to do their shopping in Shrewsbury.

I ask the Minister to arrange for Peter Freeman and his team at Homes England to meet Shropshire Council officials to discuss the best way forward for this development. The previous Secretary of State, my right hon. Friend the Member for Newark (Robert Jenrick), appointed Peter Freeman as the new chair of Homes England in October 2020. Peter Freeman is co-founder of the property developer Argent and is well known as one of the visionaries behind the revival of King’s Cross, as well as major developments in Birmingham and Manchester. He has a track record of planning and delivering the regeneration of local areas, and of creating spaces that are socially and economically vibrant. I would like the Minister to please engage with his experts in the Ministry, including Mr Freeman, who has a national reputation for having the expertise and knowledge to support and successfully move forward these types of projects around the country.

On bended knee, I ask the Minister to seriously consider the £20 million that is desperately needed now to redevelop the site. I heard somewhere today—I will be corrected if I am wrong—that my council spends 84% of all revenue on adult and children’s social care. My council is desperately short of funding. We have a rapidly ageing population and a ticking bomb with adult social care costs in the county. This injection of cash into our town centre would economically regenerate the prosperity of the town and give the council and the whole community a huge boost. I ask the Minister to look on our bid kindly and mercifully.

16:17

[The Parliamentary Under-Secretary of State for Levelling Up, Housing and Communities (Neil O’Brien)]

It is a pleasure to serve under your chairmanship, Mr Sharma, and to listen to the passionate speech of my hon. Friend the Member for Shrewsbury and Atcham (Daniel Kawczynski). I congratulate him on securing this important debate and on his unwavering commitment to advocating for his constituency, which I know about from talking to him at first hand. I strongly agree with him that the levelling-up agenda is for the whole country, not just some parts of it, and on the essential importance of accountability, value for money and better understanding what use taxpayers’ money is put to. I will use the time that remains to talk a bit about how the levelling-up agenda can serve Shrewsbury and the rest of his constituency.

The levelling-up agenda is about empowering local leaders and communities. It is about boosting living standards, particularly where they are lower. It is about spreading opportunity and improving public services, particularly where they are weak. It is also about ensuring that communities right across the UK can take pride in their neighbourhoods and the places they call home; my hon. Friend spoke passionately about some of the glories of Shrewsbury and some of those things that people are rightly proud of. I have been encouraged by what I have read about Shrewsbury and the vision and plan of local leaders, particularly in Shrewsbury’s “Big Town Plan”, which is extremely exciting and includes the ambitious redevelopment of the Riverside shopping centre, which was included in the bid that my hon. Friend spoke about.

As my hon. Friend knows, the Chancellor recently announced the first-round award of £1.75 billion to 105 successful bids from the £4.8 billion levelling-up fund. Bids were assessed completely impartially by officials against four components: value for money, deliverability, strategic fit and characteristics of place. In the interests of transparency, alongside the winning bids my Department published an explanatory note detailing the levelling-up fund assessment and exactly how bids were shortlisted and decisions reached.

Sadly, many more bids were received than funding was available for in the first round. I am sure my hon. Friend knows that it was a competitive process with lots of strong bids. I assure him, however, that that is not the end of the process. Although Shropshire Council’s bid to support Shrewsbury’s regeneration was not successful in this round, I strongly encourage it to bid again in the second round of the £4.8-billion fund, which, to answer his question, is expected in spring next year.

The levelling-up fund is not the only mechanism through which we are supporting levelling up in Shrewsbury and Shropshire, and it is not the only opportunity that will be available. I will touch on some of the things that we have done. As part of our ambition to rebalance the economy, we have invested more than £6 million in Shrewsbury’s transport infrastructure in the last five years. Funding from our local growth fund supported the Shrewsbury integrated transport package to improve road junctions, invest in sustainable transport and improve the town’s commercial centre. I congratulate my hon. Friend on helping his area to secure the important improved train connection that he mentioned.

In 2019, that funding was complemented by a further £2 million from the local growth fund to help to restore the iconic Shrewsbury Flaxmill Maltings, which is home to the world’s first iron-framed structure and complements all the other wonderful heritage buildings that my hon. Friend spoke about. More recently, I was pleased that £5 million from the getting building fund supported Shropshire Council’s remodelling of the Pride Hill shopping centre, which will create 250 well-paid jobs.

My hon. Friend will agree that that is levelling-up in action and is testament to the Government’s ambition to support Shrewsbury to grow and thrive in the coming years. We recognise that more needs to be done, however, and I know that some of the projects mentioned today have been supported by European funding in the past. Now that we have left the EU, there is scope to go further and faster.

That is one of the reasons why the Chancellor confirmed more than £2.6 billion for the forthcoming UK shared prosperity fund over the spending review period, which is another opportunity to level up Shropshire. That will ramp up to £1.5 billion a year by 2024-25 and the total spending will, at a minimum, match the size of EU funds in each nation of the UK. We will publish further details about the shared prosperity fund in due course, and I encourage my hon. Friend to ensure that Shropshire Council is aware of the opportunities that the fund presents.

[Daniel Kawczynski]

I am listening intently to my hon. Friend. Before he finishes, I take the opportunity to invite him to Shrewsbury in the Christmas recess so that he can see the town centre.

[Neil O’Brien]

I am grateful for my hon. Friend’s invitation and I will try to find a time—nothing would give me greater pleasure; it sounds wonderful. I am interested in how the levelling-up agenda can help places such as Shrewsbury.

My hon. Friend rightly focused on regeneration, which is a challenge that all places face at the moment as we move towards more shopping online and as town and city centres have to change to meet the challenges of the new era. He will have noticed the funding that the Chancellor set out in the spending review for brownfield regeneration, through which there may also be opportunities for the local council, including, as he mentioned, by talking to Homes England and to the high streets taskforce. I will endeavour to make the connections offline between central and local government officials that he asked for.

We all agree that, however far Government funding goes and however many different good and targeted spending streams we have, spending by the Government alone can go only so far in fulfilling our levelling-up agenda. We want to encourage strong local leadership to truly deliver and power the productivity growth that is essential for rebalancing our economy and our country. One only has to look at the success of some of our metro Mayors, such as Andy Street, in attracting private sector investment, spurring growth and acting as powerful ambassadors for their regions, to see the tremendous potential of further devolution beyond our largest cities.

That is one reason why, where there is strong local support, we want to roll out those powers and opportunities to the rest of the country too, using county deals. My hon. Friend has expressed a strong interest in how such a deal could support local regeneration and drive growth across Shropshire. I look forward to discussing that further with him as my Department prepares to publish its levelling-up White Paper. It will set out our plan to improve livelihoods and opportunity in all parts of the UK, building on our work so far, including on devolution and urban regeneration.

My hon. Friend mentioned local enterprise partnerships and the great work of Mandy Thorn. I agree with him on that, and I pay tribute to the work of people in local enterprise partnerships. Earlier this year, we initiated a review into the role of local enterprise partnerships. We now intend to consider the future role of LEPs and the local business voice in the White Paper that I just mentioned, alongside our commitment to extend devolution and strong local leadership into county areas, so my hon. Friend will hopefully not have to wait too long for greater clarity on the future role of LEPs. Our levelling-up taskforce is also working closely with relevant Departments across Whitehall to ensure that reform in multiple different policy areas all comes together to empower local leaders and ensure that levelling up will be greater than the sum of its parts.

Once again, I thank my hon. Friend for his contribution to the debate and for securing it. I will reflect on the very important points that he made, and I will continue to engage with him—hopefully, I will take up his offer of a visit—and to work with local partners to support their efforts and pursue this very important agenda. The Government intend to equip areas with the tools, funding and resources they need to become the masters of their destiny. This mission has arguably never been more important than it is today, as we forge a national recovery out of the covid pandemic.

The forthcoming White Paper will set out further details of our approach and how we can support places such as Shrewsbury to realise their ambitions and plans for growth. As my hon. Friend set out so eloquently, Shrewsbury has a rich history as a vibrant and enterprising town. Together, I believe that we can build on his work and that of his local partners, to ensure that Shrewsbury’s future is as bright and prosperous as its illustrious past.

Question put and agreed to.

16:26

Sitting suspended.

Nuclear Power Funding

Tuesday 9th November 2021 Westminster Hall

16:29

[Mr Virendra Sharma (in the Chair)]

Before we begin, I remind Members that they are expected to wear face coverings when they are not speaking in the debate. This is in line with current Government guidance and that of the House of Commons Commission. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if they come on to the parliamentary estate. That can be done either at the testing centre in the House or at home. They should also give one another and members of staff space when seated and when entering and leaving the room. I call Virginia Crosbie to move the motion.

[Virginia Crosbie (Ynys Môn) (Con)]

I beg to move,

That this House has considered funding for nuclear power.

It is a pleasure to speak in this important debate on funding for nuclear power. The UK has a long and proud history of pioneering nuclear power. In the 1940s, British scientists were pre-eminent in the development of nuclear energy. In February 1955, the Government published a White Paper entitled “A Programme of Nuclear Power”, announcing the first purely commercial programme, building between 1,400 and 1,800 MW electrical Magnox capacity by 1965, and investigating the future use of fast breeder reactors. In 1956, we established the world’s first civil nuclear programme, opening our first nuclear power station, Calder Hall, at Windscale. At the peak of 1997, 26% of the nation’s electricity was generated from nuclear power. Since then, several reactors have closed, and the share is now about 16%. However, almost half of our current capacity is due to be retired by 2025, and other plants are rapidly reaching their use-by dates.

Our most recent plant, Sizewell B, began to generate electricity more than 25 years ago. Hinkley Point C, which has been under construction since 2014, is expected to begin generating energy by at least 2026, with a construction cost of about £23 billion. Therein lies the problem. Before we discuss it in more detail, I should like to put into context why nuclear power is important at the moment. First, I urge Members to consider our commitment to the planet. The Government have committed to achieving net zero by 2050, and as the Prime Minister has rightly said, our strategy sets the example for other countries to build back greener, as we lead the charge towards global net zero. He has stated that the world is at “one minute to midnight”, having run down the clock and waiting to combat climate change. It is time to move from “aspiration to action” if we are to slow global warming.

While our seven advanced gas-cooled nuclear reactors have been the most productive low-carbon assets in Britain’s history, all will be retired by 2030. Even before those retirements take effect, we have begun to see increased, not decreased, carbon emissions. This year, our emissions from energy generation are expected to be higher than they were last year—the first year-on-year increase since 2012. If we do not replace the current fleet, it is estimated that emissions will increase by 200 million tonnes by 2035.

Secondly, I urge Members to consider our commitment to the people of the UK. In the past few weeks, we have seen that both our energy security and our stability are at risk. In September, a fire at the Kent interconnector, which connects the UK and French power systems, led to soaring energy prices in the UK. Britain usually imports 3 GW of power from France—enough to supply 3 million homes—and the fire showed just how fragile our energy security is when we rely on other countries for production.

The fire coincided with cold weather, post-covid increased commercial demands for power, gas supply issues from Russia and Norway, and unusually cloudy but calm conditions, which created price increases and what the media dubbed “an energy crisis”. That combination of events illustrates how much our power systems are under pressure from the closing of conventional plants and our growing reliance on inconsistent renewable energy such as wind and solar.

Meeting the sixth carbon budget’s requirements will require all new cars, vans and replacement boilers to be zero carbon in operation by the early 2030s. Meeting the sixth carbon budget’s requirements will require all new cars, vans and replacement boilers to be zero carbon in operation by the early 2030s. However, to move people towards the use of electricity while hitting net zero production by 2035, we must quickly move away from generating that electricity from fossil fuels. Britain currently has slim spare capacity in electrical power generation to feed those changes, leaving both our energy supply and our security under threat.

We should also consider the wider role that nuclear energy can play in achieving net zero. As well as my passion for nuclear, I am a fan of hydrogen. I am delighted that the Government are supporting the Holyhead hydrogen hub in my constituency of Ynys Môn. Our nuclear industry stands ready to provide a significant kick-start to the UK’s hydrogen economy, which will enable us to pull ahead in the global hydrogen race. Others are moving fast to beat us. Emmanuel Macron wants France to be a world leader in green hydrogen by 2030, achieved by producing green hydrogen at scale from nuclear energy. We can outmanoeuvre France and other nations by taking steps such as expanding the renewable transport fuel obligation to cover nuclear, even if just for a time-limited period, to stimulate investment in hydrogen production and support a quicker roll-out of hydrogen, with buses, trains, lorries, ships and planes, all of which can be made in the UK.

Finally, I ask Members to consider jobs and our levelling-up agenda. When we are importing gas from Russia and electricity from France, where are the jobs generating that power located? Who is getting the value added from what we are paying for that power? British people are paying their electricity bills and they are not always funding jobs. At its peak, a large-scale nuclear plant employs around 10,000 people. At the moment, while constituencies such as mine of Ynys Môn suffer low gross value added, underinvestment and a lack of quality, well-paid local jobs, we are paying our continental neighbours to provide us with energy. For all those reasons, the UK needs to look closely and urgently at its energy strategy.

There is an answer. The road map to net zero published earlier this year by the all-party parliamentary group on nuclear power states:

“Nuclear is the most powerful and jobs-rich form of low-carbon energy.”

Nuclear has the ability to give the UK energy security and stability for decades to come, but we need to get to grips with nuclear sooner rather than later. For years, successive UK Governments have prevaricated, argued and changed position about what we are going to do with nuclear energy. I was delighted when the Government announced their Nuclear Energy (Financing Bill), which had its Second Reading last week. My hon. Friend the Member for Copeland (Trudy Harrison) and I have been pressing for that since setting up the nuclear delivery group last year.

The need for that Bill brings me back to the fundamental problem with nuclear. Yes, it has by far the lowest land footprint and thus the lowest knock-on environmental impact of any clean energy source. Yes, it would create an estimated 90,000 well-paid, quality UK jobs, along with huge supply chain opportunities. Yes, it would keep producing reliable energy regardless of whether it is sunny or windy. And yes, it would give the UK energy security and stability. But—and it is a big but—building a large nuclear plant takes time and money, and therein sits the big grey elephant in the room.

As I have already outlined, Hinkley Point C began construction in 2014 and it is not expected to begin energy production until at least 2026. It is not possible just to say, “I’m going to build a nuclear plant,” and then begin construction. It takes years to go through the planning and environmental concerns, submit a development consent order, and consult, debate and clarify before getting an agreement even to stick a spade in the ground. Fifteen years is a long time to expect an investor to wait to see any return on their capital, and that is why the financing of large nuclear plants has been such a big issue. It was cited as the main reason why Hitachi withdrew from Wylfa Newydd in my constituency of Ynys Môn, pulling the plug on nearly 20 years of hope for my constituents. Traditional sources of private and commercial funding for large-scale infrastructure developments include pension funds and investment vehicles, but they are generally less willing to come forward for projects that will take 10 to 15 years before there is any return on investment.

Financing for small modular reactors is potentially more straightforward, and I welcome the Government’s work on funding for SMRs. I also welcome the fantastic news today that Rolls-Royce has funding for its SMRs, thanks to a lot of hard work in both private and Government funding for this UK initiative. As modular builds, advanced modular reactors require less in up-front costs and time, but they are intended for local energy production and are still in the development stage. A single SMR on Anglesey could produce enough energy for north Wales, which is primarily a rural area, and a large plant in the same location would power the whole of Wales, with a little bit left over for England, if we were feeling generous.

That is why the Government are progressing the Nuclear Energy (Financing) Bill through Parliament, to de-risk new nuclear projects and attract private sector financing for large-scale and advanced nuclear power projects through the RAB—regulated asset-base—model. Under this model, an independent regulator sets a price which a developer is subsequently allowed to levy on consumer bills in return for the provision of certain power infrastructure, even before they begin generating power. This allows developers to have a guaranteed return on their investment and lower costs when raising the capital required for building a power station, which accounts for much of the costs of nuclear projects. RAB is already used in other UK infrastructures, such as the Thames Tideway tunnel.

After months of raising the issue, I am keen to see the Bill progress, and I hope that it will lead to large-scale new nuclear power development across the UK. I implore colleagues to support its passage through the House. Although the debate last week was poorly attended compared with other more thrilling rides, such as the Environment Bill, it could none the less be the most significant piece of legislation that we pass for the long- term benefit of our country.

We should seek to use the Bill to fund not just one but several large new nuclear builds. Building one plant takes time, as we see at Hinkley Point C, but if we act now, those specialist resources can be redeployed on our next plant, and the next and the next. With each plant, we develop more specialists, which means that build time is shorter, costs are relatively lower and efficiency is greater. Each time, we will develop local specialists, employ local apprentices and leave generations of local people with high-quality, specialist well-paid local employment.

The Bill is incredibly welcome, but we may need other financing tools initially in addition to the regulated asset base and contract for difference models. We must continue to explore other innovative ideas. We need to give our scientists and innovators the help and support that they need to overcome barriers beyond financing. The Advanced Research and Invention Agency Bill is a great example of how we can do that.

The recent Budget allocated £1.7 billion of public funds to support new nuclear projects, and we have seen the Government commit to £385 million in the advance nuclear fund; £215 million for small modular reactors; £170 million for research and development on advanced modular reactors; £120 million for the enabling fund announced in the net zero strategy; and an additional £40 million for developing regulatory frameworks and supporting UK supply chains.

By embracing nuclear we can secure not only our future energy security, but our future employment security, as the levelling-up agenda and the net zero agenda coincide. When Hitachi withdrew its development consent order for Wylfa Newydd at the beginning of the year, citing programme financing as the main factor, my constituency was devastated. Companies such as Bechtel, Westinghouse, Shearwater and Rolls-Royce are all keen to establish new nuclear on Anglesey and are looking at other sites in the UK.

The model proposed in the Nuclear Energy (Financing) Bill could be the starting point for regenerating areas of the country that desperately need levelling up. Alongside the Advanced Research and Invention Agency Bill and other initiatives and legislation, it offers hope for a new tomorrow. With that in mind, I appeal to colleagues across Westminster: now is the time for us to come together and embrace the opportunities before us. We cannot afford to stay in our partisan corners and we cannot afford to stay silent. We cannot afford to let this opportunity slip through our fingers. New nuclear has the potential to be a game changer locally, regionally and nationally.

To conclude, I welcome with open arms the finance and support structures that the Government have put in place for new nuclear. For the sake of our young people and future generations, I ask that we all put our political differences aside and work together to make them a reality. Diolch yn fawr.

[Several hon. Members rose—]

[Mr Virendra Sharma (in the Chair)]

I call Owen Thompson.

16:43

[Gavin Newlands (Paisley and Renfrewshire North) (SNP)]

I would love it if my hon. Friend were here, Mr Sharma, but sadly he is in his constituency. I am sure Hansard will correct the record shortly.

[Mr Virendra Sharma (in the Chair)]

My apologies.

[Gavin Newlands]

That is okay, I am used to it—although my hon. Friend has a ginger beard, so I am not sure what that says. I congratulate the hon. Member for Ynys Môn (Virginia Crosbie)—I will try to pronounce her constituency correctly—on securing today’s debate. It is an issue, to be honest, that deserves a better turnout than we have today, although she said there was a poor turnout for the Bill last week, so it is probably no surprise that a Westminster Hall debate on the same issue will not generate a large crowd either.

She said it was one minute to midnight, which we have heard a number of times from different politicians over the past few weeks, particularly at COP26, and she is right about that. As a Scot and SNP Member of Parliament, that makes me wonder why the Government continually put up barriers to Scotland’s renewable industry, not least by not getting involved in the grid connection charges, as Scotland has the highest in Europe.

Had I known that there would not be many Members here today, I might have prepared a longer speech. I will certainly leave plenty of time for the hon. Member for Southampton, Test (Dr Whitehead). The hon. Member for Ynys Môn spoke about the elephant in the room. With this Government, it is the mammoth in the room, such is the old-school thinking on this country’s future energy needs, and the fact the Government are utterly blinkered on the issue of nuclear. Nuclear industry lobbying has convinced them that nuclear is not only desirable but essential for the future. That is simply not the case.

Hinkley Point C is the most expensive power station in the world. The Government’s rationale was that building a suite of large-scale nuclear power stations would lead to competition and cheaper costs. However, the piecemeal approach of nominally awarding sites to different preferred bidders meant that EDF was the only game in town. There was no competition whatsoever when negotiating the contracts. EDF had been beset with problems with prototype stations in Finland and France, so it had to be a bit more cautious in its pricing. It is no surprise to anyone that the UK Government had to sign such a bad deal. The extraordinary strike rate of £92.20 per megawatt-hour for a 35-year contract, compared with the cost of offshore wind at £40 per megawatt-hour, for just a 15-year concession, meant that Hinkley C was not just a bad deal, it was economically illiterate.

In the Budget, the Chancellor committed £1.7 billion to progress Sizewell for a final investment decision. That was in addition to the £500 million earmarked for the development of nuclear. As I said, the Government’s previously stated position was that building a suite of new large-scale nuclear power stations would lead to competition and cheaper costs. If they are using the same design as Hinkley, and a second station is easier and cheaper, as they have told us time and again, why do the Government need to commit a further £1.7 billion up front for outline design and costings? I am sure the Minister will answer that in his summing up.

Let us remember that that is essentially £1.7 billion just to make a final decision on its construction or otherwise. The truth is that not only is nuclear hideously expensive now and for the 35 years following construction, it will be horrendously expensive for hundreds of years to come. It will cost £132 billion just to deal with the existing nuclear waste legacy. Tories are usually keen on dealing with issues now and not leaving them for future generations to deal with. That is the excuse they give us when they freeze public sector pay or remove the £20 universal credit uplift. Why do they want to create another costly, needless and dangerous waste legacy for future generations to deal with?

The Minister rather let the cat out of the bag by essentially admitting in a recent letter that accompanied the Bill that the Government were introducing an alternative funding model that might save the taxpayer between £30 billion and £80 billion, and that the Hinkley Point C project was very poor value for money. I am certainly not going to argue with that. That being the case, how much money does the Minister estimate has been wasted on Hinkley? Crucially, how many billions of pounds are the Government willing to commit bill payers to, and what are all the future costs locked into nuclear power? If they say that they can save up to £80 billion, there would surely have to be a commitment of hundreds of billions of pounds.

The hon. Member for Ynys Môn alluded to the announcement made yesterday that Rolls-Royce has essentially match-funded the £210 million from the UK Government to develop small modular reactors. Initially, the hope is to have five SMRs at an estimated £2 billion a pop. We all know what happens with estimates in the nuclear industry, but that is another £10 billion that will likely end up on our energy bills in capital cost alone.

What else could we do with that amount of money? For starters, as the Minister has heard many times from my hon. Friend the Member for Kilmarnock and Loudoun (Alan Brown), Scotland is crystal clear. We do not want any new nuclear power stations. A YouGov poll showed that only 30% of Scots want nuclear to have a major role. The experts are clear that we do not need nuclear energy to decarbonise. In the 2019 world nuclear industry status report, Mycle Schneider, who was the lead officer of the report, said that nuclear power

“meets no technical or operational need that these low-carbon competitors cannot meet better, cheaper, and faster.”

The previous chief executive of National Grid, Steve Holliday, said that the idea of large power stations for baseload was “outdated”. He went on to say:

“From a consumer’s point of view, the solar on the rooftop is going to be the baseload.”

We could upgrade our homes to energy performance certificate band C. We could have wave and tidal generation, in which Scotland currently leads the world. This is a position that will be under threat unless this Government can find a fraction of the money that they are committing to new nuclear to help scale this up. There needs to be much greater investment in carbon capture and storage. The Government really must reverse their disgraceful decision not to select the Acorn Project cluster bid at St Fergus—the stand-out project—as one of the track-1 CCS projects. If the Tories were serious about decarbonisation, they would have approved the St Fergus carbon capture, utilisation and storage site, instead of the lesser pork-barrel options in the red wall.

There is a false argument, made by many in this place, that nuclear is required for when the sun does not shine and the wind does not blow. Pumped storage hydro, a renewable energy source that utilises surplus grid energy to fill the reservoirs and dispatch electricity when required, is cheaper, greener and more efficient. Pumped storage hydro is the perfect complement for intermittent renewables. An Imperial College London report suggested that there could be a system saving of £700 million a year from using pumped storage hydro instead of nuclear. Why should Scottish bill payers be forced to pay for nuclear energy that they do not want or need? This is another democratic deficit for Scotland, especially when so much of our renewable energy is not being supported at the moment and we are stuck with the highest grid charges in Europe.

To conclude, Scotland is very poorly served by UK Government energy policy. It is crystal clear that we need to control our own energy decisions through independence; that day will be coming a lot sooner than the Members in this room think.

[Mr Virendra Sharma (in the Chair)]

I want to apologise for getting mixed up with the names.

[Gavin Newlands]

That’s okay—my own wife gets it wrong.

16:52

[Dr Alan Whitehead (Southampton, Test) (Lab)]

I have been confused in the past with Phillip Whitehead, the MP from some while ago, and also I have been called Alan Whitehouse on a number of occasions, which is a slightly less felicitous comparison.

I am delighted to say a few words on behalf of the Opposition. First, I congratulate the hon. Member for Ynys Môn (Virginia Crosbie) on securing this debate, and on putting her case so well and succinctly. She is a powerful advocate, from the point of view of her constituency, for the future of Wylfa nuclear power station. I share her great concern that what looked like a future for the new Wylfa power station a little while ago was dashed in the way that it was. I had conversations about that with her predecessor, Albert Owen, who was also a strong advocate for Wylfa and the area.

The case the hon. Member makes is essentially about how Government can secure the future of power stations by ensuring that they are financed and organised in the best possible way so that they actually do go ahead. The UK has had a serious problem over the past 10 years or so. Originally a number of consortia were interested in bringing forward a nuclear power station. There was the Horizon consortium, associated with Hitachi, which brought forward the Wylfa proposals. There was NuGen, associated with Toshiba, which brought forward proposals for a power station at Moorside. There was also, of course, the EDF consortium, which at the beginning of the decade brought forward proposals for Hinkley C, which is now being built, for Sizewell C and for Bradwell in Essex.

All of those consortia have, in one way or another, bit the dust. They have suspended their operations. In the case of Wylfa, the Horizon consortium first suspended operations and has now this year finally declared that it no longer has an interest in Wylfa as part of its future nuclear programme. All of that came about essentially because of the Government’s insistence on trying to secure new power stations by means of private sector investment. Wylfa and Moorside were closed down even after discussions with Government about assistance; the consortia did not like the way in which the arrangements would have been structured. There were some quite high-level discussions with the Japanese corporations involved in both of the consortia that I mentioned. A combination of their own balance sheets, their ability to fund those projects themselves and what they thought was on offer from the UK Government led them to decide that the projects should not go ahead.

As the hon. Member for Ynys Môn mentioned, building and financing a nuclear power station is a really hefty commitment. One has to put the money forward and not get any return on it for about 14 years, while the processes of generic agreement for the reactor, planning, construction and so on all proceed. One does not make a penny from the production of electricity from the power station before that. We know that funding new nuclear by private sector means is not a viable way of financing new nuclear. We must put that behind us.

EDF is building Hinkley C power station partly with its own finances, and that has caused a lot of problems for the viability of the company as a whole. However, it is aided in this build by a second form of nuclear financing, which is, effectively, a foreign Government part-financing the operation. In this instance, that is the 35% interest in Hinkley of the China General Nuclear Power Group, which was the result of a deal brokered by the then Chancellor, George Osborne, in 2015. The Chinese state nuclear corporation would have a 35% stake in Hinkley C, a 20% stake in Sizewell C and complete control of the third programme in that consortium’s plans, the Bradwell power station, whereby the China General Nuclear Power Corporation would install its own reactor—known as the Hualong One, I think—and have complete control of the financing, the planning and the operation.

As we have seen, that way of doing things appears to no longer be regarded as tenable. The Government have not said this explicitly—it would be interesting to hear whether the Minister is able to do so this afternoon—but the Bradwell proposal under Chinese control is no longer a reality because of the Government’s desire to remove Chinese influence from the future of the UK nuclear programme. I am sure we will discuss that further when we debate the Nuclear Energy (Financing) Bill over the next few weeks, as mentioned by the hon. Member for Ynys Môn. That second financing option—namely, getting a foreign Government involved—is probably not a good idea. As the hon. Member for Paisley and Renfrewshire North (Gavin Newlands) said, the latest Budget costings include a sum of £1.7 billion, which I understand is to be put towards not only the development of and early works on Sizewell C, but buying the Chinese out of their Sizewell stake. I do not expect the Minister to confirm whether that is the case, but I think it is fairly probable that at least part of that sum will be directed towards removing that 20% stake from Sizewell C.

Further on financing, there is the possibility, as was tried with Hinkley, of funding the end product of the power station—that is, the energy that comes out when the permissions, the planning and the construction are finally complete. In the case of Hinkley, that will happen a long time after the original date of 2026 or 2027. I distinctly remember the then chief executive officer of EDF saying we would be roasting our Christmas turkeys on new nuclear power from Hinkley C in the winter of 2017. That is how far they are behind the original plans. I have on my wall the chart of the original EDF plans for the development process for Hinkley.

As the hon. Member for Paisley and Renfrewshire North said, the contract for difference arrangement for Hinkley was probably one of the worst deals that could be entered into for nuclear funding. Although it was supposed to introduce a back-loaded arrangement to secure the price for production and therefore increase investor confidence that the project would generate income when construction was concluded, the deal struck was disadvantageous for the customer and for this country’s electricity production. The CfD deal is at twice the likely market price for electricity over the period, and we are stuck with that for 35 years down the line. It is very unlikely that such a deal would be repeated, especially since it does not overcome the problem of how investors get any money back from their investment before the plant has started production. Hence the RAB—regulated asset base—arrangement that the Minister and I will discuss over the next few weeks as the Nuclear Energy (Financing) Bill makes its passage through the House.

The RAB arrangement has advantages and risks. An advantage is that it enables investors who might not have put their money into Wylfa or Moorside to invest in a project because they know they will begin to get a return on their capital before production starts. The RAB model, among other things, allows that to happen by setting, as the hon. Member for Ynys Môn mentioned, an allowable cost ceiling, which enables that cost to be distributed throughout the life of the project rather than only at a certain point. It has a substantial advantage from that point of view, but at the same time it has risks. It is a deal that lands on the public consumer’s purse. It effectively puts a levy on energy bills for the whole life of the project––40 years from now for Sizewell C––on consumers’ backs at various levels at various points of the process. There is a high levy during construction and a tail-off as the project proceeds.

Should the project not go well––go over cost or, as at Hinkley, go well over time—there is an increased risk to the consumer. There is an even worse risk if the project does not go ahead, as was the case with a couple of projects in the United States that were built on the RAB model. Consumers then have nothing to show for a large amount of money they have spent in their bills in the expectation that there might be a plant that would give them cheaper electricity in the end. I know that the Government have taken some steps in the Nuclear Energy (Financing) Bill to mitigate that risk and ensure that there are ways out of a company being unable to deliver. Nevertheless, the risk remains. Using RAB repeatedly for new projects simply adds to the cost of consumer bills by aggregating the total levies, making it potentially even worse for the consumer, if that is the model that is proposed.

That leaves one method of financing, which is simply that the Government pay for the construction of a new nuclear power station and then lease it out to the operator at the end of the construction period. I am not suggesting that the Government get together their own workforce to build it. They would put the contract out for bids to build the power station, which would be owned by the public and leased out for operation. That will have to be considered for any further nuclear power stations, rather than these various devices that, to a greater or lesser extent, have either failed or have some risk attached to them.

From our side, as the Minister knows, we gave the Second Reading of the Nuclear Energy (Financing) Bill a clear run and we look forward to Committee discussion when we deal with some of the finer points of RAB. Nevertheless, we will go forward on the basis of a supportive environment for the construction of Sizewell C, since it is the only nuclear power station that could conceivably get under way before 2030, because of all the other withdrawals.

We look forward to our debates in the House and to discussing some of the issues I have raised this afternoon about how best to finance nuclear power for the future. The hon. Member for Ynys Môn made a powerful case for ensuring that Wylfa at least gets noticed in the next phase of discussions, but I suspect that if that happens, it may be under yet another model of financing and different from Sizewell C’s.

[Mr Virendra Sharma (in the Chair)]

Before I ask the Minister to respond, I would appreciate him leaving a few minutes for the hon. Member for Ynys Môn (Virginia Crosbie) to wind up.

17:10

[The Minister of State, Department for Business, Energy and Industrial Strategy (Greg Hands)]

It has been an excellent debate. I congratulate my hon. Friend the Member for Ynys Môn (Virginia Crosbie) on securing this timely and important debate. Having met her as recently as yesterday to discuss these vital issues, I know how important this subject is to her and her constituents, although I am sure she would agree, as she did in her speech, that the topic is also of national importance.

Our net zero strategy puts the UK on a trajectory to meet carbon budget 6: a 78% reduction in emissions over 1990 levels by 2035. Ambitious goals are vital as we are currently hosting COP26 and mobilising global efforts to tackle climate change. Integral to achieving carbon budget 6 is our new ambition to fully decarbonise the power sector by 2035, also referred to by my hon. Friend. This will mean the UK is entirely powered by low-carbon electricity, subject to security of supply.

The future energy system will be predominantly made up of wind, solar and other renewable power, but as was clearly set out in the net zero strategy, following the Prime Minister’s 10-point plan and the energy White Paper, and as I was pleased to reiterate last week at COP26, nuclear has a crucial role to play in meeting our targets for reducing emissions and ensuring our energy security. It is a source of continuous reliable and low-carbon electricity which, as my hon. Friend said, has been a central part of our electricity system for 65 years, since the 1955 White Paper and the first civil nuclear power plant anywhere in the world at Calder Hall. Nuclear energy acts as a firm foundation for the remarkable progress we have made in decarbonising our power sector, reducing the UK’s total emissions by 44% since 1990.

My hon. Friend also referred to the benefits of nuclear power beyond simply keeping the lights on. High-skilled, high-productivity jobs, which are much needed in her constituency, in the civil nuclear sector contribute billions of pounds to the UK economy. More than 60,000 people are employed in a truly national industry with key hubs in Wales, Scotland and across the south, west, east and north of England. With 12 of the UK’s 30 current nuclear reactors scheduled to close between 2022 and 2030, if we are to reach our net zero goals, we need new nuclear power and the reliable, emissions-free electricity it provides.

My hon. Friend welcomed hydrogen power, and I know she is a great enthusiast for every aspect of our energy strategy. There is definitely more for her in the hydrogen strategy, which we launched in August. She mentioned Hitachi at Wylfa. The great advantage of the Nuclear Energy (Financing) Bill—a significant piece of legislation—is that it will allow more optionality, flexibility and more types of finance to come in, including British pension funds as well as institutional investors. I am delighted, as she and I well know, that Westinghouse Electric Company, Bechtel and others are interested in this new financing model. She asked about building multiple plants and whether we need more plants. The answer is that the Bill will not be technology specific within nuclear. It will allow for large plants. AMRs and SMRs can all be financed using the means in the Bill.

The hon. Member for Paisley and Renfrewshire North (Gavin Newlands) made some familiar points. He described the UK Government as being blinkered, but I would say that the same charge might be made against him in letting down communities in Scotland that are reliant on and determined to have nuclear power, with fine nuclear traditions, and electricity customers benefiting from a cheaper, more resilient, lower-carbon electricity system going forward. He asked why the £1.7 billion in the spending review is for Sizewell C. It is not specific to Sizewell C. He said that we do not need nuclear to decarbonise. Well, actually, the United Nations, no less, disagrees with him. The UN Economic Commission for Europe has stated that international climate objectives will not be met if nuclear power is excluded.

Of course, the Acorn cluster has not been rejected. The Acorn cluster for the CCUS—carbon capture, utilisation and storage—decision a few weeks ago is first reserve. It is very much not rejected but very much recognised. We look forward to continuing to work with the Acorn cluster.

The hon. Gentleman then attacked the Government for choosing two projects that happen to be in the north of England and said that was favouring the Government’s levelling-up agenda. I think he implied that there might have been something not quite right about it, but that is actually not the line that the Scottish National party has been following in the past couple of weeks. The hon. Member for Kilmarnock and Loudoun (Alan Brown) was here only two weeks ago congratulating the two successful clusters on being designated as such by the UK Government.

The hon. Member for Southampton, Test (Dr Whitehead) rightly points out Opposition Front Benchers’ in-principle support last week on Second Reading, which we very much welcome. In terms of his specific questions, he is right that the RAB model has advantages and has challenges. We agree, but we think that it will save the average bill payer about £10 per annum over the 60-year life of the project’s construction and operation. On Bradwell, the Government’s position has not changed: it is not a decision for now. In any case, CGN does not have regulatory approval for its reactor. He asked about Hinkley Point C, which we think will save the equivalent of 9 million tonnes of CO₂ during operations over an estimated lifetime, again, of 60 years. On Sizewell, he asked whether the £1.7 billion is designed to buy CGN out of Sizewell. No. CGN has a 20% stake in Sizewell up to the point of final investment decision. Negotiations are ongoing and no decisions, including on the final configuration of investors, have yet been made.

We are fully committed to our key nuclear objectives of approving at least one large-scale nuclear project during this Parliament and supporting the development of exciting new technologies, including small modular reactors. Good progress has been made on both counts. We have been engaged in constructive negotiations on Sizewell, as I mentioned, and we have also, just overnight, had a major announcement about funding for the Rolls-Royce SMR project. Funding for that project will be matched by private investment. The question at the centre of this debate—that of funding nuclear projects—is one of the key challenges given the scale and complexity of nuclear plants and the time they take to build.

We have already mentioned the Nuclear Energy (Financing) Bill. I am delighted that it will now start its progress towards Committee. I am looking forward to engaging with the hon. Member for Southampton, Test on it as early as next week. It will be a good chance to work together across all parties to show that the UK can do this. The spending review set out a series of other measures in terms of extra financing—the £1.7 billion already referred to and the new £120 million future nuclear enabling fund.

In conclusion, I once again thank my hon. Friend the Member for Ynys Môn for securing this debate. With her constituency in mind, and both the historical and current contributions that Wales makes to the UK nuclear sector, I am excited for the opportunities in Wales overall, and on Ynys Môn in particular, which could be unlocked by the measures that we have described. As I said, new nuclear is crucial to addressing climate change, ensuring our long-term economic security, and supporting national prosperity. I look forward to further engagement as we continue the passage of the Nuclear Energy (Financing) Bill.

17:19

[Virginia Crosbie]

I thank the Minister for his detailed answer and his ongoing support, enthusiasm and commitment to new nuclear. I look forward to welcoming him to Anglesey, so he can see at first hand why the Prime Minister is such a fervent supporter of Wylfa Newydd. I would also like to thank the hon. Members for Paisley and Renfrewshire North (Gavin Newlands) and for Southampton, Test (Dr Whitehead) for their contributions to this timely debate.

I am the Member of Parliament for Ynys Môn, which is also known as energy island. We have wind, wave, tidal, solar and nuclear power. Nuclear is very important to me and many of my constituents. Ynys Môn used to be known as Môn, Mam Cymru—mother of Wales—because years ago it used to feed the whole of Wales. With the right financing in place from the Government, Ynys Môn can once again be Môn, Mam Cymru, but instead of food, it will provide Wales and beyond with energy.

Question put and agreed to.

Resolved,

That this House has considered funding for nuclear power.

17:21

Sitting adjourned.